Large AFSL vs self-licensing – FSC canvasses | Australian Markets

The Financial Services Council (FSC) has canvassed a tiered licensing framework for the financial advice occupation to mirror the dimensions, risk profile and repair scope of AFSLs and the capital invested.

The FSC, which represents a quantity of the most important financial advice AFSLs, has used a new inexperienced paper to canvass “a recalibrated AFSL regime involving a “simpler and more flexible framework that tailors regulatory obligations to the size, complexity and risk exposure of each licensee”.

“This approach would ensure that the regulatory burden is commensurate with the licensee’s operational scale, the sophistication of its services, and the potential risks to clients and the financial system,” it stated.

The inexperienced paper famous that “while there are benefits to self-licensed practices in terms of independence and flexibility, ASIC data suggests that smaller licensees may come with compliance capability risks”.

“For instance, ASIC reported that in FY2024, 81% of licensees with $1,000 million or more in income lodged breach experiences in that yr in comparison with 10% of licensees with $50 million or much less in income.

“Whilst this may be due to smaller licensees not having breaches, ASIC noted that the percentage of licensees reporting breaches remains significantly lower than expected and indicates that some licensees may not have in place the systems and processes required to detect and report breaches. This disparity reflects broader structural differences in how licensees manage compliance obligations,” the inexperienced paper stated.

“Typically, larger licensees provide more extensive support to their practices for meeting compliance obligations, while self-licensed practices manage a greater portion of these responsibilities internally.”

The inexperienced paper pointed to the present regulatory framework for licensees however stated it didn’t think about “other factors that inform the potential risk of a licensee”.

It stated these embody:

The varieties of merchandise on their authorized product lists, notably in the event that they embody high risk or advanced investments.

• The {qualifications}, expertise, and specialisations of their personnel, which immediately impression the standard of advice offered.
• Situations the place a licensee operates as a “licensee for hire,” offering licensing to 3rd-celebration advisers with probably restricted oversight or accountability.
• Smaller-scale AFS licensees, which frequently rely more closely on third-celebration service suppliers and carry a increased shopper remediation risk.

“Furthermore, any recalibrated regime should also consider the growing role of third-party service providers in the financial advice sector. These providers, such as compliance consultants, audit firms, and technology providers, are becoming integral to the operations of many financial firms, particularly those with fewer resources,” it stated.

“A well-structured regime could introduce a government-led or industry-endorsed accreditation framework for third-party compliance service providers. This framework would require these providers to meet defined standards of competency, education and qualifications, governance, and accountability, ensuring that they can offer high-quality support to AFS licensees.”