A number of companies with inactive Australian Financial Services Licences (AFSL) are at risk of having their licences cancelled, thanks to new powers granted to the Australian Securities and Investments Commission (ASIC).
In February of this year, ASIC was granted new powers which allow them to cancel both AFSL and Australian Credit Licences (ACL) if the licensee does not begin its operations within six months of the licence being granted.
According to Sophie Gerber, the co-CEO of TRAction Fintech and principal of legal firm Sophie Grace, there are a number of companies with inactive AFSL that are in danger of having their licences cancelled.
“We understand that there are a number of AFSLs holding authorisations that cover the operation of a retail forex brokerage which are not currently being used and may not have been used for quite some time,” Gerber told Finance Magnates.
“This new law means that operations will need to commence imminently or the value of that AFSL will be irretrievably lost due to cancellation by ASIC. To date ASIC has not taken a lot of action in this area as their power has not been quite as explicitly defined in the regulation so there may be a number of AFSLs that will not fully appreciate the serious ramifications of this new law.”
In particular, the Australian regulator has the ability to immediately cancel an AFSL or ACL if the licensee hasn’t commenced its business within six months of being granted its licence, or from the 18th of February 2020 for existing AFSL or ACL holders. Furthermore, the regulator can cancel the licences if the entity has ceased to operate a financial services or credit business.
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What should licensees do?
As highlighted by TRAction Fintech, which provides trade and transaction regulatory reporting services for financial products, including OTC FX and Derivatives, if a company is a body corporate, ASIC may cancel their licences by giving them written notice once the six month period has ended.
Specifically, the company advises that if the six month period ends and a licensee has not provided the services authorised by their AFSL or ACL then they must lodge a notification with ASIC 15 business days at the conclusion of the six-month period.
In a statement seen by Finance Magnates, the company said: “Licence holders will be able to seek an extension of time from ASIC if they are unable to commence their financial or credit business during the six (6) month period after being granted their AFSL or ACL.
“This extension should be sought before the expiry of the initial six (6) month timeframe. It is at ASIC’s discretion to cancel a licence and ASIC may work with licensees if there are genuine reasons for not commencing business six (6) months after being granted a licence.”
How did ASIC’s new powers come to be?
The Australian watchdog was granted its new powers following public comment made in response to the ASIC Enforcement Review Taskforce Report (“Taskforce Report”) in 2017.
Before February of this year, the authority was only able to suspend or cancel licences if the licensee ceased to commence a financial service business. However, it was not able to suspend or cancel licences if a company was not providing financial services as authorised after the granting of a licence.
The new powers were granted to address uncertainty as to how long a business has until it should commence operation after receiving the licence. As highlighted by TRAction, the strengthening of ASIC’s powers was important for the integrity of Australia’s market, as licensees were capitalising on licenses and selling them to persons who may not have met the requirements to hold an AFSL or ACL.