A: Licensing of financial service providers
A single licensing regime has been introduced for all persons carrying on a financial services business. This replaces licensing requirements applying to securities dealers, investment advisers, futures advisers and brokers, general and life insurance brokers and foreign exchange dealers.
Financial services involve advising on, dealing in, or making a market in financial products, operating a managed investment scheme, or providing a custodial or depository service. Many issuers of financial products will need to have a financial services licence.
A number of criteria will have to be satisfied in order to obtain an Australian financial services licence including:
- adequate financial resources for the performance of the proposed activities;
- competence, skills and experience to provide the relevant services; and
- adequate systems for training and supervision of representatives.86
Licences are also subject to licence conditions, imposed by the regulations or by ASIC.
A licence is required where services are provided to either wholesale or retail clients. Additional obligations are placed on licensees who offer services to retail clients. These include having in place adequate arrangements for compensating clients for losses suffered.
Licences may cover all financial services in relation to all financial products or a subset of services and products.
Licensees may authorise natural persons or corporate representatives to act on their behalf.
Authorised representatives are able to act for more than one licensee with the written consent of each licensee (cross-endorsement).
B: Financial service provider conduct and disclosure
Minimum standards of conduct apply to financial service providers when dealing with clients including:
- providing retail clients with a Financial Services Guide;
- on providing personal advice to retail clients, handing over a Statement of Advice and, if a particular product is recommended, a product disclosure statement;
- `know your client' requirements in relation to retail clients;
- disclosure of conflicts of interests to retail clients; and
- separation of funds held on a client's behalf, and reporting and accounting requirements.
A prohibition on unconscionable conduct in the provision of financial services applies.
86 Under the Financial Services Reform transitional provisions, entities providing financial services before the regime commenced on 11 March 2002 will have up to two years to obtain an Australian financial services licence covering the provision of those services. Under the transitional provisions, licensees under the previous Chapters 7 and 8 and registered insurance brokers are entitled to be granted an Australian financial services licence, and ASIC must grant them a licence. When considering applications for an Australian financial services licence from other entities, such as new entrants after 11 March 2002 or bodies regulated by APRA, ASIC must consider the application against the statutory criteria.