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Stronger ASIC powers to affect AFSL buyers

Stronger regulatory tools proposed for ASIC would make it harder for those looking for an AFSL to buy their way into the market, argues financial services law firm Sophie Grace.

According to Alicia Pevely, the firm's manager for licensing and compliance, with AFSL applications taking longer to be processed, the option to purchase a self-licensed business, and therefore its licence, has been an attractive alternative for many international investors.

But that is expected to change now that the government is slated to grant ASIC the power to approve – or fail to approve – these types of sales. 

"[The proposed power] will give ASIC more scope to limit and control the instances of international investors purchasing and continuing to operate a range of AFSLs – a trend which we have seen becoming more prevalent over recent years with the market value of AFSLs steadily increasing," Ms Pevely said.

"These legislative amendments are a significant change to the level of intervention of government in what would ordinarily be a private transaction."

Ms Pevely said the purchase of an AFSL typically involves the sale of the entire company, along with the shares that hold the AFSL.

At the moment, a new owner of an AFSL is only required to notify the regulator by sending a change of control letter, and ASIC does not have the authority to halt the transaction, she said.


This method of buying their way into the market is an appealing choice for many investors, who would otherwise have to wait more than six months to receive a licence, Ms Pevely said.

She added while ASIC's licensing guidelines state they will grant an AFSL within 35 days, many applications are taking "significantly" longer than this.

"Applicants for more complex AFSLs, including retail OTC derivative brokers and operators of retail managed investment schemes, are likely to wait in excess of six months for a final licence to be granted by ASIC," Ms Pevely said.

"The time which must be allocated to applying for a new AFSL is considerable, and this has led many people to consider the option of purchasing an existing AFSL."