What accountants who advise about SMSFs should know - Mills Oakley

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This limited licence will allow accountants to provide a broader range of advice ... and class of financial product advi
What accountants who advise about SMSFs should know Lauree Blair and Catherine Curtain MILLS OAKLEY LAWYERS Background Currently, an exemption in the Corporations Act 2001 (Cth) allows accountants to provide advice on the establishment, operation and structuring of selfmanaged superannuation funds (SMSFs), without the need for an Australian financial services (AFS) licence. That exemption will be removed from 1 July 2016, and accountants who wish to continue giving advice to their clients about SMSFs will need to obtain a new limited accountants’ licence.1 This limited licence will allow accountants to provide a broader range of advice than at present under the existing exemption, including advice on contributions and class of financial product advice on specified products. Any person can apply for a limited AFS licence (ie, not only “recognised accountants”) but, during the transition period from 1 July 2013–30 June 2016, recognised accountants can take advantage of different organisational competence arrangements that apply to them. This article outlines what accountants need to know about the limited AFS licence. It is a guide for accountants, as well as other professionals who collaborate with accountants, so that all parties are aware if an accountant is authorised to provide the advice.

What will the limited AFS licence cover? Applicants may select some or all of the following possible authorisations: • provide financial product advice to wholesale or retail clients on: — an interest in an SMSF; or — superannuation products in relation to a client’s existing holding to the extent required for: • making a recommendation to establish an SMSF; or • providing advice to a client on contributions or pensions under a superannuation product. • provide financial product advice to wholesale or retail clients that is “class of product” advice on: — superannuation products;

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— — — — —

securities; general insurance; life risk insurance; basic deposit products; and simple managed investment schemes.

• arrange for a wholesale or retail client to deal in an interest in an SMSF. Providing “class of product” advice means a limited AFS licensee (Licensee) may give a recommendation about term deposit products, but must not make a specific recommendation that a person deposit their money into a term deposit product offered by a particular bank or building society. “Arranging to deal” includes assisting a client to apply for or acquire, issue, vary or dispose of an interest in an SMSF. These authorisations are an extension to the range of services that an accountant can legally provide at present. Under the current exemption, an accountant is not permitted to give “class of product” advice or advice about a client’s existing superannuation holdings.

How will the law and ASIC guidance apply to a limited AFS licensee? The conduct and disclosure obligations that apply when giving financial advice will apply to the limited AFS licence, including the recent reforms in relation to acting in the best interests of the client and related obligations. Guidance from the Australian Securities and Investments Commission (ASIC) is provided in Information Sheet 179, as well as numerous Regulatory Guides that apply to licensing generally and licence conditions specifically. Licensees will need to provide a client with a Financial Services Guide and Statement of Advice when giving personal advice to retail clients. However, one concession that has been afforded is that a Licensee is not required to lodge an audit report annually. If the Licensee does not handle client money, the Licensee will instead be able to lodge a “compliance certificate”, along with the profit and loss statement and balance sheet that is normally required.

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Applying for a limited AFS licence An applicant for a limited AFS licence will need to nominate at least one person to be a responsible manager to be directly responsible for significant day-to-day decisions about the ongoing provision of financial services under the limited AFS licence. That person must be close to the provision of financial services in the organisation and able to undertake the time commitment to be involved in the day-to-day provision of financial services. The applicant will need to demonstrate to ASIC that the person nominated as responsible manager has the relevant knowledge, experience and skills (competence) necessary for the role, and the person will need to maintain that competence for the life of the limited AFS licence. Note: If an applicant is applying for a limited AFS licence as an individual, the applicant must nominate themselves as the sole responsible manager. Where an applicant’s business involves providing financial services to retail clients, the applicant will need to be able to demonstrate that the business has in place adequate compensation and dispute resolution arrangements. This generally means: • holding professional indemnity insurance that covers all the financial services in all the financial products that the applicant will provide under the limited AFS licence; and • having in place internal and external dispute resolution (EDR) procedures, including membership of an EDR scheme — such as the Financial Ombudsman Service or the Credit Ombudsman Service Limited — that is approved by ASIC for that purpose and is able to hear complaints relating to the types of financial services the applicant will be providing. In preparing an application for a limited AFS licence, it will be necessary to demonstrate to ASIC proof of these and other aspects of the applicant’s business, including that the training requirements to satisfy the organisational competence requirements and the financial product advice requirements will be met.

What are the transitional arrangements for recognised accountants? While any person can apply for the new limited AFS licence, responsible managers who are recognised accountants who apply between 1 July 2013 and 30 June 2016 (transition period) can take advantage of reduced organisational competence arrangements for recognised accountants. A recognised accountant is a person who holds a practising certificate issued by: • the Institute of Chartered Accountants in Australia;

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• CPA Australia Ltd; or • the Institute of Public accountants. The advantage to recognised accountants is that, during the transition period, a recognised accountant will only need to satisfy the knowledge (ie, training or qualifications) requirements in ASIC guidance — that is, a recognised accountant will need to maintain knowledge of the financial services covered by the licence, including SMSFs, and, depending on the authorisations in the licence, superannuation and other products for which the Licensee provides “class of product” advice. A recognised accountant will not need to demonstrate experience. In addition, recognised accountants who apply now will apply under ASIC’s existing licensing requirements. ASIC’s requirements are always subject to change, and ASIC has recently proposed2 to amend the qualification and training requirements to add sub-topics in the superannuation specialist knowledge area for those who commence providing advice, or change their advice activities, after 1 July 2015. However, applicants who take advantage of the transitional arrangements will have to comply with an additional condition that states that, within three years, the Licensee must demonstrate to ASIC (if requested in writing to do so) that the Licensee (or each recognised accountant) who has responsibility for the provision of financial services covered by the licence has: • knowledge of the Licensee’s obligations under the Corporations Act and the Corporations Regulations 2001 (Cth); and • the competence to provide the financial services covered by the licence. The demonstration of that knowledge and competence must be in accordance with ASIC guidance and generally involves at least three years of relevant experience.

What to do now From 1 July 2013, accountants can apply for the new limited AFS licence. Engaging a legal adviser with experience in the AFS licence regime will increase the prospects of a smooth application process and will help applicants to understand their obligations. Legal advisers can also be a valuable resource to assist with ongoing compliance. The AFS licence regime is complex, as is the application process. Obtaining and holding an AFS licence is a serious undertaking. ASIC will apply additional scrutiny to applications that demonstrate “boilerplate” approaches and indicate a lack of understanding of the obligations of an AFS licensee.

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It is particularly important to understand what particular licence authorisations are required and to have a compliance framework that meets and facilitates the applicant meeting their ongoing AFS licence obligations. This will be critical in the application process and the ongoing management of the regulatory and commercial risks associated with a financial services business. Lauree Blair Senior Associate Mills Oakley Lawyers [email protected] www.millsoakley.com.au

About the author Lauree Blair has worked as a financial services lawyer for approximately five years. She has extensive experience in advising clients in relation to Australian financial services licensing requirements and obligations, obtaining and varying Australian financial services licences, and the establishment, structuring and restructuring of managed investment schemes. Previously, Lauree worked at ASIC. She is well placed to provide practical

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and focused advice about dealing with the regulator on licensing and surveillance issues. Catherine Curtain Associate Mills Oakley Lawyers [email protected] www.millsoakley.com.au

About the author Catherine Curtain has broad legal experience in financial services, particularly superannuation, managed investment schemes and banking. Her private practice experience includes providing advice on AFSL applications for financial advisers and product issuers and the preparation of compliance frameworks that are compliant with the Australian Standard on Compliance Programs (AS3806-2006).

Footnotes 1. 2.

Corporations Amendment Regulations 2013 (No 3) (Cth). Consultation Paper 212 was released on 24 June 2013, with comments to close on 30 September 2013.

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