Published 21 November 2023 ASIC has announced its enforcement priorities for 2024, indicating its enforcement focus for the coming year and communicating its intent to industry and stakeholders. In 2024, two new priorities have been added in relation to the superannuation industry, including a focus on member services failures and misconduct relating to the erosion of superannuation […]
Chris Mee is a leading lawyer in funds management and financial services in Australia.
Entries by chris
The Albanese Government is outlining the next steps in its approach to regulating crypto and digital assets to protect consumers, support innovation and provide industry certainty. We are releasing a proposal paper on 16 October 2023 that recommends making crypto exchanges and digital asset platforms subject to existing Australian financial services laws and requiring platform operators to […]
ASIC has remade three class orders that were due to expire (‘sunset’) on 1 October 2023 under the Legislation Act 2003. The class orders are: The new legislative instruments that replace these class orders will sunset on 1 October 2028. A summary of our consultation process is outlined below. ASIC will also update Regulatory Guide 134 Funds Management: […]
The Albanese Government is taking another step towards making financial advice more available and affordable for Australians. Parliament has passed legislation to deliver on the Government’s election commitment to make it easier for experienced advisers to stay in the industry. Without these measures, thousands of advisers would be forced to leave the industry. The new […]
ASIC is taking aim at the broad distribution of over-the-counter (OTC) derivatives and other high-risk retail products after a recent targeted review found significant room for improvement in how they meet their design and distribution obligations (DDO). ASIC Deputy Chair Karen Chester said, ‘ASIC is disappointed that some high-risk retail product issuers have changed little […]
Unfortunately, the hard work does not stop after you complete your AFSL application. If you want to keep the AFSL you’ve just worked so hard to obtain, there are strict AFSL requirements you must abide by. So go ahead and pop those champagne corks to celebrate getting your AFSL —it’s a big moment! But then […]
There are many reasons you may wish to cancel your AFSL or apply for an AFSL variation. Before you proceed with varying or cancelling your AFS Licence it is important to get the right AFSL legal advice. In this article, we’re going to run through some reasons why you might wish to cancel or vary […]
ASIC’S ‘USE-IT-OR-LOSE-IT’ AFSL CANCELLATION POWERS NOT CONFINED TO WAREHOUSING
The Administrative Appeals Tribunal has recently confirmed ASIC’s broad discretionary power to cancel an AFS licence for failing to use it.
In Centurion Custodian Funds Management Ltd and Australian Securities and Investments Commission  AATA 2223, ASIC’s decision to cancel the AFS licence held by Centurion Custodian Funds Management Ltd (Centurion) because it was not being used was affirmed by the AAT on appeal by Centurion.
Centurion had held its AFS licence since May 2005. It was a relatively limited AFS licence allowing Centurion to give advice and issue interests in its own wholesale funds. However, it had never provided financial services using the licence, and made this admission to ASIC in response to a request for information ASIC sent Centurion in November 2022.
In January 2023, ASIC cancelled Centurion’s licence on the grounds contained in section 915(B)(3A) of the Corporations Act 2001. That section gives ASIC a discretionary power to cancel an AFS licence if the licensee ‘does not provide a financial service covered by the licensee before the end of 6 months after the licence is granted.’ In Centurion’s case, the six month ‘use-it-or-lose-it’ law did not exist at the time it received its AFSL and so under the transitional rules which applied when that law was enacted, existing licensees had 6 months from 18 February 2020 to use, or potentially lose, their AFS licence.
Centurion appealed ASIC’s decision to cancel its AFS licence and sought a stay of the order, both of which failed.
Even though the ‘use-it-or-lose-it’ law was enacted to prevent the practice of ‘warehousing’ – applying for an AFS licence with the view to sell the shares in the licensee and not to use it – the AAT held that ASIC’s power to cancel an AFS licence on this basis should not be limited to ‘warehousing’.
In Centurion’s case, ‘warehousing’ did not apply as although it had not used the AFS licence, it had not obtained it with a view to selling it. Centurion had obtained and maintained its AFS licence to provide the flexibility to structure potential property and infrastructure projects as schemes. It was in the business of bidding on large projects but had never actually consummated a deal where a licence was required. Despite never having used the licence in 18 years, it wanted to retain the AFS licence to keep the structuring opportunity available to it in the future.
ASIC did not lead any evidence that Centurion was in breach of its licence or had breached the Corporations Act. There was no indication as to why ASIC started making enquires of it in late 2022 about its licence. The sole reason for the decision to cancel the licence was non-use.
Centurion was clearly agitated about the decision. It argued there was a lack of procedural fairness, that it had not been afforded the right to a hearing before its licence was cancelled and that it had continued to pay ASIC fees for three years after ASIC’s power to cancel its licence had become enlivened. All those arguments failed to persuade the AAT that ASIC’s decision should be overturned.
Significantly, the AAT said it was an open question as to whether ASIC’s power to cancel a licence could be become enlivened if all the authorisations on the licence are not used within 6 months of a grant.
The reason the use-it-or-lose-it law was inserted into the legislation was to prevent the practise of ‘warehousing’.
ASIC’s policy about taking action against licensees to cancel and AFS licence is contained in Regulatory Guide 98: ASIC’s powers to suspend, cancel and vary AFS licences and make banning orders. In that document, ASIC says that the foundation of its approach to taking administrative action to suspend, cancel or vary an AFS licence is to ‘take action where necessary or desirable to promote the objects of the financial services regime‘. Those objects, set out in section 760A of the Corporations Act, include the object to promote ‘confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services‘. The AAT relied on this object as a reason that ASIC’s decision to cancel Centurion’s licence was a fair and reasonable exercise of a broad discretionary power.
But is it?
ASIC says in RG 98 that it is likely to take administrative action in instances where there is a need to protect investors and consumers, where there is a need to deter misconduct, or where conduct of the licensee may result in investor or consumer detriment.
None of these reasons existed in the case of Centurion: it was a seemingly harmless dormant licensee and none of its activity or inactivity was resulting in consumer detriment. It cost ASIC nothing to regulate it.
There are good reasons why ASIC should use the ‘use-it-or-lose-it’ laws. The first is warehousing and the second is where AFS licensees are abandoned. Abandoned AFS licensees are usually not compliant – they don’t lodge annual audits or comply in anyway with their ongoing obligations because there is simply no one home, the lights have been turned off and everyone has walked away. Neither of these things applied to Centurion.
ASIC is extending for a further 12 months the transitional relief for foreign financial services providers (FFSPs) from the requirement to hold an Australian financial services (AFS) licence when providing financial services to Australian wholesale clients. The extension of the transitional relief to 31 March 2025 is made by ASIC Corporations (Amendment) Instrument 2023/588. The current […]
AFSL requirements are complex, and requirements and authorisations change depending on the nature of your financial services business. There is only one AFS Licence, but there are many different types of authorisations that might appear on it depending on what kind of financial services you provide and the financial products that relate to those services. […]