Last year, the financial services industry was abuzz with the draft Financial Services Reform Bill (FSR). When the Bill was finally passed on March 30 this year, a collective sigh was heard.
And while industry players were given a two-year transitional period to come under the new Australian Financial Services (AFS) licence, the Australian Securities and Investments Commission (ASIC) was vocal in its warnings against waiting till the final stages to apply.
Now, three months on, the industry watchdog says it is has been a busy learning curve so far, yet they are happy with the results.
“We are pleased with the number and variety of applications that have come in, and the early applications have helped us tailor our message and allowed us to tweak our system to get it right. It has been a nice learning time,” ASIC licensing and business operations FSRA director Pauline Vamos says.
ASIC has received 160 licence applications (all except two electronically) from a mix of financial planners, general insurance brokers and wholesale distributors. Of these applications, just 18 licences have been issued.
According to Vamos, the reasons for the low approval rate include an absence of streamlining, supporting documents not arriving in the 20-day time frame and a majority of applications coming from new businesses lodging a full assessment rather than transitioning.
Additionally, Vamos says people are ticking the wrong boxes and applying for the wrong licence. This, she says, reflects that the AFS Licensing Kit, an information source provided by ASIC on its website, is not being utilised.
“Things will get better, a lot of applications are from the smaller groups who are not taking the time to engage in the process. But we expect to see a steady decrease [in rejections],” Vamos says.
Improvements to the AFS licensing application are now underway after the lessons learnt in the first three months. A number of amendments have already been made to the Licensing Kit after tester questions created some confusion, and ASIC is working on producing a series of one-page summary sheets.
In particular, Vamos says, two questions have created some problems: who will hold the license and what is the business name?
“There has been a lot of confusion with these questions, people don’t understand the difference between the legal entity holding the licence and the business name, especially at the smaller end of town,” she says.
With ASIC working on the figure of 7000 groups to transition by mid 2004, the question is why are some delaying their application lodgement?
Vamos says one of the key issues is the current unresolved tax situation, as well as the level of commercial activity, mergers and acquisitions, taking place this year. She also says many groups are using FSRA as an opportunity to review their systems, and are concentrating on updating before lodging their application.
“[FSRA] has been a good trigger mechanism to get this done,” she says.
Such a mentality is apparent at Prime Time Financial Counsellors, a boutique financial advisory group based in Victoria.
“We have been working systematically through the eLicensing application, and when we discover issues that haven’t been addressed we go through these at the same time as the application process. It has acted as a catalyst for getting those things done first,” says Prime Time joint managing director Mike Taylor.
Prime Time has made significant headway on its AFS licence application and expects to lodge it around mid-August or September.
“We appreciate you can’t leave it till the last moment, it is quite technical and the chances of error are high,” Taylor says.
He says while the answers to the licensing application’s questions are simple enough, the workload behind the answers is where the time factor needs to be considered.
“It took us two weeks to identify the business risks and put systems in place. The workload is far more than the licence application itself,” Taylor says.
Another boutique group also expecting to lodge around September or October is Ascent Financial Strategies.
“We haven’t looked closely at it yet, but are aware we have to make the changeover for the requirements of the AFS licence,” says Ascent Financial Strategies principal Alan McCredie.
Ascent is updating compliance systems before lodging its application, but McCredie says the group recognises the business strategy in applying for the new licence sooner rather than later, identifying the inefficiency of working on a system destined to change.
“We don’t want to waste our time and ASIC’s time by applying unprepared, and we also don’t want to rush through it, but it is attractive to us to do it soon, as we don’t want to be working on systems which will change anyway,” he says.
ASIC’s Vamos is also expecting a peak of applications to hit around September, after the end of the financial year and before Christmas arrives, with the second big peak coming in the first half of next year. As for this year, she says 1000 is the magic number.
“It will be a challenge, but will be a nice number to cut our teeth on,” she says.
It is inevitable, however, that ASIC will be hit with a large number of applications in the final phases of the transition. But the increased funding announced in the Federal budget will assist ASIC through this time.
Of the $158.4 million granted to ASIC for the 2002-2003 financial year, $11.9 million has been allocated for FSRA and Vamos says a large portion of this sum is to be spent on recruitment in the areas of licensing, surveillance and enforcement.
“This year we are developing a highly skilled core team to create specialist teams in the various industries. They will be a minimal number of staff but will be highly trained,” Vamos says.
“Then early next year we will start recruiting law graduates to work under the existing skilled teams.”
But while ASIC has taken steps to ensure there will be many hands on deck in the processing stage, Vamos says the key message remains that the industry needs to engage with what is required from them and to understand what their obligations are under the new licence.
This is a message echoed by Prime Time’s Taylor.
“Get on with this, it’s bigger than what meets the eye,” he says.
