ASICs resource problem could delay licensing applications

13 October 2017

Some of the proposed changes to strengthen the corporate regulator’s licensing powers will impact investors as resource constraints will cause delays, The Fold Legal believes.

A blog by the firm’s solicitor director, Jaime Lumsden Kelly, looked at the proposal that a fit and proper person test to be extended to controllers of a licensee. Kelly said this would also grant the Australian Securities and Investments Commission (ASIC) the power to refuse, suspend of cancel licences where the controllers were not fit and proper people.

If there was a change in control, a licensee was currently required to notify ASIC within 10 business days of becoming aware of the change. Under the proposed new powers, ASIC would then consider the new controller to determine if they were a fit and proper person.

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Kelly noted that assessing whether a controller was fit and proper was resource-intensive.

“ASIC already has a resourcing problem, with our clients experiencing processing times of between eight and 12 months for an Australian Financial Services (AFS) licences and upwards of seven months for credit licences,” she said.

“The assessment of whether new controllers are fit and proper people (either before or after the completion of the transaction) will probably delay licensing applications even more.

“Ironically, long processing times have in part created a secondary market for licences, and ASIC is now trying to solve its resourcing problems by increasing its compliance powers. Implementing these powers will increase their workload and only exacerbate the underlying problem.”

Kelly said if ASIC is grated the power to suspend or cancel a licence when there was a change of control, it had the potential to destroy the value of an investment when there had been no misconduct. This would be to the detriment of any other shareholders who were fit and proper people.

“This could result in the value of a shareholder’s investment in the licensee being lost, in whole or part, due to no fault of their own,” she said.

Kelly noted that the power also had the potential to harm consumers where a licensee could no longer service them on short notice, particularly people who were:

  • In the middle of a transaction (for example if they’ve received advice about life insurance but the placement of their policy is pending);
  • Actively managed (for example clients of managed discretionary accounts); or
  • Relying on the licensee’s systems to manage their own investments, like users of IDPS services.

Kelly said ASIC could look towards the system in Hong Kong for a better approach where their regulator could restrict the powers of a substantial shareholder without affecting their licence.


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