Fly under the radar – acquire an AFSL via shares

Mike Taylor

Managing Editor and Publisher

12 July 2023

The Australian Securities and Investments Commission (ASIC) has confirmed that it is possible for someone to take control of an Australian Financial Services License (AFSL) without the regulator necessarily being aware of who is behind the change of control.

What is more, ASIC has confirmed that when it comes to AFSLs, more than 200 a year have changed hands over the past three years with 268 changing hands in the 2021-22 financial year.

Importantly, evidence provided to the Parliamentary Joint Committee on Corporations and Financial Services also revealed a surge in in new AFSL applications in 2020-21 together with a surge in applications for Australian market licences.

A Parliamentary Committee report has cited ASIC having stated in testimony that when it comes to license transfers it is largely remaining blind:

“If the purchase is of the shares of the business—so, therefore, they effectively take control of the licence—there’s definitely no look at the people who are now the controllers of that licence,” ASIC told the committee.

“If there is a change of the relevant individuals, the key individuals subject to licence—responsible managers et cetera—we will consider very briefly whether or not they’re suitable.”

“Outside of that, the law as it stands at the moment does not allow us to do an assessment de novo of the new licence holder; it’s something we’ve raised previously through previous reviews. We can see that in certain licensee types—derivatives from foreign exchange contracts are definitely one of those—that is highly problematic.”

The committee noted that ASIC approves approximately 1,000 to 1,400 new AFSLs a year, while about 200 AFSLs are transferred every year.

It said, on that basis, for AFSL transfers to be automatically assessed by ASIC it was likely the regulator’s workload would increase by around 20%.

Disturbingly, the Parliamentary Committee’s report revealed that the problem with license transfers had been identified nearly a decade ago when the Financial System Inquiry recommended ASIC be empowered to approve changes of licensee control and to consider whether those involved were fit and proper.