FSR hints and tips
You have worked out that FSR applies to your business and your project team has done a lot of ground work to prepare you for transition to the FSR regime. To help you on your way we have put together a list of issues for you to think about in preparing your business for FSR.
These tips focus on issues facing existing industry participants.
- Logistics – a lot to do and little time in which to do it
- Financial product or not?
- How well do you know your clients?
- Making an application
- Is your licence application able to be composite or streamlined?
- How robust are your proofs?
- Who is responsible for your business?
- Who runs your business?
- Who represents you?
- What do you outsource?
- Timing is everything
- Don't let the little things catch you out
- 11 March 2002 – what have you done since then?
- Complying with FSR
Last updated 11 March 2003. Note transition ended on 10 March 2004.
1. Logistics – a lot to do and little time in which to do it
Implementing FSR across an organisation is a huge task and requires a lot of planning.
You will need to spend some time managing the logistics of a big change like FSR. It is important to think ahead so that you give yourself reasonable time frames within which to work. It may take you longer to implement than you think as you will need to involve people from all aspects of the business and will no doubt have to make important decisions along the way.
This is particularly relevant when you consider that certain project tasks may have to be done by third parties eg, printing of product disclosure statements.
Action: Have you developed a project plan which sets out what needs to be done? Have you designated a person or a team of people to be responsible for managing the project? Have a look at ASIC's broad policy guidance available from its website as a good starting point for identifying the tasks to be done.
2. Financial product or not?
One of the first steps in deciding what kind of licence your business needs is to work out what financial products you offer. This impacts on what your licence needs to cover and the kind of product disclosure your products need.
Working out whether your products are financial products can be a tricky task. Some areas, such as insurance and warranty products, are particularly difficult. Some products will not be caught because they are 'incidental'.
Of course, whether your products are caught by FSR depends on the characteristics of the products you offer and how you offer them. This is something on which you may need to seek expert help. One product type which is creating confusion for many applicants is 'non cash payments'. Under FSR, non-cash payments are a facility by which a payment is made other than by the physical delivery of currency. This includes payment methods such as direct debit, internet banking, phone banking, ATM and cheques.
The result of this is that product features such as internet banking, phone banking and cheques which are usually not regarded as 'products' but methods of delivering other products are caught by FSR because they are non-cash payments.
Action: Look carefully at each product and delivery method to see whether it is a financial product in its own right.
3. How well do you know your clients?
Knowing your clients is critical in working out how FSR affects your business. FSR imposes different obligations on businesses which deal with retail clients.
Whether your clients are retail or wholesale impacts on what your licence application needs to cover and the disclosure your products need. If your client base is all wholesale you may not need to get a licence because one of the licence exemptions might apply.
If your financial products are sold only to wholesale clients you will usually not need to provide product disclosure statements, financial services guides or statements of advice.
Action: Categorise your customers as retail or wholesale. Use the tests set out under FSR to work out whether a client is retail or wholesale. If you don't have enough information about your clients to do this, the following resources might provide some useful background information about them:
- ASIC's company searches, to see whether your client is related to a listed company
- Business Who's Who, to find out more about the organisation.
If you have very limited information about your clients you might want to consider asking them to complete a survey for you which covers the issues raised by the FSR test.
Taking this step now may save you work later. If your clients are wholesale you won't need to prepare unnecessary product disclosure documentation.
If you have classified your clients as retail, think about starting to develop your disclosure documents ie, financial services guide, product disclosure statements and statements of advice. Refer to ASIC's guidance on disclosure requirements in
Policy Statement 168 'Disclosure: Product Disclosure Statements (and other disclosure
obligations)'.
4. Making an application
Don't wait until you are about to apply for your licence to look at the licence application form. You need to be familiar with the issues it raises so you can prepare your application properly.
Use the resources which ASIC has made available on its website and do it sooner rather than later. Become familiar with the application process and the ASIC Guides which support the licence application.
Action: Download a copy of the licence application and the Licensing Application Kit and supporting guides from the ASIC website.
Try and complete the online application or go through the issues covered in the licensing kit. Are there any questions which you can't answer or find confusing? Are there issues raised in it which you have not considered as part of the review process?
5. Is your licence application able to be composite or streamlined?
ASIC does not require as much information in the licence application from applicants who held a licence under the Corporations Act or were registered as an insurance broker under the Insurance (Agents and Brokers) Act before 11 March 2002. Recent amendments to the Corporations Regulations have expanded the types of applicants who can use the streamlined licensing procedures.
If your business activities consist of both licensed and unlicensed activities then you may be eligible for a composite assessment.
Action: Consider whether you can make a streamlined or composite application. (Refer to the ASIC website for further guidance on licensing.) Find out what existing licences your business holds. Which entity holds the licence? Is it the same entity as the licence applicant? Can you rely on the existing licence of a related body corporate? What activities does it cover? Are these activities the same as the ones on your licence application? Can any of your activities be carried out without a licence? Tailor your application accordingly.
6. How robust are your proofs?
Depending on the type of business you have and the licence for which you want to apply, you will need to prepare a number of proofs to support your licence application. The proofs which you submit with your licence application are important as they give ASIC a better picture of your business and what you do.
ASIC has indicated that it is planning to scrutinise the proofs which support licence applications very carefully and that it will use experts to do this. So, you need to make sure that your proofs are meaningful and accurate and will withstand close scrutiny from ASIC.
Action: Use the experts in your business to write the proof which concerns their area of the business. Make sure that your FSR project team looks over the proof to ensure it is consistent with the activities for which you plan to apply for a licence. Check to see whether the proof covers additional activities which have not been discovered as part of the process of working out what financial services or products your business provides.
7. Who is responsible for your business?
Knowing who runs your business is just as important as knowing who your clients are. This is because the licence application requires you to identify the people who will be responsible officers. Responsible officers will be the people in your business who are responsible for the day–to–day management of the organisation.
ASIC requires responsible officers to meet some specific skill and competency requirements and needs to be satisfied that your responsible officers are of 'good fame and character' before it will grant a licence. (For further details, refer to ASIC Policy Statement 164 'Licensing: Organisational capacities'.)
Action: Identify your responsible officers, check their qualifications – do they meet the ASIC requirements? Do the responsible officers satisfy the 'good fame and character' test? Consider what security checks you need to do for proposed responsible officers – make sure you cover criminal records for the last 10 years and ASIC's registers of banning and disqualification orders.
8. Who runs your business?
Knowing who your employees and managers are and their competencies is also important. This is because FSR requires you to ensure that your representatives are competent and skilled to do their jobs and that they are adequately trained. ASIC requires representatives to meet certain standards to sell financial products. (For further details, refer to our commentary on ASIC's training policy.)
You also need to have processes in place to ensure that your representatives provide financial services 'efficiently, honestly and fairly'. In addition, the Licence Application and ASIC Policy Statements contemplate that people in your organisation who handle client money are of 'good fame and character'.
Action: Identify the people in your organisation who provide financial services. Are they adequately trained and competent to do their jobs? Are there processes in place to check that they are providing the financial services 'efficiently, honestly and fairly'?
Who handles client money? What security checks have you done on these employees? Does your recruitment strategy need to be changed to take this into account?
Consider what security checks processes are appropriate for your business eg, Federal or State police checks, ASIC searches on the banning and disqualification list, bankruptcy searches.
9. Who represents you?
Knowing who represents you or your financial products outside your organisation is also critical. Licence holders are responsible for the acts of their authorised representatives. FSR is an opportunity to revisit existing relationships and decide if you want to continue with them.
Are you revisiting any third party arrangements or entering into new ones now? It is important that FSR is included in the checklist of issues to be considered when negotiating new contracts or renegotiating old ones.
Action: If you plan to apply for a licence think about who are your authorised representatives. Consider reviewing your contracts with third parties. Do any contracts relate to the provision of a financial service or product? Who is currently acting on your behalf? Decide whether you want to appoint them as your authorised representatives or if you want to restructure your approach.
Make sure that you consider the impact of FSR on any new contractual arrangement. Does your legal sign–off procedure include FSR as an issue to be checked?
10. What do you outsource?
Do you outsource any of your financial services to a third party? The Licence Application requires that you identify all substantial outsourcing arrangements that relate to the provision of a financial service.
In addition, if you are an Approved Deposit–Taking Institution (ADI), you will also need to comply with APRA's Australian Prudential Standard 231 which regulates the outsourcing of services by ADIs.
Action: Conduct an audit of all outsourcing arrangements to determine those which are substantial. Does the contract adequately regulate the arrangement? Don't forget to consider intra-company outsourcing that occurs within your corporate group.
11. Timing is everything
Are you planning to launch any new products or services between now and 11 March 2004 or when you get your licence? If the new product or service is in a class of products or services which you offered before FSR started (ie, 11 March 2002), then you may be able to launch it without getting a licence. If not, you will not be able to launch the product or service until you receive your licence.
Action: Consider whether the transitional provisions under FSR will apply to your new products or services. If not, make sure your licence application covers the new product or service.
12. Don't let the little things catch you out
Have you nominated a dispute resolution system to deal with consumer complaints? This is a mandatory obligation for all licensees. This requirement also applies to unlicensed product issuers required to prepare a product disclosure statement under FSR.
Action: Go to the ASIC website for a list of approved dispute resolution systems. How will your clients know about the dispute resolution system? Do your staff know about the dispute resolution system? (Remember, you can have the best procedures in the world which may fail because your staff did not know about them.)
13. 11 March 2002 – what have you done since then?
Many provisions of FSR came into force on 11 March 2002. Are you complying? Some of the provisions which are current are:
- the prohibition on hawking of financial products
- confirmation of transactions
- cooling-off periods
- dealing with money received for financial products before the product is issued
- the provision of information for existing holders of superannuation products.
Action: Confirm that your processes take into account your FSR compliance obligations as at 11 March 2002. Audit staff compliance with these procedures. Consider whether you need to conduct refresher education sessions or audit your procedures.
Make sure that third parties who represent you or provide services on your behalf are also complying with the necessary FSR requirements.
14. Complying with FSR
The FSR laws and licence conditions require licence holders to comply with all financial services laws, not just FSR.
Action: Audit your business to establish which financial services laws apply to it. Consider whether your current compliance procedures adequately reflect all of the laws which apply.
