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Client Update: Guidance for providers of financial services for carbon trading

10 May 2012

In brief: To help carbon market participants transition to the Australian financial services licensing regime, the Australian Securities and Investments Commission has established an early registration system, and has also released updated information on adviser training and financial requirements for those providing financial services in relation to carbon units and other kinds of regulated emissions units. Partner Grant Anderson and Senior Associate Justine Woodford report on these developments.


From 1 July 2012, the Federal Government's carbon pricing scheme will commence and carbon units issued under that scheme, as well as Australian carbon credit units issued under the Carbon Farming Initiative and some international emissions units (together, regulated emissions units), will be classed as 'financial products' under the Corporations Act 2001 (Cth). Accordingly, unless an exemption applies, those providing financial services in relation to regulated emissions units will need to hold an Australian Financial Services licence (AFSL). For those affected, this means they will need to apply to the Australian Securities and Investments Commission (ASIC):

  • for a variation of their existing licence if they already hold an AFSL; or,
  • if they have previously been unlicensed under the Australian Financial Services (AFS) licensing regime, for an AFSL.

For more background details, see our Focus: Financial services licensing of carbon markets participants (April 2012).

Registration and licensing process

In view of the short lead time to the commencement of the carbon pricing scheme, ASIC has set up an early registration system under the Corporations Regulations 2001 (Cth) to facilitate the transition to the AFS licensing regime. This system, which enables applicants to register between now and 30 June 2012, can be used by both current AFSL holders who want to vary their AFSL and those who do not currently hold a licence. The benefit of early registration is that a person (or entity) will be able to provide financial services (ie advise, deal, make a market or provide a custodial or depository service) in relation to regulated emissions units from 1 July to 31 December 2012 without holding an AFSL, with appropriate authorisations. However, registration is an interim step only. Once registered, the person must apply for a new AFSL or a licence variation by 31 October 20121, otherwise, their registration will be cancelled.2 Moreover, a person's registration will automatically expire on 31 December 2012, so that, in order to provide financial services in relation to regulated emissions units after that date, that person will need to hold an AFSL with appropriate authorisations unless that person is otherwise exempt.3

In summary, the timeline for registration and licensing is as follows:

Registration process
Date Activity
1 May 2012 Applicants may lodge an application for registration in the approved form with ASIC from this date
30 June 2012 Registration applications close
Licensing requirements
Date Activity
1 July 2012 Applicants may lodge applications for a new AFSL or a variation to an existing licence to provide specified financial services in relation to regulated emissions units in the approved form with ASIC from this date
31 October 2012 Those who have registered (see above) must apply for an AFSL or licence variation by this date or cease providing financial services in relation to regulated emissions units from 1 November 2012
31 December 2012 All current registrations are cancelled on this date
From 1 January 2013 Those who provide financial services in relation to regulated emissions units must hold an AFSL with appropriate authorisations and comply with their legal obligations as licensees (including in relation to conduct and disclosure, training, managing conflicts of interest, financial requirements, business resources, dispute resolution and compensation arrangements)

How to register

To register, applicants must lodge a completed application form (using ASIC form FS91 Application to register to provide financial services in emissions units) accompanied by the registration fee of $35 by 30 June 2012. Note that online lodgement is not available.

The application form must include the following information, and the applicant must certify that the information supplied is complete and accurate:

  • The applicant's details: name (including any business names), address, and some personal information if the applicant is an individual; type of entity; ACN, ARBN or ABN, as applicable; AFSL number (if applicable); and contact details.
  • The types of financial services that the applicant intends to provide in relation to regulated emissions units. During the registration period, registered persons will only be able to provide the services that they have selected in their registration application (and for which they are subsequently authorised by ASIC). Applicants will need to consider the options carefully to ensure they obtain the necessary authorisations. If in doubt about whether their proposed conduct falls under a particular category of financial service, it is important to seek legal advice.
  • If providing financial services to retail clients:
    • details of external dispute resolution scheme(s) (EDRS) of which the applicant is a member and, if not currently a member, an assurance that they will become a member of an EDRS by 1 July 2012; and
    • confirmation of professional indemnity insurance arrangements and, if appropriate cover is not held, confirmation that the applicant has a process to ensure it will have the necessary cover in place from 1 July 2012.
  • In relation to the applicant and each relevant director, secretary, partner or trustee (as applicable):
    • a statement as to whether they have ever been banned or disqualified from managing a corporation, have previously held an AFSL that has been cancelled or suspended, or have been convicted of serious fraud; whether they are solvent; and whether they are of good fame and character; and
    • a declaration regarding any previous licences, authorisations and registrations held; solvency status; prior or current administrative action, offences and proceedings; and compliance with EDRS requirements.
      ASIC notifies applicants in writing once they are registered and will confirm what financial services the applicant is authorised to provide, as well as any conditions that ASIC has imposed on their registration.

Key obligations once registered

Under the Corporations Regulations, a registered person must:

  • provide the authorised financial services efficiently, honestly and fairly;
  • comply with any conditions imposed on registration (which will include a condition that they only provide the services for which they are registered);
  • comply with relevant financial services laws;
  • take reasonable steps to ensure that their clients are not disadvantaged by any conflict of interest arising in relation to financial services provided by the registered person;
  • if providing financial services to retail clients, be a member of an approved EDRS and have in place compensation arrangements; and
  • comply with any other obligations that are prescribed by regulations.

Further guidance

ASIC has made the following information and help available for those wanting to register, and ultimately seek to be licensed or amend an existing AFSL:

  • Regulatory Guide 236 Do I need a licence to participate in carbon credits?, which helps people determine whether they require an AFSL in relation to regulated emissions units. The guide was issued on 9 March 2012, and has now been updated to take account of legislation enacted and regulations made since that date. For more information about whether activities undertaken in connection with regulated emissions units require an AFSL, refer to this guide on the ASIC website and also our Focus: Financial services licensing of carbon markets participants;
  • ASIC's dedicated carbon webpage on the ASIC website, which has further details about registration and licensing; and
  • the ASIC call centre: 1300 300 630.

ASIC has also recently reviewed and, as appropriate, updated its policies on adviser training and financial requirements for those providing financial services in relation to regulated emissions units. These policies are set out in:

  • Regulatory Guide 146 Licensing: Training of financial product advisers – under this guide, regulated emissions units are classified as Tier 1 products, requiring a higher standard of training for advisers who deal with retail clients. Appendix A2.11 sets out the specialist knowledge requirements for those providing financial product advice in relation to these products. In particular, they must have specialist knowledge, as applicable, in relation to: types of products and their characteristics; the operation of carbon markets; the legal environment and framework (including disclosure and compliance requirements); and taxation. Note that advisers providing advice on regulated emissions units will have until 31 December 2013 to complete the necessary training.
  • Regulatory Guide 166 Licensing: Financial requirements – this guide sets out ASIC's policy on the financial requirements for AFS licensees. Following consultation, ASIC has confirmed that the current financial requirements will apply for licensees providing financial services in relation to regulated emissions units.
  1. It is advisable that applicants start work as early as possible on their AFSL applications. While the registration process is relatively straightforward (see the section in this Client Update on the registration and licensing process), the licence application process is more involved, as it requires detailed supporting documentation to be prepared and is likely to take some time, particularly for those not familiar with it.
  2. In these circumstances, they would, therefore, need to apply for an AFSL (or a licence variation), to resume (or start) providing financial services in relation to regulated emissions units and would be precluded from providing such services until they receive the appropriate authorisation from ASIC.
  3. It should be noted that it is possible to apply directly for an AFSL or licence variation (ie without going through the registration process). However, the earliest date by which such applications can be lodged is 1 July 2012, which means that those who take this option will not be able to provide financial services in relation to regulated emissions units from 1 July. Further, as this is a new area for ASIC, it is likely these applications will take longer to process than applications in relation to products with which ASIC is more familiar. Accordingly, the offer of early registration is likely to be attractive unless timing is not important.

For further information, please contact:

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