Naz Randeria, Managing Director of Reliance Auditing Services, discusses whether an AFS Licensee can act as an authorised representative of another AFS Licensee.
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During 2005, the Financial Services Reform Act 2001 (“Reform Act”) was withdrawn and the entire content of this Reform Act was incorporated into the Corporations Act 2001 (“the Act”). The Reform Act introduced with new disclosure provisions, designed to provide prospective investors sufficient financial information to decide whether they want to invest in certain products. The Reform Act place extensive obligations on providers of retail financial products to make product disclosure statements for these retail financial products. These disclosure provisions now form part of Chapter 7 of the Act.
It is not unusual for financial services practitioners who have operated their business entities as corporate authorised representatives under a separate arms’ length Australian Financial Services Licence (“AFSL”) to one day wish to operate their own AFSL. You may fall within that group.
If you are considering to apply for your own AFS Licence, you may need to consider the requirements of section 916D of the Act.
Section 916D provides:
1. A financial services licensee cannot be the authorised representative of another financial services licensee.
2. A purported authorisation given in breach of this requirement is void.
3. An authorisation that starts to breach this requirement, because the person authorised is subsequently granted an AFS Licence, is void.
Accordingly, the Act prohibits an AFS Licence holder from being an authorised representative of another AFS Licence holder. Should an authorised representative be subsequently granted an AFS Licence, the authorisation will be void unless an exemption applies.
Notwithstanding section 916D, the Act allows general insurance underwriting agents, or, general insurance brokers to be authorised representatives of another AFS Licence given that they are acting under a binder agreement. This is stated in section 916E (2), that for all purposes connected with contracts that are risk insurance products, or with claims against the insurer, in respect of which the authorised licensee acts under the binder:
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- The authorised licensee is taken to act on behalf of the insurer and not the insured; and
- If the insured in fact relied in good faith on the conduct of the authorised licensee, the authorised licensee is taken to act on behalf of the insurer regardless of the fact that the authorised licensee did not act within the scope of the binder.
For purposes of clarity, a binder is defined as follows:
Binder means an authorisation given to a person by a financial services licensee who is an insurer to do either or both of the following:
a) enter into contracts that are risk insurance products on behalf of the insurer as insurer; or
b) deal with and settle, on behalf of the insurer, claims relating to risk insurance products against the insurer as insurer;
but does not include an authorisation of a kind referred to in paragraph (a) that is limited to effecting contracts of insurance by way of interim cover unless there is also in existence an authority given by the insurer to the person to enter into, on behalf of the insurer and otherwise than by way of interim cover, contract of insurance.
Naz Randeria established Reliance Auditing Services almost a decade ago. She has more than 20 years’ experience in the accounting profession gained in working for one of the largest accounting firms in the world, prior to establishing Reliance Auditing Services. Naz regularly presents at accounting conferences and SMSF association State Chapter events and enjoys sharing her knowledge and experience with both her clients and her professional colleagues. Naz holds the following qualifications: ASIC registered SMSF Auditor, SMSF Specialist Auditor (SSAud), Registered Company Auditor, Chartered Accountant from Chartered Accountants Australia & New Zealand, Certified Public Accountant from the Delaware State Board of Accountancy USA, Chartered Accountant from the Institute of Chartered Accountants of India, Bachelor of Commerce (Major in Accounting and Finance). Naz is a member of the following professional organisations: Self-Managed Super Fund Association (SMSFA), Chartered Accountants Australia & New Zealand (CAANZ) and National Tax and Accountants’ Association (NTAA).
Contact Naz via info@reliance.com.au and connect with Reliance Auditing Services via LinkedIn
