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AFSL: Reporting Obligations and Financial Requirement

7 October 2021

Reporting obligations and financial requirement

AFS licensees are required to lodge an FS70 (profit and loss statement and balance sheet) and FS71 (audit report) or FS76 (annual compliance certificate) for each financial year.

  • A body corporate that is a disclosing entity: within 3 months of end of financial year
  • A body corporate that is not a disclosing entity: within 4 months of end of the financial year
  • A non-body corporate: within 2 months of end of the financial year

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You must lodge your annual accounts and audit report online via our Licensees portal.  You should complete, sign and retain your signed original FS70 profit and loss statement and balance sheet and FS71 audit report and/or annual compliance certificate for your records.

Section 989B of Part 7.8 of the Corporations Act requires audited accounts, asking for opinions in the annual audit on an AFS licensee’s compliance with the financial requirements is unlikely to be a significant additional expense, and will substantially enhance compliance by the licensee with its financial resources and risk management obligations under s912A(1).

The SLF requirement: Licensees that hold client money or property

If you hold client money or property, you must hold at least $50,000 in surplus liquid funds (SLF) unless the value of the money and property for all clients in total is less than $100,000 (the SLF requirement). The SLF requirement is on top of the base level financial requirements in Section B applying to all AFS licensees, and the ASLF requirement (see Section D) if this requirement applies to you. If an AFS licensee does not have a certain buffer of liquid assets, there is an increased risk that client money or property may be applied to meet the licensee’s financial obligations, rather than being held in accordance with its duties to clients.

The ASLF requirement: Licensees that transact with clients as principal

As an AFS licensee, you must comply with the adjusted surplus liquid funds (ASLF) requirement if:

  • certain circumstances concerning transactions with clients apply to you; or
  • you are a foreign exchange dealer that chooses to comply with this requirement (even if it would not otherwise apply to you) rather than the requirement in Appendix 7 for $10 million of Tier 1 capital.

AFS licensees that are required to have ASLF of more than $50,000 must follow reporting and risk management measures when certain trigger points are reached. This requirement is additional to the base level financial requirements that apply to AFS licensees generally and any additional financial requirements that may apply to you

Breach

AFS licensees must notify ASIC in writing of any ‘significant’ breach (or likely breach) of their obligations under s912A (including licence conditions), s912B (compensation arrangements) or financial services laws, as soon as practicable, and in any event within ten business days of becoming aware of the breach or likely breach.

Licensees need to give proper consideration to whether the breach (or likely breach) is significant, and, if so, provide timely notification to ASIC. Whether a breach is significant will depend on individual circumstances. You will need to decide whether a breach (or likely breach) is significant and therefore, reportable to ASIC.

Factors that determine whether a breach (or likely breach) is ‘significant’ include:

  • the number or frequency of similar previous breaches
  • the impact of the breach or likely breach on the licensee’s ability to provide the financial services covered by the licence
  • the extent to which the breach or likely breach indicates that the licensee’s arrangements to ensure compliance with those obligations is inadequate; and/or
  • the actual or potential loss to clients or the licensee itself.

It is important that licensees report significant breaches to ASIC as early as possible, even where you are still gathering further information on the breach. Failure to report a significant breach is an offence and may result in penalties.

We’re ready to help. This is a specialised area of audit practice, please contact Sandeep Kumar on +61 2 9263 2631 or skumar@hallchadwick.com.au to ensure that you meet your ongoing annual lodgement requirements with the most accurate and correct information needed for submission.

Key Contact

Sandeep Kumar