In Part 3 of our series on the National Consumer Credit Protection reforms, we deal with some of the key aspects of licensing under the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Transitional Act) and the National Consumer Credit Protection Act 2009 (National Credit Act), applicable to persons and businesses which engage in credit activities covered by the National Credit Act.
What you should do and by when
If you wish to engage in credit activities from 1 July 2010, you should:
- register with ASIC between 1 April 2010 and 30 June 2010;
- apply for an Australian Credit Licence (ACL) between 1 July 2010 and 31 December 2010. Registration will enable you (and your representatives) to engage in credit activities until you complete the licensing process. If you are registered, you may only continue to engage in credit activities from 1 January 2011 if you have applied for an ACL by 31 December 2010; and
- become a representative of a registered person or the holder of an ACL.
If you intend to engage in credit activities for the first time from 1 July 2010, you must first obtain an ACL or be covered by someone else’s.
Not all persons engaging in credit activities need to be registered or have an ACL. For example, you may not need to register or apply for an ACL if your credit activities are not regulated by the National Credit Act, if you only engage in credit activities on someone else’s behalf who is registered or has an ACL (for example, you are authorised as a credit representative or are an employee or a director of the company (or one of its related bodies corporate)) or if you are otherwise exempt.
To obtain an ACL, you must make an application in the prescribed form and pay the required fee.
The application process is online (with very limited circumstances applying to paper applications which will also attract a higher fee). If you are registered, you can access the application via the credit portal, if you are an Australian Financial Services (AFS) licensee, via the licensees’ portal and for other applicants, via ASIC’s website.
You will need to comply with the general conduct obligations for licensees under the National Credit Act. Those obligations include:
- doing all things necessary to ensure the credit activities authorised by your ACL are engaged in efficiently, honestly and fairly;
- having in place adequate arrangements to ensure your customers are not disadvantaged by any conflict of interest that may arise in relation to credit activities engaged in by you or your representatives;
- complying with the conditions on your ACL and the relevant credit legislation and taking reasonable steps to ensure your representatives do likewise;
- maintaining competence to engage in the credit activities authorised by your ACL;
- ensuring your representatives are adequately trained and are competent to engage in the credit activities authorised by your licence;
- being a member of an ASIC approved external dispute resolution scheme and having an internal dispute resolution procedure that complies with the required standard and requirements;
- having adequate compensation arrangements as required by the National Credit Act (ie. for loss or damage suffered because of a breach of the National Credit Act by you or your representatives);
- having adequate arrangements and systems to ensure compliance with your obligations under the National Credit Act and a written plan that documents those arrangements and systems; and
- unless you are regulated by APRA, having adequate available resources (including financial, human and information technology) to engage in and carry out the credit activities authorised by your ACL and having adequate risk management systems.
You will also need to comply with the responsible lending conduct obligations. A separate article in this series will provide further information on those obligations.
After you are granted an ACL, you may only engage in credit activities authorised by your ACL.
Questions you will be asked in connection with your application
You will be asked a number of questions with respect to your application designed to ascertain if you meet the requirements in the National Credit Act for an ACL.
You may be asked to provide less, or more, information and details than other applicants. This will depend on whether you are a ‘standard’ applicant, a ‘streamlined’ applicant, an AFS licensee or a body regulated by APRA. You will need to familiarise yourself with these terms before commencing your application.
Some of the questions will relate to the following matters:
- who you are e.g. what type of entity you are;
- the nature of your business activities. These questions are aimed at providing a description of the nature and size of your business. You will be required to select the type of activities that most appropriately describe your business;
- the type of credit activities you intend to engage in (e.g. other than as a credit provider or lessor, as a credit provider or lessor, or to engage in all credit activities). You will need to familiarise yourself with the types of authorisations and what they cover to ensure you select the most appropriate type;
- what arrangements and systems you have in place to comply with the general conduct obligations under the National Credit Act. What you need to do will depend on the nature, scale and complexity of your business. You will need to demonstrate that you have measures in place that will ensure that you comply, and will maintain compliance, with your obligations and to provide ASIC with any further details it may require in assessing your application;
- each of the people who are involved in the management of your business i.e. your ‘fit and proper people’. For example, if you are a company, your ‘fit and proper people’ will be your directors, secretaries and senior managers who carry out duties in connection with your credit activities; and
- indicate which of these ‘fit and proper people’ your business will be relying on to demonstrate competence to engage in credit activities i.e. your ‘responsible managers’. If ASIC determines that to demonstrate competence your business will be dependent on a small number of people, ASIC may note those ‘key’ persons on your ACL. If that occurs, you will be obliged to notify ASIC if any of those ‘key’ persons leave or intend to leave your business and nominate a suitably qualified replacement.
Your responses to these and other questions will assist ASIC in determining the size and nature of your business activities and to check if the authorisations and business activities you selected are consistent and appropriate for your business.
Supporting information you may need to provide
You may be asked more detailed information about the following:
- the past conduct of each of your ‘fit and proper’ people - this includes the name, date and place of birth details of each person including, for some applicants, providing a criminal history check, bankruptcy check and credit history report for each such person;
- the experience and qualifications of your ‘responsible managers’ – information which demonstrates that they have adequate experience and knowledge for you to be competent to engage in the credit activities authorised by your ACL. This includes information relating to educational qualifications, and where relevant to your application and credit activities, previous employers; and
- what your business will involve and how it will be operated – a document which summarises what your business will involve and how you intend to operate it in practical terms. Details include, among others, the credit activities that you will engage in, your distribution model e.g. whether by internet, branches etc, the structure of your remuneration e.g. commissions, up-front fees etc and whether you will outsource any functions and if so, what they are and to who they will be outsourced.
Required statements and declarations
You will need to make a statement in your application declaring that none of the people listed in the statement have been the subject of any specified orders or outcomes which may affect ASIC’s ability to grant an ACL to you. Those people are you, as the applicant, and:
- if you are a company, each director, secretary and senior manager;
- if you are a partnership, each partner; or
- if you are a multiple trustee, each trustee, who will carry out duties in relation to credit activities authorised by your ACL.
You will need to familiarise yourself with the contents of the prescribed statement to ensure you are able to make each of those statements and declarations for each relevant person.
To complete your application, you will also need to declare that:
- your application is submitted under the terms and conditions of the ASIC Electronic Lodgement Protocol and a signed copy of your application with be maintained by you;
- to the knowledge of the person making the declaration, the information included in your application is complete, accurate and true; and
- you will comply with your obligations as a licensee if you are granted an ACL.
What if your application is refused
If ASIC believes you have not met the requirements for an ACL, ASIC will contact you to check whether there is any further information you can provide which will address its concerns. If you are unable to satisfy those concerns, ASIC may refuse to grant an ACL to you.
If ASIC believes there are grounds to refuse your application, your application will be referred to an ASIC ‘delegate’, i.e. an impartial person, to make the final decision on your application. If the ‘delegate’ forms the opinion there are grounds to refuse your application, they will send you a letter explaining the reasons and giving you the opportunity to appear at a hearing and/or make submissions in relation to your application.
After considering any submissions, if the ‘delegate’ determines that you will not be granted an ACL, you will receive a letter outlining the reasons for that determination together with information on how to apply to the Administrative Appeals Tribunal should you wish to have its decision reviewed.
If ASIC refuses your application for an ACL, you cannot engage in credit activities.
Variation of an ACL
You can apply to vary the authorisations and other conditions on your ACL. The variation application is online and will contain similar questions to the ACL application. If your business changes after you have been granted an ACL, you will need to apply for a variation of your ACL.
It is important that you start getting ready now. All persons and businesses who will engage in credit activities under the National Credit Act should consider the extent to which they need to comply with the legislation and requirements, including being ready to make the necessary applications for registration and an ACL within the prescribed time.
In relation to licensing, you should:
- think about the type of credit activities you will engage in as part of your business and start putting together an overview of your business;
- familiarise yourself with the general conduct obligations of licensees and put in place arrangements and systems to meet those obligations;
- do background checks on your ‘fit and proper people’ so that you can provide the necessary supporting information e.g. criminal, bankruptcy and credit checks and make the required statements and declarations. Some of these checks may take some time to obtain so it is best to apply for them early;
- collate the required information with respect to the knowledge, experience and qualifications of your ‘responsible managers’; and
- update your information on registers kept by ASIC to make sure all details are correct and current e.g. the company register and the financial services licensee register. You will not be able to complete your online application until all relevant registers are up to date.
For further information about the National Consumer Credit Protection reforms and advice on how these may affect your business operations, please contact Kylie O'Keeffe, Partner, on (08) 9288 6852 or firstname.lastname@example.org.