The Financial Services Reform Act (FSRA) became law on 27 September 2001, but the commencement date for most of the provisions of FSR was 11 March 2002. From that date, a 2 year transitional arrangement applied to the important licensing requirements.
The transitional period ended on 10 March 2004 so that from 11 March 2004, anyone who
conducted a financial services business or operated a financial market needed to be appropriately licensed under the FSR laws.
ASIC set up a taskforce to supervise the transition including the assessment of licence applications. Potential licensees were urged not to delay lodging their applications.
ASIC received Budget funding of $63 million over the years 2001–02 to 2005–06. This included funds for licensing and for granting relief from licensing, for surveillance and enforcement, and for the development of industry guidance.
How effective and efficient was ASIC’s implementation of Australian financial services licences?
The Australian National Audit Office has released its Audit Report, ASIC’s Implementation of Financial Services Licences(pdf). The audit examined ASIC’s planning for the introduction of financial services licences; the roles of the Department of the Treasury and ASIC in defining the effective scope of licensing; ASIC’s assessment and processing of licence applications; and ASIC’s supervision of licensees.
By the transition deadline of 10 March 2004, ASIC had issued 3738 financial services licences. By 30 June 2004, this had risen to 3853 financial services licences. The number of licences had risen to 4135 by 30 June 2005.
Over the transition period, ASIC granted 953 licences after a full assessment process, granted another 909 licences under a limited licence assessment process, and streamlined 1 875 old licences into new licences.
Two-thirds of all the licences granted during the two year transition period were granted during the last six months. According to ANAO, ASIC successfully dealt with the late influx, and the "generally poor standard of applications", by reallocating resources from other activities, such as the surveillance of licensees (so that surveillance staff could be available to achieve licensing targets), and by curtailing analysts’ scrutiny of applications (to reduce processing time).
However ANAO concluded that ASIC’s licence systems did not properly record critical elements of its licence decisions, such as ASIC’s assessment of the applicant’s character or its assessment of the applicant’s evidence that they could meet their licence obligations. Overall, important regulatory risks were not systematically addressed until after the end of the transition period.
ANAO estimates that ASIC’s processing of relief applications consumed four times the resources initially anticipated. In this context, ASIC advised ANAO in September 2005 that, while it significantly over-estimated the number of relief applications, it also significantly under-estimated the complexity of the applications for relief that were sought.
According to the report, ASIC has been unable to reach its surveillance targets due, in part, to the low initial take-up of financial services licences. ASIC’s records show 1 596 surveillances of financial services licensees since mid-2002 (when the first licences were issued) until June 2005, representing 54 per cent of its target to that date. The late transition of existing licensees significantly curtailed surveillance, reducing the population subject to surveillance and diverting surveillance resources to licence processing. In December 2005, ASIC advised ANAO that it expects to undertake approximately 1 200 surveillance activities in relation to financial services licensees in the 2005–06 financial year.
ANAO has made seven recommendations, six to ASIC alone. Of these, three are aimed at improving the documentation of ASIC’s licence processing, the useability of its public licensee database and the reporting of ASIC’s compliance performance. The remainder focus on improving ASIC’s processes for identifying and managing regulatory risks.
Treasury and ASIC are the joint respondents to the remaining recommendation, that they consider the benefits of making licence applicants’ certifications more enforceable than at present.
ASIC agreed with the recommendations and advised the ANAO that it had implemented the recommendations relating to it and was restructuring its activities.
