Australia: Part II: Your options when offering credit services

Option 1: Get your own ACL

In our experience, the biggest hurdle in getting your own ACL is having appropriate responsible managers ('RMs'). If you do not have suitable RMs, ASIC will not issue an ACL. RMs demonstrate that a licensee is competent to engage in credit activities. To demonstrate that competence and be accepted by ASIC, RMs are required to have specific qualifications and experience. An RM must have a credit industry qualification to a least the Certificate IV level (eg Certificate IV in Credit Management) or another general higher level qualification in a relevant discipline (eg Bachelor of Accounting). However, if you are going to be providing third party home loan assistance, the RMs will need at least a Certificate IV in Finance and Mortgage Broking. As well as qualifications, the RMs will need at least two years problem free experience which is relevant to the credit activities you will be engaging in. Preferably the RM will have obtained that experience working for another licensee in a similar business or will have been a credit representative.

The application

DIY or get the professionals in? After making the decision to apply for your own the ACL, the next question is will you make the application yourself or hire a consultant. This decision will be based on a number of factors including time, cost and comfort. The thought of drafting an application and interacting with ASIC can be quite daunting, particularly if you have not done so before. Many licensees get professional help when applying but many have also successfully applied for a licence without help. ASIC's RG204 Applying for and varying a credit licence is worth a read when making this decision.

ASIC requires a lot of information about your business and what you are proposing to do. That information is provided in the application form and several supporting documents. ASIC may request clarification or further information during its assessment.

It is a requirement to have documented compliance procedures. These procedures require a lot of detail and can be very time consuming. If you decide to complete the application yourself, we suggest that you consider purchasing a compliance manual from a consultant to tailor to your business. It saves time and gives you piece of mind that you haven't missed anything.

Before ASIC issues a licence, you will need to be a member of an external dispute resolution scheme and have professional indemnity insurance in place. Ensure that your policy meets the minimum requirements detailed in ASIC's RG210 Compensation and insurance arrangements for credit licensees. Applications are quite often delayed because the applicant has to amend its policy.

In our experience, it generally takes 1-3 months from beginning an application to ASIC making a decision whether or not to issue the licence.

Option 2: Become a Credit Representative

Becoming a credit representative of a credit licensee is another option that can be taken if you want to provide credit assistance to clients.

Interested in expanding your business to provide credit assistance to clients? Being a credit representative allows you to test the waters and get a feel for what's involved without having to use the same amount of resources, economic and human, as a licensee. Your licensee is ultimately responsible for your compliance with the credit laws and may provide you with compliance procedures to follow and an approved product list.

Eventually want your own licence but no one in the business has credit experience? Becoming a credit representative allows you to provide credit assistance and accumulate experience that can be used to meet ASIC's responsible manager requirements.

We have mentioned some of the positive aspects of becoming a credit representative. There are some aspects that may not suit everyone. As a licensee is responsible for its credit representatives actions, it may restrict the products that you can recommend and dictate how you conduct that part of your business. There is also a cost involved which may be a flat monthly rate, a percentage of your revenue from credit assistance, or a combination of the two.

Being a credit representative might be likened to being a grandparent. You get to be involved, with less responsibility, and you don't have to worry about it over the weekend.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.