Not so exempt: A cautionary tale for authorised representatives

Introduction

Navigating the Australian Financial Services Licence (AFSL) regime is not an easy task and can be costly and time consuming. As a result, some product providers and potential issuers search for a way around the regime by looking to the available exemptions to relieve them from the obligation to hold an AFSL, even on a temporary basis. But whilst exemptions may appear to offer a straightforward and elegant solution, they often need to be approached with caution.

A useful recent example can be found in Australian Securities and Investments Commission v BPS Financial Pty Ltd [2025] FCAFC 74 where the Full Court of the Federal Court of Australia (Full Court) considered the ‘authorised representative’ AFSL exemption. This exemption is frequently used by those in the funds and wealth management sectors.

In 2024, the Australian Securities and Investments Commission (ASIC) commenced proceedings against BPS Financial Pty Ltd (BPS) for breach of section 911A (1) of the Corporations Act 2001 (the Act), the obligation to hold an AFSL when carrying on a financial services business in Australia. BPS was providing a financial product called the Qoin Wallet, a non-cash payment facility (NCP). It provided this product as an authorised representative (AR) of an AFSL holder and argued it was therefore exempt under section 911A(2) of the Act from need to hold an AFSL. The primary judge found that BPS had operated without relevant authorisation in breach of section 911A(1) of the Act at various stages, but was exempt from the requirement to hold an AFSL between November 2020 and August 2021. The Court held that during that period, BPS was an authorised representative of PNI Financial Services Pty Limited, who held an AFSL that covered the financial services provided by BPS. ASIC appealed this aspect of the primary judge’s decision.

Background

The background facts to the appeal included:

• BPS offered an NCP in the form of an app known as the “Qoin Wallet” (Qoin) to enable payments for goods and services.
• The Act provides that an NCP is a financial product, meaning that BPS was required to hold an AFSL authorising it to provide financial product advice and deal in the Qoin to potential clients, unless a relevant exemption applied. At no time did BPS hold an AFSL. BPS sought to rely on section 911A(2)(a) of the Act, the AR exemption. This exemption permits a person to provide financial services as a representative of an existing AFSL holder.
• BPS sought out an AFSL holder permitted to issue NCP financial products, to enable it to issue the Qoin NCP as the AR of the AFSL holder.
• BPS approached Billzy Pty Ltd (Billzy) and in December 2019, BPS was appointed as the AR of Billzy under an AR agreement for a 12-month period, during which it marketed and issued the Qoin to retail and wholesale clients.
• In November 2020, BPS was appointed as an AR of PNI Financial Services Pty Limited (PNI).
• From 1 September 2021 to the date of the first hearing, BPS was again appointed as an AR of Billzy.
• Both Billzy and PNI are AFSL holders and their respective AFSLs include authorisations to provide financial product advice and deal in an NCP. In each AR agreement, BPS was authorised to deal in a financial product, which included issuing a financial product.

Over the period of its offering of the Qoin, BPS issued certain documents including:

• the “Qoin Merchant and Consumer Guide”, created by BPS in October 2020. This document referenced certain other documents, including a product disclosure statement (PDS), financial services guide (FSG), terms of use and privacy notice. All of these documents were stated to be issued by, and be the intellectual property of, BPS.
• six combined PDS/FSGs, which were issued in relation to the Qoin between December 2019 and November 2021.
• The “Terms of Use of the Qoin” document, which identified BPS as the AR of Billzy on the title page and in relevant clauses of the FSG and PDS.

The Court considered the following factors in relation to these documents:

• The PDS and FSG stated that the documents were “prepared” or “provided by” BPS as AR of Billzy, but did not state they were prepared or provided “for” or “on behalf of” Billzy or “as AR of” Billzy.
• The use of “we”, “us” and “our” referred to BPS only, rather than BPS and Billzy.
• The language in the PDS and FSG made it clear that while BPS was only authorised to provide general advice, BPS was also the entity providing the advice and services contemplated by the PDS. It was not clear whether BPS was providing these services as a representative of Billzy or later PNI, or on its own behalf.
• The clauses in the FSG regarding remuneration only referred to employees and directors of BPS.
• The PDS did not contemplate Billzy providing any services, and the contractual relationship was bilateral between BPS and the user.
• The Terms of Use of Qoin did not reference the AFSL holder and conferred all contractual rights on BPS.
• Ancillary emails stated: “this is a BPS product and offering and therefore BPS is responsible for drafting and issuing the PDS/FSG in consultation with PNI”.

It was noted that none of these documents were substantively changed following the transition from Billzy to PNI.

Primary judgment

The relevant issue in the primary judgment was whether BPS’s conduct in carrying on a financial services business by issuing the Qoin fell within the AR exemption. The judge focused on the phrase “on behalf of” in the definitions of “representative” and “authorised representative” in the Act to find that the AR must act on behalf of the AFSL holder.

The judge considered the use of these words permits an AFSL holder to determine whether and in what respect it will appoint an AR to act on its behalf. The judge reasoned there was nothing in the Act which prevented a person from acting “as” an AR if that person was issuing a financial product. This was on the basis that section 916A of the Act requires only that a written notice be given by the holder of the AFSL appointing the representative, but does not limit a person from being an AR of an AFSL holder if they are also a product issuer. The judge considered the Act leaves it open to the AFSL holder to determine the circumstances in which it will authorise a person to act on its behalf, and to decide what it authorises the AR to do on its behalf in any given case.

Her Honour found the plain terms of the AR agreement with PNI authorised BPS to issue a financial product, which was within the scope of PNI’s AFSL and therefore BPS’s conduct fell within the AR exemption during the operation of the PNI AR agreement.

However, this was not the case with the AR agreements with Billzy. The primary judge held that their express terms did not authorise BPS to either issue the Qoin or give general financial product advice about it. Therefore, BPS was not exempt from the AFSL requirements during the time BPS was operating under the Billzy AR agreements.

Appeal

ASIC appealed the aspect of the decision regarding the AR agreement with PNI, arguing the AR exemption created an “essential representative capacity requirement” requiring the AR to act as a representative of the AFSL holder, including by acting on their behalf.

ASIC submitted the text of section 911A(2)(a) of the Act contains two key and mutually reinforcing concepts:

• The first being that the word “representative” serves the double function of:
  • Identifying (through the definition of “representative”) the full ambit of persons who can claim the exemption
  • When used in the composite phrase (“… provides the services as representative of …”), limits the exemption to the case where the person is providing the financial service in the capacity that qualifies them as a representative of the second person
• The second key concept being that the person claiming the exemption must provide the service “as representative of” a second person who holds an AFSL which covers the provision of the relevant service.

ASIC argued that an AR of an AFSL holder cannot issue a financial product because of the particular responsibilities placed on the issuer of a financial product, including those set out in section 761E of the Act.

The Full Court examined the operation of section 911A(2), namely:

1. The threshold requirement to hold an AFSL to carry on a financial services business.
2. Where the exemption is relied on, it is to provide services “as representative of” a second person who carries on a financial services business, and who holds an AFSL that covers that service.

The Full Court considered that section 911A(2) is concerned with the “capacity in which the person provides the service.” The Full Court considered that the focus on the representative capacity is reinforced in section 911B of the Act, which provides that an AR must only provide a financial service if they are providing the relevant service on behalf of a principal. The legislation makes it plain there is an essential requirement that the “representative” act only in that capacity.

The Full Court accepted the finding of the primary judge that section 916A(1) permits an AFSL holder to determine the content and scope of the authority granted to its AR. However, it is a question of fact as to whether the relevant financial service is being provided in a representative capacity.

The Full Court held the primary judge erred by failing to consider whether, by issuing the Qoin and giving financial product advice, BPS was acting on its own behalf, or was acting as the AR of PNI. The fact that the AR agreement permitted the issuance of a financial product did not answer the question as to whether in truth and substance BPS was providing those services “as representative of” PNI; they were not.

The evidence established that BPS was issuing the Qoin on its own behalf and not as an AR of PNI, as follows:

• At the time PNI issued the AR agreement to BPS, the product was already fully developed and had been offered under another AFSL holder (Billzy).
• Prior to the PNI AR agreement, BPS had been issuing the Qoin NCP without holding an AFSL, purportedly as an AR of Billzy.
• There was no evidence PNI was involved in the development of the product at that or any later time.
• The relationship between BPS and Billzy, and later PNI, was that of “AFSL provisioning”. The factual question raised by this practice is whether the financial service provided by the AR was provided in that person’s capacity as AR of the AFSL holder.
• While there were various informal compliance arrangements (PNI gave comments on the PDS and held monthly compliance meetings), these steps did not lead to the conclusion that BPS was acting as an AR. Other than appointing BPS as an AR, PNI had little to do with the Qoin NCP.

This meant that BPS was at all times required to hold an AFSL to issue the Qoin.

Consequently it was not necessary for the Full Court to decide:

• Whether an AR can be an issuer of a financial product
• Whether an issuer of a financial product can act in their capacity as an AR of an AFSL holder or whether an AFSL holder needs to be involved some way in issuing the financial product

Accordingly, the outcome is limited to the facts of this case and these considerations are likely to vary depending on circumstances.

Key takeaways

The AFSL exemptions can be a tempting alternative to obtaining an AFSL, but the Full Court’s judgment provides a timely reminder that caution needs to be exercised.

Critically, the Full Court looked beyond the AR agreement and considered facts which evidenced that the AR was essentially issuing its own product rather than those of its authorising AFSL holder.

Whether this case prompts ASIC to undertake further work in this space, such as a widespread review of the use of AR arrangements, remains to be seen. Meanwhile this case provides valuable guidance to industry on ASIC’s expectations, and a timely reminder to AFSL holders that an AR must be a representative of the licensee, both in name and in fact, and not allow appointment as AR to circumvent the obligation to hold an AFSL.

More generally, when seeking to use the AR exemption, would-be ARs should carefully consider whether the services they are offering are appropriate for an AR arrangement, and that all disclosures and documents accurately reflect the nature of this relationship. Product providers that currently rely on the AR exemption should consider the implications of the Full Court’s judgment for them and whether they need to take any remedial action in response.

How we can help

We advise and support both AFSL holders and their ARs.

This includes:

• Advising on AFSL requirements and AR arrangements and documenting AR arrangements.
• Providing training and guidance on the rules and regulations relevant to the AR's activities.
• Conducting regular reviews of the AR's activities, business, and senior management to ensure they are operating effectively and meeting standards.
• Monitoring the AR's activities to identify any potential non-compliance issues.