The Fit & Proper Person Test for AFSL Applications in Australia

Introduction

Securing an Australian Financial Services Licence (AFSL) requires applicants to pass the fit and proper person test mandated by Section 913BA of the Corporations Act 2001 (Cth). While this assessment can feel thorough—as the Australian Securities and Investments Commission (ASIC) is essentially looking into your past to predict the firm’s future—it ensures that key individuals possess the integrity and competence to provide financial services.

Following amendments introduced by the Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 (Cth) (2020 Amendment), the current statutory framework replaced the former “good fame and character” criterion with ss 913BA and 913BB of the Corporations Act 2001 (Cth). This article explains the core assessment criteria, the required people proofs, and the ongoing obligations for responsible managers and controllers so you can manage your licensing requirements.

Interactive Tool: See If You Meet the AFSL Fit & Proper Person Test

The Fit & Proper Test: Definition & Assessment Criteria

The fit and proper person test is a mandatory requirement for any business applying for or holding an AFSL. Under Section 913BA(1) of the Corporations Act 2001 (Cth), ASIC must have no reason to believe that the key individuals involved in a financial services business are not fit and proper.

ASIC evaluates individuals against several core criteria to determine if they are fit and proper. In terms of Regulatory Guide (RG) 1.139, this assessment may include competence in the relevant role, character, diligence, honesty, integrity, judgement, compliance history and conflicts of interest.

Further, the statutory matters to which ASIC must have regard are set out in Section 913BB(2) of the Corporations Act 2001 (Cth), including:

• Licence History: Whether the person has ever had an AFS licence or Australian credit licence suspended or cancelled.
• Banning and Disqualification: Whether any banning orders or disqualification orders have been made against the person under the Corporations Act 2001 (Cth) or the National Consumer Credit Protection Act 2009 (Cth).
• Criminal Convictions: Any convictions for offences involving fraud, dishonesty, or financial services laws in the last 10 years.
• Insolvency and Bankruptcy: Whether the individual is an undischarged bankrupt or bound by a personal insolvency agreement.
• AFCA Determinations: Any failures to comply with determinations made by the Australian Financial Complaints Authority (AFCA).

This statutory list is important, but it is not exhaustive because ASIC must also have regard to any other matter it considers relevant.

Scope of Scrutiny & The Controller Trap for Investors

Who is Assessed Under the Test?

Under Section 913BA of the Corporations Act 2001 (Cth), the fit and proper assessment casts a wide net, extending beyond just the directors you appoint. It applies differently depending on the applicant’s legal structure. 

ASIC's scrutiny applies to a broad range of individuals connected to the management and control of the AFSL applicant. The test covers:

• The applicant if they are an individual.
• Officers of the applicant if it is a body corporate, which includes all directors, company secretaries, and senior managers, regardless of whether they perform duties directly related to the AFSL.
• Partners and senior managers if the applicant is a partnership.
• Trustees and senior managers if the applicant is a trust with multiple trustees.
• Any person or entity that controls the applicant.
• The officers of any corporate controller, extending the test up the ownership chain.

The term 'officer' is defined broadly under Section 9 of the Corporations Act 2001 (Cth). It includes not only directors and secretaries but also anyone who makes, or participates in making, decisions that affect a substantial part of the business or who has the capacity to significantly affect the company's financial standing, or whose instructions the directors are accustomed to following.

Navigating the Controller Trap for Significant Investors

Many founders preparing AFSL applications are surprised to learn that their significant investors, including venture capital (VC) funds or silent partners, may be subject to ASIC's fit and proper person test. This is known as the "controller trap". The test applies to any person or entity that controls the applicant, and this extends beyond day-to-day management.

A controller is not limited to a shareholder with more than 50% ownership. Under Section 910B of the Corporations Act 2001 (Cth), a person is considered a controller if they have the capacity to:

• cast, or control the casting of, more than half the votes at a general meeting;
• hold more than half of the issued share capital of the company;
• control the composition of the board; or
• determine the outcome of decisions about the company's financial and operating policies, considering the practical influence the person can exert.

This means that even an investor with no direct involvement in the business must provide their personal information and proofs to ASIC if their shareholding or voting power meets this threshold. If the controller is a corporate entity, such as a VC fund, the fit and proper requirements extend to the officers of that controlling entity as well. Furthermore, this can be particularly onerous for businesses with foreign controllers, where obtaining the necessary documentation from overseas can be difficult.

For an existing AFSL holder, a person starting or ceasing to control the licensee triggers a notification obligation. As per Section 912DA(1) of the Corporations Act 2001 (Cth), the licensee must notify ASIC in the prescribed form within 30 business days. Failure to comply is a strict-liability offence under Section 912DA(2), with the offence consequence arising through Section 1311(1).

Application Proofs & The ASIC Assessment Process

Required People Proofs & Documentation

To assess each individual against the fit and proper person test, ASIC requires a set of mandatory documents known as "People Proofs". As per RG 1.148-1.150, ASIC ordinarily requires People Proofs for relevant fit and proper persons, including officers of a corporate applicant, relevant controllers and certain persons connected with controller entities.

Each relevant person must provide the following documents, which must be no more than 12 months old at the time of submission:

• Statement of Personal Information: This is a detailed questionnaire provided by ASIC that asks about the individual's conduct over the last 10 years, including any past disqualifications, enforcement history, or licence cancellations.
• National Criminal History Check: This police background check is required to identify any convictions within the last 10 years, and equivalent checks may also be necessary if a person has lived or worked in other countries during that period.
• Bankruptcy Check: An official search of insolvency registries is needed to confirm the individual's financial standing and to verify they are not insolvent under administration.

For individuals nominated as a responsible manager, additional proofs are often required to demonstrate their organisational competence under ASIC's RG 105. These supplementary documents typically include qualification certificates and business references.

How ASIC Administers the Test

ASIC administers the fit and proper person test primarily through a documentary assessment process conducted via the ASIC Regulatory Portal. The process is not typically an interview; instead, ASIC analysts review the submitted People Proofs against the specific criteria. Ultimately, the application is lodged online, and all supporting documents are uploaded directly to the portal.

ASIC's assessment is a comprehensive evaluation of character, history, and capabilities. If the information provided in the Statement of Personal Information or other proofs raises questions, ASIC may issue a formal request for further information to clarify the matter.

For large corporate groups with complex ownership structures, ASIC provides some practical relief. In certain situations, an applicant can provide a certification for officers of intermediate entities in the corporate chain, rather than submitting full People Proofs for every individual. However, this certification option is not available for the officers of the AFSL applicant itself or for the officers of the ultimate holding company.

Consequences of Failing the Assessment

What May Prevent ASIC from Being Satisfied

The statutory question is not whether a person “fails” a standalone test. The question is whether ASIC is satisfied that there is no reason to believe a person identified in Section 913BA(1) of the Corporations Act 2001 (Cth) is not fit and proper for the relevant role.

As established under Section 913BB of the Corporations Act 2001 (Cth), ASIC relies on the broad statutory red flags previously discussed—such as recent criminal convictions, insolvency events, past licence cancellations, or banning orders—to determine if an applicant falls short of the required standard.

License Refusal, Suspension and Cancellation

For a new application, ASIC must not grant an AFSL unless the fit and proper person requirement in Section 913BA of the Corporations Act 2001 (Cth) is satisfied. In such a case, ASIC may refuse the application.

For an application to vary AFSL conditions, ASIC may refuse the application if the fit and proper test is not satisfied in relation to the applicant and the licence as proposed to be varied, in terms of Section 914B.

For an existing AFSL holder, ASIC may suspend or cancel the licence where the fit and proper person requirement is not satisfied in relation to the licensee and the licence.

In all these cases, ASIC must offer the licensee an opportunity to be heard and make submissions before acting.

Banning Orders

Under Section 920A of the Corporations Act 2001 (Cth), ASIC may make a banning order in writing where it has reason to believe that a person is not fit and proper to provide financial services, act as an officer of an entity carrying on a financial services business, or control such an entity.

Further, such a person may be prohibited from providing financial services, performing specified functions in a financial services business, or controlling a financial services entity, for a specified period or permanently.

ASIC Enforcement Examples & Regulatory Outcomes

ASIC's enforcement actions provide clear examples of how failing the fit and proper person test can end a career in financial services. These cases serve as cautionary tales for all AFSL applicants and holders.

A notable example is ASIC's action against Financial Services Group Australia Pty Ltd (FSGA). As detailed in Media Release 25-102MR, ASIC cancelled FSGA's AFSL and permanently banned its responsible manager, Graham Holmes. ASIC found that Mr Holmes was a responsible manager 'on paper' only, knew he was not fulfilling his duties, and was involved in FSGA's failure to ensure its representatives acted in clients' best interests. Consequently, ASIC determined he was not a fit and proper person to participate in the industry.

Other cases further illustrate ASIC's application of the standard:

• In the case involving Mark Bringans, as detailed in Media Release 22-301MR, the former Responsible Manager of Sirius Financial Markets (trading as "TradeDirect365"), ASIC issued an eight-year ban after finding he was inadequately trained, incompetent, and "not a fit and proper person to provide financial services".
• In ASIC v Adler (2002) NSWSC 171, the court's findings of dishonesty and reckless disregard for legal obligations were central to determining that the individual was not a fit and proper person.
• More recently, ASIC banned financial adviser Rhys James Rolls Reilly for ten years over misconduct connected to the Shield Master Fund, finding he was not a fit and proper person and had failed to properly oversee advisers.

Ongoing Compliance & Strategic Implications

Maintaining Ongoing Compliance Obligations

The fit and proper person test is not a one-off hurdle at the application stage; it is an ongoing requirement for the entire life of an AFSL. ASIC expects AFSL holders to have procedures in place to ensure that all officers, responsible managers, and controllers continue to meet the standard.

Good governance practice suggests that AFSL holders should carry out periodic checks to ensure their key personnel remain fit and proper. These regular reviews should include:

• Annual criminal history checks for all officers and responsible managers.
• Annual bankruptcy checks to confirm ongoing financial stability.
• Regular searches of ASIC's banned and disqualified persons register.
• Signed declarations from directors, responsible managers, and officers on a periodic basis, confirming any adverse circumstances that may affect their status.

Understanding the Strategic Implications for Compliance

For Australian businesses, compliance with the fit and proper person test must be treated as a strategic asset rather than a simple administrative task. The test applies continuously, meaning a failure at any point can lead to ASIC suspending or cancelling a licence or issuing a banning order against an individual under Section 920A of the Corporations Act 2001 (Cth). This makes robust, ongoing monitoring a critical component of risk management.

The strategic importance of this compliance is heightened by its intersection with other regulatory frameworks, such as the Financial Accountability Regime (FAR). The FAR imposes a separate but similar statutory obligation on certain entities to ensure their "Accountable Persons" are fit and proper. While the regimes have their own distinct rules, a failure under one is likely to influence an assessment under the other, reinforcing the need for a comprehensive and proactive approach to governance and compliance.

Conclusion

Successfully securing and maintaining an AFSL hinges on key individuals passing the comprehensive fit and proper person test under the Corporations Act 2001 (Cth). This ongoing assessment requires complete transparency and the submission of detailed proofs, with failure carrying severe consequences such as licence cancellation and personal banning orders from ASIC.

Navigating the fit and proper person test can be a sensitive process, particularly when addressing historical issues before they are lodged with the regulator. For a confidential review of your personal history and a frictionless application process, contact our AFSL application lawyers at Click Legal to ensure your submission meets ASIC's high standards for integrity and transparency.

Frequently Asked Questions