What to Do After an AFSL Application Refusal by ASIC

Introduction

Obtaining an Australian financial services licence (AFSL) is a mandatory requirement for businesses wanting to provide financial services. Under the Section 913B of the Corporations Act 2001 (Cth), the Australian Securities and Investments Commission (ASIC) must refuse an application if it believes the applicant cannot meet their general obligations, lacks adequate financial resources, fails the fit and proper person test, or submits a materially false or misleading application.

For applicants facing a potential or formal refusal, understanding the available legal and administrative options helps keep their proposed financial services business viable. This article explains the reasons ASIC rejects applications and the immediate steps to take after a refusal for founders and compliance officers so you can manage the review process or successfully reapply.

Interactive Tool: Find Your Best Next Step After an AFSL Refusal & Warning

Common Reasons for an AFSL Application Refusal

Failing the Fit & Proper Person Test

Under Section 913B(1)(c) of the Corporations Act 2001 (Cth), ASIC must not grant an AFSL unless the fit and proper person requirement in Section 913BA is satisfied. Section 913BA requires ASIC to be satisfied that there is no reason to believe that the applicant or any other person specified in Section 913BA(1) is not fit and proper for the relevant statutory purpose. A failure to meet this standard is a common reason for an AFSL application to be refused. Ultimately, this test assesses a person’s competence, character, and financial soundness.

The statutory test applies to:

• the applicant;
• an officer of a body corporate applicant;
• the partners or trustees, and senior managers, of an applicant that is a partnership or multiple-trustee entity;
• a person who controls the applicant; and
• specified officers, partners, trustees and senior managers of a controller.

When assessing if a person is fit and proper, ASIC considers several factors. According to Section 913BB(2) of the Corporations Act 2001 (Cth), these include:

• Whether the person has been convicted of an offence in the last 10 years;
• Whether they have had a licence suspended or cancelled;
• Whether they have been subject to a banning or disqualification order;
• Any links to a failure to comply with a determination by the Australian Financial Complaints Authority (AFCA);
• Any involvement in an insolvency event; and
• Any involvement in other matter ASIC considers relevant.

Inadequate Organisational Competence & Responsible Managers

Under Section 912A(1)(e) of the Corporations Act 2001 (Cth), an AFS licensee must maintain the competence to provide the financial services covered by its licence. At the application stage, Section 913B(1)(b) requires ASIC to consider whether there is reason to believe that the applicant is likely to contravene that obligation if the licence is granted.

ASIC ordinarily assesses organisational competence by examining the knowledge and skills of the people nominated as responsible managers. As outlined in ASIC’s Regulatory Guide (RG) 105, responsible managers are expected to:

• have direct responsibility for significant day-to-day decisions concerning the financial services business;
• collectively have appropriate knowledge and skills covering all financial services and financial products for which authorisation is sought; and
• individually satisfy one of the five knowledge-and-skills options described in RG 105.

For example, if an applicant seeks authorisation to advise on derivatives, but its responsible managers only have experience with general insurance products, ASIC is likely to find that organisational competence has not been demonstrated. That evidentiary gap may give ASIC reason to believe that the applicant is likely to contravene provisions of the Corporations Act 2001 (Cth).

Insufficient Financial Resources & Compliance Frameworks

An AFSL application may be refused if the applicant fails to demonstrate it has adequate resources and a robust compliance framework. Section 912A(1)(d) of the Corporations Act 2001 (Cth) requires a licensee to have sufficient financial, technological, and human resources to provide its financial services and carry out supervisory arrangements.

In addition, ASIC’s RG 166 explains the financial requirements ASIC ordinarily imposes through licence conditions or statutory modifications, depending upon the financial services and products covered by the licence. They may include solvency and positive net asset requirements, cash-needs requirements, audit requirements and additional or tailored requirements for particular categories of licensee.

Beyond financial stability, ASIC must have no reason to believe the applicant is likely to contravene its general obligations under Section 912A of the Corporations Act 2001 (Cth). To ensure this, ASIC may examine your arrangements for:

• providing financial services efficiently, honestly and fairly;
• managing conflicts of interest;
• taking reasonable steps to ensure representatives comply with financial services laws;
• ensuring representatives are adequately trained and competent;
• maintaining compliant internal dispute-resolution procedures and AFCA membership where services are provided to retail clients; and
• maintaining compensation arrangements, where required.

The Tribunal in Superannuation Warehouse Australia Pty Ltd and Australian Securities and Investments Commission [2019] AATA 88 considered whether there was “reason to believe” an applicant would fail to comply with their future obligations. The refusal was upheld due to the applicant’s history of using misleading business names and previous non-compliance. This highlights that ASIC’s gatekeeper role is designed to prevent foreseeable breaches of the Corporations Act 2001 (Cth) before a licence is granted.

Navigating the ‘Intention to Refuse’ Stage

Requesting an Administrative Hearing with an ASIC Delegate

ASIC cannot formally refuse an AFSL application without first giving the applicant a chance to respond. Under Section 913B(5) of the Corporations Act 2001 (Cth), an applicant has the right to be heard before a final decision is made. This process typically begins when the assessing delegate identifies serious issues with the AFSL application and issues a notice of intention to refuse.

Upon receiving this notice, you can request a private administrative hearing. This provides an opportunity to present your case directly to an independent ASIC decision-maker who was not involved in the initial assessment. The hearing is an informal, inquisitorial process where you can:

• Present new evidence or clarify complex aspects of your financial services business.
• Make verbal or written submissions to counter ASIC’s concerns.
• Provide further evidence concerning organisational competence, financial resources, governance, compliance arrangements or the persons assessed.

You may choose to have legal representation at the hearing. Ultimately, the objective is to demonstrate that the statutory conditions for granting the licence are satisfied and that any concern about false, misleading or materially incomplete information has been resolved.

Strategically Withdrawing the Application

Instead of proceeding to a hearing, you may decide that voluntarily withdrawing the AFSL application is a better strategic option. This may be appropriate where the applicant cannot remedy material deficiencies within the current assessment process and intends to restructure the business or supporting evidence before reapplying. The primary benefit of withdrawing is that it prevents a formal refusal from being recorded on your regulatory history.

Furthermore, an application is also considered withdrawn if you fail to respond to an information request from ASIC within a specified timeframe. Under Section 913B(4B) of the Corporations Act 2001 (Cth), this is called a deemed withdrawal.

Immediate Steps After a Formal ASIC Rejection

Requesting a Written Statement of Reasons

If ASIC has formally refused your AFSL application, you are entitled to understand the specific grounds for the decision. Section 1317D of the Corporations Act 2001 (Cth) requires ASIC to take reasonable steps to give an affected person notice of a reviewable decision and the person’s review rights.

Further, you may also request a written statement of reasons under Section 268 of the Administrative Review Tribunal Act 2024 (Cth), which should be typically provided to you within 28 days of ASIC receiving the request. The statement of reasons will outline why ASIC believes you did not meet the requirements. This document is essential for identifying the exact deficiencies in your AFSL application and planning your next steps.

Seeking Documents Using Freedom of Information Legislation

Beyond the formal statement of reasons, you may seek access to a broader range of documents related to ASIC’s assessment of your AFSL application. This can be done by making a request under Section 11 of the Freedom of Information Act 1982 (Cth) (FOI Act). This provision gives a person a legally enforceable right to obtain access to an agency document, subject to the FOI Act.

An application for these documents must be made in writing and should clearly state which documents you wish to obtain. Furthermore, you can send your application by email to ASIC’s FOI Team.

This process can provide deeper insight into ASIC’s assessment of your application. However, it does not guarantee access to all internal notes, legal advice or deliberative material. Access may be refused or redacted under the exemptions and conditional exemptions in Part IV of the FOI Act (Cth), including provisions concerning law enforcement, legal professional privilege, deliberative processes and agency operations.

Further, it is important to be aware that charges may be imposed for the time spent searching for, retrieving, and preparing the documents for release.

Formal Appeal & Review Options

Applying for a Merits Review at the Administrative Review Tribunal

If ASIC formally refuses your AFSL application after a hearing, you have the right to seek an independent merits review. This right is provided under Section 1317B of the Corporations Act 2001 (Cth). The review is conducted by the Administrative Review Tribunal (ART), which has taken over this function from the former Administrative Appeals Tribunal (AAT).

Under Sections 52–54 of the Administrative Review Tribunal Act 2024 (Cth) (ART Act), the ART is not bound by the rules of evidence, controls the scope of the review and may exercise the powers and discretions of ASIC as the original decision-maker. This means the ART can take a fresh look at all the facts, law, and policy related to your AFSL application. It is not limited to the information you originally provided to ASIC and you can present new evidence to support your case.

To initiate a review, you must follow a strict process:

• Time limit: Under Section 18 of the ART Act (Cth) and Rule 5 of the Administrative Review Tribunal Rules 2024 (Cth) (ART Rules), the ordinary period is 28 days after the applicant is given written notice of the decision or, where reasons are later given, 28 days after the reasons are given. Under Section 19, the ART may extend that period where it considers an extension reasonable in all the circumstances.
• Application: The application must be made in writing, and a standard fee of $1,195 is payable, though a reduced fee of $100 may apply in specified concessional circumstances.
• Process: The ART process may involve preliminary conferences and conciliation before proceeding to a formal hearing.

The ART has the power to take several actions, as follows:

• affirm ASIC’s refusal;
• vary the decision;
• set aside the refusal and substitute another decision;
• set the decision aside and send it back to ASIC with directions; or
• grant the AFSL itself.

Ultimately, this process can be lengthy, often taking between six and 12 months, and may require legal representation.

Pursuing Judicial Review or an Appeal on a Question of Law

A judicial review is a different process from a merits review at the ART. It does not involve a re-examination of the facts of your AFSL application. Instead, it is a legal challenge to the way the decision was made and on any question of law involved in the matter, conducted in the Federal Court of Australia. As a result, you can seek a judicial review of a decision made by either ASIC or the ART.

This type of review is typically pursued under the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act). Under Section 5 of this Act, an applicant may challenge an ASIC decision on grounds including:

• denial of procedural fairness;
• failure to follow legally required procedures;error of law;
• taking an irrelevant consideration into account;
• failing to consider a relevant consideration;
• improper exercise of power; or
• a decision otherwise contrary to law.

Importantly, the Federal Court cannot grant you an AFSL. If your judicial review is successful, the court can only set aside the flawed decision and send it back to the original decision-maker (either ASIC or the ART) to be reconsidered according to the law.

Pursuing a judicial review is generally more technical, expensive, and time-consuming than a merits review. Under Section 11 of the ADJR Act (Cth), an application is ordinarily filed within 28 days after notification of the decision or receipt of reasons, whichever occurs later. The Federal Court may extend time under Rule 31.02 of the Federal Court Rules 2011 (Cth).

Fixing Deficiencies & Reapplying for an AFSL

Strengthening Responsible Manager Profiles & Competence

An AFSL application may be refused if the nominated responsible managers do not provide sufficient evidence that the applicant will maintain organisational competence under Section 912A(1)(e) of the Corporations Act 2001 (Cth). If your initial application was unsuccessful due to such issues, you must address these deficiencies before reapplying.

To strengthen your application, ensure your responsible managers meet the standards set out in ASIC’s RG 105. This involves demonstrating that each responsible manager:

• Has direct responsibility for significant day-to-day decisions;
• Satisfies the fit and proper person test under Section 913BA of the Corporations Act 2001 (Cth);
• Meets one of the five options for demonstrating knowledge and skills; and
• Collectively with the other responsible managers covers every financial service and product authorisation sought.

A common reason for refusal is a mismatch in experience, where a responsible manager’s background does not align with the specific financial services or product authorisations sought in the AFSL application. Where there are material coverage gaps, the applicant may need to appoint an additional responsible manager, narrow the authorisations sought or provide further evidence demonstrating relevant knowledge and practical experience.

Bolstering Financial Resources & Compliance Documentation

Failing to demonstrate adequate financial resources or a robust compliance framework is another frequent cause of an AFSL application refusal.

When reapplying, you must provide clear evidence that you meet the resource requirements of Section 912A(1)(d), the risk-management obligation in Section 912A(1)(h) and ASIC’s predictive assessment under Section 913B(1)(b) of the Corporations Act 2001 (Cth). Depending on the applicant, this may require financial statements, cash-needs calculations, projections, audit material, solvency and positive-net-asset evidence, or additional requirements applying to a specific class of licensee. The required projection period and calculation method is dependent on the applicable RG 166 requirement or proposed licence condition.

ASIC also requires a tailored compliance framework that is specific to your business, rather than being based on generic templates. Your reapplication should include detailed, practical documentation showing how your business will meet its general obligations, including:

• Your business’s risk management systems.
• Procedures for managing conflicts of interest.
• Internal and external dispute resolution processes, including membership with AFCA.
• Arrangements for supervising and training representatives.
• Specific compensation and insurance arrangements, such as professional indemnity insurance.

Alternative Licensing Pathways

Operating as a Corporate Authorised Representative

If obtaining your own AFSL is not immediately feasible after a refusal, you can operate legally by becoming a Corporate Authorised Representative (CAR). Under Section 916A(1) of the Corporations Act 2001 (Cth), the licensee must give the representative written notice authorising you to provide specified financial services on the licensee’s behalf. This arrangement allows you to begin or continue operating your financial services business without holding your own licence.

The principal AFS licensee retains ultimate legal responsibility for the financial services provided under its licence. This means they are responsible for the regulatory infrastructure, including:

• Governance arrangements;
• Compliance oversight and monitoring;
• Supervision of representatives; and
• Professional indemnity insurance.

Because the licensee assumes the regulatory risk for your activities, they will conduct rigorous due diligence on your business and personnel. In exchange for this hosting arrangement, you will typically pay a fee or a share of your revenue. This pathway is often suitable for start-ups, single-adviser practices, and firms that only require a narrow suite of authorisations. Furthermore, operating as a CAR allows you to build a successful operational track record, which can strengthen a future AFSL application.

Limiting Activities to Unlicensed Exemptions

Another alternative is to restructure your business model to focus only on activities that do not require an AFSL. This can be a temporary strategy to allow your business to operate while you strengthen your capabilities to reapply for a licence in the future. However, this approach requires a careful review of your proposed services to ensure they fall outside the regulatory regime.

Certain activities may not require a full AFSL, with examples including:

• Acting solely as a referrer;
• Providing advice on basic deposit products;
• Distributing general insurance under a binder;
• Offering services covered by a specific exemption in an ASIC instrument; or
• Structuring advice limited to areas sitting entirely outside the definitions of financial product advice in Chapter 7 of the Corporations Act 2001 (Cth).

This pathway demands extreme caution. Therefore, it is important to obtain legal sign-off from a specialist compliance lawyer to ensure your restructured business model does not inadvertently provide unlicensed financial services.

Conclusion

An AFSL application refusal by ASIC often stems from failing the fit and proper person test, lacking organisational competence, or having insufficient financial resources. Successfully navigating this setback involves understanding the entire process, from administrative hearings and appeals to strengthening your application or exploring alternative licensing pathways.

Navigating these regulatory challenges requires specialised legal support to ensure your next steps are effective. Our experts provide clear, fixed-fee guidance on financial services regulation and can help you manage the review process, so contact our AFSL application lawyers at Click Legal today to prepare a successful reapplication.

Frequently Asked Questions