Nicholas Benbow, director, audit and assurance at William Buck, said the Australian Accounting Standards Board (AASB) also makes it clear that AFSL licensees fall within the scope of AASB 2020-2. This is notwithstanding that under s.989B of the Corporations Act their annual financial reporting requirements to ASIC consist only of an audited balance sheet and profit and loss statement.

However, Mr Benbow said ASIC is yet to formally address the impact of AASB 2020-2 on AFSL licensees which is present in Form 71, which auditors attach to an AFSL licensee’s disclosures under s.989B that refers to the current status quo.

“As a consequence, the majority of Australia’s 6,248 AFSL licensees will face elevated reporting and auditing requirements under a general purpose framework, with disclosure obligations not too dissimilar from that of ASX-listed entities,” Mr Benbow said. 

“Such an elevation will place significant cost and compliance pressures on those AFSL licensees.”

Mr Benbow stated this is likely to create “carnage” in the financial services industry, as AFSL licensee holders, looking to manage costs of compliance, en masse retire their own licence and seek a Corporate Authorised Representative (CAR) arrangement in order to continue to ply their trade.

“In a couple of years, and without further clarification from ASIC on this matter, expect a markedly different AFSL compliance industry, dominated by much larger, corporatised ‘super-AFSL’ licensees, with extensive CAR networks,” Mr Benbow stated.

“This will mean a corporatising of the responsibility for policing AFSL compliance effectively farmed out to these ‘super-AFSLs’, rather than having a direct relationship between licensee and ASIC.

“Also expect the rise of a new job description — the ‘CAR-Broker’ — responsible for connecting these former AFSL licensees with a ‘super-AFSL’.”