Practical implications for authorised representatives of ASIC v BPS Financial appeal decision

This article builds on our earlier analysis of the ASIC v BPS Financial Pty Ltd Full Federal Court decision by considering the practical implications of that decision for fund managers and the broader financial services industry. 

Background

In ASIC v BPS Financial Pty Ltd [2024] FCA 457, the Federal Court considered the operation of the authorised representative exemption in section 911A(2)(a) of the Corporations Act 2001 (Cth) (Corporations Act). Relevantly, the Court held that the authorised representative was exempt from the requirement to hold an Australian financial services (AFS) licence where that authorised representative was issuing a financial product – disagreeing with ASIC’s claim to the contrary.

On appeal in Australian Securities and Investments Commission v BPS Financial Pty Ltd [2025] FCAFC 74 (ASIC v BPS), the Full Federal Court did not consider it necessary to decide whether an authorised representative could issue a financial product in its capacity as an authorised representative. However, the Full Court examined issues with the operation of the authorised representative exemption in these particular facts which, if applied more broadly, could be seen as both contradicting ASIC’s longstanding view on the exemption as well as accepted industry practice.

Key considerations

We think there are three practical issues worth highlighting from the Full Court’s decision:

Appeal decision appears to support product issue in authorised representative capacity

The Full Court held that the purported authorised representative was not in fact acting in a ‘representative capacity’ when issuing a financial product, and, from this, the section 911A(2)(a) exemption was not available to the authorised representative. It was not the issue of financial products which meant that the authorised representative exemption in section 911A(2)(a) of the Corporations Act was not available.

Arguably, this line of reasoning of the Full Court supports the proposition (consistent with the decision of the primary judge) that the issue of financial products by an authorised representative is not inherently problematic. For instance, if an authorised representative was to be acting in a ‘representative capacity’ vis-à-vis the relevant AFS licensee, we believe it would not be unreasonable to conclude that the exemption in section 911A(2)(a) of the Corporations Act was available to that authorised representative for its issuing of a financial product.

Even if we adopt a potentially more conservative approach and view the Full Court’s silence on the availability of the section 911A(2)(a) exemption for product issue as merely that (and not any tacit approval of the primary judge’s statement of principle) we nevertheless believe that the Full Court’s judgment means it is open to take the position that an authorised representative can issue financial products in its capacity as an authorised representative. We consider that this would lead to a more commercially desirable outcome than that which would arise from the position that ASIC unsuccessfully argued at first instance and before the Full Court.

Full Court indicia of what constitutes a ‘representative capacity’

The Full Court considered the following indicia of whether the authorised representative was issuing a financial product in a ‘representative capacity’:

• (Involvement in product development) whether the relevant AFS licensee is involved in the development and issuing of the financial product;
• (Nexus to the licensee) whether the financial services business of the authorised representative has a relevant connection with the financial services business of the relevant AFS licensee;
• (Marketing) whether marketing, disclosure or similar documents relating to the financial product or financial service are being prepared or will be issued by the AFS licensee (including whether the documents contemplate a direct relationship between the recipient of the document and the AFS licensee);
• (Compliance) whether the relevant AFS licensee has compliance measures in place that are specific to the provision of the financial services; and
• (License lending) the extent to which the arrangement between the AFS licensee and the authorised representative is limited only to the AFS licensee ‘lending’ its licence.

One potential outcome of the Full Court’s decision is that an authorised representative could mount a defensible argument that it is able to rely on the section 911A(2)(a) exemption for its issue of financial products as an authorised representative, if the authorised representative was able to look to the above indicia, and any other relevant considerations, to establish that it was acting in a ‘representative capacity’ when issuing products.

Full Court’s reasoning can apply to financial services other than ‘issuing’

It is important to note that the Full Court’s reasoning can be applied more widely than an authorised representative issuing financial products. That is to say, the question of an authorised representative’s ‘representative capacity’ will also be relevant to other types of financial services that an authorised representative could be authorised to provide (for example, providing ‘financial product advice’).

The Full Court’s indicia of a person acting in a ‘representative capacity’ may cause some to reconsider common practices in the financial services industry. One such practice is the use by new fund managers of an authorised representative appointment to begin their marketing of funds (which may constitute the provision of financial product advice) before the fund managers obtain their own AFS licences. In these circumstances, the AFS licensees authorising the managers may not be involved in the development of the financial product (ie, the interests in the fund) being marketed and may not otherwise be related to the manager.

Given the Full Court’s decision and the indicia it provided, it is possible that some fund managers in the example described above would not be considered to be acting in a ‘representative capacity’ and therefore be unable to rely on the authorised representative exemption in section 911A(2)(a) of the Corporations Act. While this may not have been the intended objective of ASIC in pursuing the appeal, the result of the Full Court’s decision in ASIC v BPS suggests that AFS licensee/authorised representative relationships and arrangements may need to be re-evaluated in light of the new ‘representative capacity’ test. These issues are of considerable importance in ensuring the ‘authorised representative’ AFS licence exemption is available and will often need to be considered in light of specific circumstances, and legal advice sought about this.