Executive Summary
What Happened
The Full Federal Court of Australia delivered a significant ruling in June 2025 that clarifies when financial services providers can rely on the “authorised representative” exemption to avoid holding their own Australian Financial Services Licence (AFSL). In ASIC v BPS Financial Pty Ltd, the Court found that BPS Financial could not use this exemption when issuing financial products because it was acting on its own behalf rather than as a true representative of an AFSL holder.
The Court overturned a lower court decision and identified five specific factors that showed BPS was operating independently rather than in a genuine representative capacity. This ruling provides the clearest guidance to date on what constitutes proper “representative capacity” under Australian financial services law.
Why It Matters
This decision has immediate implications for the funds management and wealth management sectors, where authorised representative arrangements are commonly used. The ruling:
- Clarifies compliance requirements for thousands of financial services providers currently operating as authorised representatives
- Establishes new practical tests that regulators and courts will use to evaluate these arrangements
- Impacts business models that rely on AFSL exemptions, particularly those involving product issuance
- Strengthens ASIC’s enforcement approach toward arrangements that may appear to be “AFSL shopping” or licensing avoidance
Key Takeaway
Financial services providers cannot simply obtain authorised representative status as a workaround to avoid AFSL requirements. To rely on the exemption, businesses must demonstrate they are genuinely acting on behalf of the AFSL holder, not operating independently under the cover of someone else’s licence. The Court’s five-factor test provides a practical framework for assessing whether arrangements will withstand regulatory scrutiny.
Understanding the Legal Framework
What is an AFSL?
An Australian Financial Services Licence (AFSL) is the primary regulatory permit required to provide financial services in Australia. Under the Corporations Act, businesses must hold an AFSL if they want to:
- Provide financial product advice (whether general or personal)
- Deal in financial products (buy, sell, issue, or apply for financial products)
- Operate a registered managed investment scheme
- Provide custodial or depository services
- Operate a marketplace for financial products
The AFSL system ensures that financial services providers meet minimum standards for competency, compliance, and consumer protection. AFSL holders must demonstrate they have adequate resources, proper risk management systems, and qualified responsible managers. They’re also subject to ongoing obligations, including regular reporting to ASIC and maintaining professional indemnity insurance.
Why this matters: Obtaining an AFSL is a significant undertaking that can take months and requires substantial compliance infrastructure. This is why many businesses resort to alternatives, such as the authorised representative exemption.
What is an Authorised Representative?
An authorised representative is a person or entity that can provide specific financial services without holding their own AFSL, provided they do so “on behalf of” an AFSL holder. This arrangement allows:
- AFSL holders to extend their business reach through representatives without those representatives needing separate licences
- Representatives to provide financial services under someone else’s licence, avoiding the cost and complexity of obtaining their own AFSL
The key legal requirement is that authorised representatives must provide financial services “on behalf of” the AFSL holder. This phrase is central to the recent court decision and means the representative must genuinely act for and represent the interests of the AFSL holder, not operate as an independent business.
Common examples of legitimate authorised representative arrangements include:
- Financial advisers working for a dealer group
- Mortgage brokers operating under a credit licensee
- Investment consultants providing services for a fund manager
The Exemption Rule: Section 911A(2)(a) in Plain Language
Section 911A(2)(a) of the Corporations Act creates an exemption from the usual AFSL requirement. The actual statutory text states:
Section 911A(2)(a):
“However, a person is exempt from the requirement to hold an Australian financial services licence for a financial service they provide in any of the following circumstances: (a) the person provides the service as representative of a second person who carries on a financial services business and who: (i) holds an Australian financial services licence that covers the provision of the service; or (ii) is exempt under this subsection from the requirement to hold an Australian financial services licence that covers the provision of the service”
In practical terms, this section says:
“You don’t need your own AFSL if you are an authorised representative providing financial services on behalf of someone who does have an AFSL that covers those services.”
For this exemption to apply, three conditions must be met:
- Written authorisation: The AFSL holder must give you written notice authorising you to provide specific financial services on their behalf
- Licence coverage: The AFSL holder’s licence must actually cover the financial services you want to provide
- Representative capacity: You must genuinely be providing the services “on behalf of” the AFSL holder (this is where the recent court case becomes crucial)
The critical question that the ASIC v BPS case addressed is: what does “on behalf of” actually mean in practice? The Court’s answer provides new clarity on when this exemption can and cannot be relied upon.
The Case Background
The Parties
BPS Financial Pty Ltd (BPS) was a financial services company that had developed a digital payment product but did not hold its own AFSL. To legally offer this product, BPS needed to operate under someone else’s licence.
Australian Securities and Investments Commission (ASIC) is Australia’s corporate regulator, responsible for enforcing financial services laws and protecting consumers. ASIC brought this case because it believed BPS was improperly using the authorised representative exemption.
PNI Financial Services Pty Ltd (PNI) was the AFSL holder that appointed BPS as its authorised representative during the relevant period. PNI held the necessary licence that covered the financial services BPS wanted to provide.
Important context: BPS had previously attempted similar arrangements with other AFSL holders before partnering with PNI, suggesting a pattern of seeking licensing arrangements rather than obtaining its own AFSL.
The Business Model
BPS had developed what’s technically called a “facility for making non-cash payments” – essentially a digital payment system that qualified as a financial product under Australian law. This meant that issuing and operating this product required appropriate licensing.
BPS’s approach was to:
- Develop the payment product independently
- Create all the necessary documentation (Product Disclosure Statements, Financial Services Guides, Terms of Use)
- Seek out AFSL holders who would appoint BPS as an authorised representative
- Operate the product under the appointed AFSL holder’s licence
The key commercial reality: BPS had designed its entire business model around avoiding the need to obtain its own AFSL. The Court later described this practice as “AFSL provisioning” – essentially shopping around for licensing arrangements rather than meeting licensing requirements directly.
How the arrangement with PNI worked: PNI appointed BPS as an authorised representative and put in place some monitoring measures including a compliance plan and monthly compliance meetings. However, these measures were described as “less formal” and were implemented after BPS had already developed and documented its product.
The Dispute
ASIC’s challenge centered on a fundamental question: when BPS issued its financial product, was it genuinely acting “on behalf of” PNI, or was it operating its own business under the cover of PNI’s licence?
ASIC’s position was based on several concerns:
- Product issuance is inherently a principal activity: ASIC argued that issuing a financial product is by nature something a principal does, not something a representative can do for someone else
- BPS was operating independently: The regulator saw BPS as running its own business rather than truly representing PNI’s interests
- Regulatory avoidance: ASIC was concerned about businesses using authorised representative arrangements to circumvent proper licensing requirements
This wasn’t just about BPS: ASIC’s challenge reflected broader regulatory concerns about what it saw as widespread misuse of the authorised representative exemption across the financial services industry.
The stakes: If ASIC was right, BPS had been operating without proper licensing, which is a serious breach of financial services law. More broadly, the case would clarify the boundaries of when the authorised representative exemption can legitimately be used – affecting thousands of similar arrangements across the industry.
Court Decisions Explained
First Instance Decision
Judge’s Reasoning: Why the Lower Court Sided with BPS
Justice Downes at first instance accepted BPS’s argument and rejected ASIC’s core contentions. Her Honour’s reasoning was based on a broad interpretation of what it means to act “on behalf of” an AFSL holder.
The judge found that:
- No strict principal-agent relationship required: ASIC’s argument that authorised representatives must operate in a traditional principal-agent relationship was not supported by the law
- Product issuance doesn’t disqualify representation: Contrary to ASIC’s position, the act of issuing a financial product doesn’t automatically mean you cannot be acting as someone’s representative
- Flexibility in arrangements: The Corporations Act allows AFSL holders significant freedom to decide what an authorised representative arrangement will look like in practice
Key legal reasoning: Justice Downes emphasized that the phrase “on behalf of” in the legislation doesn’t have a strict legal meaning limited to agency relationships. Instead, it can apply to a wide variety of arrangements where one party acts for another.
Key Findings: What the Judge Determined About Authorised Representatives
The first instance decision established several important principles:
Authorised representatives can issue financial products: A person can be an authorised representative even when issuing financial products, provided they are properly authorised to do so by an AFSL holder.
AFSL holders have broad discretion: Licensed entities can appoint authorised representatives to provide financial services for products the AFSL holder didn’t originally create, as long as the licence covers those services.
Written authorisation is key: The court focused on whether BPS had been properly authorised in writing by PNI to issue the financial product and provide advice about it.
In BPS’s case: Justice Downes found that because PNI had expressly authorised BPS to issue the financial product and provide general advice about it, BPS could rely on the authorised representative exemption.
Appeal Court Decision
Why ASIC Appealed: The Grounds for Appeal
ASIC appealed to the Full Federal Court on two main grounds:
- Representative capacity requirement: ASIC argued that the authorised representative exemption contains an “essential representative capacity requirement” that BPS failed to meet
- Acting as principal, not representative: ASIC contended that BPS was not actually acting as a representative of PNI during the relevant period, but was operating as a principal in its own right
Importantly, ASIC refined its argument on appeal. Rather than arguing that issuing financial products is always incompatible with representative status, ASIC focused on whether BPS was genuinely acting in a representative capacity in this specific case.
Court’s Reasoning: Why the Full Court Disagreed on the First Instance Decision
The Full Court (Justices Collier, Markovic and Shariff) unanimously overturned the first instance decision, but their reasoning was more nuanced than ASIC’s original position.
The Court’s approach:
- Avoided the broad question: The judges specifically noted they didn’t need to decide whether authorised representatives can ever issue financial products
- Focused on the facts: Instead, they examined whether BPS was actually acting as a representative of PNI in this particular case
- Applied a practical test: The Court looked at the real substance of the relationship rather than just the formal documentation
Critical finding: The Court determined that the primary judge had failed to consider the preliminary question of whether BPS was genuinely acting in its capacity as an authorised representative of PNI.
The Five Critical Factors That Led to BPS Losing
The Full Court identified five specific factors that demonstrated BPS was operating independently rather than as a true representative of PNI:
- Product Development Timeline: BPS had developed the financial product entirely on its own, before it even began dealing with PNI. The Court suggested that PNI should have had some involvement in the product’s development.
- Previous Failed Arrangements: BPS had previously tried to operate as an authorised representative of another AFSL holder, but the primary judge had found BPS couldn’t rely on the exemption during that period. This showed a pattern of seeking licensing arrangements.
- “AFSL Provisioning” Behavior: BPS had actively sought out AFSL holders specifically because it couldn’t issue its financial product without an AFSL. This looked like licence shopping rather than genuine representation.
- Documentation and Relationships: All the key documents (Product Disclosure Statement, Financial Services Guide, Terms of Use) were prepared by BPS before its relationship with PNI began. These documents clearly showed the contractual relationship was between BPS and its customers, not between PNI and the customers. Simply mentioning that BPS was PNI’s authorised representative wasn’t enough to change this fundamental relationship.
- Inadequate Supervision: While PNI had implemented some monitoring measures (compliance plans and monthly meetings), these were described as “less formal” and were put in place after BPS had already developed and documented its product. This suggested oversight was an afterthought rather than genuine principal oversight of an agent.
The Court’s conclusion: Taken together, these factors showed that BPS was conducting its own business under the cover of PNI’s licence, rather than genuinely providing services on behalf of PNI.
A Detailed Analysis of the Five Critical Factors
Factor 1: Product Development Timeline and Principal Involvement
Why This Mattered: The Court saw BPS’s independent product development as evidence that it was pursuing its own commercial agenda rather than acting to advance PNI’s business interests. When a representative develops products independently and then seeks out someone to provide licensing cover, it suggests the tail is wagging the dog.
The legal significance: True representatives typically work within frameworks established by their principals, or at minimum involve principals in key decisions. The complete absence of PNI from the product development process indicated BPS was the real decision-maker and risk-taker.
Practical Implications:
- For businesses seeking authorised representative status: Involve the AFSL holder meaningfully in product development, strategy decisions, and risk assessment processes from the earliest stages
- For AFSL holders: Don’t just provide licensing services – engage substantively with representatives’ business planning and product development to demonstrate genuine principal involvement
- Documentation tip: Maintain records showing the AFSL holder’s input on product features, risk management, and commercial decisions
Factor 2: Pattern of Licensing Arrangements
Why This Mattered: BPS’s history of multiple licensing arrangements with different AFSL holders revealed its true business model – finding licensing solutions rather than operating as someone’s representative. This pattern suggested BPS viewed AFSL holders as interchangeable service providers rather than principals whose interests it was serving.
The legal significance: The Court recognized this as evidence of “AFSL provisioning” – treating licences as commodities to be sourced rather than entering into genuine representative relationships. This undermines the policy objectives behind the authorised representative framework.
Practical Implications:
- Red flag for compliance: Multiple short-term arrangements with different AFSL holders may attract regulatory scrutiny
- For businesses: Demonstrate commitment to long-term relationships with AFSL holders and avoid arrangements that look like licence shopping
- For AFSL holders: Be cautious about appointing representatives who have frequently changed licensing arrangements – this may indicate their true intentions
Factor 3: Motivation for Seeking AFSL Arrangements
Why This Mattered: The Court distinguished between businesses that genuinely want to represent an AFSL holder’s interests and those that simply need licensing cover to operate their own business model. BPS fell clearly into the latter category, seeking out AFSL holders purely because it couldn’t operate without an AFSL.
The legal significance: This factor goes to the heart of whether the arrangement serves the policy objectives of the authorised representative framework. The exemption is designed to allow licensed entities to extend their reach, not to allow unlicensed entities to circumvent licensing requirements.
Practical Implications:
- Business model design: Structure arrangements so that the representative’s success is clearly linked to advancing the AFSL holder’s business objectives
- Commercial alignment: Ensure fee structures, performance metrics, and business incentives align both parties’ interests
- Avoid: Arrangements where the AFSL holder appears to be merely providing a licensing service for a fixed fee
Factor 4: Documentation and Customer Relationships
Why This Mattered: The Court examined who customers believed they were dealing with and who bore the real commercial risks and rewards. Despite formal mentions of the authorised representative relationship, all substantive documentation showed customers were dealing with BPS directly, not with PNI through BPS as an intermediary.
The legal significance: This factor tests whether the representative arrangement has genuine commercial substance or is merely a legal fiction. If customers don’t understand they’re dealing with the AFSL holder through the representative, the arrangement may lack authenticity.
Practical Implications:
- Customer-facing documentation: Clearly explain that customers are dealing with the AFSL holder through its authorised representative, not with the representative independently
- Contractual structures: Consider whether contracts should be between customers and the AFSL holder (with the representative acting as agent) rather than between customers and the representative
- Branding and communication: Balance the representative’s need for business identity with clear communication about the principal relationship
- Legal review: Regularly audit all customer documentation to ensure it properly reflects the representative relationship
Factor 5: Principal Oversight and Control
Why This Mattered: The Court looked beyond formal compliance arrangements to assess whether PNI exercised genuine principal oversight of BPS’s activities. The “less formal” and retrospective nature of PNI’s monitoring suggested a licensing service arrangement rather than a principal-agent relationship.
The legal significance: Effective principal oversight is both a regulatory requirement and evidence of a genuine representative relationship. Inadequate oversight suggests the AFSL holder is not truly responsible for the representative’s conduct, undermining the legal framework.
Practical Implications:
- Proactive oversight: AFSL holders should implement comprehensive monitoring before representatives begin operating, not as an afterthought
- Meaningful controls: Go beyond basic compliance meetings to include oversight of business strategy, risk management, and operational decisions
- Documentation standards: Maintain detailed records of oversight activities, decisions made, and corrective actions taken
- Resource allocation: AFSL holders must invest in supervision capabilities proportional to the scale and risk of representatives’ activities
- For representatives: Welcome and facilitate principal oversight rather than viewing it as an administrative burden
The Broader Pattern
What emerges from these five factors: The Court wasn’t applying a rigid test but rather looking for evidence of genuine commercial substance in the representative relationship. Arrangements that look like licensing services dressed up as representative relationships will likely fail this practical assessment.
The key insight: Successful authorised representative arrangements require both parties to invest in making the principal-representative relationship commercially and operationally real, not just legally compliant.
Practical Implications for Industry
For Fund Managers
Immediate review required: Fund managers using authorised representative arrangements should assess whether their current structures demonstrate genuine principal-representative relationships or risk being seen as “AFSL provisioning.”
Key focus areas:
- Ensure meaningful involvement in representatives’ product development and business strategy
- Implement robust oversight that goes beyond basic compliance monitoring
- Review customer documentation to confirm it properly reflects the principal relationship
- Avoid arrangements that appear purely transactional or licensing-focused
For Authorised Representatives
Business model reassessment: Representatives must demonstrate they’re genuinely advancing their principal’s interests, not just using their licence for operational convenience.
Priority actions:
- Integrate AFSL holders into key business decisions from the outset
- Ensure customer relationships clearly reflect the representative capacity
- Document how the arrangement benefits the AFSL holder’s business objectives
- Avoid frequent changes between different AFSL holders
For AFSL Holders
Enhanced due diligence: AFSL holders face increased scrutiny over the quality and substance of their oversight of authorised representatives.
Critical responsibilities:
- Implement comprehensive supervision before representatives commence operations
- Take active role in representatives’ strategic and operational decisions
- Ensure customer-facing materials properly reflect the principal relationship
- Be cautious of arrangements that resemble licensing services rather than genuine representation
Industry-Wide Impact
Regulatory enforcement: ASIC now has clearer guidance for challenging authorised representative arrangements that lack commercial substance. Expect increased scrutiny of existing arrangements across the financial services sector.
Compliance costs: Both AFSL holders and representatives will need to invest more in establishing and maintaining genuine principal-representative relationships, potentially increasing operational costs.
Market consolidation: Some current arrangements may prove unsustainable under the new standards, potentially leading to market consolidation as participants either obtain their own AFSLs or exit the market.
Next Steps and Resources
Immediate Actions
Review existing arrangements: Financial services businesses currently operating as authorised representatives should urgently assess their arrangements against the Court’s five-factor test. Those arrangements that closely resemble BPS’s structure may require immediate attention.
Legal and compliance advice: Given the complexity of these issues and the potential for significant penalties, businesses should seek professional advice tailored to their specific circumstances rather than relying on general guidance.
Documentation audit: Review all customer-facing materials, internal processes, and contractual arrangements to ensure they properly reflect genuine principal-representative relationships.
Regulatory Resources
ASIC guidance: While ASIC’s Information Sheet 251 (November 2020) predates this decision, it remains relevant for understanding ASIC’s general approach to authorised representative arrangements. ASIC may issue updated guidance following this decision.
Case law: The full judgment in Australian Securities and Investments Commission v BPS Financial Pty Ltd [2025] FCAFC 74 provides comprehensive analysis of the Court’s reasoning and should be reviewed by legal advisers.
Professional bodies: Industry associations such as the Financial Services Council and similar organizations may provide sector-specific guidance on implementing these changes.
Professional Advice Recommendations
When to seek legal advice: Businesses should consider professional advice if they:
- Currently operate as authorised representatives
- Are considering authorised representative arrangements
- Have received any regulatory enquiries about their licensing arrangements
- Are unsure whether their current arrangements comply with the new standards
When to seek compliance advice: Compliance consultants can help with:
- Designing oversight and monitoring systems
- Reviewing and updating policies and procedures
- Training staff on the new requirements
- Preparing for potential regulatory reviews
Looking Forward
Regulatory developments: This decision may prompt ASIC to review other authorised representative arrangements across the financial services industry. Businesses should monitor regulatory communications for further guidance or enforcement actions.
Industry practice: As the implications of this decision become clearer, industry best practices for authorised representative arrangements will likely evolve. Staying connected with professional networks and industry publications will be important for ongoing compliance.
Legislative considerations: While this decision clarifies the interpretation of existing law, it may also prompt consideration of whether legislative changes are needed to provide greater certainty around authorised representative arrangements.
This article provides general information only and does not constitute legal advice. Given the complexity of financial services regulation and the significance of the ASIC v BPS decision, businesses should seek professional legal and compliance advice specific to their circumstances.
