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What Does Financial Compliance Mean For A Small Business In Australia

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The business that you own may be a small one but that also has to run at complete efficiency. To achieve that goal, you need to organize your workplace, set a number of rules and at the same time, and make sure that they are enforced appropriately. At a workplace, you don’t need to control all your employees. But a good set of rules can be enough to maintain discipline and healthy work culture where your employees can become more motivated and productive.

What Does A Small Business Mean In Australia?

In Australia, a small business can be structured under a variety of sectors like company, partnership, trust, joint venture or sole trader. Depending on the structure, registration of small businesses can be done in any of the names. Australian Securities and Investments Commission (ASIC) has set the definition of a small propriety company taking different parameters like a gross asset, revenue and number of employees in one financial year.

How ASIC Assists Small Business?

ASIC supervises the activities of Australian companies, financial service providers, financial markets that deal with activities like investments, superannuation, non-cash payments, insurance etc. The responsibilities of ASIC are as follows:

  1. ASIC provides necessary licenses to the financial service providers and also monitors their activities to be certain that they work with honesty and clarity.
  2. As they have the power to register a company or a business, they can also renew its registration or cancel it in case of any misconduct. Small businesses can report the incident of misconduct of any financial service provider to ASIC.
  3. ASIC acts as a consumer credit regulator. Consumer credit service providers include banks, credit unions and mortgage and finance brokers. As a regulator, it is ASIC’s duty to give license and regulate entities that are engaged in consumer credit activities.
  4. ASIC’s duties as a market regulator involve assessment of financial market operators’ compliance with legal obligations to carry out clear and fair operations as well as informing Parliament of a new market.
  5. ASIC also works in company fundraising by issue or sale of financial products in Australia.

What is financial compliance?

Financial compliance is carried out to see whether a company maintains all the rules or not. It is done to maintain investor confidence and keep it certain that markets operate efficiently and quite fairly. With time, the financial compliance systems have become more and more complex. Now, financial compliance involves a wide range of activities like monitoring trade exchange, accounting standards, money laundering and tax evasion. If you’re from Perth and need a more detailed explanation, you may consult a BAS agent Perth who will explain aspects regarding GST and other taxes.

How does financial compliance work?

Financial companies appoint a person who may be either an in-house lawyer or a compliance officer. His responsibility as an officer is to make sure that the company follows external laws as well as internal rules and regulations. Businesses have to show that they have a compliance system. Apart from that, they should meet certain business conduct requirements like financial reporting, working capital, bonding and insurance requirements.

What are the different licenses that are granted in Australia and compliance requirements for each of them?

There are certain licenses that one must hold depending on the nature of financial services in Australia. These are as follows:

  1. AFSL: AFSL stands for Australian Financial Service License. To carry out a financial service business in Australia, one must hold AFSL. Financial services in Australia include providing financial product service, making markets for financial products, taking dealerships of financial products (maybe as an agent), operating registered schemes, providing other services like crowdfunding services, traditional trustee or company services. AFSL is granted to a financial business person much prior to starting the business by ASIC. Compliance requirements include products and services that are offered to the customers, a detailed list of clients, size of the transactions, nature of the operations, organization size and whether financial services is the main provision of the business.
  2. ACL: ACL stands for Australian Credit License. This license is applicable to persons who are involved in consumer credit services. These services include providing credit under a credit contract or a consumer lease. The whole process of providing a license involves an assessment of the type of credit activities that is proposed to be engaged in the license and the company’s capability to comply with National Credit Act obligations.
  3. ADI: ADI stands for Authorized Deposit-taking Institution. If any financial company does banking business like taking deposits of money or making advances, that must be enlisted as an ADI. ADI license is provided by APRA or, Australian Prudential Regulation Authority. Recently, the restricted ADI framework that is designed by APRA will assist mostly newly launched businesses. You have to prove the presence of risk management and internal control systems in your business enough to mitigate and assess the risk.
  4. AML: AML stands for Australian Market License. This license is applicable to the products that are regularly made and accepted. Currently, there is a two-tier market system, in which Tier 1 applies to oversight of non-significant exchanges and traditional market values; and Tier 2 applies to other licensed market values. Compliance requirements include monitoring and assessment of actual or potential breaches, assurance of clarity of the market, orderly supervision of market to handle conflicts of market and monitoring conduct of participants and trading activity.
  5. CS facility: CS facility is a Clearing and Settlement facility. As the name suggests, it is for people who deal with clearing and settling of transactions.
  6. RSE license: Registerable Superannuation Entity license is issued by APRA. It is required if your company wants to act as an RSE. There are four types of RSE licenses: public offer entity license, non-public offer entity license, extended public offer entity license and acting trustee license.
  7. General insurance license: For a financial service business in Australia, you have to hold a General Insurance License under the Insurance Act 1973.

Ending note

For more details, you may consult with a financial advisor Perth who can guide you with all the necessary requirements and procedure.

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