Regulated emissions units: Applying for or varying an AFS licence
This is Information Sheet 156 (INFO 156). It is for anyone intending to apply for either a new Australian financial services (AFS) licence or a variation to an existing licence to authorise them to provide financial services in regulated emissions units and associated products.
Who must hold an AFS licence for regulated emissions units?
You must hold an AFS licence if you carry on a financial services business within, into, or from Australia that provides financial services in emissions units that are financial products (regulated emissions units), unless you are exempt.
In addition to this information sheet, you should read Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236) to help you determine whether you need to hold an AFS licence to provide financial services for regulated emissions units and associated products.
Your financial services business in the carbon markets may also include financial services in products associated with regulated emissions units (e.g. derivatives over emissions units or managed investment schemes that aggregate carbon abatement activities). In this case, you will need an AFS licence with authorisations covering both regulated emissions units and the associated product. This information sheet also covers applying for or varying an AFS licence with these additional authorisations.
We encourage you to seek your own professional advice to find out how the Corporations Act 2001 (Corporations Act) and other applicable laws apply to you, as it is your responsibility to determine your obligations.
What are regulated emissions units?
Regulated emissions units include Australian carbon credit units (ACCUs), Safeguard Mechanism Credits (SMCs) and other types of eligible international emissions units (EIEUs). These are financial products under the Corporations Act.
ACCUs include Kyoto ACCUs and non-Kyoto ACCUs (see also RG 236.75–RG 236.79).
EIEUs include SMCs, and certain types of certified emission reductions (CERs), emission reduction units (ERUs) and removal units (RMUs) (see also RG 236.80–RG 236.95).
What are ‘financial services’ in regulated emission units?
Financial services in regulated emissions units include:
providing financial product advice on regulated emissions units
dealing in regulated emissions units
making a market in regulated emissions units, and
providing a custodial or depository service for regulated emissions units.
You may also be providing financial services in a financial product associated with emissions units if you:
advise, deal or make a market in derivatives over emissions units
enter into contracts to have another person conduct a carbon abatement activity for you, or
operate a registered and/or unregistered managed investment scheme involving emissions units or carbon abatement activities.
See RG 236.35–RG 236.65 for further guidance on financial services in regulated emissions units.
Each of these financial services may be provided to wholesale clients and/or retail clients: see RG 236.72–RG 236.74 for a description of the difference between a wholesale client and a retail client.
The scope of the authorisations required in your AFS licence
Your AFS licence will cover the range of financial services in the types of financial products we authorise you to provide. It will also specify whether you can provide these services to wholesale clients and/or retail clients.
The scope of the authorisations in your AFS licence may include one or more of the combinations set out in Table 1.
Table 1: Possible authorisations on your AFS licence
# We may place a condition on your AFS licence limiting the financial services you provide in relation to derivatives over one or more types of emissions units unless we are satisfied that you have the organisational competence to provide financial services in a broader range of derivatives.
^ See RG 236.102–RG 236.119 for examples of how certain carbon projects or arrangements related to emissions units may be a managed investment scheme.
* An authorisation to operate a ‘named’ registered managed investment scheme is an authorisation for that specific scheme, holding specific kinds of assets. An authorisation to operate a ‘scheme of a particular kind’ is a broader authorisation that will not require you to apply to vary your licence every time you want to register a scheme of that kind. However, you will need to demonstrate sufficient organisational competence for a ‘scheme of a particular kind’ authorisation. This generally requires that you have been operating two or more registered schemes for at least the past two years: see Regulatory Guide 105 AFS licensing: Organisational competence (RG 105) at RG 105.101.
If a responsible entity is seeking to hold ACCUs or EIEUs as an investment without themselves generating them as part of the scheme, only a financial assets authorisation is required.
If you operate the business and conduct the affairs of a corporate collective investment vehicle (CCIV) in relation to regulated emissions units, your AFS licence must authorise you to provide that service. You should also consider being authorised to advise and deal in securities to complement the operation of the business and conduct the affairs of a CCIV. See Corporate collective investment vehicles and Regulatory Guides 1-3 for further information.
Applying for a new AFS licence
The best way to apply for an AFS licence is online using our eLicensing system, which individually tailors the application to your business. If you do not currently hold an AFS licence, and you will be providing financial services in relation to regulated emissions units, you must apply for a new AFS licence with one or more of the authorisations set out in Table 1.
What information must be submitted in your application?
An application for a new AFS licence consists of the application itself and the accompanying ‘core proofs’ – the statements explaining how you meet particular aspects of the licensing requirements.
Depending on the authorisations that you apply for, additional proofs may be required. These proofs seek specific additional information for specific financial services and products.
Table 2 and Table 3 provide an overview of the information required.
Table 2: Information required on the application form
Section
Information required
Details about you and your business
Your details as the applicant and a basic description of your business.
The selection of the financial services and products you want to be authorised to provide.
Information about your ability to meet your obligations as an AFS licensee through your responsible managers, resources, systems and processes.
Note: If you will be providing services to retail clients, this includes information about your arrangements for internal and external dispute resolution, compensation and insurance.
Answers to more detailed questions about particular financial services and products that you have selected (e.g. making a market, derivatives, foreign exchange, custodial or depository services, or operating a registered managed investment scheme).
Declarations and certifications
Declarations and certifications relevant to your application.
Table 3: Information required for your core proofs
Core proof
Information required
A5 Business Description
This is a more detailed description of your business, including your:
financial services and products
sources of business income and growth expectations
typical client types and their use of financial products and services
service delivery models and methods, and
organisational chart.
Note: We have specified in Table 4 the particular information that you should include here that is relevant to regulated emissions units and associated derivatives. This is the key information that is required, and there is no need to provide us with significant material beyond this.
People proofs for each responsible manager and fit and proper people
This is a series of documents that provide us with information on the competence, fitness and propriety of your nominated responsible managers and fit and proper people, including:
a statement of personal information
copies of qualifications (only for responsible managers)
copies of a national criminal history check, and
copies of two business references (only for responsible managers).
Note 1: You don’t need to provide a national criminal history check or business references if you are a body regulated by APRA.
Note 2: You should be aware that a criminal history check may take some time to obtain, and you should order it as soon as possible.
Note 3: You must also provide a table identifying your fit and proper people. Refer to Information Sheet 240 AFS licence applications: Providing information for fit and proper people and certain authorisations (INFO 240).
B1 organisational competence
This is a document that substantiates the relevant knowledge, experience and skills of your nominated responsible managers who will be directly responsible for significant day-to-day decisions about the ongoing provision of your financial services in regulated emissions units and any associated products. It includes:
a table of organisational competence: see Appendix 2 of Regulatory Guide 2 AFS Licensing Kit: Part 2 – Preparing your AFS licence or variation application (RG 2), and
submissions on each responsible manager’s competence.
Note 1: For completing responsible manager submissions, Table 5 specifies information that is relevant to regulated emissions units and associated products.
Note 2: If you are a foreign financial services provider (FFSP) applying for a foreign AFS licence, you will not be required to submit the B1 Organisational Competence core proof.
B5 Financial Statements and Financial Resources
These are various financial statements that must be submitted, depending on the financial requirements that apply to your financial services and products:
for all applicants, except those regulated by APRA – you must submit recent statements of income, cash flows and a balance sheet, and a cash flow projection to meet the cash needs requirement
for all applicants, except those regulated by APRA – you must submit a description of your processes for ensuring ongoing compliance with your financial requirements, and
for applicants who will be engaging in other activities, such as transacting with clients as principal, holding client money, or being a responsible entity – you will need to submit the information required by us for that activity (see the AFS Licensing Kit).
Note 1: The financial requirements that apply to holders of AFS licences are set out in Regulatory Guide 166 Licensing: Financial requirements (RG 166).
Note 2: If you are an FFSP applying for a foreign AFS licence, you will not be required to submit the B5 Financial Statements and Financial Resources core proof.
Applying to vary an existing AFS licence
If you currently hold an AFS licence with authorisations for services and products other than regulated emissions units, you must apply to vary your AFS licence to include the new services and/or the additional products that you wish to add.
You should note:
you will need to add one or more of the financial products of ACCUs or EIEUs
if you already hold an authorisation for derivatives that is not restricted to certain types of derivatives, you do not need to apply to add derivatives over ACCUs or EIEUs
if you already hold an authorisation to provide custodial or depository services, you do not need to vary your custodial or depository services authorisation to cover ACCUs or EIEUs because this authorisation is already applicable to all types of financial products, and
unless you already hold an authorisation to operate a registered managed investment scheme in relation to financial assets, you will need to apply to add a financial assets registered scheme so that the scheme(s) may invest in ACCUs or EIEUs or associated financial products.
What information must be submitted in your application?
An application to vary an existing AFS licence comprises the variation application itself and two accompanying core proofs: the ‘A5 Business Description’ and the ‘B1 Organisational Competence’.
You also need to complete Form FS20Change of details for an Australian financial services licence if you are either:
adding one or more responsible managers to cover your new authorisations, or
amending the financial services responsibilities of an existing responsible manager to cover your new authorisations (e.g. adding an authorisation to make a market in a financial product to an existing authorisation to deal in a financial product).
If you are simply adding a new financial product to your AFS licence and not changing your responsible managers, nor the financial services for which they are responsible, you do not need to resubmit any people proofs for those responsible managers. You will, however, need to demonstrate in your ‘B1 organisational competence’ core proof that your have the relevant knowledge, experience and skills to be responsible for your financial services in regulated emissions units and any associated derivatives or other products.
When completing your core proofs, you should focus on the new financial services and products you are applying to add to your AFS licence and how this links to your existing financial services and products. For example, in completing your ‘A5 business description’ core proof, you should concentrate on the information we have asked you to provide in Table 4, rather than describing other areas of the business that are not related to the new authorisations you are applying for.
Steps in the application process
Follow the steps below to apply for a new AFS licence or make a variation to an existing AFS licence.
Step 1: Read ASIC’s guidance
Our regulatory guides, pro forma licence conditions and samples of online applications will help you comply with the application requirements:
Regulatory Guide 1 AFS Licensing Kit: Part 1 – Applying for and varying an AFS licence (RG 1)
Regulatory Guide 2 AFS Licensing Kit: Part 2 – Preparing your AFS licence or variation application (RG 2)
Regulatory Guide 3 AFS Licensing Kit: Part 3 – Preparing your additional proofs (RG 3)
Information Sheet 240 AFS licence applications: Providing information for fit and proper people and certain authorisations (INFO 240)
Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236)
For additional regulatory guides about meeting your licensing, conduct and disclosure obligations, go to Regulatory Guides.
Step 2: Decide on the authorisations you need
Select the authorisations that relate to the types of financial services you will be providing in regulated emission units and associated derivatives. In order to do this, you will need to:
identify which financial services you will provide (e.g. ‘Provide financial product advice’, ‘Deal in a financial product’), and
identify each financial product those financial services may cover (e.g. ACCUs, EIEUs, managed investment schemes, derivatives).
See Table 1 for a list of possible authorisations.
You will need to ensure that you select the authorisations relevant to the financial services and products that you intend to provide, otherwise you may be providing unlicensed financial services.
Your authorisations will also affect your obligations as a licensee.
See RG 2 (RG 2.54–RG 2.169) for more information about authorisations.
Step 3: Ensure you have responsible managers who can demonstrate the required competencies
You must nominate responsible managers who have the relevant knowledge, experience and skills necessary to be directly responsible for significant day-to-day decisions about the ongoing provision of your financial services in regulated emissions units and any associated derivatives or other products. See How we assess your organisational competence.
Step 4: Check whether you require compensation and dispute resolution arrangements
If you provide financial services to retail clients, you must ensure that you have in place adequate compensation and dispute resolution arrangements: see Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104). This means:
holding professional indemnity insurance that meets the requirements of Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126), and covers all the financial services in all the financial products that you will provide, unless ASIC approves alternative arrangements
having an internal dispute resolution system that meets the requirements set out in Regulatory Guide 271 Internal dispute resolution (RG 271), and
joining and maintaining membership of the Australian Financial Complaints Authority (AFCA), the external dispute resolution scheme for financial complaints in Australia.
Step 5: Prepare your application and proofs
Section E of RG 2 sets out the core proofs you must submit with your application and RG 3 sets out any additional non-core proofs we may request as part of our assessment.
Table 4 lists the information that you must provide as part of your ‘A5 Business Description’ core proof. This core proof helps us understand how your business will work and the relevance of the AFS licence authorisations you have selected.
See RG 2.309–RG 2.318 for guidance about the matters you should cover in your business description, including details about the financial services and products you will provide, and your typical client(s). For regulated emissions units and associated derivatives, this means providing the information described in Table 4.
Table 4: Information required for your ‘A5 Business Description’ core proof
Section of the ‘A5 Business Description’
Information required
Details of the financial services and products you will provide: RG 2.312(a)
You should provide details of the particular products and types of transactions this involves. For example:
whether products will involve regulated emissions units (i.e. ACCUs and/or EIEUs), and the specific sub-types of these units, as applicable (e.g. CERs or non-Kyoto ACCUs)
whether transactions will only involve emissions units for immediate delivery, or also derivatives over emissions units of whatever kind and the specific types of derivative products involved, and
whether transactions will be conducted via financial markets or over-the-counter.
Details of who your client(s) will be for each type of financial service and product you will provide: RG 2.312(e)
You should describe:
whether your client(s) will be wholesale or retail clients for each financial service and product you will provide
what your clients’ typical financial goal(s) in using your service(s) or product(s) will be, and the typical strategies they will use towards achieving those goals.
All other items listed in RG 2.312–RG 2.313
At a minimum, your ‘A5 Business Description’ should cover all other items listed in RG 2.312–RG 2.313, that are relevant to your financial services business.
Step 6: Lodge your application and pay the application fee
You can apply online for an AFS licence with an authorisation to provide financial services in relation to emissions units.
Existing AFS licensees can apply for a variation to their licence to include a relevant authorisation to provide financial services in emissions units by lodging Form FS03Application for variation of authorisation and other conditions.
If you are varying your AFS licence and intend to nominate additional responsible managers to meet the competencies of the new authorisation, you will first need to complete Form FS20.
How we assess your organisational competence
If you are an AFS licensee, you must maintain the competence to provide the financial services covered by your AFS licence: s912A(1)(e) of the Corporations Act. We refer to this obligation as the ‘organisational competence obligation’, because it requires you to be competent at the organisational level.
How we assess your compliance with the organisational competence obligation is described in RG 105. We look at the knowledge and skills of the people who manage your financial services business. We refer to these people as your ‘responsible managers’.
We will apply the policy principles set out in RG 105 when assessing your responsible managers. Key aspects of our policy are that:
your responsible managers are directly responsible for significant day-to-day decisions about the ongoing provision of your financial services
together, your responsible managers should have appropriate knowledge and skills for all of your financial services and products, and
your responsible managers are fit and proper.
Direct responsibility for significant day-to-day decisions
In RG 105, we explain that responsible managers need to be:
organisationally close to the provision of financial services, and
able to undertake the time commitment to exercise their responsibility.
In practice, your nominated responsible managers are less likely to be able to undertake their role successfully the further removed they are from the point of delivery of financial services, or the more licensees they act for. In some cases, you may need to provide us with more details about how your nominated responsible managers will be in a position to be directly responsible for significant day-to-day decisions.
Demonstrating appropriate knowledge and skills
Responsible managers must have the appropriate knowledge and skills for their role in your business. For regulated emissions units, this will include:
knowledge about the units and the features of the carbon markets in which they are traded
relevant experience in the ACCU Scheme, Safeguard Mechanism, other Australian environmental markets or overseas carbon markets
experience in the types of financial services that are to be provided
if services will be provided to retail clients, previous experience in working with retail clients, and
general competence in the responsibilities of a responsible manager (e.g. an understanding of AFS licensee obligations).
We do not necessarily expect an individual responsible manager to have expertise in all the above areas. You may nominate more than one responsible manager in your application, who collectively can demonstrate the required knowledge and skills relevant to your business: see RG 105.36–RG 105.37.
If we are satisfied with your organisational competence, but think you are heavily dependent on the knowledge and skills of one or two responsible managers, we will generally impose a ‘key person condition’ on your AFS licence. The key person condition will name those responsible managers whose competence we think you depend on heavily, and you will need to inform us if any of those key people leave the business: see RG 105.112–RG 105.114.
How responsible managers can demonstrate appropriate knowledge and skills
In RG 105, at Section C, we have provided five options for responsible managers to demonstrate they have appropriate knowledge and skills, generally involving various combinations of experience and qualifications or training (Options 1–4), or a written submission demonstrating that your nominated responsible managers have the appropriate experience and skills (Option 5).
For many applicants seeking to demonstrate appropriate knowledge and skills in regulated emissions units, Option 5 may be the most appropriate option (see RG 105.78–RG105.81).
If applying using Option 3 or 4, completion of courses relevant to carbon products and/or the operation of Australian carbon markets may be appropriate (see also RG 105.66–RG105.77).
Table 5 provides more details about the information required in your ‘B1 organisational competence’ core proof to demonstrate appropriate knowledge in the context of emissions units.
Table 5: Information required for your ‘B1 organisational competence’ core proof
Element of responsible manager submission (RG 105.78)
Information that is relevant for regulated emissions units
Nature of the responsible manager’s role
Describe the role and responsibilities your nominated responsible manager will have in your financial services business
Describe how you will ensure that your nominated responsible manager will be directly responsible for significant day-to-day decisions about the ongoing provision of your financial services
Relevant qualifications or courses completed
Describe tertiary education courses, training courses, seminars or any other training, if any, that your nominated responsible manager has completed and highlight any content related to domestic or international carbon markets, emissions trading or environmental markets.
Relevant experience over the past 10 years (this does not necessarily mean they need 10 years’ relevant experience)
Describe how your nominated responsible manager has acquired their knowledge about emissions units (both regulated and other types of emissions units) and carbon markets (in addition to any education and training courses described above)
Provide a summary of any experience your nominated responsible manager has in providing relevant activities in other domestic or international carbon or environmental markets
For your typical client(s) that you have detailed in your ‘A5 Business Description’, explain the extent to which your nominated responsible manager’s previous client services experience is relevant to their competence to provide the type of financial services in emissions units your business will cover.
Relevant credentials
Detail any relevant credentials, including association membership or affiliation, and skills or knowledge recognised by an industry association, a regulatory body such as APRA, or some relevant overseas body.
Appropriate knowledge and skills for their role’s financial services and products:
For the financial services that you will provide, explain your responsible manager’s understanding of the nature of the relevant types of regulated emissions units, including:
by whom and to whom they are issued
the key features of the carbon markets in which the units are traded (e.g. the nature of the buyers and sellers and their purposes for trading), and
the common types of transactions that are entered into in those carbon markets.
Note: Where you will provide general advice to retail clients in regulated emissions units you will need to demonstrate an understanding of the generic and specialist knowledge requirements as outlined in RG 146. If there are no registered training organisations accredited to provide courses on regulated emission units, you will need to provide a submission outlining how you satisfy the specialist knowledge requirements in emissions units as outlined in Table A2.11 in RG 146.
Responsible managers without direct Australian financial services experience
If your nominated responsible managers have knowledge or skills that are relevant to emissions units and carbon markets, but none of them have any direct Australian financial services experience, before we will approve your AFS licence, we may ask them to supplement their knowledge and skills by completing a short industry course specifically designed for those intending to be responsible managers.
Important notice
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.
Information sheets provide concise guidance on a specific process or compliance issue or an overview of detailed guidance.
This information sheet was issued in November 2024.
