AFSL & ACL: A Fintech Guide to Australian Financial Licensing

Introduction

For any fintech business operating in Australia, understanding the financial regulatory landscape is essential for compliance and service integrity. The choice between an Australian Financial Services Licence (AFSL) and an Australian Credit Licence (ACL) is a fundamental and often daunting hurdle, yet making the correct decision is crucial for legal operation and avoiding severe penalties.

This guide is designed to cut through the complexity with a clear focus on modern fintech business models, from Buy Now, Pay Later (BNPL) and robo-advisers to crypto exchanges. By breaking down these two distinct licences, this article provides practical clarity to help founders determine which regulatory path aligns with their product or service, ensuring their venture is built on a compliant foundation.

Understanding the Australian Financial Services Licence (AFSL)

Financial Services & Products Covered by an AFSL

Under the Corporations Act 2001 (Cth), a business must apply for an AFSL if it provides a “financial service” in Australia, unless an exemption applies. The Australian Securities and Investments Commission (ASIC) issues these licences to ensure providers operate within a regulated framework.

A financial service is broadly defined and includes a range of activities. Key services that trigger the need for an AFSL include:

• Providing financial product advice – recommendations or opinions intended to influence decisions about financial products
• Dealing in a financial product – activities like issuing, applying for, acquiring, or disposing of financial products
• Making a market for a financial product – regularly quoting prices at which products can be bought or sold
• Operating a registered managed investment scheme – pooling investor funds for a common enterprise
• Providing custodial or depository services – holding financial products or assets on behalf of clients
• Providing a crowdfunding service – facilitating equity-based fundraising through a platform

The AFSL regime centres on the regulation of “financial products.” This term is defined as a facility through which a person makes a financial investment, manages financial risk, or makes non-cash payments.

Common examples of financial products relevant to the fintech sector include:

• Securities, such as shares and bonds
• Interests in a managed investment scheme
• Derivatives
• Superannuation products
• General and life insurance products
• Non-cash payment facilities, such as digital wallets

How the AFSL Applies to Fintech Applications

Many innovative fintech business models fall under the AFSL regime because their core function involves providing a regulated financial service or product. Understanding how your application interacts with these definitions is crucial for compliance.

Here are some concrete examples of fintech models that typically require an AFSL:

• Robo-advice platforms: These applications use algorithms to provide automated investment recommendations. This activity is considered providing financial product advice, a core financial service that necessitates an AFSL.
• Investment and wealth management apps: Platforms that allow users to buy, sell, or hold securities, shares, or interests in managed funds are dealing in financial products. This dealing activity squarely places them within the AFSL regime.
• Cryptocurrency exchanges: While not all crypto assets are regulated, it is essential to understand does your crypto business need an Australian financial services (afs) licence, as one is required if an exchange offers tokens that are classified as financial products. This includes tokenised securities, interests in a managed investment scheme, or derivatives, making the platform a marketplace for financial products.
• Digital wallets and payment platforms: Fintech applications that operate as non-cash payment facilities, allowing users to store value and make payments to various merchants, are providing a financial product and therefore require an AFSL.
• Equity crowdfunding platforms: These platforms facilitate fundraising for businesses by issuing shares to multiple investors. This is defined as providing a crowdfunding service, which is a regulated financial service requiring an AFSL.

Understanding the Australian Credit Licence (ACL)

Credit Activities Covered by an ACL

An ACL is a legal requirement for any business engaging in ‘credit activities’ as defined by the National Consumer Credit Protection Act 2009 (Cth). This regulatory framework is designed to ensure consumer protection in the credit industry. If your fintech business performs any of these functions, you will likely need to proceed with an ACL application with ASIC.

The scope of an ACL is specific to credit and encompasses several key activities, including:

• Providing credit: This is the most direct credit activity and involves being the lender under a credit contract or the lessor under a consumer lease.
• Providing credit assistance: This includes suggesting that a consumer apply for a specific credit contract or assisting them with the application process.
• Acting as an intermediary: This involves serving as a go-between for a consumer and a credit provider to help secure a loan or lease, a role commonly known as credit broking.
• Exercising rights of a credit provider: This covers performing the obligations or exercising the rights of a credit provider, which can include activities like collecting repayments on a loan.
• Benefiting from mortgages or guarantees: This applies to holding rights as a mortgagee over property that secures a credit contract or being the beneficiary of a guarantee related to that contract.

How the ACL Applies to Fintech Applications

The principles of credit regulation apply equally to modern fintech applications, regardless of the technology used to deliver the service. Many innovative business models fall squarely within the scope of credit activities and therefore require an ACL.

Understanding how these rules apply is crucial for any fintech founder operating in the Australian market. Here are some common examples of fintech applications that typically require an ACL:

• Buy Now, Pay Later (BNPL) services: Following recent legislative changes, BNPL providers are now generally required to hold an ACL. Their service is considered a form of credit, bringing them under the consumer protection rules of the National Consumer Credit Protection Act 2009 (Cth).
• Peer-to-peer (P2P) lending platforms: These platforms act as intermediaries connecting investors with borrowers. Because they facilitate the provision of credit, they are typically required to hold an ACL. In some cases, if they also operate a managed investment scheme for the investor side, they may need an AFSL as well.
• Digital mortgage and finance broking: Fintech companies that offer online platforms for comparing and applying for mortgages or other loans are providing credit assistance. This activity requires an ACL, just as it does for a traditional mortgage broker.
• Personal and business lending platforms: Any digital platform that directly provides loans to consumers or businesses is engaging in a core credit activity and must hold an ACL.
• Crypto lenders: Even in the evolving world of digital assets, providing loans secured by cryptocurrency is considered a credit activity that necessitates an ACL.

Fintech Business Models & Required Licensing

Determining the correct Australian licensing for a fintech business depends entirely on the specific products and services it offers. The regulatory framework distinguishes between two main categories:

1. Providing financial services – generally requires an AFSL
2. Engaging in credit activities – necessitates an ACL

The following table maps common fintech business models to their typical licensing requirements to provide clarity for founders:

Fintech Business Model	Typical Licence Required	Notes & Key Licensed Activities
Robo-Adviser / Investment App	AFSL	These platforms provide financial product advice, which can be personal or general, and often deal in financial products like securities or managed funds by executing trades for clients.
Cryptocurrency Exchange	AFSL (and Australian Transaction Reports and Analysis Centre (AUSTRAC) registration)	An AFSL is required if the exchange lists or facilitates trading in crypto assets that are classified as financial products. Additionally, providing a custodial service for these assets also triggers AFSL requirements. All digital currency exchanges must register with AUSTRAC for anti-money laundering purposes.
Digital Wallet / Payments Platform	AFSL	Digital wallets and similar payment platforms are typically classified as non-cash payment facilities, which are considered a type of financial product under the Corporations Act 2001 (Cth), thus requiring an AFSL.
Buy Now, Pay Later (BNPL) Provider	ACL	BNPL arrangements are considered a form of credit. Following recent regulatory changes, providers are required to hold an ACL and comply with responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth).
Peer-to-Peer (P2P) Lending Platform	ACL and potentially AFSL	An ACL is necessary because the platform is involved in credit activities, such as providing credit assistance or acting as an intermediary. An AFSL may also be required if the platform pools investor funds in a way that constitutes a managed investment scheme.
Digital Mortgage / Finance Broker	ACL	These businesses provide credit assistance by helping consumers choose and apply for loans or acting as an intermediary between the consumer and the credit provider, which are regulated credit activities.
Neobank / Digital Bank	AFSL, ACL & Authorised Deposit-taking Institution (ADI) Licence	A neobank requires an ADI licence from the Australian Prudential Regulation Authority (APRA) to accept deposits. It will also need an AFSL for offering financial products and an ACL for its lending activities.
Equity Crowdfunding Platform	AFSL	Platforms that allow businesses to raise capital from the public in exchange for shares are providing a crowdfunding service and dealing in securities, both of which are financial services requiring an AFSL.
Insurtech Platform	AFSL	An Insurtech business that provides advice on, or arranges for the purchase of, insurance products is dealing in a financial product and providing financial product advice, which necessitates an AFSL.
Enabling Technology Provider	Usually, neither	A business that only supplies background technology (e.g., a software API) to another licensed financial institution and does not directly interact with consumers may be exempt from holding its licence.

Common Pitfalls & Grey Areas in Fintech Licensing

Pitfall: Assuming Your Technology is Exempt

A frequent misunderstanding among fintech founders is the belief that providing technology exempts them from holding an AFSL or an ACL. The distinction hinges on whether the business offers background “enabling technology” to other licensed entities or provides a service that directly interacts with consumers.

Merely developing and licensing software, such as a loan origination API for a bank, may not require a licence. However, the moment your platform engages with end-users to handle transactions or influence financial decisions, ASIC is likely to view it as a regulated service.

The regulator focuses on the “functional intent” of your product, not just its underlying technology. Consider these scenarios:

• Exempt Technology: A business that only supplies a software API to another licensed financial institution and does not directly engage with consumers may be exempt from holding its licence.
• Regulated Service: A platform that uses its technology to provide automated investment recommendations (robo-advice) to users is providing financial product advice and will require an AFSL.

The Overlap of Financial Services & Credit Activities

Some fintech business models do not fit neatly into a single regulatory category and may require both an AFSL and an ACL. This often occurs when a platform combines investment elements with lending activities, creating obligations under both the Corporations Act 2001 (Cth) and the National Consumer Credit Protection Act 2009 (Cth).

P2P lending is a primary example of this overlap. These platforms typically require:

• An ACL because they are involved in credit activities, such as providing credit assistance or acting as an intermediary between borrowers and lenders.
• An AFSL if the platform pools investor funds in a manner that constitutes a managed investment scheme, which is considered a financial product.

It is important to note that an AFSL can be authorised to cover certain credit services, making it a more versatile licence for some business models. However, an ACL cannot be extended to cover non-credit financial services like providing investment advice or dealing in securities.

Misinterpreting Crypto Asset Regulation

A significant grey area for many fintech startups is the regulation of crypto assets. There is a common misconception that cryptocurrencies are entirely unregulated in Australia. In reality, the legal status of a digital asset depends on its structure, the rights it confers, and how it is marketed to users.

While not all crypto assets are classified as financial products, an AFSL is required if an exchange or service provider offers tokens that function as:

• Securities
• Derivatives
• Interests in a managed investment scheme
• Non-cash payment facilities

Therefore, a fintech business that provides financial services such as advice, dealing, or custodial services for these types of regulated crypto assets must hold an AFSL. Additionally, all digital currency exchanges are required to register with AUSTRAC to comply with anti-money laundering and counter-terrorism financing laws.

Conclusion

Selecting the right licence—an AFSL for financial products or an ACL for credit activities—is a critical decision for any fintech business in Australia. Understanding the distinct scope and compliance obligations for models ranging from robo-advice to BNPL is the first step toward building a sustainable and lawful operation.

To ensure your fintech secures the appropriate licence and adheres to ASIC regulations, contact AFSL House’s expert AFSL and ACL application lawyers today. With proven expertise in navigating the complexities of both AFSL and ACL applications, we can streamline the process and help you confidently meet all compliance requirements.

Frequently Asked Questions (FAQ)