Introduction

Credit funds that on-lend pooled investor capital may need an Australian Credit Licence (ACL) before lending begins. Whether an ACL is required depends on the borrower, loan purpose, credit terms and lending activities. Under Section 5(1) of the National Credit Code in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth) (‘NCCP Act‘), the Code generally applies where the borrower is a natural person or strata corporation, the loan is wholly or predominantly for personal, domestic or household purposes or qualifying residential investment purposes, a charge is or may be made for the credit, and the credit is provided as part of a business carried on in Australia. Business lending generally falls outside the Code.

Wholesale investor capital raising does not decide the licensing outcome. Fund operators must identify the legal credit provider and select ACL authorisations for lending or arranging loans before lending starts; an Australian Financial Services Licence (AFSL) covers financial services, not a required ACL. This article explains when the National Credit Code applies to fund lending, which entity in a fund structure needs the ACL, how a credit fund applies for one, whether an AFSL is also required, and the obligations that apply once a licence is granted.

When Does a Credit Fund Need an Australian Credit Licence?

When Does the National Credit Code Apply to Fund Lending?

Section 5(1) of the National Credit Code in Schedule 1 to the NCCP Act generally applies where the borrower is a natural person or strata corporation and the credit is wholly or predominantly for personal, domestic or household purposes, or to purchase, renovate, improve or refinance qualifying residential investment property. The credit must also meet the charging and business requirements in Sections 5(1)(c)–(d), subject to the Code’s exclusions and special rules.

Under Sections 5(1)(c)–(d) of the National Credit Code, a charge must be or potentially be payable for the credit, and the credit must be provided as part of a business carried on in Australia, including where lending is incidental to another business. Section 6 also excludes certain kinds of credit even where Section 5 is otherwise satisfied. A credit fund lending to an individual borrower for a qualifying residential investment property loan may therefore be conducting regulated Australian credit business.

Commercial lending generally falls outside the National Credit Code when the loan is wholly or predominantly for business purposes. Business loans are not regulated under the NCCP Act, while lending to companies largely falls outside the Code because Section 5 applies to natural persons or strata corporations.

What Credit Activities Require an ACL?

A person must not engage in a credit activity without a licence authorising that activity under Section 29 of the NCCP Act. The civil penalty is 5,000 penalty units, while contravention can also constitute an offence carrying a maximum penalty of two years’ imprisonment.

Credit activities identified in Section 6 of the NCCP Act include:

• providing credit under a credit contract;
• exercising a credit provider’s rights or performing its obligations;
• suggesting or assisting a consumer to apply for a credit contract;
• acting as an intermediary between a consumer and credit provider;
• acting as a mortgagee or exercising a mortgagee’s rights in relation to a regulated mortgage; and
• acting as the beneficiary of a guarantee or exercising rights in relation to a regulated guarantee.

A credit fund operator may therefore need an ACL if it provides regulated credit, acts for the credit provider, or assists borrowers with regulated loans.

Does Raising Capital from Wholesale Investors Affect ACL Requirements?

The profile of the investors supplying capital does not determine whether a credit fund needs an ACL. Marketplace lending may involve retail or wholesale investors whose money is then lent to consumers or businesses, but the licensing question turns on the borrower and the loan purpose.

A fund raising money solely from wholesale investors may still need an ACL if its loans are regulated under Section 5 of the National Credit Code. Investor classification may be relevant to other regulatory requirements, such as those applying to the fund’s investment offering under the Corporations Act 2001 (Cth) (‘Corporations Act‘), but it does not, by itself, remove the credit licensing requirements applying to regulated lending.

Which Entity in a Credit Fund Structure Needs to Hold the ACL

Identifying the Legal Credit Provider

Under Sections 6(1) and 29(1) of the NCCP Act, the entity that legally enters the loan contracts with borrowers as the credit provider generally needs an ACL authorising that activity, unless an exemption applies. The relevant entity is identified by examining the lending documents, the fund structure, and the entity performing regulated credit activities.

A fund manager or platform may perform credit activities without being the lender of record. Those activities can include:

• performing a credit provider’s obligations on its behalf;
• suggesting or assisting a consumer to apply for a loan; or
• acting as an intermediary.

Under Sections 6–9 and 29(1) of the NCCP Act, that entity may need an ACL authorisation for credit activities other than as a credit provider, unless an exemption or permitted representative arrangement applies.

Common Credit Fund Structures and Their Licensing Requirements

The entity holding the ACL depends on how the credit fund is established. Possible structures include lending by:

• A fund trustee or responsible entity: The trustee or responsible entity may be the credit provider if it enters loan contracts for the fund.
• A custodian: A custodian may become the credit provider if it enters loan contracts as trustee for investors.
• A special purpose lending vehicle: The vehicle may need the ACL if it legally provides the credit.
• An investment manager or platform: The manager or platform may need an authorisation for other credit activities if it arranges loans or assists borrowers without entering the contracts as lender.

ASIC Information Sheet 213 (INFO 213) provides guidance on identifying the credit provider in marketplace lending arrangements:

• Where the fund operator enters loan contracts: If the marketplace lending provider enters loan contracts with borrowers as trustee for investors, it is the credit provider and generally needs an ACL authorisation to engage in credit activities as a credit provider.
• Where a custodian enters loan contracts: If a registered managed investment scheme uses a custodian to enter loan contracts as trustee for investors, the custodian is the credit provider. The marketplace lending provider may also need an ACL authorisation for credit activities other than as a credit provider.
• Where investors lend directly to borrowers: If the platform facilitates loans entered directly between investors and borrowers, the investors are the credit providers and may need an ACL. The platform may also require authorisation for other credit activities.

The entity named in the loan contracts should be compared with the entity operating the platform, managing investments, or holding scheme property. Different entities may have separate credit licensing responsibilities.

Selecting the Appropriate ACL Authorisations

Under Sections 29(1) and 35(1)–(2) of the NCCP Act, the required ACL authorisation must reflect the credit activities performed by each entity, unless an exemption or permitted arrangement applies.

• Credit provider authorisation: The entity that legally provides the credit generally needs an ACL authorising it to engage in credit activities as a credit provider. This may be the fund operator, trustee, custodian or special purpose lending vehicle.
• Authorisation for other credit activities: A fund manager or platform may need this authorisation where it does not legally lend the funds but performs other regulated activities, such as exercising a credit provider’s rights, performing its obligations, suggesting or assisting consumers to apply for loans, or acting as an intermediary.

The proposed lending structure should be assessed before applying for an ACL. The assessment should identify:

• the entity entering each loan contract;
• the entity performing credit provider obligations;
• any entity arranging or facilitating loans; and
• whether any entity suggests or assists a consumer to apply for credit.

The licence authorisations should then reflect those activities, rather than the fund’s investor base or business name. ASIC states that marketplace lending providers should examine the platform structure, the entities involved, their activities, which entities need a credit licence, and the authorisations those entities require.

How Australian Credit Fund Operators Apply for an ACL

ASIC Licensing Requirements Under the NCCP Act

ASIC’s licensing material states that a person engaging in credit activities will generally need an ACL or an authorisation from a credit licensee before starting business, with ACL applications for credit fund operators providing the relevant next step.

The application process should begin by identifying the proposed credit activities, checking whether the National Credit Code applies, and considering whether an exemption is available under the NCCP Act or the National Consumer Credit Protection Regulations 2010 (Cth) (‘NCCP Regulations‘).

For a credit fund, the first step is to confirm which entity in the structure will apply. This is usually the entity that legally enters the loan contracts, such as the trustee, custodian or special purpose lending vehicle, seeking the credit provider authorisation. A fund manager or platform that arranges loans or performs the credit provider’s obligations may need its own authorisation to engage in credit activities other than as a credit provider, as explained above.

ASIC Regulatory Guide 203 (RG 203) provides guidance on credit activities, licensing exemptions, and circumstances where a credit licence may not be required.

Competence and Financial Resource Assessments

Under Section 37(1) of the NCCP Act, ASIC must grant an ACL to an applicant other than an authorised deposit-taking institution only if it has no reason to believe the applicant is likely to contravene its obligations under Section 47, the fit and proper person test in Section 37A is satisfied, and any other prescribed requirements are met. ASIC guidance can assist applicants to demonstrate compliance, but the legal obligations arise from the NCCP Act.

For a credit fund, the application should explain how these obligations will be met within the proposed lending model:

• Responsible managers: the experience and competence supporting the fund’s proposed lending, such as residential investment lending, credit assessment and loan servicing.
• Financial resources: the resources available to operate the credit business, unless the applicant is regulated by the Australian Prudential Regulation Authority (APRA).
• Systems and governance: processes for credit assessment, managing conflicts between investors and borrowers, supervising any manager or platform acting on the fund’s behalf, and complying with credit legislation under Section 47(1)(d).
• Dispute resolution: an internal dispute resolution procedure and Australian Financial Complaints Authority (AFCA) membership.

These matters should match the activities, entities, and ACL authorisations identified in the proposed lending structure.

The Application Lodgement and Assessment Process

ASIC’s application process requires the applicant to review the available credit licensing guidance, identify the proposed credit activities, and check for applicable exemptions before lodging an application. The application should be supported by information that explains the business model, the entities involved, the proposed lending activities, and the authorisations sought. For a credit fund, ASIC will need to understand the fund structure, including which entity provides credit, which entities perform other regulated credit activities, and how responsibilities are allocated between the trustee or custodian, the fund manager and any platform.

ASIC may request further information while assessing the application. The applicant should respond to those requests with accurate material that remains consistent with the proposed Australian credit business, its credit licensee responsibilities, and its intended lending operations.

Does a Credit Fund Need Both an AFSL and an ACL?

Distinguishing the AFSL and ACL Regimes

An AFSL covers financial services connected with establishing and operating a credit fund. These services may include:

• operating a managed investment scheme;
• providing financial product advice;
• dealing in financial products; or
• providing custodial or depository services under the Corporations Act.

An ACL covers regulated credit activities under the NCCP Act. If a fund provides consumer loans through its platform, an AFSL does not replace the required ACL. As a result, the fund may need both licences for separate activities.

Managed Investment Schemes Under the Corporations Act

A managed investment scheme offered to retail investors must be registered with ASIC under Section 601ED of the Corporations Act, subject to the conditions in that provision. The scheme’s responsible entity must be a public company holding an AFSL authorising it to operate the scheme under Section 601FA of the Corporations Act.

The AFSL regime applies to the fund’s investment structure. It may cover activities such as:

• operating the registered scheme;
• dealing with scheme interests; and
• providing custodial or depository services.

Dual Licensing for Credit Fund Structures

A credit fund may require both an AFSL and an ACL where its structure involves financial services for investors alongside regulated lending to borrowers. The AFSL covers the investment side, while the ACL covers consumer credit activities under the NCCP Act.

The licensing outcome depends on the entities involved and the activities each entity performs. For example:

• a responsible entity may need an AFSL to operate a registered scheme;
• a custodian that enters consumer loan contracts as lender of record may need an ACL authorisation to engage in credit activities as a credit provider; and
• a fund manager or platform that arranges those loans may need an ACL authorisation for credit activities other than as a credit provider.

Compliance Obligations After Australian Credit Fund Operators Obtain an ACL

General Conduct Obligations Under the NCCP Act

Under Section 47(1) of the NCCP Act, an ACL holder must comply with the general conduct obligations applying to its licensed credit activities. These include:

• Competence: maintaining the competence needed to perform authorised credit activities and ensuring representatives are adequately trained.
• Resources: maintaining adequate financial, technological and human resources, unless the licensee is regulated by APRA.
• Risk management: maintaining adequate risk management systems, unless the licensee is regulated by APRA.
• Dispute resolution: maintaining an internal dispute resolution procedure and AFCA membership.
• Compliance systems: maintaining adequate compliance arrangements and a written compliance plan.

These controls should reflect the entities involved, the credit activities performed and the fund’s licence arrangements.

Responsible Lending and Disclosure Requirements

Chapter 3 of the NCCP Act contains responsible lending requirements that apply before a credit licensee enters a consumer loan or assists a consumer to apply for one. The credit licensee must make inquiries about the consumer’s financial situation, requirements and objectives, verify the relevant information, then assess whether the loan would be unsuitable.

Disclosure duties also apply at different stages of obtaining credit. ASIC identifies Regulatory Guide 209 and Information Sheet 146 as guidance on responsible lending conduct and disclosure obligations. Where a custodian is the credit provider while a platform assists the consumer, each entity may have its own responsible lending obligations.

Operating Within ACL Authorisations

A credit licensee must ensure that its lending activities match the authorisations recorded on its ACL. The authorisation must reflect whether the entity provides credit as the credit provider or performs other credit activities, such as performing a credit provider’s obligations, suggesting or assisting a consumer to apply for credit, or acting as an intermediary.

Operational checks should compare:

• the entity named in each loan contract;
• the activities performed by the fund manager or platform; and
• the credit activities authorised by the ACL.

A change to the fund structure or lending model may require a fresh licensing assessment before the changed activity begins.

Conclusion

A credit fund’s ACL requirements turn on the borrower, loan purpose, legal credit provider and activities performed within the fund structure. Wholesale investor funding does not remove licensing requirements, while an AFSL does not replace an ACL where regulated consumer lending occurs.

With that assessment in mind, credit fund managers and trustees can contact AFSL House for ACL application assistance for credit funds, including help assessing licensing requirements, selecting appropriate authorisations and coordinating AFSL and ACL compliance. Explore ACL applications and credit licensing support for credit funds to obtain clear guidance before lending begins.

Frequently Asked Questions

Disclaimer: All information provided in this article is strictly general in nature and is not intended to be, nor should it be relied upon as, legal advice.