On 30 May 2025, the Full Federal Court found that BPS Financial Pty Ltd (BPS) was not able to rely on the authorised representative exemption under section 911A(2)(a) of the Corporations Act (AR Exemption) to issue a non-cash payment facility (known as ‘Qoin Wallet’) without holding an Australian Financial Services Licence (AFSL) in its own right.
This decision arose from an ASIC appeal of an earlier Federal Court decision in which the Court found that BPS was able to rely on the AR Exemption to issue Qoin Wallet without holding an AFSL while operating as an authorised representative (AR) under an AFSL held by PNI Financial Services Pty Ltd (PNI).
Background
By using the Qoin Wallet, individuals and businesses could buy and sell goods and services via an online marketplace using a cryptocurrency known as ‘Qoin’ as a unit of exchange. It was not in question that the Qoin Wallet was a financial product, nor that, by issuing the Qoin Wallet, BPS was carrying on a financial services business that required it to hold an AFSL.
The AR Exemption applies when a person provides a financial service ‘as a representative of’ a second person who carries on a financial services business and who:
holds an AFSL covering the provision of the service; or
is otherwise exempt from the requirement to hold an AFSL.
The issue before the Court was whether BPS was able to rely on the AR Exemption to issue the Qoin Wallet given that BPS had entered into an AR agreement with PNI, under which BPS was authorised to issue a non-cash payment product.
ASIC argued that the AR Exemption contains 'an essential representative capacity requirement'; that is, that a person cannot be an AR of an AFSL holder if the representative itself acts as issuer of the financial product.
Findings
The Court found that an AR can provide financial services in more than one capacity. Specifically, an AR can provide financial services:
in its personal capacity (that is, on its own behalf); or
in its representative capacity (that is, on behalf of an AFS licensee).
The Court also found that, while an AFS licensee can lawfully and validly authorise a person to provide financial services as its AR, such an authorisation only operates to the extent that the AR provides those financial services in its representative capacity (that is, on behalf of the AFS licensee).
In determining whether BPS was able to rely on the AR Exemption to issue the Qoin Wallet, it was necessary for the Court to consider the capacity in which BPS was acting in doing so.
Based on the particular facts, including that:
BPS had already developed and launched the Qoin Wallet before being authorised by PNI;
PNI had limited involvement with the Qoin Wallet even after entering into the AR agreement; and
the product disclosure documents relating to the issue of the NCP product (including the Qoin White Paper) were prepared and issued by BPS before any of its dealings with PNI;
the Court found that:
BPS had been issuing the Qoin Wallet in its personal capacity (that is, on its own behalf), rather than in its representative capacity (that is, on behalf of PNI); and
therefore, BPS could not rely on the AR Exemption to issue the Qoin Wallet.
That is, the existence of the AR agreement did not displace the substantive factual position that the provision of financial services was being conducted by BPS on its own behalf and not ‘as representative of’ PNI.
Why did the AR Exemption not apply
The Court affirmed that, subject to the particular facts, for the AR Exemption to apply:
in substance, the AR needs to be acting ‘as representative of’ the AFS licensee; and
there needs to be a nexus between the products of the AFS licensee and those of the AR.
Ultimately on the evidence the Court concluded that:
BPS was not issuing the Qoin NCP Product as a representative of PNI.
BPS was not acting “as a representative” of PNI during the CAR Period.
However, the Court did not otherwise consider whether an AR can be an issuer of financial products in its representative capacity and the degree to which an AFS licensee needs to be involved in issuing the relevant financial product which is the subject of the AR appointment.
Guidance for Current AR Arrangements
Based on the findings, reliance on the AR Exemption to issue financial products therefore will need to be considered on a case-by-case basis and subject to the particular facts.
In this regard, the Court placed significance on the fact that BPS sought out a range of AFS licensees before establishing an AR agreement with PNI, presumably on the understanding by BPS that it could not issue the Qoin financial product without an AFSL.
Given ASIC’s view expressed in the case, that the AR Exemption contains 'an essential representative capacity requirement', there is a material regulatory risk that ASIC may scrutinise AFSL arrangements more closely to determine if a particular AR is acting as an ‘authorised representative’ or in a capacity requiring the AR to hold an AFSL.
Managed Investment Funds
This risk is particularly pertinent in the managed investments and funds management sector where AR arrangements are common.
In light of this decision, an AFS licensee and its ARs should consider:
the substantive validity of their existing authorisation structures
how best to structure their authorisations and product issuance arrangements to address the limits of the AR Exemption
whether those limits will have an affect on any of their obligations outside of the financial services regime, for example, their obligation to enrol with AUSTRAC under the AML laws.
Takeaways and Guidance
Accordingly, it may be an opportune time to review AR arrangements to ensure that:
the appointee is acting "as a representative” of the AFSL holder who appointed it as an AR
the relevant product disclosure materials reflect a connection to the financial services business of the AFSL holder (rather than the AR); and
the financial product is in substance or effect ‘issued’ by the AFS licensee, that is, there is a contemplated relationship between the recipient of a PDS and the AFS licensee.
For further information, please contact Michael Bracken, Zac Mizgalski, Emma Johnson or Barbara Vrettos of our Financial Services team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.