What is an AFSL and Do You Need One to Manage a Fund in Australia?

What is an AFSL and Do You Need One to Manage a Fund in Australia?

If you are thinking about managing a fund in Australia, one of the first questions you will need to answer is whether you need an Australian Financial Services Licence — commonly known as an AFSL.

For many fund managers, this question sits at the intersection of regulation, cost and timing. Get it wrong, and you may be exposed to serious legal and financial penalties. Get it right, and you are on a clear path to launching and operating a fund that investors can trust.

This article explains what an AFSL is, when you need one, what your options are if you cannot hold your own licence, and how FundBase Group helps fund managers navigate the path to market.

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What is an AFSL?

An Australian Financial Services Licence is a legal licence issued by the Australian Securities and Investments Commission (ASIC). It authorises a business or individual to provide financial services in Australia.

The AFSL regime is established under Chapter 7 (specifically section 911A) of the Corporations Act 2001. The legislation was designed to protect consumers and investors by ensuring that anyone providing financial services operates to a defined standard, with appropriate training, resources, systems and conduct obligations in place.

ASIC does not endorse any individual AFS licensee or guarantee the quality of their services. What it does is assess whether an applicant is competent, financially capable and fit and proper to provide the financial services they are seeking authorisation for. Once a licence is granted, the licensee carries ongoing obligations to continue meeting those standards.

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What Activities Require an AFSL?

Broadly, you need an AFSL if your business provides a financial service. Under the Corporations Act 2001, financial services include:

• Providing financial product advice (including recommendations or statements of opinion intended to influence financial decisions)

• Dealing in financial products — buying, selling, issuing or applying for financial products on behalf of clients

• Making a market for financial products

• Operating a registered managed investment scheme

• Providing custodial or depository services

For fund managers specifically, the trigger point is usually the operation of a managed investment scheme or the dealing in financial products on behalf of investors. If you are pooling capital from multiple investors and investing it on their behalf — whether into equities, property, private credit, venture capital, private equity or other assets — you are almost certainly providing a financial service that requires an AFSL or an appropriate authorisation under one.

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Do You Always Need Your Own AFSL?

No — and this is where many emerging fund managers find relief.

There are two main pathways to operating lawfully without holding your own AFSL: becoming a Corporate Authorised Representative (CAR) under an existing AFSL holder or qualifying for a specific exemption. A third path is to apply for your own AFSL, which is the appropriate long-term route for managers who want full autonomy over their licensing obligations.

Each option carries different timelines, costs and responsibilities. Understanding which one fits your situation is one of the most important early decisions you will make as a fund manager.

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Option 1: Apply for Your Own AFSL

Applying for your own AFSL gives you full control over your financial services business. It is the path most suited to established managers who have the resources, regulatory history and long-term vision to operate independently.

The application process is detailed. You will need to demonstrate organisational competence, show that you have adequate financial resources and experience, and put in place the compliance framework, risk management procedures and operational systems that ASIC expects. As of June 2025, all AFSL applications must be submitted through the ASIC Regulatory Portal.  

In terms of timing, you should allow between three and twelve months from submission to receiving a draft licence. Total costs to obtain an AFSL can exceed $25,000, with ongoing annual compliance review costs typically ranging from $8,000 to $25,000, and audit costs averaging around $10,000 per year. These figures do not include the internal operational costs of maintaining a compliant business and capital adequacy requirement. Capital adequacy refers to the amount of capital licensee must hold to absorb unexpected losses, ensuring stability and consumer protection. It can vary depending on the authorisation granted under the license.  

For managers who are new to the industry, do not yet have the regulatory track record ASIC expects, or who want to reach investors quickly, the direct AFSL path can be a significant barrier to entry and might require engaging an external Responsible Managers.

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Option 2: Become a Corporate Authorised Representative (CAR)

A Corporate Authorised Representative is an authorisation by an existing AFSL holder to provide specific financial services on behalf of that licensee.

For emerging fund managers, this is often the most practical path to market. Rather than waiting months for ASIC to assess an AFSL application, a CAR arrangement can allow you to begin operating under an existing licence much faster — often within a couple of weeks.

Under a CAR arrangement, the AFSL holder takes on supervisory responsibility for the CAR’s conduct. The CAR must operate within the scope of the authorisations granted and comply with the obligations of the parent licensee. In practice, this means receiving training and supervision, operating within defined compliance frameworks, and being accountable to the licensee for the services provided.

The CAR pathway does not mean reduced standards. Fund managers operating as CARs are still expected to meet the same investor protection and conduct standards as any other market participant. The difference is that the licensing infrastructure — and its associated costs and responsibilities — sits with the AFSL holder rather than the fund manager.

FundBase Group holds its own AFSL (AFSL 557810) and provides CAR arrangements to fund managers seeking a faster, lower-cost path to launching and operating investment funds.  

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Option 3: Rely on an Exemption

In some circumstances, you may not need an AFSL at all. ASIC recognises a number of exemptions from the licensing requirement, but they are narrow, highly specific, and should never be relied upon without proper legal advice. Operating without appropriate licensing — and outside a valid exemption — can result in significant civil penalties, reputational damage, and in serious cases, criminal liability.

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The 20/2 Exemption

One exemption commonly discussed among emerging fund managers is the "20/2 exemption" (sometimes called the 2/20 rule). Under this provision in the Corporations Act 2001, a fund manager may raise up to $2 million from no more than 20 investors within a rolling 12-month period without holding an AFSL. For those looking to validate an investment strategy without the cost and complexity of full licensing, it can be a useful way to test whether your fund is viable as an ongoing venture.

However, the exemption comes with strict and often overlooked conditions:

• Investment cap: No more than $2 million may be raised within any rolling 12-month period

• Investor limit: The fund cannot have more than 20 investors at any time

• No commercial fee revenue: The manager cannot be carrying on the business of funds management — fees must be minimal, restricted to the reasonable reimbursement of costs, making this exemption unsuitable for commercially-oriented ventures (i.e. no management fees)

• Aggregation: The $2 million and 20-investor thresholds must be aggregated across your own and any associates' other investment vehicles — it is effectively a one-time carve-out, not a renewable concession

• Compliance obligations remain: AML and KYC requirements apply regardless of whether you hold an AFSL

Once your fund grows beyond these thresholds — or if you intend to charge meaningful fees — a proper licensing arrangement must be in place.

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Other Exemptions

Other exemptions exist in more limited contexts, such as those available to foreign financial services providers operating under the foreign AFS licence regime. These are narrow in scope and equally fact-specific.

Exemptions are a starting point, not a permanent strategy. As your fund scales, the right licensing arrangement becomes non-negotiable.

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The Consequences of Operating Without an AFSL

The consequences of providing financial services without an AFSL — or outside the scope of a valid exemption or CAR arrangement — are serious.

ASIC has broad enforcement powers. These include the ability to seek civil penalties, issue infringement notices, obtain injunctions, pursue criminal charges in serious cases, and take action to compensate affected investors. Penalties under the Corporations Act 2001 for unlicensed conduct are substantial.

Beyond the legal exposure, there is a reputational dimension. Sophisticated investors — whether wholesale, institutional or otherwise — will conduct due diligence on a fund manager’s licensing status before committing capital. Operating outside the regulatory framework, even unintentionally, can destroy trust that takes years to build.

This is why getting the licensing question right at the outset matters as much as the investment strategy itself.

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What Does Good AFSL Coverage Actually Look Like for a Fund Manager?

Whether you hold your own AFSL or operate as a CAR under someone else’s, the quality of the underlying compliance framework determines how well protected your fund (and your investors) are.

Good AFSL coverage for a fund manager includes:

• A clearly defined scope of authorisation that covers the financial services your fund provides

• Ongoing training and competency assessment for responsible people in the business

• A documented compliance program aligned to your obligations under the Corporations Act 2001 and relevant ASIC regulatory guides

• Reporting and monitoring systems that allow you to identify and respond to compliance issues promptly

• Regular reviews and audit coordination

Many fund managers, particularly those in early growth phases, lack the internal resources to build and maintain all of this themselves. That is where a full-service partner with both the AFSL infrastructure and the operational depth to back it up becomes valuable.

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How FundBase Group Helps

Built from a background in financial services law and AFSL incubation, FundBase Group was designed to simplify the launch and operation of investment funds. Our team has direct, operational experience in the compliance environment that fund managers navigate every day.

We hold AFSL 557810 and provide CAR arrangements to fund managers as part of our fund infrastructure offering. This means you can operate with proper AFSL coverage, backed by a compliant framework and ongoing supervision — without needing to hold your own licence or wait months for ASIC to process an application.

Our AFSL coverage and compliance service is available as a standalone service through Fund Services, or as part of our full-service Fund-in-a-Box model, which brings together fund formation, licensing, investor onboarding, administration and governance under a single coordinated delivery model.

For managers who want to launch in weeks rather than months, and who want institutional-grade compliance without building it from scratch, this is what the FundBase Group model is designed to deliver.

Contact our team to discuss your structure, timeline, and the level of support that makes sense for where you are in the fund lifecycle.

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References

Australian Securities and Investments Commission. AFS licensees. https://www.asic.gov.au/for-finance-professionals/afs-licensees/

Australian Securities and Investments Commission. Requirements to hold an AFS licence. https://www.asic.gov.au/regulatory-resources/financial-services/financial-advice/running-a-financial-advice-business/requirements-to-hold-an-afs-licence/

Click Legal. How to apply for an Australian Financial Services Licence (AFSL): The complete 2025 guide. https://clicklegal.com.au/blog/how-to-get-afsl-australia-complete-guide-2025

Corporations Act 2001, section 911A. https://treasury.gov.au/sites/default/files/2022-08/c2022-310999-es.docx

Hall & Wilcox. AFS licence application — steps and timing. https://hallandwilcox.com.au/news/afs-licence-application-steps-and-timing/

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