Payroll providers must avoid carrying on a business that is:
- providing a non-cash payment facility; or
- providing advice about superannuation products.
unless authorised to do so under an Australian financial services (AFS) licence. This authorisation can be held by the provider or by someone with an AFS licence who has authorised the provider. Unless care is taken in the way their business is conducted, payroll providers risk engaging in illegal conduct.
This warning is issued by the Australian Securities and Investments Commission (ASIC), following a recent review of the operations of payroll providers. This review resulted in some of the payroll providers subject to the review changing their business practices, either by becoming an authorised representative of an AFS licence holder with the appropriate authorisation, or ceasing to provide those services that require authorisation.
What conduct may be problematic?
- A ‘non-cash payment facility’ is a financial product, and a person providing such a facility is providing a financial service. A person makes non-cash payments if they make payments or cause payments to be made other than by the physical delivery of Australian, or other, currency.
Payroll providers and clearing houses would generally be providing non-cash payment facilities to employers who make payments, including into superannuation funds, on behalf of their employees, especially (but not only) if they hold monies that are being transferred prior to their distribution. While there are some exemptions for providers of these kinds of products, an AFS licence is generally required.
Example: If your facility allows you to make payments to more than one person or entity, or if you have some control over the payments (e.g. you receive client money, hold it and then forward it to a third party, as opposed to just providing software to assist an employer or other person in making payments), you may be carrying on a business of providing a non-cash payment facility.
- You may be providing financial product advice if you give a recommendation or statement of opinion that is intended to, or could reasonably be regarded as intending to, influence a person in making a decision about a particular financial product or class of products. If you express any qualitative or comparative judgement about a product, you are likely to be providing financial product advice.
Example: If you regularly tell employers that a particular super fund is popular with similar employers because it has low fees, or because of some other specific feature, you may be carrying on a business of providing financial product advice.
What should you do?
If you think you may be providing either of these services without an AFS licence, ASIC is advising you to immediately:
1. stop providing the service; and
2. remove all statements from advertisements, websites and other promotional material which indicate that your company can provide the financial service
until such time as you obtain an AFS licence, or become an authorised representative of an AFS licence holder, or obtain legal advice that you have the benefit of an exemption.
ASIC is advising financial services providers that it may consider enforcement action where it identifies any unlicensed conduct.
If you think you may have been providing financial services without a licence, we suggest you seek legal advice. Further information about AFS licensing is available here. Information on what constitutes financial product advice is included in our guidance here. Further information about non-cash payment facilities and the availability of relief is included here.
More background to help you understand the law
If you want to run a financial services business, you generally need an AFS licence: see s911A of the Corporations Act 2001 (the Act). An AFS licence authorises you and your representatives to provide financial services to clients. Financial services include providing non-cash payment facilities and providing financial product advice.
The circumstances in which a person makes a non-cash payment are outlined in s763D of the Act.
Superannuation is a financial product: see paragraph 764A(1)(g) of the Act. Financial product advice is defined in s766B of the Act as a recommendation or a statement of opinion, or a report of either of those things, that:
(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b) could reasonably be regarded as being intended to have such an influence.