FAE · ASIC Financial Adviser Exam
Lesson 1 of 3 in AML/CTF, privacy and tax (financial) advice
How an AFS licensee becomes a reporting entity by arranging designated services, what it must have in place after the 2024 reforms, and how due diligence, suspicious matter reports, tipping off and record keeping play out in a client file.
Financial advice regulatory and legal obligations9 min read9 sections
Checked against: Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), compilation No. 63 (1 Oct 2026): ss5 (domestic and foreign politically exposed person, family member, threshold transaction), 6 table 1 items 33, 35, 40, 42, 44, 54, 26B, 26C, 26E, 26F, 26H, 26J-26M, 26P, 26T, 28, 29, 30, 32, 39(7), 39D, 41, 43, 44(6), 47(5), 51B, 107, 108, 111, 116, 123, 175, 176, 178, endnote 3 (AML/CTF Amendment Act 2024, No. 110 of 2024: schedules commencing 31 Mar 2026 and 1 Jul 2026); ASIC, Financial adviser exam: Exam preparation guidance v6.0 (Sept 2026), curriculum and reading list item 5. AUSTRAC's website did not load for verification on 25 Oct 2026, so no AUSTRAC guidance is relied on.. Independent prep, not endorsed by ASIC.
ASIC's curriculum asks candidates to 'apply legal requirements of AML/CTF legislation to scenarios/case studies' (Exam preparation guidance v6.0, Sept 2026). Reading list item 5 points to AUSTRAC guidance on programs, customer identification, reporting, record keeping, exemptions and the consequences of not complying. Statutory extracts are supplied with questions, so the skill is applying the text to facts.
A scenario question can ask you to decide whether the licensee is a reporting entity, what must happen before the service starts, who reports a suspicion and by when, or what an adviser may say afterwards. Our practice questions drill each decision.
Item 54 of table 1 in s6 covers a person who, 'in the capacity of holder of an Australian financial services licence', arranges for someone to receive another designated service, such as a managed fund investment (item 35) or a share trade through a broker (item 33). Because item 54 attaches to the licence holder, the AFS licensee is the reporting entity; its authorised representatives and employee advisers act for it.
The 2024 amending Act (No. 110 of 2024) replaced the old two-part program from 31 March 2026 and brought 'tranche 2' professions in from 1 July 2026 (endnote 3, compilation No. 63). What a licensee must do turns on whether item 54 is its only designated service.
| Duty | Licensee with other designated services | Item 54-only licensee |
|---|---|---|
| Enrol within 28 days (s51B) | Yes | Yes |
| ML/TF risk assessment (s26C) | Yes | Yes |
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Kestrel Wealth, an AFS licensee, is a reporting entity because it arranges managed fund investments. A new client insists on investing A$180,000 through many small transfers from other people's accounts. On Tuesday, Kestrel's AML/CTF compliance officer suspects money laundering. Kestrel must give AUSTRAC a suspicious matter report within…
Answer: B. 3 business days after the day it formed the suspicion
Answer: 3 business days after the day it formed the suspicion. A money laundering suspicion falls within s41(1)(i)-(j), so s41(2)(a) gives 3 business days from the day the suspicion is formed.
| AML/CTF policies (s26F) |
| Full set, including training and independent evaluation at least every 3 years |
| Initial due diligence policies only (s26T(2)) |
| AML/CTF compliance officer (ss26J-26M) | Yes; AUSTRAC notified within 14 days | No (s26T(3)(d)) |
| Initial due diligence (s28) | Yes | Yes, except arranging super, RSA, pension or annuity products (s39(7)) |
| Ongoing due diligence (s30) | Yes | No (s30(10)) |
| Threshold transaction reports (s43) | Yes | No (s44(6)) |
| Annual compliance report (s47) | Yes | No (s47(5)) |
| Suspicious matter reports; tipping off (ss41, 123) | Yes | Yes |
Every reporting entity needs a current risk assessment and AML/CTF policies before it starts a service (ss26E, 26F(8)); starting without them is a separate civil penalty contravention for each service.
Case study FAE-C13, question 1 of 5: Coral Bay Advisers and the new client. Coral Bay Advisers Pty Ltd is an AFS licensee in Perth with 40 staff, about 900 clients and annual turnover of A$11m. Because it arranges for clients to invest in managed funds and listed securities, it is also a reporting entity under the AML/CTF Act. Its AML/CTF compliance officer is Rowena Park. In March a prospective client, Viktor, 47, contacts adviser Sam Ellery. Viktor says he recently sold a logistics business overseas and moved to Perth on a business visa. He wants to invest A$1.4 million through Coral Bay 'as quickly as possible, preferably in several smaller amounts'. He calls himself a growth investor with a ten-year horizon, rents an apartment, and has no debts and no Australian super. He gives a passport but is vague about where the sale money came from, and asks whether the investments can be held in his cousin's name 'for family reasons'. A news search by Sam shows that Viktor's father is a serving government minister in another country. Coral Bay's paraplanner keeps fact-find documents, including copies of passports and bank statements, on a shared drive that all 40 staff can open. Sam passes the news search result to Rowena before Coral Bay accepts any money. She must decide what the father's role means for Coral Bay's initial customer due diligence on Viktor. The role is BEST treated as…
Answer: A. making Viktor a foreign politically exposed person, needing enhanced due diligence
Answer: making Viktor a foreign politically exposed person, needing enhanced due diligence. Under s5, a foreign politically exposed person includes a family member, such as a child, of someone holding a prominent public office in a foreign country, including a minister.Why not the others:• irrelevant: only the person who holds the office can be politically exposed: the s5 definition expressly extends to family members, including children, of the office holder.• grounds on its own for lodging an immediate suspicious matter report…: PEP status raises risk, but on its own it is not reasonable grounds for a suspicion under s41.• a matter for the bank receiving his funds to check, not for Coral Bay: the bank has its own obligations, but they do not replace Coral Bay's duty under s28.Rule: Initial customer due diligence must establish whether the customer is a politically exposed person (s28(2)(e)), and s32(c) then requires enhanced customer due diligence for a foreign PEP, such as checking his source of funds and wealth.Source: Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) ss5, 28, 32, 41 (compilation No. 63, 1 Oct 2026)
Case study FAE-C13, question 5 of 5: Coral Bay Advisers and the new client. Coral Bay Advisers Pty Ltd is an AFS licensee in Perth with 40 staff, about 900 clients and annual turnover of A$11m. Because it arranges for clients to invest in managed funds and listed securities, it is also a reporting entity under the AML/CTF Act. Its AML/CTF compliance officer is Rowena Park. In March a prospective client, Viktor, 47, contacts adviser Sam Ellery. Viktor says he recently sold a logistics business overseas and moved to Perth on a business visa. He wants to invest A$1.4 million through Coral Bay 'as quickly as possible, preferably in several smaller amounts'. He calls himself a growth investor with a ten-year horizon, rents an apartment, and has no debts and no Australian super. He gives a passport but is vague about where the sale money came from, and asks whether the investments can be held in his cousin's name 'for family reasons'. A news search by Sam shows that Viktor's father is a serving government minister in another country. Coral Bay's paraplanner keeps fact-find documents, including copies of passports and bank statements, on a shared drive that all 40 staff can open. Standard 1 of the Code says: 'You must act in accordance with all applicable laws, including this Code, and not try to avoid or circumvent their intent.' Sam's colleague Dev, a relevant provider, suggests a family trust with the cousin as trustee so that 'Viktor's name stays off the paperwork'. Dev's suggestion is BEST described as…
Answer: B. a breach: it is designed to defeat the purpose of customer due diligence
Answer: a breach: it is designed to defeat the purpose of customer due diligence. A trust built so that Viktor's 'name stays off the paperwork' breaches Standard 1 whatever its legal form.Why not the others:• compliant, provided Coral Bay verifies the cousin as trustee and sights the trust deed: verifying the trustee and the deed is part of due diligence, but this structure exists to hide the real owner.• compliant: family trusts are lawful, and the AML/CTF Act binds Coral Bay rather than Dev: trusts are lawful and the reporting duties fall on Coral Bay, but the Code binds Dev personally.• a breach only if Coral Bay then accepts the money without a suspicious matter report: a suspicious matter report may well be needed (s41), yet the breach lies in proposing the structure, not in what Coral Bay does next.Rule: Standard 1 bars trying to avoid or circumvent a law's intent; due diligence must identify any beneficial owners of a customer that is not an individual, and anyone on whose behalf the customer receives the service (s28(2)(b) and (d)).Source: Financial Planners and Advisers Code of Ethics 2019 (F2019L00117), Standard 1; Corporations Act 2001 (Cth) s921E (compilation No. 149, 19 Sep 2026); Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) ss28, 41 (compilation No. 63, 1 Oct 2026)
Case study FAE-C173, question 7 of 8: Harbourview Wealth and Marlin Coast Holdings. Harbourview Wealth Pty Ltd is an AFS licensee in Brisbane with annual turnover of A$14m. Because it arranges for clients to invest in managed funds, it is a reporting entity under the AML/CTF Act. Its AML/CTF compliance officer is Priya Nand, and Tom Kelleher is a relevant provider authorised by Harbourview Wealth Pty Ltd. In August a prospective client, Marlin Coast Holdings Pty Ltd, asks Tom to arrange a A$2.2 million investment across three managed funds, with a five-year horizon and a balanced risk profile. Its sole director, Daniel Ferreira, 58, a Cairns property developer, says the money comes from the company's sale of a warehouse in July. The company's shares are held 60% by Daniel, 15% by his sister Lucia, who takes no part in running it, and 25% by Tidewater Ventures Pte Ltd, a Singapore company. Asked who owns Tidewater, Daniel says only 'a business friend who likes to stay private'. Daniel's wife, Helen, is a member of the Queensland Legislative Assembly. Daniel says the company's external accountant, Graham Webb, a registered tax agent who referred him to Tom, will give Harbourview most of its instructions under a written authority from the company. Daniel wants the money invested 'within a fortnight' and becomes impatient when Tom explains that Harbourview must complete its checks before it arranges anything. Tom asks Priya about the report Harbourview lodged about Daniel. Decide whether each statement correctly completes Priya's sentence: 'Harbourview's report …' (i) had to set out the grounds on which Harbourview holds its suspicion. (ii) can be put in evidence by Harbourview if Daniel later sues it over the abandoned investment.
Answer: B. (i) True, (ii) False
Answer: (i) True, (ii) False. A suspicious matter report must state the grounds for the suspicion, and it cannot be put in evidence in a civil claim.(i) True. Section 41(3)(c) requires a suspicious matter report, in the approved form, to contain a statement of the grounds on which the reporting entity holds the suspicion.(ii) False. Section 124(1) makes the report, a copy of it, and evidence of whether one was prepared or given inadmissible in any court or tribunal proceedings, apart from those listed in s124(2), such as prosecutions for tipping off under s123; a civil claim by Daniel is not among them, so Harbourview cannot use the report to defend itself.Rule: A suspicious matter report must include the grounds for the suspicion, and the report and the fact of its existence are kept out of court and tribunal proceedings except the few criminal and other proceedings s124(2) lists.Source: Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) ss41(3), 123 and 124 (compilation No. 63, 1 Oct 2026)
