Buying ACCUs with confidence: achieving end-to-end integrity

When buying Australian Carbon Credit Units (ACCUs), confidence in the integrity, governance and capability of your counterparty matters. One way organisations can demonstrate this commitment is through holding an Australian Financial Services Licence (AFSL). AFSL holders must operate efficiently, honestly and fairly, maintain appropriate compliance systems and manage conflicts of interest.

But do AFSLs matter when it comes to the carbon market? And why would a company like Pastoral Partners Australia want to hold an AFSL? Our Chief Financial Officer, Clare Chan, explains how an AFSL relates to the sale of ACCUs in the carbon market and breaks down why holding an AFSL matters to Pastoral Partners Australia when it comes to high integrity.

What is an AFSL and do you need one for carbon market products?

An Australian Financial Services Licence (AFSL) is issued and regulated by the Australian Securities and Investments Commission (ASIC). It authorises a business to conduct financial services relating to specific financial products. In Australia’s carbon market, ACCUs are legally classified as financial products under the Corporations Act, meaning if you provide financial product advice, arrange transactions, or deal in ACCUs as a financial services business, you will generally require an AFSL. If you are simply generating and selling ACCUs from your own projects or buying and selling ACCUs solely on your own behalf, you may be able to rely on an exemption and therefore may not require an AFSL. The key distinction is whether you are dealing with ACCUs for yourself, or whether you are advising, arranging, or dealing in ACCUs on behalf of another person or organisation.

How do you obtain an AFSL?

Securing an AFSL is not a fast process. Applicants must demonstrate to ASIC that they possess appropriate organisational competence, governance frameworks, compliance procedures and financial resources, all of which must be maintained on an ongoing basis. For many applicants, the hardest part of obtaining the AFSL is selecting the right Responsible Managers as part of organisational competence and proving to ASIC that the business genuinely has the expertise to conduct the exact financial products and services sought under the AFSL. This can be particularly challenging in the carbon market, where expertise in ACCUs and carbon derivatives is still relatively specialised. ASIC Regulatory Guide 105 requires either relevant qualifications and training plus at least three years relevant experience over the past five years, or, if there is no relevant qualification at least five years relevant experience over the past eight years. Many applicants end up engaging external Responsible Managers as finding suitable Responsible Managers (at least two) from within the business with the requisite experience can be challenging.

ASIC conducts detailed assessments of the applicants, as well as the broader application itself covering organisational and financial requirements, governance, risk and compliance manuals and policies. The process typically takes many months and can extend beyond a year depending on the complexity of the licence sought, the quality of the application and ASIC review timelines. Applicants often invest significant resources in legal advice, compliance systems, staff training and governance frameworks before receiving approval.

Once a licence is granted, there are ongoing obligations to lodge annual compliance and financial reports, annual training requirements for the Responsible Managers, and risk and compliance monitoring and recording. The financial reports, and all risk, compliance and training records are required to be audited annually by a qualified external auditor.

Why some carbon market participants choose not to hold an AFSL

Given the cost, complexity and ongoing compliance obligations, many carbon market participants choose not to obtain their own AFSL. Other models that are implemented without needing to hold your own AFSL include selling through a broker or operating under another licensee’s AFSL. Selling through a broker, such as environmental market intermediaries or specialist trading firms, allows a carbon developer to avoid the significant costs and compliance obligations associated with obtaining and maintaining an AFSL.

Alternatively, operating under another licensee’s AFSL is another option chosen where a business wants to be more active in the market – i.e. source the buyers and execute the transactions themselves – without obtaining their own AFSL.

Why Pastoral Partners Australia chose to obtain and trade under its own AFSL

Unlike other carbon market participants that rely on brokers or third-party licensees, Pastoral Partners Australia invested in building the in-house capability required for an AFSL. By combining experienced financial services personnel, strong governance and compliance frameworks, and evident expertise in ACCU and carbon market transactions, in October 2024 we were able to secure AFSL 555859 and participate directly in the market.

Our AFSL authorises the provision of general financial product advice and the dealing (issuing, applying for, acquiring, varying or disposing) of ACCUs, eligible international emissions units, or derivatives of the same.  Holding our own AFSL means we can engage directly with safeguard entities and wholesale clients, directly negotiate structured ACCU and derivative transactions and trade on behalf of ACCU holders. For our customers, this means they can work directly with the organisation that develops the project, generates the ACCUs and supports the transaction, rather than relying on multiple intermediaries. This provides greater transparency and accountability throughout the entire transaction process.

As a vertically integrated business, holding our own AFSL supports an end-to-end service model that we pride ourselves on. We own and manage project land, develop and operate carbon projects, generate ACCUs and facilitate transactions within an appropriately licensed framework. The result is greater transparency, stronger alignment with customer needs and a streamlined process for organisations seeking high-integrity carbon credits. Our core focus is integrity, and we want this to be reflected in our approach from start to finish – placing the Pastoral Partners “stamp” on everything we do.

Pastoral Partners Australia’s decision to obtain its own AFSL demonstrates a long-term commitment to regulatory excellence and market confidence. It distinguishes us within a rapidly evolving carbon market and strengthens our ability to support customers throughout the carbon credit lifecycle – from project development and ACCU generation through to licensed market participation and transaction support.

If you’d like to discuss anything in this article, please contact one of our carbon experts today.