This article was written by Jim Boynton, Damien Richard, Geoffrey Li and Mark McFarlane.
Foreign financial services providers (FFSPs) now have certainty about their Australian financial services (AFS) licensing position. Banks, asset managers, brokers, funds, financial product issuers, distributors and advisers and other FFSPs with wholesale clients or businesses in Australia should consider their future activities and implement all necessary changes by 31 March 2022.
- released its final policy on foreign AFS licences and encourages foreign AFS licence applications to be lodged as soon as possible after 1 April 2020;
- extended the current sufficient equivalence (also referred to as the “passport” exemption) and limited connection relief until 31 March 2022; and
- introduced limited relief for providers of funds management financial services seeking to induce certain types of professional investors (FMFS relief).
Information on the current sufficient equivalence and limited connection relief can be found here. Information on ASIC’s previous proposals including the FMFS relief can be found here and here. ASIC’s release and related documents can be found here.
Finalised foreign AFS licensing regime
A foreign AFS licence regime will replace the current sufficient equivalence and limited connection relief.
Applications for a foreign AFS licence may commence from 1 April 2020. ASIC is encouraging licence applications to be lodged as soon as possible following commencement to allow ASIC time to process the application.
Interestingly, ASIC has updated the list of specified overseas regulatory regimes. The following FFSPs will be able to apply for a foreign AFS licence:
- US SEC regulated financial service providers;
- US Federal Reserve and OCC regulated financial service providers;
- US CFTC regulated financial services providers;
- Singapore MAS regulated financial service providers;
- Hong Kong SFC regulated financial service providers;
- German BaFin regulated financial service providers;
- Luxembourg CSSF regulated financial services providers;
- UK regulated financial service providers;
- Danish FSA regulated financial service providers;
- Swedish FI regulated financial service providers;
- French AMF regulated financial service provides;
- French ACPR regulated financial service providers; and
- Ontario OSC regulated financial service providers.
Extension of sufficient equivalence relief to 31 March 2022
As anticipated, a two-year transition period ending on 31 March 2022 will be available to eligible FFSPs. To qualify for the transition period, an FFSP must have already implemented and be able to rely on the relief on 31 March 2020.
FFSPs who have not yet implemented the relief will therefore need to act very quickly if they wish to rely on the relief between 1 April 2020 and 31 March 2022.
ASIC is expected to shortly release further information on how to implement sufficient equivalence relief before the deadline and comply with obligations under the relief in the transition period.
Extension of limited connection relief to 31 March 2022
The limited connection relief extension is 18 months longer than the extension previously proposed by ASIC, which was until 30 September 2020. An FFSP does not need to be currently relying on the limited connection relief to have the benefit of the relief at any time until 31 March 2022.
Funds management financial services providers relief
The proposed FMFS relief has been improved but the final relief is still very limited.
Subject to certain conditions, the relief applies to entities that provide funds management financial services to ‘eligible Australian users’. Key limitations of the relief include that:
- the definition of ‘eligible Australian users’ is very prescriptive and narrow and does not align with familiar concepts such as ‘wholesale clients’ or ‘professional investors’;
- there will be no grandfathering of existing products or services under the limited connection relief. This means that at 1 April 2022, an offshore fund may breach the law if an Australian investor (that might be a wholesale client but not an ‘eligible Australian user’) continues to hold interests in that offshore fund and the offshore fund cannot rely on other exemptions; and
- the relief only applies to entities that are only carrying on a financial services business in this jurisdiction because of a broad provision in the Corporations Act 2001 (Cth) which deems a financial services business to be carried on in Australia where, in the course of carrying on a financial services business, a person engages in conduct that is intended (or is likely) to induce persons in Australia to use the financial services that person provides. This is an unnecessary and potentially confusing limitation on the scope of the relief, especially given that the Courts are taking an increasingly broad view of the circumstances in which a foreign company is regarded as carrying on business in this jurisdiction, even when operating from outside Australia and with a very limited physical connection to Australia.
By 31 March 2022 at the latest, each FFSP that services wholesale clients in Australia must have already implemented their decision on whether they:
- obtain a foreign AFS licence or a full AFS licence;
- take steps to ensure they can rely on the FMFS relief or other exemptions; or
- cease servicing the Australian market.
To achieve this FFSPs should start their planning now.
Please contact us if you would like advice on how the new regime will affect your business or are interested in acquiring our foreign AFS licence starter pack.