01 June 2018

Foreign financial service providers – ASIC announces proposed licensing changes

This article was written by Damien Richard and Annabel Gibson.

ASIC has today released a Consultation Paper announcing important proposed changes to the Australian financial services licence (AFS licence) regime for foreign financial service providers (FFSPs).  Subject to a transition period, FFSPs relying on a number of current AFS licence exemptions may in future need to apply for a modified “foreign AFS licence”, which will be subject to more limited obligations compared to a standard AFS licence.

Consultation Paper 301 and the related Media Release can be accessed here.

Comments on the Consultation Paper are due by 31 July 2018.

Further information

The current exemptions

Currently, FFSPs that are regulated in certain approved foreign jurisdictions may implement a “passport exemption” covering financial services provided to wholesale clients.  These exemptions are based on the foreign regulatory regime being sufficiently equivalent to the AFS licence regime, and are referred to as the “sufficient equivalence relief” in ASIC’s Consultation Paper.  The exemptions are currently due to expire in September 2018.  In addition, some FFSPs may have the benefit of individual relief which closely follows these standard passport exemptions.

Other FFSPs that service the wholesale market in Australia on a more limited basis may rely on the so-called “limited connection relief”, originally implemented through ASIC Class Order [CO 03/824].  The limited connection relief was available where the FFSP did not carry on a financial services business in Australia, to provide relief from a broad provision in the Corporations Act which deems a financial services business to be carried on in Australia where Australian clients were “induced” to use the services.  This exemption is also due to expire in September 2018.

ASIC’s proposals – a new foreign AFS licence

ASIC proposes to repeal both the passport exemptions and the limited connection relief.  The exemptions will be rolled over for an initial transition period of 12 months, expiring on 30 September 2019.

Individual relief equivalent to the passport exemptions is also proposed to be revoked.

A further 12 month transition period expiring on 30 September 2020 may be available.

In place of the exemptions, FFSPs will need to apply for a modified version of a standard AFS licence referred to as a “foreign AFS licence” if they wish to continue to provide financial services to wholesale clients in Australia.

These proposals are the outcome of ASIC’s review of the regulatory settings for licensing and FFSPs.  ASIC is concerned that:

  • there is evidence of non-compliance with the passport exemption conditions
  • it has a limited ability to monitor and supervise FFSPs relying on the current exemptions, and to enforce compliance with exemption conditions
  • key AFS licence obligations do not apply to exempt FFSPs and
  • the exemptions may be broader than those offered in other major overseas jurisdictions, with only limited mutual recognition arrangements in place for Australian financial service providers.

How will a foreign AFS licence compare to a standard AFS licence?

ASIC proposes that key general AFS licence obligations will apply to a foreign AFS licence holder, such as the requirement to provide financial services efficiently, honestly and fairly, and to have in place adequate arrangements to manage conflicts of interest.

Exemptions will apply from some other general and specific licence obligations where ASIC considers the overseas regulatory requirements achieve similar regulatory outcomes to the Australian requirements.

ASIC is also proposing to impose tailored conditions on foreign AFS licensees.  These will include conditions limiting the range of representatives that can be appointed under the licence and notification requirements based on those under the current passport exemptions.

The Consultation Paper contemplates that applicants for foreign AFS licences will need to provide similar documentation in support of their application as those that are required for a standard AFS licence application.  Preparing a standard licence application, and having it assessed by ASIC, can demand significant resources and be a lengthy process.

What should FFSPs do?

FFSPs should review Consultation Paper 301 closely and consider whether they wish to make a submission to ASIC.  Submissions close on 31 July 2018.

Depending on the outcome of ASIC’s consultation process, FFSPs may need to consider their future business activities for Australia, and determine whether they wish to apply for a foreign AFS licence or cease servicing the Australian wholesale market.

FFSPs may also wish to consider if other AFS licence exemptions might be available to them, which might require a restructure of the service offering or collaborating with the holder of an AFS licence.

Questions?

If you would like to discuss how these developments might affect your organisation, please contact any member of the King & Wood Mallesons Financial Services Regulation team.

Key contacts

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