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On 9 July 2021, the Department of the Treasury of the Australian Government (Treasury) released Consultation Paper: Relief to Foreign Financial Service Providers (Consultation Paper) seeking industry feedback on regulatory relief for Foreign Financial Service Providers (FFSPs) and the options to create a streamlined Australian financial services (AFS) licensing process for FFSPs seeking to establish more permanent operations in Australia.
The release of the Consultation Paper follows an announcement by the Australian Government in the Federal Budget on 11 May 2021 that it will consult with the industry on options to:
The Consultation Paper does not contain proposals; it merely canvasses options and seeks views on additional options that the Australian Government should consider before settling on a regulatory framework for FFSPs.
In this note, we summarise the FFSP exemptions that have existed to date, as well as the options set out in the Consultation Paper.
A person who carries on a financial services business in Australia must hold an AFS licence authorising them to provide the relevant financial services, unless an exemption applies.
Shortly after the commencement of the AFS licensing regime in 2002, the Australian Securities and Investments Commission (ASIC) recognised the need for AFS licensing exemptions for certain FFSPs providing financial services to wholesale clients in Australia. These are summarised below.
Since 2003, ASIC has provided two forms of licensing exemptions to FFSPs that provide financial services to wholesale clients in Australia:
Following years of consideration and consultation, ASIC outlined a new regulatory framework on 10 March 2020 for FFSPs which included a “foreign AFS licence” and the “Funds Management Relief”. ASIC also extended until 31 March 2022 the Sufficient Equivalence Relief for those FFSPs that were relying on it as at 31 March 2020. The Limited Connection Relief was also extended at that time. Our note on this development in the regulatory regime can be found here.
Following the Australian Government’s announcement that it intended to consult on restoring the previous forms of relief, ASIC issued ASIC Corporations (Amendment) Instrument 2021/510 on 11 June 2021. This extended the ability of FFSPs to rely on the Sufficient Equivalence Relief and Limited Connection Relief by an additional 12 months from 31 March 2022 until 31 March 2023. ASIC also announced that those FFSPs that were not currently relying on the Sufficient Equivalence Relief could seek to rely on it by providing ASIC with the requisite documents and otherwise complying with the other conditions.
The regulatory regime that will apply to FFSPs after 31 March 2023 will depend on the outcome of Treasury’s consultation. The Consultation Paper contains several options. These are summarised below.
The Consultation Paper seeks comments and submissions on Treasury’s various options for establishing a new regulatory framework for FFSPs:
The Consultation Paper contains two alternatives under the option to reinstate the former FFSP relief being:
Option 1A – Restore the Sufficient Equivalence Relief and Limited Connection Relief.
Option 1B – Restore the Sufficient Equivalence Relief and continue the Funds Management Relief instead of the Limited Connection Relief.
The Consultation Paper sets out the possibility for an exemption from the requirement to hold an AFS licence in order to provide certain financial services to wholesale clients in Australia. An FFSP relying on this relief would be restricted to providing the following financial services in relation to the following financial products:
The relief would only be available to those FFSPs from the following jurisdictions, and it would only be available to those FFSPs that were licensed to provide the same financial services in their home jurisdiction:
The Consultation Paper also canvasses an option that is analogous to Option 2 but extends the relief to all financial services provided to wholesale clients.
The exemptions provided under both Options 2 and 3 could be granted subject to certain conditions. Treasury is seeking submissions on whether some, or all, of a range of conditions should apply. These include the conditions that apply under the current Sufficient Equivalence Relief, as well as requiring the FFSP to comply with the following new conditions:
The Consultation Paper seeks comments and submissions on the different ways of fast-tracking the AFS licensing process for FFSPs:
As part of the AFS licence application process, applicants must provide information on their fit and proper people. This fit and proper person test is satisfied if ASIC can determine that there is no reason to believe that, for a body corporate applicant, any of the officers of the body corporate (and any officer of a body corporate that controls the applicant) are not fit and proper in performing one or more functions as officers of the body corporate that provides financial services under an AFS licence.
Treasury is considering legislative amendments to provide ASIC with the discretionary power to determine whether an FFSP is required to satisfy the fit and proper person test for every relevant person under section 913BA of the Corporations Act. This is based on the proposal to allow ASIC to rely on similar assessments undertaken by regulators in the home jurisdiction of the FFSP. It is designed to reduce duplicative regulatory burden where appropriate.
Another means of fast tracking the AFS licensing process is to introduce a modified AFS licensing regime that would apply to FFSPs that only provide financial services to wholesale clients in Australia. This fast tracked regime would only be available to FFSPs that are regulated by an overseas regulatory body that is a signatory to the International Organisation of Securities Commission’s (IOSCO) multilateral Memorandum of Understanding.
If this option were implemented, FFSPs would benefit from exemptions to the AFS licensing process and certain obligations under Chapter 7 of the Corporations Act where there is duplication with the regulatory regime in the FFSP’s home jurisdiction.
The Consultation Paper lists the following conditions that could apply to this modified AFS licensing regime:
Finally, Treasury is seeking submissions on the possibility of granting an AFS licence to an FFSP in circumstances where the FFSP is able to provide evidence of the following:
Under this option, the FFSP would be subject to all of the obligations that are imposed on an AFS licensee, as well as being subject to the following conditions:
Although the options outlined by Treasury in the Consultation Paper cover the spectrum of the different forms of FFSP AFS licensing exemptions that have existed, or been proposed, since 2003, a number of questions remain.
Submissions on the various options can be made until 30 July 2021. Please contact us if you would like more information on any of the options or to discuss the regulatory regime that applies to FFSPs more generally.
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