On 30 November 2023, the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Amendment Bill) was tabled in the Australian Parliament. Schedule 7 to the Amendment Bill is titled, “Licensing exemptions for foreign financial services providers”. It sets out the Government’s proposed legislative exemptions for foreign financial service providers (FFSPs). Schedule 7 to the Amendment Bill represents the latest development in the review of the FFSP regulatory regime that ASIC commenced in 2016.
Schedule 7 to the Amendment Bill amends the Corporations Act 2001 (Cth) and provides the following exemptions to FFSPs:
Schedule 7 also contains provisions that are intended to expedite the AFS licensing process by exempting persons regulated by comparable regulators from the fit and proper person test when applying for an AFS licence to provide financial services to wholesale clients. This note provides an overview of the Professional Investor Exemption and the Comparable Regulator Exemption.
Currently, most FFSPs are likely to rely on one of two main exemptions: the sufficient equivalence relief or the limited connection relief. The sufficient equivalence relief requires the FFSP to be established and regulated in a foreign jurisdiction that ASIC has assessed as having sufficiently equivalent regulation as Australia (these include the US, UK, Singapore, Hong Kong, Germany and Luxembourg). An FFSP that relies on this exemption must comply with specified conditions and notify ASIC that it is relying on the exemption before it applies.
The limited connection relief applies in more narrow circumstances. There is no requirement on an FFSP to notify ASIC that the FFSP is relying on the limited connection relief. Both of the sufficient equivalence relief and the limited connection relief are scheduled to stop applying after 31 March 2025.
An FFSP that currently relies on the sufficient equivalence relief may decide to rely on either or both of the Professional Investor Exemption or the Comparable Regulator Exemption. Which exemption an FFSP selects will largely depend on the FFSP’s activities within Australia. For example, an FFSP currently relying on the sufficient equivalence relief may decide to rely on the Professional Investor Exemption, not the Comparable Regulator Exemption, if the FFSP only conducts limited activities in Australia, that amount to providing financial services, such as marketing visits over short periods of time.
The Explanatory Memorandum for the Amendment Bill states that the Professional Investor Exemption replaces the existing professional investor exemption in section 911A(2E) of the Corporations Act, as inserted by Corporations Regulation 7.6.02AG. This existing professional investor exemption only applies to a limited range of financial products, and therefore, was unlikely to be used by many FFSPs. Although the Professional Investor Exemption shares some common characteristics with the limited connection relief, there are some differences.
The Professional Investor Exemption is available in the following circumstances:
A person relying on this exemption is permitted to conduct “marketing visits” to Australia, provided its representatives do not spend more than 28 days each in any financial year in Australia engaging in activities that amount to providing financial services. Because the 28 days applies to each representative of the person providing the financial service, the person could actually spend much more than 28 days in a given financial year providing financial services in Australia, provided the days were spread across different representatives who, themselves individually, did not spend more than 28 days each providing financial services from within Australia. The 28 days does not include days that a representative may be in Australia, but not engaging in activities that amount to providing financial services.
A person that uses the Professional Investor Exemption to provide financial services to professional investors must comply with certain conditions. These conditions include:
The Comparable Regulator Exemption will only be available where the person is authorised, registered or licensed (as necessary) by a comparable regulator in a place outside of Australia.
The Comparable Regulator Exemption applies where:
In addition to the conditions that apply to the Professional Investor Exemption (see above), an FFSP relying on the Comparable Regulator Exemption must also satisfy other conditions, including that the FFSP must:
The “introduction and first reading” of the Amendment Bill, as well as the “second reading speech” in the House of Representatives, was completed on 30 November 2023. The “second reading debate” has been adjourned to a future date. This is typically five clear/calendar days after the “second reading speech”.
The date of the stages following the “second reading debate” will be determined by the House of Representatives; the House is scheduled to sit again on 7 December 2023 for one day, and then resumes a longer sitting on 6 February 2024.
After the “second reading debate”, there is a third reading; consideration by the Senate; consideration of amendments by the House; and then Royal Assent. These steps are likely to take several months to complete.
A professional investor includes:
The Explanatory Memorandum summarises the definition of a “wholesale client” as follows:
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