On 7 August 2023, the Commonwealth Government released exposure draft legislation to introduce exemptions from the Australian financial service licence (AFSL) regime for foreign financial service providers (FFSPs). This Bill was released on the back of previous consultations to amend and replace exemptions available to FFSPs, including a contemplated foreign AFSL regime and funds management exemption in early 2020, and consideration of the comparable regulator and professional investor exemptions in late 2021.
ASIC has, in parallel, extended the current transitional relief available to FFSPs to 31 March 2025 and delayed the commencement of the funds management exemption until 1 April 2025.
The proposed amendments are intended to make it easier for FFSPs to enter the Australian market by providing a conditional exemption to certain FFSPs from holding an AFSL. The rationale is that this exemption will increase diversity of investments by professional and wholesale investors and inject liquidity into the Australian economy.
The draft legislation proposes the introduction of four new exemptions.
1. Professional investor exemption
This exemption applies to persons that provide financial services from outside Australia to “professional investors” (as specifically defined for the purpose of this exemption). It replaces the existing professional investor exemption available in s911A(2E) of the Corporations Act 2001 (Cth) and requires the following to be satisfied:
2. Comparable regulator exemption
This exemption applies to persons regulated by comparable regulators and that provide financial services in Australia only to wholesale clients. It replaces the existing sufficient equivalence relief and requires several conditions to be satisfied, including the following:
A person relying on this exemption must also notify ASIC in writing that the person agrees to legal proceedings being brought in a court in Australia where the proceedings relate to the provision of financial services under the exemption. The person must also agree that these proceedings would be subject to the law applicable to the provision of those financial services that is in force in Australia.
The Minister will have the power to determine who qualifies as a comparable regulator. It is expected that those regulators that currently satisfy the sufficient equivalence relief will be comparable regulators upon the commencement of the new legislation.
3. Market maker exemption
This exemption applies to persons that provide financial services involving making a market for derivatives that are able to be traded on prescribed licensed markets. It is a new exemption and available if the following conditions are met:
4. Fit and proper person assessment exemption
Foreign entities only providing financial services to wholesale clients, that are authorised, registered or licensed by a comparable regulator to provide the same financial services, are exempt from the requirement to satisfy the fit and proper person test when applying for an AFSL.
This exemption aims to fast-track the licensing process for financial service providers who are already being regulated by comparable regulators and who wish to apply for an AFSL instead of relying on an exemption.
The Government is seeking submissions from interested parties on the draft legislation from now until 8 September 2023.
During the extended transitional relief period, FFSPs may submit new applications for individual temporary licensing relief, or new AFSL applications. FFSPs that have been relying on the transitional relief, may continue to do so until 31 March 2025. Additionally, FFSPs may continue to provide financial services in Australia under their existing licence.
The exposure draft legislation may be accessed here.
The explanatory memorandum may be accessed here.
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