FFSPs who hail from jurisdictions with comparative regulation and only service wholesale/institutional clients, have historically been exempted from the licensing and conduct regime in Australia through a series of Class Orders (now legislative Instruments).
A few years ago, our Australian financial services regulator, the Australian Securities & Investments Commission (ASIC), introduced a replacement regime, whereby FFSPs would be required to obtain a foreign Australian Financial Services Licence (AFSL) or meet the conditions of a new funds management exemption regime. A transition period to 31 March 2022 was provided (and then later extended to 31 March 2023).
Subsequently, the Australian Government – Treasury intervened to halt the implementation of the new FFSP regime to undertake further consultation and consideration. Treasury has since concluded its consultation process and introduced exposure draft legislation seeking to introduce a comparable regulator exemption for FFSPs who are authorised to provide financial services in a comparable regime when dealing with wholesale clients, as well as a professional investor exemption for FFSPs. AFSL applicants would also be exempt from the fit and proper person assessment to fast track their application.
Briefly, the draft legislation proposes the following regime:
Professional investor exemption – this will exempt FFSPs from the licensing requirements when services are provided to professional investors as defined in the Corporations Act 2001 (Cth) ie AFSL holders, APRA regulated bodies, persons controlling at least $10m, listed entities and their related body corporates. Services would need to be provided from outside Australia, by businesses genuinely located outside Australia, although local representatives can be appointed and infrequent marketing visits conducted. FFSPs would need to reasonably believe that the provision of such services would not contravene their local laws.
Reliance on the professional investor exemption would require (i) notification to ASIC and to clients that the FFSP is relying on the exemption (ii) providing reasonable assistance to ASIC as required (iii) complying with an ASIC direction to provide information (iv) submitting to the non-exclusive jurisdiction of the Australian courts; and (v) notifying ASIC of any changes to contact details etc.
The ambit of this exemption may be further limited by regulation where considered appropriate.
Comparable regulator exemption – this will exempt FFSPs from the requirement to hold an AFSL where (i) they only provide services to wholesale clients (ii) the FFSP is a foreign company; and (iii) the FFSP is authorised/registered/licensed to provide the same financial services by a comparable regulator in a foreign jurisdiction. The initial list of comparative overseas regulators will be the US SEC, US Federal Reserve and OCC, US CFTC, Singapore MAS, Hong Kong SFC, German BaFin, Luxembourg CSSF, UK FCA, UK PRA, Danish FSA, Swedish FI, French AMF and the Ontario OSC.
Reliance on the comparable regulator exemption would require (i) notification to ASIC that the FFSP is relying on the exemption (ii) providing reasonable assistance to ASIC as required (iii) complying with an ASIC direction to provide information (iv) submitting to the non-exclusive jurisdiction of the Australian courts (v) consenting to information sharing between the FFSP’s home regulator and ASIC (vi) notifying ASIC (asap but within 15 business days) of any significant enforcement action, disciplinary action or investigation against the FFSP outside Australia (vii) appointing a local agent in Australia; and (viii) maintaining sufficient oversight of representatives/take reasonable steps to ensure they comply with financial services laws
Notably, ASIC previously granted relief from licensing to certain FFSPs providing services to wholesale clients in Australia (the ‘limited connection’ relief). This will cease under the new regime, if promulgated.
Any foreign financial services providers (FFSPs) which are currently operating under an exemption, as notified to the Australian Securities & Investments Commission (ASIC) ASIC prior to 31 March 2020, or who have since successfully since notified ASIC of their reliance on an existing exemption, remain eligible to continue providing such services to wholesale clients pursuant to the relevant exemption until 31 March 2024.
If you want an update on the latest in regulations for raising capital in Australia, please feel free to reach out to us directly, or click on the link below to engage Gina Block at Block Legal & Compliance. We have worked with Gina since inception and she comes highly recommended.
