Following an extensive consultation process, the Australian Securities and Investments Commission (ASIC) has finalised its revised framework for Foreign Financial Services Providers (FFSPs) offering services to wholesale clients or professional investors in Australia. The new approach is explained in detail in the updated ASIC Regulatory Guide 176 (RG 176) which supersedes the version previously released in June 2012. It provides for 3 potential market access approaches with transitional arrangements enabling existing market participants a reasonable time to consider their preferred option and structure operations accordingly.
The existing sufficient equivalence relief arrangements (commonly referred to as the Class Order exemption regime) will be discontinued from 1 April 2020. FFSPs will, subject to certain transition arrangements, now have three options:
- notify ASIC of its reliance on the Funds Management Relief under ASIC Corporations (Foreign Financial Services Providers - Funds Management Financial Services) Instrument 2020/199;
- apply for a new foreign Australian Financial Services (AFS) licence; or
- apply for a standard AFS licence.
Funds Management Relief
The funds management relief (Funds Management Relief) replaces the limited connection relief and is available to FFSPs who are:
- only carrying on a financial services business because they are engaging in conduct that is intended to, or will likely, induce people in Australia to use the financial services the FFSP provides under s911D Corporations Act 2001 (Cth) (Corporations Act) (inducing conduct); and
- are engaging in the provision of funds management financial services to a subset of professional investors (Eligible Australian Users).
Examples of Eligible Australian Users currently include a responsible entity of a registered scheme, a trustee of a wholesale trust who holds an AFS licence (or would be required to hold an AFS licence but for the ASIC Corporations (Wholesale Equity Schemes Trustees Instrument 2017/849)), and bodies regulated by the Australian Prudential Regulatory Authority. ASIC have indicated that FFSPs wishing to induce other types of professional investors can apply to ASIC to obtain additional approval.
Certain conditions are imposed on an FFSP when relying on Funds Management Relief including the appointment of a local agent and that the FFSP have no place of business in Australia.
To rely on the Funds Management Relief, the FFSP must lodge a written notice with ASIC.
Foreign AFS Licensing
An FFSP will be eligible for a foreign AFS licence if it:
- holds the relevant authorisation/s in a sufficiently equivalent overseas regulatory regime to provide financial services to wholesale clients; and
- wants to provide those financial services to wholesale or professional investor clients in Australia.
The existing recognition of sufficiently equivalent overseas regimes is continued and currently only includes FFSPs who hold a relevant authorisation with any of the following:
- Danish Financial Supervisory Authority;
- French Autorite des marches financiers of France;
- French Autorite de controle prudentiel et de resolution of France;
- German BaFin;
- Hong Kong Securities and Futures Commission;
- Luxembourg Commission de Surveillance du Secteur Financier;
- Ontario Securities Commission;
- Singapore Monetary Authority of Singapore;
- Swedish Finansinspektionen;
- UK Financial Conduct Authority;
- US Commodity Futures Trading Commission;
- US Federal Reserve and Office of the Comptroller of the Currency; or
- US Securities and Exchange Commission.
ASIC has also indicated that it will take applications to consider extending the foreign AFS licensee relief to additional overseas regulatory regimes. These applications can be lodged by an FFSP or a regulator and ASIC has separately published Regulatory Guide 54 (RG 54) which sets out the criteria that will guide its review and consideration of any such application.
There will be certain conditions imposed on a foreign AFS licensee including that they must carry on a business in the relevant foreign jurisdiction, in this way ensuring sufficient primary regulatory oversight. Foreign AFS licensees will also be exempt from certain Corporation Act requirements including obligations relating to handling client money and client property, and the licensee's obligations around adequate resources and competence to provide financial services.
For FFSPs wishing to apply for a Foreign AFS Licence, the FFSP will need to ensure that they are eligible to apply for a foreign AFS licence, register as a foreign company in Australia (if not already completed), provide proofs as part of the application, ensure the FFSP can comply with its obligations, and lodge the application.
Standard AFS Licence
Where the FFSP is not eligible for Funds Management Relief, a foreign AFS licence or there is no other licensing exemption that applies, the FFSP must apply for a standard AFS licence. This application will include a range of proofs as part of an online application and if successful, ultimately subject the FFSP to the normal AFS license arrangements and obligations unless specific relief is granted by ASIC.
For FFSPs which are able to rely on the existing sufficient equivalence relief arrangements by 31 March 2020, a 2 year transition period ending 31 March 2022 applies. During this period, the FFSP will need to make a decision which option is most appropriate to its ongoing business framework and make an application to ASIC. A 2 year extension period is also granted until 31 March 2022 for FFSPs relying on the limited connection relief.
FFSPs will need to consider the new arrangements and assess their impact (including but not limited to any potential Australian tax implications) upon existing or planned offerings to wholesale clients or professional investors in Australia and consider the most suitable option to maintain stable services to these clients. Conversely, a determination will also need to be made if an orderly exit from an existing service is more appropriate and a timeline of notification and consultation with clients implemented. ASIC is recommending that any applications for licensing under the new regime should be initiated as soon as possible given the potentially high number of applications and associated processing timeframes.
If you need assistance in applying for a foreign AFS license or standard AFS licence, lodging an application to extend the foreign AFS licensing relief to additional overseas regulatory regimes, notifying ASIC about your reliance on the Funds Management Relief, or you would like to determine what option best suits your business needs, please contact us.