Foreign financial services providers (“FFSPs”) which provide certain financial services in Australia are currently exempted from needing an Australian financial services licence (“AFSL”), under transitional arrangements which the Australian Securities and Investments Commission (“ASIC”) has announced are extended by 12 months until 31 March 2024.[1]
Background
The extension comes after momentum towards a new regulatory framework for FFSPs was stilled by the lapsing of the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 (Cth), which sought to implement a more efficient licensing and regulatory regime for FFSPs. This Bill also aimed to attract greater investment and liquidity into Australia, while increasing access to overseas funding for Australian businesses. However, the recent federal election and subsequent change in Government halted that move towards a renewed legislative regime.
Current exemptions
The 12 month extension provided by the relevant amending instrument[2] continues the availability of both the ‘sufficient equivalence relief’ and ‘limited connection relief’ (outlined below) for certain FFSPs providing financial services to wholesale clients in Australia.
The ‘sufficient equivalence relief’ provides an exemption for such FFSPs, where the regulatory regime they are currently subject to in their own countries is ‘sufficiently equivalent’ to that which exists in Australia.[3] This is also known as the ‘passport relief’, but only those FFSPs who were able to rely on this exemption on 31 March 2020 can rely on the extended relief. Any FFSPs who were not eligible at that date need either to apply for an AFSL, or to rely on the ‘limited connection relief’ (see below), to provide financial services in Australia.
The ‘limited connection relief’ provides an exemption for such FFSPs, where they have only a limited connection to Australia, but are nevertheless considered to be ‘carrying on’ a financial services business in Australia, only because their conduct is intended or likely to induce wholesale clients in Australia to use their financial services (‘inducing conduct’). This does not require an application to ASIC.
While these exemptions have been extended, it is anticipated that the previous attempts to revitalise the licensing and regulatory regime for FFSPs will be restarted through consultation between ASIC and the Treasury, when the new Government reveals its preferred directions for FFSP licensing reform.
Funds management financial services exemption
ASIC has also delayed the start of the proposed ‘funds management’ AFSL exemption by 12 months, to 01 April 2024.[4] This will (in its current form) exempt FFSPs from holding an AFSL if they are conducting a business in this jurisdiction of providing ‘funds management’ financial services to certain Australian professional investors (‘eligible Australian users’).[5]
Going forward
All FFSPs should continue to review their financial services businesses in Australia to see if they qualify for the above licensing exemptions and extended relief. For those FFSPs who are not eligible, ASIC will continue to consider granting temporary relief from AFSL requirements on a case-by-case basis. FFSPs which have already been granted a ‘foreign’ AFSL by ASIC,[6] or an equivalent licence by a foreign regulator and meet the relief requirements, can continue to rely on such licence to provide financial services in Australia.
For more information, or to discuss financial services queries in general, please contact a member of KHQ’s Corporate & Commercial or Superannuation & Financial Services teams, on +61 (0)3 9663 9877 or contact@khq.com.au.
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[1] By ASIC media release 22-203MR on 02 August 2022: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2022-releases/22-203mr-asic-extends-transitional-relief-for-foreign-financial-services-providers/
[2] ASIC Corporations (Amendment) Instrument 2022/623: https://www.legislation.gov.au/Details/F2022L01022
[3] Certain regulatory regimes in the USA, UK, Germany, Luxembourg, Singapore and Hong Kong.
[4] See footnote 1.
[5] See ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199): https://www.legislation.gov.au/Details/F2021C00836
[6] A modified AFSL which permits eligible FFSPs which are authorised to provide financial services under a ‘sufficiently equivalent’ overseas regulatory regime, to provide financial services to wholesale clients. See ASIC Corporations (Foreign Financial Services Providers—Foreign AFS Licensees) Instrument 2020/198: https://www.legislation.gov.au/Details/F2020L00237