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25.02.2022

News

Regulation of foreign financial services providers – latest news

In recent years, the regulation of foreign financial services providers (FFSPs) has been surrounded in uncertainty. Partner Elliott Stumm shares the history, what is now proposed, and some differences with the old relief regime.


The history

For some time (since 2003), ASIC provided relief from the requirement to hold an AFS licence for certain foreign FFSPs. 

The relief fell into two streams:

  • the so-called ‘sufficient equivalence relief, and
  • the ‘limited connection’ relief.

Under the relief, FFSPs could, subject to conditions, conduct a financial services business in Australia without the need to hold an AFS licence.

Going back to early 2019, we have reported on various developments in this area, including a process of consultation by ASIC, where the regulator was looking at repealing the existing relief, and introducing a modified AFS licensing regime for FFSPs. 

A new category of foreign AFS licence was finally introduced in 2020, but there was a two-year transitional period commencing on 1 April 2020, which was subsequently extended to 1 April 2023. After 1 April 2023, FFSPs would have been required to apply for a foreign AFS licence (or full AFS licence), unless they could rely upon alternative relief.


2021 Government review

The Federal Government then put the brakes on the new regime, announcing in its 2021/2022 Budget that it would begin to consult on options to possibly restore the previous relief which had been enjoyed by many FFSPs.


Draft legislation release

In late 2021, Federal Treasury released draft legislation – Treasury Laws Amendment (Measures for Consultation) Bill 2021: Licensing Exemptions for Foreign Financial Service Providers.

This draft legislation contains the Government’s proposed revised position on the regulation of FFSPs.


What is now proposed – back to the future (sort of)

The Government is proposing to introduce three measures:

  • The ‘professional investor exemption’ – an exemption from the need to hold an AFS licence for FFSPs which provide financial services from outside Australia to ‘professional investors’.
  • The ‘comparable regulator exemption’ – an exemption from the need to hold an AFS licence for FFSPs regulated by comparable overseas regulators that provide financial services to wholesale clients.
  • Fast-tracking the licensing process for foreign companies seeking to establish more permanent operations in Australia by providing an exemption for foreign companies regulated by comparable regulators from the ‘fit and proper person’ test when applying for an AFS licence to provide financial services to wholesale clients.

Some differences with the old regime

The new exemptions have some differences with the old relief regime, for example:

  • Professional investors comprise a more limited category than wholesale clients under the law. 
  • FFSPs will be subject to lodgement and reporting obligations. They will need to lodge a notification with ASIC which includes certain prescribed information.
  • Providers will have obligations to give assistance to ASIC.
  • Under the comparable regulator exemption, an FFSP will need to maintain sufficient oversight over its representatives who provide financial services in Australia and take reasonable steps to ensure the representatives comply with financial service laws.

Next steps

We can assist you in understanding the proposed new requirements for FFSPs. Contact our Funds Management team.


Authors

Elliott Stumm

Elliott Stumm

Partner

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