ASIC announces new foreign Australian financial services licensing regime

Maria Nikolova

To be eligible, the foreign provider must be authorised under an overseas regulatory regime that ASIC has assessed as sufficiently equivalent to the Australian regulatory regime.

The Australian Securities & Investments Commission (ASIC) has unveiled a new regulatory framework for foreign financial services providers (FFSPs).

The new framework has two key elements:

  • a new foreign Australian financial services (AFS) licensing regime for FFSPs, and
  • licensing relief for providers of funds management financial services seeking to induce some types of professional investors.

The new rules replace ASIC’s previous licensing exemptions for foreign providers. There is a two year transition period to this new regime.

From April 1, 2020, new foreign providers may apply for a foreign AFS licence to provide financial services in Australia to wholesale clients. To be eligible, the foreign provider must be authorised under an overseas regulatory regime that ASIC has assessed as sufficiently equivalent to the Australian regulatory regime.

Let’s note that the list of such regimes is not that long. It includes (as one might expect) the authorizations of firms by the United States Securities and Exchange Commission, Commodity Futures Trading Commission, the Federal Reserve, etc. Firms regulated by the UK Financial Conduct Authority (FCA), the Hong Kong Securities and Futures Commission (SFC), as well as the Monetary Authority of Singapore (MAS) are also eligible.

Only a handful of regimes of EU member states have regulatory regimes that ASIC has assessed as sufficiently equivalent to the Australian regulatory regime. The list includes the regimes operated by Germany’s Bafin and France’s AMF, to name a couple of examples. There is no mention of Cyprus, Spain, Portugal, Austria, Italy, Romania, or Bulgaria in the list of regimes sufficiently equivalent to the Australian regulatory regime.

ASIC may determine that an overseas regulatory regime ceases to be sufficiently equivalent to the Australian regime for some or all of the relevant financial services. In such a case, it will notify the relevant foreign AFS licensees that are authorised in that regime for those financial services. The regulator will provide them with a reasonable period to put to it submissions concerning the finding that the regime is not sufficiently equivalent.

An FFSP holding a foreign AFS licence will be exempt from certain obligations that apply to AFS licensees, such as financial requirements, as ASIC acknowledges that similar regulatory supervision and outcomes will be achieved by the equivalent overseas requirements.

The foreign AFS licensee relief is subject to a number of conditions, such as:

  • the foreign AFS licensee must carry on a business in the relevant foreign jurisdiction—this condition is aimed at ensuring that the licensee is subject to overseas regulatory oversight in that jurisdiction;
  • unless the foreign AFS licensee is a company, it must have an agent appointed at the time it purports to rely on the relief and not fail to have an agent for any consecutive period of 10 business days;
  • the foreign AFS licensee must reasonably believe that it would not contravene any laws of its home jurisdiction relating to the provision of financial services if it were to provide the wholesale financial service in its home jurisdiction.

A foreign AFS licensee will also be subject to supervisory and enforcement provisions applicable to standard AFS licensees, including:

  • ASIC’s power to direct a licensee to provide a written statement;
  • breach reporting requirements;
  • the requirement to give ASIC reasonable assistance during surveillance checks; and
  • the powers available to ASIC in relation to AFS licences, such as the powers to impose or vary conditions on a licence; and vary, suspend or cancel a licence.

Foreign providers currently relying on pre-existing relief will have a two-year transition period until March 31, 2022 to make arrangements to continue their operations in Australia, which may include applying for a foreign AFS licence.

Funds management licensing relief will commence on April 1, 2022. The relief is available to foreign providers inducing certain types of Australian professional investors to use the funds management financial services it provides. Under the relief, a licence is not needed for that inducing conduct. Inducing conduct includes attempts to persuade, influence or encourage a particular person to become a client, for example, mass marketing campaigns.

Foreign providers must separately consider if they need to hold a licence to actually provide financial services.

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