ASIC proposes relief for foreign providers of funds management services to Australian investors

Maria Nikolova

Foreign providers are set to be exempt from the requirement to hold an AFS licence to provide services to professional investors in Australia.

The Australian Securities & Investments Commission (ASIC) has earlier today published a consultation paper outlining its proposal to offer licensing relief to overseas providers of funds management services to Australian professional investors.

The document sets out ASIC’s proposal to provide funds management relief, as foreign providers will be exempt from the requirement to hold an Australian Financial Services (AFS) licence to provide services to professional investors in Australia. In particular, the regulator proposes a cap on the scale of activities that may be undertaken in Australia.

ASIC proposes to repeal the licensing relief known as ‘limited connection’ relief. Foreign financial services providers may still access the proposed new funds management relief and the licensing exemptions in the Corporations Act 2001 and Corporations Regulations 2001.

The regulator has decided against giving relief for the situation where an Australian professional client initiates an inquiry or request to a foreign service provider operating outside Australia (reverse solicitation). ASIC says it is not currently minded to provide this relief due to the lack of information from industry about how it would be used and its concerns about monitoring compliance with its conditions.

The proposals set out in today’s paper reflect earlier feedback from industry that there is a need for Australian professional investors to access funds management financial services providers outside Australia. This proposal aims to strike an appropriate balance between facilitating cross-border investment as well as maintaining Australian market integrity and investor protection, ASIC explains.

The current ‘limited connection’ relief is due to expire on September 30, 2019. ASIC will extend the relief for a further six months until March 31, 2020 while the regulator consults with stakeholders on the funds management relief and repeal of the ‘limited connection’ relief. ASIC proposes a transition period of six months to September 30, 2020 in case it proceeds with the repeal of the ‘limited connection’ relief, enabling foreign providers to seek an AFS licence if applicable.

ASIC will be implementing the foreign AFS licensing regime for foreign financial services providers relying on the licensing relief known as ‘sufficient equivalence’ relief.

The new foreign AFS licensing regime will commence on April 1, 2020. Foreign providers currently relying on the sufficient equivalence relief will have a transition period of 24 months from April 1, 2020 to comply with the new regime, including for example to submit an application for a foreign AFS licence and have the application assessed by ASIC.

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