On 28 September 2016, ASIC issued announcements affecting foreign financial services providers (FFSPs) that rely on “passport” class order relief from the requirement to hold an Australian financial services licence (AFSL) in order to provide financial services in Australia to wholesale clients.
The passport class orders provide relief to FFSPs from the requirement to hold an AFSL, provided such FFSPs satisfy the conditions of the relevant class order. Passport relief is obtained by lodging prescribed documentation with ASIC, and notifying ASIC of the occurrence of certain events. Currently, passport relief is available for entities regulated by the following foreign regulators:
Additionally, we are aware of several FFSPs, that are unable to satisfy the conditions of the passport class orders, relying on individual tailored relief instruments that effectively adopt substantially all of the conditions of a passport class order.
Repeal and extension of passport relief
These class orders were due to expire (sunset) between 1 October 2016 and 1 April 2017. ASIC has now issued ASIC Corporations (Repeal and Transitional) Instrument 2016/396 (Transitional Instrument), which repeals the passport relief class orders and at the same time extends the operation of the relief for a 2 year period, to 1 October 2018.
What you need to do to continue relying on passport relief
The Transitional Instrument retains all the conditions in the existing class orders, and introduces a broader information gathering power for ASIC. ASIC can now require an FFSP relying on passport relief to provide a written statement with specified information about the financial services business operated by the FFSP in Australia.
ASIC has confirmed that FFSPs already relying on passport relief do not need to lodge any new documentation with ASIC in order to continue relying on passport relief during the 2 year transitional period.
It is also still open to FFSPs wishing to enter the Australian wholesale market to rely on passport relief during the 2 year transitional period.
What will happen next?
During the 2 year transitional period, ASIC will review the framework for passport relief and consider:
- in light of recent evidence of non-compliance by FFSPs, the extent to which the current relief settings allow ASIC to effectively monitor FFSPs and take regulatory action for non-compliance; and
- the impact of increased regulatory focus on wholesale cross-border markets since the relief was originally granted.
Following the review period, ASIC intends to release a further consultation paper in January 2018 with its proposals to remake relief for FFSPs.
We expect that new instruments facilitating passport relief will be created, likely with revised conditions to include enhanced powers for ASIC to supervise passported entities and take regulatory action following non-compliance. We do not expect foreign offerors of wholesale funds will be required to obtain their own AFSL or engage a locally licensed intermediary – in our view this would be inconsistent with ASIC’s stated regulatory objectives (including to recognise the opportunities that globalisation presents to allow capital to flow freely across world markets and increasing the volume of cross-border businesses).