The Treasury has released its consultation paper on options to restore regulatory relief for foreign financial services providers (FFSPs) as well as options to create a fast track licensing process for FFSPs.
FFSPs: A brief background
The consultation follows the Government’s Budget announcement earlier this year and ASIC’s corresponding extension of transitional arrangements .
Under the old regime, FFSPs could rely on one of the two following exemptions from the requirement to hold an Australian financial services licence (AFSL) to provide financial services in Australia:
“Sufficient equivalence relief” (colloquially referred to as “passport relief”), which was available to certain FFSPs providing financial services to wholesale clients only, where such FFSPs are regulated by a foreign regime considered by ASIC to be “sufficiently equivalent” to the Australian regime.
“Limited connection relief”, being relief available to an FFSP that is not carrying on a business in Australia under the ordinary tests but is deemed to be carrying on a financial services business in Australia only because it is inducing, or intending to induce, a person in Australia to use its financial services, and where such services are provided to wholesale clients only.
Since 2018, ASIC has taken steps to repeal the exemptions above, instead introducing a “foreign AFSL” regime, requiring FFSPs apply to ASIC for a licence to provide financial services in Australia and comply with a subset of Australia’s financial services laws, and a new (and very limited) “funds management relief” that would be available to providers of very limited funds management services to eligible Australian clients.
The response from FFSPs has been varied, with much consideration undertaken as to the appropriate steps to begin or continue providing financial services in Australia (which, in some cases, has included a view to stepping back from the Australian market).
Under the extended transitional arrangements, FFSPs already relying on passport relief can continue to do so, and FFSPs entering the market may be able to rely on limited connection relief, tailored relief, a foreign AFSL or AFSL depending on the proposed scope of activities. Funds management relief is not available until 6 April 2023.
Options - regulatory regime for FFSPs
In its consultation, the Treasury emphasises the benefits of FFSPs providing Australian investors with access to global investment opportunities and overseas markets, and attracting reciprocal investment and liquidity into Australia.
The Treasury has proposed the following three options to regulate FFSPs entering Australia, hoping to reduce duplicate regulation and barriers to entering the Australian market.
The Treasury has proposed attached possible conditions to Options 2 or 3 including:
notification or application requirements;
consent to information sharing between ASIC and the FFSP’s home jurisdiction regulator;
certain undertakings by the FFSP
notifying ASIC when the FFSP is relying on the relief or ceases to use the relief;
limitations on dealing with unauthorised or unlicensed entities;
complying with auditing and reporting requirements;
complying with some Australian financial services laws, like ensuring that financial services are provided efficiently, honestly and fairly, complying with client money requirements and training requirements for representatives, and having adequate conflict of interest arrangements and risk management systems in place;
local agent requirement;
providing periodical information to ASIC on the FFSP’s business activities, clients, constitution or other articles of association, investment strategy, financial statements, assets under management and liquidity; and
breach reporting obligations.
The Treasury has also proposed empowering ASIC to restrict a FFSP from relying on relief where the FFSP is not fit to provide financial services to Australian clients or where a provider is using relief in a manner not intended.
Options - fast track licensing for FFSPs
The Treasury recognises that FFSP entry into Australia diversifies investment opportunities for Australian clients and facilitating this entry may encourage high-yield international business and the relocation of talent to Australia. As a result, the Treasury is consulting on the following three proposed options for fast tracking AFSL applications for FFSPs that are considering stepping more fully into the Australian regulatory framework. Via these options, the Treasury hopes to reduce timelines for assessments and administrative burden, with a view to increasing FFSP engagement in Australia.
Next steps
The Treasury has set out a number of consultation questions for discussion in connection with the options for the FFSP regulatory regime and fast track licensing.
If you would like to discuss the options, preparing a submission to the Treasury or what your next steps should be as a FFSP looking to enter the Australian market, please contact our Financial Services Regulatory team .