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New rules for foreign financial services providers in Australia

Corporate News - 12 March 2021

Foreign Financial Services Providers (FFSPs) with Australian customers or counterparties now have one year to go to transition to the new Australian licensing regime which will commence on 31 March 2022. If FFSPs want to continue to provide financial services to Australian wholesale and institutional investors after March 2022, they will need to choose one of three options:

  1. apply for a streamlined foreign Australian Financial Services License (AFSL);
  2. notify the Australian Investments and Securities Commission (ASIC) of their reliance on the funds management financial services relief (FMFS Relief); or
  3. apply for a standard AFSL (or be authorised by a local AFSL holder).

Option 1: Foreign AFSL

An FFSP that is authorised to provide financial services under a ‘sufficiently equivalent’ overseas regulatory regime may be eligible to apply for a foreign AFSL to provide certain financial services to wholesale clients in Australia. This will exempt the foreign AFS licensee from certain provisions in Chapter 7 of the Corporations Act 2001 (Cth) (Corporations Act) on the basis that it is subject to sufficiently equivalent overseas regulatory requirements that would achieve similar regulatory outcomes of the exempted provisions.
  • Eligibilty - in order to meet the eligibility requirements, an FFSP must be authorised by one of the equivalent foreign regulatory regimes including (amongst others) the U.S., U.K., Hong Kong, Singapore, Canada and Germany. In addition, the FFSP will need to check that the financial services and/or products it intends to provide to Australian wholesale clients is within the scope of services specified for that foreign regulatory regime.
  • Application Process – the application process is intended to be less onerous than a standard AFSL license but it is now an assessment based process (rather than a notification reliance). FFSPs must submit ‘proof’ documents as part of the foreign AFSL application, the type of which is dependent on the complexity of the financial services and products the FFSP is applying for and ASIC’s analysis of the FFSP’s business and market it will operate in. ASIC has indicated that its online application form will identify the proofs required as part of the  foreign AFSL application but that generally, applicants will not be required to submit proofs that relate to provisions of the Corporations Act that do not apply to foreign AFSL holders.  In addition to lodging proof documents, FFSP’s will need to declare that they have sufficient systems and processes in place to comply with ongoing obligations and licence conditions.
  • Obligations and Conditions – foreign AFSL holders will be subject to similar obligations as AFSL holders, including the obligation to provide financial services efficiently, honestly and fairly. Foreign AFSL holders will also be subject to ASIC’s standard supervisory and enforcement powers and the pro forma AFSL conditions. However, as stated above, foreign AFSL holders will be exempt from a number of Corporations Act provisions including obligations relating to handling client money and client property, and the licensee’s obligations around adequate resources and competence to provide financial services.  Certain conditions will be imposed on foreign AFSL holders including that they must carry on business in the relevant foreign jurisdiction to ensure that there is sufficient primary regulatory oversight.

Option 2: FMFS Relief

Certain FFSPs who are involved in limited investment management activities in Australia and do not have a physical presence in Australia are likely to rely on the FMFS Relief rather than apply for a foreign AFSL.  This relief will typically apply where a FFSP has a handful of Australian investor clients which they service from offshore without any dedicated personnel in Australia.
  • Eligibility – the FMFS Relief is available to FFSPs who are only carrying on a financial services business by engaging in ‘inducing’ conduct while providing certain funds management financial services to certain ‘eligible Australian users’ (which includes superannuation trustees, licensed trustees of wholesale funds and responsible entities of registered managed investment schemes). Conduct that amounts to inducing includes attempts to persuade, influence or encourage a particular person to become a client.
  • Notification Process – from 1 April 2022, to reply on the FMFS Relief, the FFSP will need to lodge a written notice with ASIC confirming certain matters including the appointment of a local agent.  Note that prior to 1 April 2022, ASIC has extended the operation of predecessor arrangements known as Limited Connection Relief to 31 March 2022.
  • Conditions– certain conditions are imposed on an FFSP when relying on FMFS Relief including the appointment of a local agent and that the FFSP have no place of business in Australia.

By obtaining this relief, FFSPs will be able to (amongst other things) provide financial product advice to an ‘eligible Australian user’ in relation to financial products in, or issued by an offshore fund or deal in financial products in, or issued by an offshore fund.

Option 3: Standard AFSL / Corporate Authorised Representative Arrangement
If the FFSP is not eligible for the FMFS Relief or a foreign AFSL and no other licensing exemption applies, the FFSP must apply for a standard AFSL by submitting a range of proofs as part of an online application. All of the normal AFSL obligations will then apply to the FFSP.

One of the licensing exemptions is an authorised representative arrangement with an existing AFSL holder.  If a FFSP does not wish to go through the process of obtaining a foreign AFSL, it could instead seek to enter into an authorised representative arrangement with a local AFSL holder. This arrangement, if appropriately structured, will also permit a FFSP to conduct similar activities in Australia to those which they conduct in their home jurisdiction, including marketing of offshore product and portfolio management activities through an investment management agreement.

Next steps
FFSPs will need to consider whether to apply for a foreign AFSL or standard AFSL or seek to rely on FMFS Relief.  Given the anticipated volume of applications in the next 12 months and the application material required for licences, this should be done as soon as possible.

If you would like to discuss the various options available or require assistance with any application for relief or for an AFS licence, please contact us at our Melbourne office on +61 (03) 9111 9400.

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