Banks, fund managers, brokers and other financial services providers should be aware that Australia is transitioning to a new licensing framework for foreign financial services providers (FFSPs) with Australian wholesale clients.
An entity that carries on a financial services business in Australia must hold an Australian financial services (AFS) licence, unless an exemption applies or relief is granted by the Australian Investments and Securities Commission (ASIC). Currently, FFSPs are able to rely upon:
- ‘sufficient equivalence’ relief, which basically applies if the entity’s home jurisdiction has an equivalent regulatory regime; or
- ‘limited connection’ relief, which is intended ensure that an FFSP transacting with wholesale clients in Australia will not require an AFS licence where there is a limited connection between the FFSP and Australia.
ASIC has issued for comment consultation papers on proposals to significantly change the licensing framework. The proposals include the following:
- A new foreign AFS licence: an FFSP that is licensed or authorised by an overseas regulatory authority that regulates the FFSP under a sufficiently equivalent regime (in ASIC’s opinion) would be eligible to apply for a foreign AFS licence to provide financial services to wholesale Australian clients.
The foreign AFS licence will be a modified form of the AFS licence. A key difference will be that the foreign AFS licensee would be exempted from certain requirements under Chapter 7 of the Australian Corporations Act 2001 (Cth) (e.g. relating to financial, technological and human resources), on the basis that it is regulated by a sufficiently equivalent overseas regulatory regime.
The current ‘sufficient equivalence’ relief will be repealed.
- Funds management relief: an FFSP would be exempt from the requirement to hold an AFS licence in order to provide certain ‘funds management financial services’ in Australia, being specified categories of services provided to professional investors such as certain portfolio management services, in limited circumstances.
- The current ‘limited connection’ relief will be repealed.
For now, ASIC has confirmed that the current ‘sufficient equivalence’ relief and the ‘limited connection’ relief have been extended to 31 March 2020. It is proposed that the new regime will commence on 1 April 2020, alongside certain transitional arrangements.