Australia: new regulatory framework for foreign financial services providers

On 10 March 2020, the Australian financial services regulator, the Australian Securities and Investments Commission (ASIC) released its new regulatory framework for foreign financial services providers (FFSPs) providing financial services to Australian wholesale[1] clients.

The new framework has two key elements:

- a new foreign Australian financial services (AFS) licensing regime for FFSPs, and

- a licensing relief for providers of funds management financial services seeking to induce some types of professional investors.

It replaces ASIC’s previous licensing exemptions for foreign providers, including the one granted to certain Luxembourg providers, as detailed below. This new framework has been elaborated through consultation with industry and overseas regulators. ALFI replied to the two consultations: you can find ALFI’s answer to the June 2018 consultation and to its August 2019 consultation.

ASIC’s updated Regulatory Guide 176 Foreign financial services providers (RG 176) contains the details of the new framework and all the new requirements. There is a two year transition period to this new regime.

• Foreign AFS licensing regime

The default situation in Australia is the requirement to hold an AFS (Australian financial services) license from ASIC in order to provide financial services in Australia. From 1 April 2020, foreign providers may apply to obtain a “foreign AFS licence” to provide financial services in Australia to wholesale clients. To be eligible, the foreign provider must be authorised under an overseas regulatory regime that ASIC has assessed as sufficiently equivalent to the Australian regulatory regime. These jurisdictions are: Luxembourg, USA, Singapore, Hong Kong, Germany, UK, Denmark, Sweden, France and Ontario. The scope of entities covered varies by jurisdictions. In the case of Luxembourg, the scope is broad as the entities covered remain the same as those covered by the passporting relief granted in 2016 by ASIC, i.e. all UCITS management companies and self-managed SICAVs.

An FFSP holding a foreign AFS licence will be exempt from certain obligations that apply to AFS licensees, such as financial requirements, as ASIC acknowledges that similar regulatory supervision and outcomes will be achieved by the equivalent overseas requirements.

ASIC Instrument 2016/1109 transition period

In 2016 ALFI successfully negotiated for its member firms an exemption from the obligation to hold an Australian financial services (AFS) licence to provide financial services in Australia. The exemption applies to Chapter 15 Management Companies and Self-Managed SICAVs regulated by the CSSF.

The regulatory regime overseen by the relevant overseas regulatory authority needs to be ‘sufficiently equivalent’ to the Australian regulatory regime and effective cooperation arrangements must also exist before relief is granted. ASIC and the CSSF have signed such an MoU on mutual cooperation and the exchange of information related to the supervision of regulated entities in September 2013.

ALFI started the process to obtain this relief in 2013 on behalf of its members and the relief entered into force on 16 November 2016, with the publication of Instrument 2016/1109, which sets out the conditions of this AFS licensing relief. A copy of the Relief Instrument is available.

ASIC stated that foreign providers currently relying on pre-existing relief will have a two-year transition period until 31 March 2022 to make arrangements to continue their operations in Australia, which may include applying for a foreign AFS licence. In other words, to continue to rely on passporting relief until 31 March 2022 relevant Luxembourg entities will need to be able to rely on the exemption which they would have obtained and received up to 31 March 2020.

• Funds management licensing relief

Funds management licensing relief will commence on 1 April 2022. The relief is available to foreign providers inducing certain types of Australian professional investors to use the funds management financial services it provides. Under the relief, a licence is not needed for that inducing conduct. Inducing conduct includes attempts to persuade, influence or encourage a particular person to become a client, for example, mass marketing campaigns.

Since there are strict criteria to meet in order to benefit from this relief, please refer to section F of ASIC’s updated Regulatory Guide 176 Foreign financial services providers (RG 176) to assess the requirements and restrictions of this relief.

Foreign providers must separately consider if they need to hold a licence to actually provide financial services.

Luxembourg, 02 April 2020.

[1] Wholesale client: a client who is not a retail client as defined in s761G of the Corporations Act and Div 2 of Pt 7.1 of the Corporations Regulations.