In brief - Foreign financial institutions and global financial services providers may be able to benefit from reduced regulatory obligations and compliance cost efficiencies under the new foreign AFS licence regime 

Overseas financial services providers and foreign financial institutions who are committed to or seek a presence in the Australian financial services market can now utilise the new foreign Australian financial services licence (foreign AFS licence), which has a less onerous compliance regime than a standard AFS Licence.

Potential advantages of using this licensing route include a reduction in onshore regulatory obligations and potential compliance cost savings.

We anticipate that factors such as the integration of technology in financial institutions, geographical ambit and reducing regulatory duplication are compelling reasons for foreign financial services providers (FFSPs) to take advantage of the streamlined foreign licensing alternative.

Scope of services and overseas regulatory regimes ASIC considers sufficiently equivalent 

The foreign AFS licence regime is a modified AFS licensing regime for FFSPs that, broadly, hold an equivalent authorisation in a sufficiently equivalent overseas regulatory regime for wholesale client services. 

The scope of services that fall under this compliance regime is dependent on the home jurisdiction of the foreign entrant and may cover a range of advisory, portfolio management and custody services such as market making, institutional acquisition and divestment arrangements, professional advisory services, trading in derivatives and foreign exchange contracts, professional securities trading, fixed income securities trading, and fund of fund and master fund arrangements.

A sufficiently equivalent overseas regulatory regime is a home jurisdiction that ASIC has assessed as sufficiently equivalent or a new regime that ASIC has assessed as sufficiently equivalent. 

At present, there are 13 regulatory regimes that ASIC has assessed as sufficiently equivalent overseen by the following overseas regulators:

  1. US Federal Reserve and Office of the Comptroller of Currency

  2. US Commodity Futures Trading Commission

  3. US Securities and Exchange Commission

  4. Monetary Authority of Singapore

  5. Hong Kong Securities and Futures Commission

  6. Bundesanstalt für Finanzdienstleistungsaufsicht of Germany

  7. Commission de Surveillance du Secteur Financier of Luxembourg

  8. United Kingdom (UK) Financial Conduct Authority

  9. Finanstilsynct or the Danish Financial Supervisory Authority

  10. Finansinspektionen of Sweden

  11. Autorité des Marches Financiers of France

  12. Autorité de contrôle prudentiel et de resolution of France

  13. Ontario Securities Commission

Foreign financial institutions or overseas entrants who qualify are likely to benefit from cost efficiencies arising from the reduced regulatory duplication under the foreign AFS licence regime compared to the standard AFS licence route. 

Comparative benefit of foreign AFS licence relief 

A foreign AFS licensee can access the regulatory relief from specific financial services laws provided by ASIC under ASIC Corporations (Foreign Financial Services Providers—Foreign AFS Licensees) Instrument 2020/198. The table below provides a comparative summary of the regulatory obligations for a full AFS licensee and the relief for foreign AFS licensees.

Regulatory obligation

Full AFS licence

Foreign AFS licence

maintain a record of training that each representative has undertaken
(paragraph 912A(1)(b) of the Corporations Act 2001 (Cth) (Corporations Act) and Corporations Regulation 7.6.01(1)(d))

Comply

Exempt

have adequate resources (including financial, technological and human resources) to provide financial services covered by the licence and to carry out supervisory arrangements
(paragraph 912A(1)(d) of the Corporations Act)

Comply

Exempt

maintain the competence to provide the authorised financial services (competence is usually assessed)
(paragraph 912A(1)(e) of the Corporations Act)

Comply

Exempt

ensure that representatives are adequately trained and are competent, to provide the financial services permitted for the representative
(paragraph 912A(1)(f) of the Corporations Act)

Comply

Exempt

minimum standards for providers of custodial or depository services
(section 912AAC of the Corporations Act, as inserted by ASIC Class Order [CO 13/1410])

Comply

Exempt

agreement requirements for arrangements with sub-custodians to hold custodial property
(section 912AAD of the Corporations Act, as inserted by ASIC Class Order [CO 13/1410])

Comply

Exempt

adequacy of financial resources for custodial or depository services providers
(section 912AC of the Corporations Act, as inserted by ASIC Class Order [CO 13/761])

Comply

Exempt

obligations for dealing with money received for a financial product before the product is issued:

  • the money to be deposited into account with an Australian ADI

  • the money is taken to be held in trust by the product provider for the benefit of the person who paid the money

  • to only take the money out if the financial product is issued or the money returned

  • to return the money or issue the financial product within 1 month of receipt

(section 1017E of the Corporations Act)

Comply

Exempt

dealing with clients' money and client property protection
(Part 7.8 of Corporations Act)

Comply

Effectively exempt, through modification of the law

prohibitions on:

  • a financial services licensee and an employee of the licensee jointly acquiring a financial product on their own behalf

  • a financial services licensee giving credit to an employee of the licensee, or to a person who they know is an associate of such an employee, if that credit is given for the purpose of enabling that employee or person to acquire a financial product, or the licensee knows or has reason to believe that the credit will be used for that purpose

(section 991F of the Corporations Act)

Comply

Exempt

 

Some fundamental AFS licence obligations apply

Aside from the exemptions referred to in the table above, foreign AFS licensees will otherwise be required to comply with the full AFS licence obligations, in particular to:

  • ensure that the financial services covered by the licence are provided efficiently, honestly and fairly

  • have in place adequate arrangements for the management of conflicts of interest

  • generally comply with the licence conditions and the Australian financial services laws

  • have adequate risk management systems

  • notify ASIC of significant actual or likely breaches of certain Australian financial services laws

  • comply with ASIC's supervisory and enforcement powers, including its directions power (section 912C of the Corporations Act) and the obligation to give ASIC reasonable assistance during surveillance checks (section 912E of the Corporations Act)

For full AFS licensees, ASIC may provide forms of regulatory relief, although this will need to be considered on a case-by-case basis.

Relief conditions and requirements

Under the relief provided in the ASIC instrument, a foreign AFS licensee must comply with a number of conditions and requirements which, in our view, are straightforward and the cost of compliance is well offset by the reduction in the regulatory obligations.

The conditions are intended to ensure that the foreign AFS licensee's conduct and status meet a suitable standard and provide ASIC with sufficient information to enable it to assess whether the foreign AFS licensee is complying with its relevant overseas regulatory regime and that the overseas regulatory regime continues to satisfy ASIC's "equivalence" test.

These include, amongst other requirements:

  • the services must be to wholesale clients in Australia

  • for natural persons, to appoint a local agent on an ongoing basis 

  • for a foreign company, to register with ASIC as a foreign company where the company carries on a business in Australia, including to appoint a local agent and have a registered office in Australia 

  • notification requirements - the foreign AFS licensee must notify ASIC in of the event of:

    • the licensee ceasing to be an FFSP as defined in the ASIC instrument

    • each significant change to any registration, licence, approval, authorisation or permission applying to the foreign AFS licensee 

    • each significant exemption or other relief that the foreign AFS licensee obtains from the regulatory requirements in its home jurisdiction relevant to the foreign AFS licensee

    • each significant investigation, significant enforcement action and significant disciplinary action undertaken by any overseas regulatory authority against the foreign AFS licensee in a foreign jurisdiction 

Obtaining a new foreign AFS licence

The foreign AFS licence regime has commenced.

Foreign financial institutions can apply for a new foreign AFS licence.

Transition arrangements

In our March 2020 publication, Foreign financial services provider regulatory regime is changing, we considered the transition arrangements for foreign financial institutions operating under ASIC class order relief prior to the commencement of the foreign AFS licensing regime.

This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.

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