In brief - New foreign Australian financial services licence regime to commence on 1 April 2020
For a number of years now ASIC has continually and closely supervised the onshore presence of foreign financial services providers (FFSPs) under the previously available Class Order relief. The Class Order relief has principally aimed to provide relief to FFSPs based on sufficient equivalence of regulation and limited connection with Australia.
An FFSP is broadly a financial services business operating under a financial services licence (or permission) outside of Australia.
ASIC has now issued a new policy and regulatory framework which will change the way FFSPs must operate to comply with Australian law.
Although commencement of the new regime has been postponed previously, we do not expect the current turmoil in the markets will affect the commencement date.
What does this mean after 1 April?
In most cases, FFSPs will now be required to obtain an Australian financial services (AFS) licence where they provide financial services in Australia. This means FFSPs will no longer be able to obtain Class Order relief where they have sufficient regulatory equivalence in their home jurisdiction (as assessed by ASIC) or a limited connection with Australia.
This change requires FFSPs to move from licensing and regulatory relief to licensing and regulatory compliance.
Importantly, there is transitional period of relief for FFSPs who have relied on the previously available Class Order relief.
For eligible businesses that have been operating under the previously available Class Orders for sufficient equivalence relief, a tailored foreign Australian financial services licence with reduced regulatory requirements is available.
The timeline below sets out the key dates for the introduction of the new foreign AFS licence regime and the expiry of related class orders.
ASIC practical guidance for FFSPs is available here.
What does the new foreign AFS licence regime require?
The table below compares the current position in which Class Order relief applies to the requirements under the new regulatory foreign AFS Licence regime.
Benefits of reduced regulatory compliance as a foreign AFS licensee
Under the new foreign AFS licensing regime, the licensee can operate under reduced legal obligations in Australia, including in respect of:
resource requirements (including financial, technological and human resources)
competency requirements for key people responsible for the running of the business
competency and training requirements for representatives
minimum standards for providers of custodial or depository services
adequacy of financial resources for custodial or depository services providers
client money handling and client property
The integration of financial services and reducing regulatory duplication has been an important component internationally (including for the Australian financial services industry). This policy approach continues under the new framework.
For New Zealand clients, the existing arrangements, in particular the trans-Tasman mutual recognition schemes and Asia Region Funds Passport, continue to be the key financial services regimes available for reduced regulatory obligations (and reduced regulatory duplication).
What to do?
The changes demonstrate a clear shift in the regulatory paradigm to ensure that FFSPs who participate in financial services activities onshore are licensed and are operating under conventional AFS licensing arrangements.
If you are an FFSP:
from a jurisdiction that ASIC has classified as "sufficiently equivalent", you should be taking positive strategic steps to obtain a new foreign AFS licence; or
currently relying on the "limited connection" relief, you should be considering the regulatory alternatives, including an assessment of whether:
your financial service activities onshore constitute a connection to Australia which requires you to hold a foreign AFS licence; or
you might otherwise take advantage of limited scale funds management services relief. scale funds management services relief.
We expect that financial services businesses will currently be battling numerous challenges, however, it is important that they remain conscious of changing regulatory requirements.
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 2021.