Australia unveils new licensing regime for foreign financial services providers, and transition starts soon

17 Mar 2020

ASIC has released its new licensing framework for foreign financial services providers (FFSPs) to regulate FFSPs providing financial services in Australia.

The new regime is somewhat consistent with what was proposed in the drafts ASIC released in mid-last year, but there have been some significant changes which we would like to point out to you.

Relief of funds management services in Australia

ASIC has published ASIC Corporations (Foreign Financial Services Providers - Funds Management Financial Services) Instrument 2020/199) (Funds Management Services Relief).

At the centre of this instrument is the definition of "funds management financial services". This definition has been amended in a number of significant ways.

A person provides a funds management financial service by:

  • dealing in offshore fund financial products;
  • providing financial product advice in relation to offshore fund financial products;
  • making a market for offshore fund financial products as a result of redeeming or buying back those financial products; or
  • providing a custodial or depository service in relation to offshore fund financial products,

to eligible Australian users.

The inclusion of custodial of depository services is a new addition which expands the types of financial services that FFSPs will be able to provide while relying on this relief. However, ASIC has also changed the scope of the recipients to whom financial services may be provided from "professional investors" to "eligible Australian users" which further limits to whom these services will be able to be provided to. Broadly, an "eligible Australia user" is defined under the Funds Management Services Relief as a person in Australia who is either:

  • a responsible entity of a registered scheme;
  • a trustee of a superannuation fund, approved deposit fund, pooled superannuation trust or public sector superannuation scheme with net assets of at least $10 million or otherwise a body regulated by APRA;
  • a trustee of a wholesale trust who either holds an AFSL or is exempt from the need to hold an AFSL under a particular ASIC instrument; or
  • an exempt public authority.

In order to extend the scope of the definition to include other types of professional investors, FFSPs will need to apply to ASIC.

The concept of "portfolio management services" (as a subset of funds management financial services) has been replaced with a "portfolio management services mandate" concept, meaning an agreement or arrangement to provide the following financial services to eligible Australian users:

  • dealing in financial products;
  • providing financial product advice in relation to a financial product;
  • making a market for financial products in or issued by managed investment schemes as a result of redeeming or buying back those financial products; or
  • providing custodial or depository services under or in relation to the services provided under a portfolio management services mandate.

In addition, "portfolio management services" now need not be confined to managing assets that are outside Australia. This is a significant change as the previous exclusion would have been particularly restrictive to a number of FFSPs which offered a diversified portfolio of assets who managed Australian assets.

The conditions that an FFSP must meet in order to be eligible for the relief have changed to a shorter and less prescriptive list. Broadly, under the new relief, the FFSP:

  • cannot have a place of business in Australia;
  • must provide notice to ASIC that it intends to rely on the relief instrument;
  • can only carry out financial services in Australia that would not contravene the laws of its home jurisdiction if they if were provided there;
  • must be appropriately regulated in their home jurisdiction;
  • must enable and assist in the transfer of disclosures between the overseas regulator and ASIC in relation to any information or document that is requested that relates to the FFSP; and
  • must comply with notices for information issued by ASIC.

Limited connection relief

The transitional period for limited connection relief has been extended to 31 March 2022 (from 21 September 2020). In order to receive the benefit of the limited connection relief at any time until the transition period is over, it is not required that the FFSP already currently rely on the relief.

Implementation of foreign AFS licence and extension of sufficient equivalence relief

It is still the case that FFSPs currently relying on 'sufficient equivalence relief' (referring to the seven mutual recognition class orders ASIC made in 2003 and 2004 (applicable to the US, UK, Singapore, Hong Kong and Germany) and the one made in 2016 for Luxembourg fund managers) (Sufficient Equivalence Relief) will have a 24 month transition period from 1 April 2020 to comply with the new regime. This includes for example, submitting an application for a foreign AFS licence and having that application assessed by ASIC.

Under the new ASIC Corporations (Foreign Financial Services Providers - Foreign AFS Licensees) Instrument 2020/198 ASIC has recognised additional regulatory systems in Denmark, France, Sweden and Canada as sufficiently equivalent to those in Australia. Please note that FFSPs in these jurisdictions will not be eligible to rely on Sufficient Equivalence Relief. They will however be able to apply for a foreign AFS licence under the new regime.

Next steps for FFSPs to transition to the new licensing framework

As we enter into the transition period, you will need to consider what will happen ahead of 1 April 2022. To keep you informed along the way we'll be updating our Foreign Financial Service Provider Hub as the regulatory position evolves.

As a start, please consider the following:

  • If you are eligible for and don't currently rely on Sufficient Equivalence Relief, consider applying before 31 March 2020 to ensure you have the benefit of the 24 month transition period.
  • After 1 April 2020, if you wish to provide financial services in Australia, consider whether you can rely on the new Funds Management Services Relief or otherwise apply for a new foreign AFS licence or domestic AFS licence.
  • Prior to 1 April 2022, if you currently have the benefit of Sufficient Equivalence Relief, consider whether you will need to apply for a new foreign AFS licence or domestic AFS licence whether you will be able to apply for Funds Management Services Relief.

If you would like to discuss strategies to ensure compliance with the Australian licensing regime or require assistance with any application for relief or for an AFS licence, please contact us.

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.