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29 Jun 2018

ASIC's financial services licensing proposal for foreign financial services providers

By Matt Daley and Suzana Livaja

Foreign financial services providers should maintain a watching brief on the proposed regulatory changes.

On 1 June 2018, ASIC announced its proposed financial services regulatory framework for foreign financial services providers (FFSPs), which is intended to replace existing arrangements that apply to certain FFSPs who provide financial services to Australian wholesale clients. 

Under the proposed framework, an FFSP currently relying on one of a number of exemptions from the Australian financial services licensing (AFSL) regime under certain ASIC Class Orders will be required to either obtain a foreign AFSL, limit its activities such that it is able to rely on other relief available under the Australian Corporations Act, or apply for bespoke relief from the requirement to be covered by an AFSL in respect of its activities in Australia.

Who will the proposed reforms impact?

The proposed reforms will impact FFSPs who provide financial services to wholesale clients in Australia in reliance on one of a number of exemptions which operate until 27 September 2018, including:

  • [CO 03/1099] UK regulated financial service providers;
  • [CO 03/1100] US SEC regulated financial service providers;
  • [CO 03/1101] US Federal Reserve and OCC regulated financial service providers;
  • [CO 03/1102] Singapore MAS regulated financial service providers;
  • [CO 03/1103] Hong Kong SFC regulated financial service providers;
  • [CO 04/829] US CFTC regulated entities;
  • [CO 04/1313] German BaFin regulated financial service providers; and
  • ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109, (collectively, the Sufficient Equivalence Exemptions).

The reforms will also affect FFSPs with a limited connection to Australia who rely on [CO 03/824], which is given operation until 27 September 2018 under ASIC Corporations (Foreign Financial Services Providers – Limited Connection) Instrument 2017/182 (Limited Connection Exemption).

Timeframe for implementation

ASIC has proposed to extend the existing relief under the Sufficient Equivalence Exemptions and the Limited Connection Exemption for a further 12 month period to 30 September 2019. Following this time, it is proposed that a 12 month transitional period to 1 October 2020 will apply to allow for the implementation of the foreign AFSL regime.

FFSPs relying on the Sufficient Equivalence Exemptions will be eligible to apply for a foreign AFSL from the commencement of the transitional period. Additionally, FFSPs that are only relying on the Limited Connection Exemption and/or do not currently rely on one of the Sufficient Equivalence Exemptions, but operate from a jurisdiction covered by one of these exemptions and are appropriately licensed or authorised in that jurisdiction, will be able to apply for a foreign AFSL. Otherwise, to be eligible to apply for a foreign AFSL, an FFSP must engage with ASIC to facilitate the undertaking of a sufficient equivalence assessment of the regulatory regime in its home jurisdiction.

What actions should you take?

At this stage, the proposed reforms are not law and are likely to change after ASIC's engagement with the industry. Further, following this consultation, ASIC proposes to modify the application of certain licensing requirements, issue updated guidance about the process for lodging an application for a foreign AFSL and issue additional guidance about the foreign AFSL regime and the obligations that will apply to FFSPs under this regime. As such, we suggest maintaining a watching brief as to further developments in this area.

Get in touch with us to discuss the impact of the current proposals on your business or to discuss whether a foreign AFSL is appropriate for you, having regard to your current or proposed activities in Australia.

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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.