13 November, 2017
A person who carries on a financial services business in Australia requires an Australian financial services licence (AFSL) to provide the services, unless an exemption applies.
The definition of carrying on a financial services business in Australia is broad and includes engaging in conduct that is intended to induce people to use the financial services provided by the person or which is likely to have such effect. The Australian Securities and Investments Commission (ASIC) has modified this 'extra-territoriality' reach of AFSL laws by exempting a person who provides a financial services business in Australia from requiring an AFSL where the person limits its dealings with people in Australia (i.e. investors/clients) who are wholesale clients (broadly meaning institutional clients) and where the person has only a limited connection with Australia (such as by engaging in a one-off visit from overseas) (Inducing Only Exemption).
As a practical matter, the Inducing Only Exemption is generally considered to be narrow and may only be relied on for one-off ad hoc dealings with Australian wholesale clients and is assessed on a case-by-case basis depending on the facts. For example, if the foreign person actively solicits clients in Australia and is making regular visits, then the Inducing Only Exemption is unlikely to be available.
If the Inducing Only Exemption is not available then the foreign person may be able to take advantage of a conditional AFSL exemption granted by ASIC for financial service providers regulated in foreign jurisdictions under a regulatory regime that ASIC considers to be sufficiently equivalent to the Australian regulatory regime (e.g. those fund managers regulated by the US Securities and Exchange Commission, the UK Financial Conduct Authority, the Monetary Authority of Singapore or the Securities and Futures Commission in Hong Kong) and where the financial services are provided only to wholesale clients in Australia (FFSP Exemption). ASIC has published helpful guidance on its website about how to apply for the FFSP Exemption.
ASIC has taken action to extend temporarily the Inducing Only Exemption and the FSSP Exemption to 27 September 2018, pending a comprehensive review of the underlying policy settings applicable to relief available to foreign financial services providers and in consultation with stakeholders.
Specifically, the Inducing Only Exemption, which was due to expire on 1 April 2017, was re-made by ASIC under a legislative instrument for a period of 18 months, expiring on 27 September 2018. The FFSP Exemption was repealed by ASIC, subject to a transitional period of two years from 27 September 2016 (thus expiring on 27 September 2018) and on the basis that foreign managers relying on the FFSP Exemption must provide written information to ASIC in response to any ASIC request for information about the operation of their financial services business in Australia.
More generally, ASIC has released a suite of new and updated draft regulatory guides for the funds management industry for consultation. The six new and updated draft regulatory guides contain ASIC’s proposed policy framework for the regulation of the upcoming Asia Region Funds Passport and corporate collective investment vehicle legislation and also contain updated funds management guidance generally. We consider that AFSL relief for foreign financial services providers will form part of this more general review of regulatory guidance.
By Stuart Johnson And Vince Battaglia Of MinterEllison
For more information, please contact:
Alwyn Li, Partner, Deacons
alwyn.li@deacons.com.hk
