Australia – Foreign Financial Services Providers – ASIC Consults Further On Exemptions And Licensing .

15 July, 2019

ASIC has released further guidance on their proposed licensing regime for foreign financial services providers, and exemptions. 

Background

• Limited connection exemption – this exemption is available to all FFSPs which do not carry on business in Australia (ie. who service Australian customers from offshore).
• Sufficient equivalence exemptions – these exemptions are available under a series of ASIC instruments to certain FFSPs which are regulated in offshore jurisdictions which ASIC has assessed as "sufficiently equivalent" – such as the UK, USA, Singapore, Hong Kong, Germany and Luxembourg.

In 2018, ASIC announced its intention to revoke these exemptions.  It indicated that it did not intend to replace the limited connection exemption.  In relation to the sufficient equivalence exemptions, ASIC proposed to replace it with a modified Australian financial services licensing regime (foreign AFSL) for eligible FFSPs.  

What you need to know about ASIC's latest consultation

ASIC has now published Consultation Paper 315 (CP315) which reflects the outcome of its review following CP301.
 

CP315 sets out ASIC's proposals in relation to the revocation of licensing exemptions available to FFSPs and the licensing of FFSPs who are regulated in sufficiently equivalent jurisdictions.  ASIC has confirmed the following:

1. Limited connection exemption extended (but revocation still proposed)

The current "limited connection" exemption has been extended to 31 March 2020.  ASIC has confirmed its proposal to revoke that exemption from that time, although has left the door open for the industry to convince ASIC that it should introduce a reverse solicitation exemption (although ASIC has indicated that it is not inclined to do so).  Should ASIC ultimately decide to revoke the limited connection exemption altogether, there will be a 6 month transition period to 30 September 2020 (to enable providers to transition to a licence.

2. Proposed new exemption for funds management services to professional investors

ASIC proposes a new exemption for FFSPs who provide funds management services to eligible professional investors in Australia

that will be available from 1 April 2020, with a 6 month transitional period to 30 September 2020 to facilitate compliance with the proposed conditions.  ASIC proposes to cap the level of activity which may be conducted under this exemption to less than 10% of an FFSP's annual aggregated consolidated gross revenue (including aggregated consolidated gross revenue of entities within its corporate group).  ASIC has invited consultation on the systems, processes and costs that FFSPs will need to monitor this revenue cap.  ASIC has also proposed a number of conditions that affect the operation of the relief, including that FFSPs must not be carrying on a business in Australia, and others measures designed to assist ASIC with monitoring the conduct of FFSPs relying on this relief. We will shortly publish a further update which addresses this specific exemption. 

3. Sufficient equivalence exemptions extended to 31 March 2020 (with 2 year transition to licence by 1 April 2022)

The existing "sufficient equivalence" exemptions (i.e. the Class Order exemptions for providers regulated in jurisdictions assessed as "sufficiently equivalent") will be extended to 31 March 2020, with the new foreign AFSL regime commencing from 1 April 2020.  

FFSPs which rely on a sufficient equivalence exemption will need to ensure they comply with the conditions of the exemption until they acquire a foreign AFSL (as otherwise their exemption may lapse before the new licence is in place).

4. Foreign AFSL– conditions and application process

ASIC has confirmed that the proposed foreign AFSL regime is as set out in CP301 – this sets out the conditions of the licence and the provisions of the Corporations Act and Regulations which will apply/not apply to the foreign AFSL holder.

ASIC has attached to CP315 a draft revised Regulatory Guide 176, which includes information in relation to the proposed application process for a licence.  ASIC proposes a "streamlined" application process which would involve the submission of only two core proofs – A5 Business Description and People Proof containing certain information and checks on "responsible officers" (although ASIC may request and applicant to provide further information and proofs).  Applicants will also be required to make declarations and certifications to the effect that the applicant has in place systems and processes to comply with the obligations to which the FFSP will be subject as a licensee.

5. New entrants can still file for sufficient equivalence exemption

FFSPs which have filed for reliance on the Class Order exemptions prior to 31 March 2020 will have a further 2 years to transition to a new foreign AFSL.

What you need to do

1. All FFSPs:  Consider your existing arrangements for servicing clients in Australia.  FFSPs should determine the approach they wish to take as soon as possible.  March 2020 looms as the key date by which decisions ought be made as to the way forward.
2. FFSPs which currently rely on the limited connection exemption regime: Consider whether other exemptions may be available (such as exemptions under the Corporations Act and Regulations or the new proposed funds management exemption for servicing professional investors).
3. FFSPs which currently rely on the substantially equivalent jurisdiction exemption regime:  Consider whether you wish to transition to the foreign AFSL regime, or whether your activities may qualify for some other exemption. 
4. Global financial institutions: Some global institutions have multiple entities which service the Australian market under the existing exemptions.  These global institutions should consider whether it may be appropriate to restructure the way in which they service the Australian market.  This could potentially include reducing the number of entities which service the Australian market, so as to reduce the number of entities which need to rely on an exemption or foreign AFSL.
5. Existing foreign entities which hold "full" AFSLs: Consider whether you may be entitled to apply for the new "lighter touch" foreign AFSL.

For further information, please contact:

Jonathan Gordon, Partner, Ashurst
jonathan.gordon@ashurst.com