Australia’s New Foreign Financial Services Regime.

21 April, 2020

 

We previously shared a high level snapshot of the new regulatory framework for foreign financial service providers (FFSPs) released by the Australian Securities and Investment Commission (ASIC) that enables FFSPs to provide financial services to Australian wholesale clients. This article provides further details on the new regulatory framework and the eligibility requirements for the Foreign AFSL and Funds Management Relief. New regime From 1 April 2020, subject to the transition periods below, FFSPs will need to either:

 

1. obtain a foreign Australian financial services (AFS) licence (Foreign AFSL);

or

2. rely on the funds management relief which permits FFSPs to provide ‘funds management financial services’ to ‘eligible Australian users’ (Funds Management Relief). Transition period Existing FFSPs currently relying on pre-existing passporting relief will have a two-year transition period from 1 April 2020 to 31 March 2022 to comply with the new regime to continue their operations in Australia.

 

The ‘limited connection’ relief has also been extended until 31 March 2022 to provide transitional relief to FFSPs. 9 Foreign AFSL The Foreign AFSL regime allows FFSPs from jurisdictions that ASIC considers are sufficiently equivalent jurisdictions to Australia to apply for a Foreign AFSL so that the FFSP can provide a range of financial services to Australian wholesale clients from inside or outside Australia. ASIC currently considers the following foreign jurisdictions to be sufficiently equivalent jurisdictions (and may add to this list in the future):

 

Canada (Ontario), Denmark, France, Germany, Hong Kong, Luxembourg, Singapore, Sweden, the United Kingdom and the United States. If an FFSP is not authorised under one of the sufficiently equivalent jurisdictions set out above, the FFSP will need to consider whether:

 

1. it can rely on the Funds Management Relief set out below;

2. rely on another exemption from the need to hold an AFS licence; or

3. apply for a ‘standard’ AFS licence. Eligibility to apply for a Foreign AFSL FFSPs seeking to apply for a Foreign AFSL must:

 

• be authorised in a sufficiently equivalent jurisdiction (see above) to provide substantially the same financial services that the FFSP wishes to provide in Australia;
• have a local agent appointed under the regime, unless the FFSP is a company;  have a reasonable belief that it is fully compliant with any laws of its home jurisdiction relating to the provision of financial services to wholesale clients;
• understand and be able to comply with your obligations as a Foreign AFSL holder and with your licence conditions; and  submit a number of supporting ‘proof’ documents to ASIC as part of the Foreign AFSL application process.

 

Funds Management Relief The Funds Management Relief exempts FFSPs from having to hold an AFS licence if they provide, from offshore, ‘funds management financial services’ to ‘eligible Australian users’ and do not otherwise carry on a business in Australia.

 

There is no revenue cap for this relief. There are three kinds of funds management financial services covered by the relief:

 

• dealing in, advising on, making a market in (as issuer) or providing a custodial and depository services in relation to an offshore fund financial product; 
• dealing in any kind of financial products under a portfolio management services agreement;
• and  providing a custodial or depository service under or in relation to a portfolio management services agreement.

 

This relief applies to the provision of funds management financial services to the following types of professional investors: 

 

• responsible entities of registered schemes;
• 10  superannuation trustees if the fund has at least A$10 million net assets;
•  licensed trustees of wholesale trusts;
•  entities regulated by the Australian Prudential Regulation Authority (APRA);
• and  government authorities

 

Eligibility to rely on the Funds Management Relief To rely on the Funds Management Relief, an FFSP must:

 

• not have a place of business in Australia;
• appoint a local agent for service; and
• confirm the following to ASIC:

 

o intention to rely on the relief;

o the FFSP’s home jurisdiction and that it can provide funds management financial services in its home jurisdiction;

o the FFSP’s home jurisdiction regulator is a signatory to the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMOU);

o on the written request of ASIC or the home regulator, the FFSP will enable the disclosure of information between ASIC and the home regulator; and o that it will comply with written notices from ASIC and assist ASIC during surveillance checks.

 

Application process Applying for either a Foreign AFSL or Funds Management Relief requires written submissions and the lodgement of certain documents, as set out above. Note that obtaining and maintaining a Foreign AFSL involves paying an annual fee. Next steps We can assist FFSPs navigate the new regime and identify the best course of action for FFSPs to continue operating in Australia. Please contact us if you would like to discuss the new FFSP regime and how it applies to your business.

 

By Stuart Johnson and Tze Ting Liew of MinterEllison