Australia: AFSL exemptions for Foreign Financial Service Providers - 2022 Redux

Key takeaways

The Draft Legislation proposes to amend and replace existing FFSP exemptions and relief. In particular both:

1. the proposed 'professional investor exemption' replaces the existing professional investor exemption under s 911A(2) of the Corporations Act
2. the proposed 'comparable regulator exemption' replaces the existing 'sufficient equivalence relief'

In addition, the Draft Legislation proposes to create a fast-track licensing process for FFSPs that are seeking to establish more permanent operations in Australia and that are regulated in comparable financial services regimes. The fast-track licensing process takes the form of an exemption from the traditional AFSL 'fit and proper person' test, and is termed the 'fit and proper person test exemption'.

FFSPs that are seeking to enter into the Australian market are encouraged to consider the application of the proposed exemptions to their businesses. These proposals are of particular significance for FFSPs that benefit from existing exemptions and relief, or have applied for or been granted a foreign AFSL.

In more detail 

1. Professional investor exemption 

Under the proposed professional investor exemption, FFSPs that provide financial services from outside Australia to professional investors are exempt from the requirement to hold an AFSL. The Draft Legislation has made it clear that this exemption is not restricted to certain financial services or products. However, to address potential market risk, regulations could be introduced in future to limit the exemption's application to certain classes of financial services or products.

The proposed exemption applies if all of the below are met:

• the financial service is provided to professional investors alone (as defined by s 9 of the Corporations Act)
• the FFSP provides the financial service from a place outside Australia (however, this does not preclude FFSPs from appointing local representatives or making infrequent marketing visits to Australia)
• the FFSP's head office and principal place of business is located at one or more places outside Australia
• the FFSP reasonably believes that the provision of the particular financial service is not in contravention of laws that are applicable in the FFSP's principal place of business or head office, or in the place that the financial service are provided

FFSPs intending to utilize this exemption must provide notice to ASIC of this intention.

2. Comparable regulator exemption

The comparable regulator exemption builds off the existing 'sufficient equivalence' relief, expanding the list of applicable foreign regimes and enabling the Minister to determine those foreign regulators that administer a comparable regime.

In order to benefit from the exemption, the following conditions must be met:

• the financial service is provided to wholesale clients alone (as defined by s 761G and 761GA of the Corporations Act)
• the FFSP is a foreign company
• the FFSP has and maintains all authorizations, registration, or licences required to provide the same financial service in a foreign jurisdiction (the FFSP's home jurisdiction).
• The regulator administering those authorizations, registrations or licenses for that place (the FFSP's home jurisdiction) is a comparable regulator (as the Minister determines).

For present purposes, the Draft Legislation lists the following regimes as 'comparable regulatory regimes':

• Securities and Exchange Commission (US SEC)
• US Federal Reserve and Office of the Comptroller of the Currency (OCC)
• Commodity Futures Trading Commission (US CFTC)
• Monetary Authority of Singapore (Singapore MAS)
• Securities and Futures Commission (Hong Kong SFC)
• Bundesanstalt für Finanzdienstleistungsaufsicht of Germany (German BaFin)
• Luxembourg Commission de Surveillance du Secteur Financier (CSSF)
• UK Financial Conduct Authority or Prudential Regulatory Authority (UK FCA or PRA)
• Danish Financial Supervisory Authority (Danish FSA)
• Finansinspektionen (Swedish FI)
• Autorité des Marches Financiers of France (French AMF)
• Autorité de contrôle prudentiel et de resolution of France (French ACPR)
• Ontario Securities Commission (Ontario OSC)

3. Fit and proper test exemption 

Under the fit and proper test exemption, the need to obtain checks for officers of the FFSP and its controlling entities is removed, fast-tracking the licensing process and reducing administrative burdens for FFSPs seeking to establish more permanent operations in Australia.

The proposed exemption applies if all of the following requirements are met:

• The FFSP is a foreign company.
• The license, if granted, is to be restricted to the provision of services to wholesale clients (as defined in ss 761G and 761GA of the Corporations Act).
• The FFSP holds one or more authorizations, registration or licenses (as applicable) for the provision of financial services in a foreign jurisdiction from a comparable regulator (as the Minister determines).

4. Ongoing compliance

For FFSPs intending to obtain the benefit of a proposed exemption, it is important to understand the conditions that are applicable to each exemption and the consequences of non-compliance. Please contact the team at Baker McKenzie for further information about the operation of the proposed exemptions.