Key takeaways

The main purview of the proposed exemptions remain unchanged from the December consultation draft:

1. The proposed 'professional investor exemption' will replace the wholesale investor exemption that is being withdrawn, and is also an extension of a similar exemption limited to derivatives, FX and carbon credits.
2. The proposed 'comparable regulator exemption' will replace the existing 'sufficient equivalence relief' (or 'passporting' relief) that is already being transitioned out.

In addition, the Bill proposes to create a fast-track licensing process for FFSPs that are seeking to establish more permanent operations in Australia are regulated in comparable financial services regimes.

FFSPs that currently rely on exemptions or are considering entering the Australian market are encouraged to carefully review the proposals and the effect on their businesses.

If passed by Parliament, the changes are proposed to commence on 1 April 2023. However, it is possible that the Bill will not be passed before the Federal Election (due in May 2022), so ultimate certainty may not be available until later in the year.

Important changes include:

• extended time allowed in Australia while still relying on offshore exemption (which has moved some way from the 'limited connection' relief;
• offshore providers will need to limit the places from where they provide financial services to the jurisdiction in which it is regulated and in Australia; and
• companies and partnerships can now apply for the 'passporting' comparable regulator relief.

In more detail

1. Professional investor exemption

Offshore financial service providers can be deemed to be 'carrying on a financial services business' in Australia because of the way they offer their services to Australian clients. 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 if all of the below are met:

• the financial service is only provided to professional investors (as defined by s 9 of the Corporations Act);
• the FFSP provides the financial service from a place outside Australia;
• the FFSP's head office and principal place of business is located at one or more places outside Australia; and
• the FFSP reasonably believes that the provision of the same or substantially the same 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 services are provided.

This Bill has made the following change to the exemption:

• Clarification has been provided that an FFSP's representatives can conduct marketing visits to Australia for a period not exceeding 28 days per financial year. For the purposes of the limit, a day is counted whether or not the representative spends time with a client. This change provides clarity on the previous description in the Explanatory Memorandum of 'infrequent marketing visits to Australia'.

Guidance has not been provided on whether acting within these limits will also ensure that the offshore provider is not 'carrying on a business' in Australia for company registration and/or taxation purposes.

2. Comparable regulator exemption

The comparable regulator exemption builds off the existing 'sufficient equivalence' relief that effectively ceased being available to new entrants on 1 April 2020, 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 only provided to wholesale clients (as defined by s 761G and 761GA of the Corporations Act);
• the FFSP is a foreign company or partnership formed outside Australia;
• the FFSP has and maintains all authorisations, registrations, or licences required to provide the same or substantially the same financial service in a foreign jurisdiction (the comparable jurisdiction) - these will need to be notified to ASIC as part of the application process;
• the regulator administering those authorisations, registrations or licences for that place (the comparable jurisdiction) is a comparable regulator (as the Minister determines); and
• the person provides the financial service from Australia or from the comparable jurisdiction.

The Bill has made the following changes to the exemption:

• The exemption originally applied only to a foreign company. This has now been expanded to include a partnership formed outside of Australia.
• The FFSP must provide the financial service from Australia or from the comparable jurisdiction. This is to prevent FFSPs from providing the financial service from a third jurisdiction in which they also operate. This is an important distinction to be made for corporate entities that may operate from various jurisdictions - and may now be required to lodge notices with ASIC under each jurisdiction they are regulated in and wish to provide services from.
• The FFSP was previously required to take reasonable steps to ensure that its representatives complied with the financial services law. The requirement is now to ensure that its representatives are 'adequately trained, and are competent' to provide the financial service. This obligation potentially has a broader reach.

The following changes apply to both the professional investor exemption and the comparable regulator exemption:

• The time period during which an FFSP must advise ASIC of an intention to rely on one of these exemptions has been expanded to the period between 15 business days before the intention to first provide the financial service, and 15 business days after the financial service was first provided.
• Notice to clients of reliance on an exemption from the requirement to hold an AFSL must now include details of which particular exemption it is relying on - professional investor or comparable regulator. There is also useful clarification that one client notification can cover multiple types of financial services being provided.
• A formal breach reporting requirement has been included - an FFSP must notify ASIC of a breach of the conditions of an exemption within 15 business days of becoming aware, or the time at which it would reasonable be expected to be aware, of a contravention.

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 or a partnership formed outside Australia;
• the licence, 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); and
• the FFSP holds one or more authorisations, registration or licences (as applicable) for the provision of financial services in a foreign jurisdiction from a comparable regulator (as the Minister determines).

The Bill has made the following change to the exemption:

• The exemption originally applied only to a foreign company. This has now been expanded to include a partnership formed outside of Australia.