At a glance, the proposed Bill, seeks to facilitate and regulate cross-border financial services by introducing the following exemptions:
- a comparable regulator exemption;
- a professional investor exemption;
- a market maker exemption; and
- a fit-and-proper person assessment exemption.
The Bill is expected to commence on 1 April 2024.
The transitional relief under the Amendment Instrument extends the ‘sufficient equivalence relief’ and ‘limited connection relief’ that were set to expire on 31 March 2024 for another year – seemingly for the last time.
We have previously provided updates on the relief extensions which remain relevant, including a timeline of the transitional relief period, in the following alerts:
As an overview, the Amendment Instrument amends the following avenues of relief:
- ASIC Corporations (Repeal and Transitional) Instrument 2016/396 until 31 March 2025;
- ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 until 31 March 2025;
- ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 until 31 March 2025; and
- ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 until 1 April 2025.
ASIC historically provided sufficient equivalence relief in 2018 to FFSPs who were regulated by the German BaFin, Hong Kong SFC, UK FCA, Singapore MAS US SEC, Federal Reserve, OCC or CFTC, or Luxembourg CSSF. Those FFSPs which relied on this relief as at 31 March 2020, will be able to continue their reliance without providing ASIC with any additional notice.
ASIC has since 2003 previously provided limited connection relief from the requirement to hold an AFS licence to entities which provide financial services with a "limited connection" to Australia. Reliance on this relief does not require any application to ASIC.
The funds management relief, initially released in March 2020, had been deferred to commence on 1 April 2025, from which point it will provide relief from the requirement to hold an AFS licence where the FFSP is only carrying on a financial services business in Australia in relation to the provision of ‘funds management financial services’ to professional investors under s 911D of the Corporations Act 2001 (Cth) (Act).
For FFSPs the Amendment Instrument means that if you have previously relied on any of the sufficient equivalent or limited connection relief, then you may continue to rely on these until 31 March 2025.
Licensing Exemption – Consultation
Currently, the Act stipulates the requirement to hold an AFS licence when providing a financial service in Australia, unless an exemption applies.
The Bill seeks to expand the ambit of existing exemptions available to FFSPs and to introduce a new market maker exemption. In doing so, the Explanatory Memorandum to the Bill notes that the objective of the Bill is to allow Australian professional and wholesale investors to diversify their investment opportunities by reducing barriers to entry for foreign financial services providers in the Australian market, while ensuring appropriate regulatory oversight to maintain domestic market integrity and investor protection.
The Bill comprises much of the same as the previously lapsed Bill but further expands on the current relief available, seeking to introduce:
1. A professional investor exemption
- Under this exemption, FFSPs are authorised to provide financial services from outside Australia (except during limited marketing visits) to professional investors in Australia.
- The professional investor exemption in the proposed Bill is now subject to a new power under which the Government may stop FFSPs from relying on the exemption in relation to dealings in certain financial products and certain markets.
2. A comparable regulator exemption
- Under this exemption, FFSPs are authorised to provide financial services to wholesale clients in Australia, if they are regulated under a comparable regime.
- A person that uses the comparable regulator exemption must comply with certain conditions, including consenting to information sharing between ASIC and each comparable regulator, notifying ASIC of significant enforcement action, disciplinary action or investigation undertaken against the person by any regulator, government authority, or relevant financial market operator in any place outside Australia, having an agent in Australia, and maintaining adequate oversight over its representatives and take reasonable steps to ensure that its representatives are adequately trained and competent to provide the financial services.
- Under the proposed exemption, failure to comply with one or more of these conditions may result in ASIC applying to the court for a civil penalty and pecuniary penalty order, cancelling the person’s exemption or imposing additional conditions on the person’s future use of the exemption.
- The comparable regulator exemption in the proposed Bill is substantially the same as the previous ‘sufficient equivalence relief’.
3. A market maker exemption
- The proposed Bill provides for a new exemption from the requirement to hold an AFS licence for a person making a market for derivatives that are able to be traded on a prescribed market where the person provides the financial service from a place outside this jurisdiction, the person’s head office and principal place of business are located at one or more places outside this jurisdiction, and the person reasonably believes that providing the same or substantially the same financial service would not contravene any law applying in any of the places referred to in the above dot points.
- The conditions attached to this relief include (but are not limited to) notifying ASIC of the person’s intention to rely on the exemption, submitting to the non-exclusive jurisdiction of the Australian courts, complying with reasonable requests for assistance from ASIC and doing all things necessary to ensure that financial services are provided efficiently, honestly and fairly.
4. A fit and proper person exemption
- The proposed Bill introduces a further new exemption for FFSPs from the fit and proper person test when making an application for an AFS licence, or when varying its existing licence, where that FFSP is regulated by a comparable regulator.
Notably, each of the exemptions provide an additional requirement to provide financial services efficiently, honestly and fairly – an obligation not previously imposed under previous FFSP relief regimes. Where this requirement is not adhered to, ASIC is conferred a power to cancel an exemption to any FFSP.
The consultation process for the Bill is open for submissions until 8 September 2023. For further information or if you have any questions about next steps, please do not hesitate to contact us.