Regulatory certainty for Foreign Financial Service Providers

By Michael Garry and Nicholas Cardone

With effect from 1 April 2020, a new ASIC regulatory regime applies to foreign financial services providers (‘FFSPs’) that provide financial services to wholesale clients in Australia (such as advisory and fundraising activities). Under this new regime, a number of FFSPs that were previously exempt to hold an Australian Financial Services Licence (‘AFSL’) – for example due to their reliance on previous ASIC Class Order exemptions – will now need to re-consider what authorisations they require to continue to provide financial services in Australia.

What is the new regulatory framework?

Previously, FFSPs that operated under financial services regimes similar to Australia’s financial services regime could provide financial services to wholesale clients in Australia without needing to hold an AFSL. ASIC had released a number of Class Orders in 2003 and 2004 that, subject to compliance with certain conditions, enabled FFSPs to provide certain financial services in Australia without an AFSL.

In 2016 ASIC first announced that that it would be undertaking a review of those Class Orders and since that time has consulted with industry as to an appropriate regulatory regime. The result of the consultation is an abolishment of the previous Class Order regime (which had been temporarily extended since September 2016) and the introduction of a new ‘foreign AFSL’ regime.

Under ASIC’s new regime, FFSPs now have three options in order to continue providing financial services to wholesale clients in Australia:

1. Apply for a ‘foreign’ AFSL

FFSPs that operate under financial services regimes that are recognised by ASIC (for example, certain regimes in the United States, the United Kingdom and Singapore) may apply for a ‘foreign’ AFSL. A ‘foreign’ AFSL is similar to a ‘standard’ AFSL, but exempts the FFSP from certain requirements that would otherwise apply to the FFSP in the overseas regime they operate under (for example, AFSL financial requirements).

An FFSP will need to produce various proof documents to ASIC to support any application for a ‘foreign’ AFSL. Overall, applying for a foreign AFSL will be a streamlined process compared to a standard AFSL application process.

2. Rely on new Funds Management Relief

Generally, an FFSP can provide financial services in Australia without needing to hold a ‘foreign’ AFSL or ‘standard’ AFSL if its activities are limited to inducing certain professional investors in Australia (for example, responsible entities or superannuation fund trustees) to invest in an offshore fund. ‘Inducing’ may include providing advice or facilitating the issue of interests, in an offshore fund.

If intending to rely on this relief, FFSPs will need to notify ASIC of its intention and provide ASIC with various supporting documentation (including details of the FFSP’s authorisations in its home jurisdiction).

Despite the above, an FFSP that is deemed to be carrying on a business in Australia (other than because of the ‘inducing’ conduct that it engages in) will be unable to rely on this relief. An FFSP may be deemed to be carrying on a business in Australia if activities are conducted in Australia with a degree of system, repetition and continuity.

3. Apply for a ‘standard’ AFSL

If an FFSP does not meet the criteria to apply for a ‘foreign’ AFSL or to rely on the Funds Management Relief, it will need to apply for a ‘standard’ AFSL to continue to provide financial services to wholesale clients in Australia.

Timing

ASIC has provided some transitionary relief to allow FFSPs to comply with the new regime. Key deadlines are as follows:

  1.  FFSPs that successfully relied on a relevant ASIC class order on and before 31 March 2020 must apply for a ‘foreign’ AFSL before 1 April 2022 (noting that the ‘foreign’ AFSL will need to be issued by 1 April 2022).
  2. The Funds Management Relief does not technically commence until 1 April 2022. Until that time, FFSPs can continue to rely on ASIC’s ‘limited connection’ relief (which will expire on 31 March 2022).
  3. For any new FFSPs that are entering the Australian market after 1 April 2020 and will provide financial services to wholesale clients in Australia (other than under the ‘limited connection’ relief), those FFSPs must obtain a ‘foreign’ or ‘standard’ AFSL immediately.

If you are an FFSP now is the time to start putting in place a process to obtain a foreign AFSL, standard AFSL or rearrange your activities to ensure that you fit within the Funds Management Relief.

If you would like more information about these new requirements, please do not hesitate to contact Michael Garry or Nicholas Cardone.