Australia finalises rules for foreign financial service providers

Read a copy of Regulatory Guide 176 for Foreign financial services providers. 

An FFSP is a person who provides financial services to Australian wholesale (institutional) clients who either:

(a) rely on existing “equivalency relief ”, typically those whose domestic or home jurisdictions and regulators are as follows:

• United Kingdom: Financial Conduct Authority
• United States: U.S Securities and Exchange Commisson, U.S. Federal Reserve and Comptroller of the Currency, U.S. Commodities Futures Trading Commission
• Singapore: Monetary Authority of Singapore
• Hong Kong: Securities & Futures Commisson
• Germany: Bundesanstalt fürFinanzdienstleistungsaufsicht (BaFin)
• Luxembourg: Commisson de Surveillance duSecteur Financier
• Denmark: Danish Financial Supervisory Authority
• France: Autorité des marches financiers, Autorité de controle prudentiel et deresolution
• Ontario, Canada: Ontario Securities Commisson
• Sweden: Finansinspektionen

(b) rely on the existing “limited connection to Australia” relief.

(c) rely on the existing “limited connection to Australia” relief.

Going forward, FFSP’s will need to either:

• rely on proposed new funds management relief
• apply for the modified Australian Financial Services (AFS) Licence (Foreign AFS Licence)
• obtain an existing form of Australian financial services licence (AFS Licence) or
• rely on another exemption from the requirement to be licensed (that is other than the “limited connection to Australia relief ” which ceases to apply on 31 March 2022).

The new category of Foreign AFS Licence is a less onerous licensing and compliance regime than an AFS Licence for FFSPs whose domestic regulatory regime is sufficiently equivalent to the legal regime applying in Australia.

Those FFSP’s who were relying on existing equivalency relief or the “limited connection to Australia relief ” have until 31 March 2022 to transition to the most appropriate operating model for their business activities with respect to Australian clients.

The new Foreign AFS Licence

Prior to 1 April 2020, FFSPs were able to provide certain services to Australian institutional clients on the basis that they comply with the laws that apply to them in their recognised home jurisdiction (provided that they notify ASIC of their reliance and meet the other procedural requirements of the relief ). The Foreign AFS Licence regime represents a significant departure from the existing position for FFSPs as it will be necessary to be licensed in Australia and comply with certain Australian financial services regulatory requirements when dealing with Australian institutional clients. For example:

• conditions which apply to AFS Licensees, relating to managing conflicts of interests, and providing financial services honestly, efficiently and fairly also apply to FFSPs
• the holder of a Foreign AFS Licence would not need to comply with conditions relating to the need to have adequate financial, technological and human resources and conditions in relation to the training of its representatives
• key enforcement powers will be available to ASIC, including breach reporting obligations, the power to direct a license to provide a written statement, the requirement to provide reasonable assistance to ASIC during surveillance checks and the ability to impose licence conditions, vary, cancel or suspend a licence and impose penalties.

Funds Management Relief

The Funds Management Relief is potentially available to FFSP’s who are located in a foreign jurisdiction where the regulator in that jurisdiction is a signatory to the IOSCO MMoU link. This is a much broader list of jurisdictions than those that currently benefit from the equivalency relief described above for the Foreign AFS Licence. The Funds Management Relief is intended to apply to financial services typically provided by FFSP’s who are fund or investment managers, namely:

(a) the issue, redemption (or buy back) of interests in funds, advice in respect of interests in funds (and their assets) and associated custodial services; or

(b) the provision of portfolio management services under an agreement (including for example providing advice and dealing in financial products), to certain Australian institutional investors (referred to as ‘eligible Australian users’).

Eligible Australian users are a group of Australian institutional investors, specified in the funds management relief, who are broadly speaking:

(a) operators of regulated Australian collective investment schemes

(b) trustees of wholesale Australian trusts who hold an AFSL (or aren’t required to because of an exemption)

(c) trustees of the various types of Australian superannuation (pension) funds who hold more than AUD10 million in assets

(d) APRA regulated entities ( eg including insurance companies)

(e) exempt public authorities which are incorporated under Australian State or Commonwealth laws (other than local councils).

In order to benefit from the Funds Management Relief, the FFSP must not have a place of business in Australia (but have an agent for service of processs) and it will be necessary for FFSP’s to provide a written confirmation to ASIC for the benefit of the relief and in doing so comply with a number of conditions, including:

• the FFSP must identify its home jurisdiction and that it is authorised to provide the relevant services in that jurisdiction
• on request by ASIC or its home jurisdiction regulator, consent to the disclosure of information between those regulators
• comply with written notices and request for assistance from ASIC in relation to the FFSP’s compliance with financial services laws.