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Friday 14 December, 2018
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ASIC Consultation Paper provides update on proposed licencing changes for foreign financial service providers

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Hillary Ray and Elaine Wilson

Following a comprehensive review, ASIC issued a Consultation Paper on 1 June 2018 proposing a modified licensing regime for foreign financial service providers (FFSPs).

Background

The Consultation Paper considers ASIC’s review of its relief to FFSPs from the requirement to hold an Australian financial services (AFS) licence when providing financial services to wholesale clients in Australia.

Currently, foreign providers of financial services to wholesale clients in Australia are exempt from the requirements of holding an AFS licence if they meet certain ASIC relief. The two forms of ASIC relief which currently exist are:

  • sufficient equivalence relief (also known as the “passport exemption”); and
  • limited connection relief.

Sufficient equivalence relief generally exempts FFSPs from the requirement to hold an ASF licence when providing specified services to wholesale clients only, where the FFSP is regulated by an overseas regulatory authority sufficiently equivalent to the Australian regulatory regime.

Limited connection relief generally exempts FFSPs from the requirement to hold an ASF licence when the FFSP is not within the jurisdiction, deals only with wholesale clients, and is carrying on a financial services business only by engaging in conduct that is intended to induce people in Australia to use its financial products.

In September 2016, both types of relief were extended until September 2018 to allow ASIC sufficient time to undertake a comprehensive review.

ASIC has now proposed in its Consultation Paper to extend both types of FFSP relief for an additional 12 months, until 30 September 2019, to provide the opportunity for industry to engage with the proposals in the Consultation Paper. A further 12 month transition period expiring 30 September 2020 may also be available.

Consultation Paper

The Consultation Paper proposes a modified ASF licence for foreign providers of Australian Financial Services (foreign AFS licence) in place of relief exemptions.

ASIC’s proposed introduction of the foreign AFS licence stems from ASIC’s concerns that:

  • foreign entities are not complying with conditions of the sufficient equivalence relief;
  • ASIC has restricted ability to monitor and supervise FFSPs who rely on ASIC’s current forms of relief;
  • ASIC has limited capacity to enforce the substituted compliance conditions for foreign ASF licensees; and
  • as key provisions of the Corporations Act 2001 (Cth) (Corporations Act) do not apply to FFSPs, ASIC has limited tools under the Corporations Act to address possible FFSP misconduct in Australia.

Proposed foreign AFS licence

The proposed foreign AFS licence would require the licensee to comply with general obligations under sections 912A(1)(a)-(ca) and (h) of the Corporations Act. These general obligations include the obligation to provide financial services efficiently, honestly and fairly.

The foreign AFS licence would exempt foreign AFS licensees from certain general obligations under sections 912A(1)(d)-(f) and (j) of the Corporations Act, and certain provisions in the Corporations Regulations 2001, where ASIC considers the overseas regulatory requirements to achieve similar regulatory outcomes to the Australian requirements.

Tailored AFS licence conditions would also be imposed on foreign AFS licensees. These would include conditions limiting the range of representatives that can be appointed on the licence, and notification requirements for FFSPs.

The Consultation Paper proposes that foreign AFS licence applicants would also have to provide similar documentation to ASIC as that required for a standard AFS licence application.

Going forward

FFSPs should review the Consultation Paper and consider making a submission on the proposed changes. Submissions on the Consultation Paper close 31 July 2018. The Consultation Paper (CP 301) can be accessed on ASIC’s Website.

Pending the outcome of ASIC’s consultation process, FFSPs may need to consider whether they wish to apply for a foreign ASF licence or withdraw services to Australian wholesale clients. FFSPs might also consider if other AFS licence exemptions would apply to them, and whether a restructure of services or collaborating with an AFS licence holder might be more suitable.