The eagerly awaited detail of the proposed new foreign financial service provider (FFSP) exemptions from the need to hold an Australian financial services licence (AFSL) was released today.
Earlier this year, Treasury consulted on restoring the ‘previously well-established regulatory exemptions’, and to create a fast-track licensing process for FFSPs wishing to establish more permanent operations in Australia. Following this consultation, Treasury has released Exposure Draft Legislation, Treasury Laws Amendment (Measures for Consultation) Bill 2021: Licensing exemptions for foreign financial service providers and related explanatory memorandum (Exposure Draft).
For more background to the FFSP reforms, see our earlier articles:
- noting the extension of the limited connection exemption and the passporting exemptions to 31 March 2023 while the new FFSP exemptions are finalised and implemented: ASIC Extends Australian Financial Services Licensing Exemptions for Foreign Financial Service (FFSPS) Until March 2023; and
- summarising the prior FFSP reform proposals: And Finally… the Foreign Financial Service Provider (FFSP) Licensing Reforms are Confirmed.
WHAT IS PROPOSED?
- The limited connection exemption will be replaced by the ‘professional investor exemption’.
- As the name suggests the exemption is limited to providing financial services to professional investors, which is a sub-set of wholesale clients, so its scope is narrower.
- FFSPs using the ‘professional investor exemption’ will be more regulated than they were under the limited connection exemption and will need to give notice to ASIC and to comply with ongoing conditions.
- See What does the ‘professional investor exemption’ involve? below for more information.
- The passporting exemptions will be replaced by the ‘comparable regulator exemption’.
- This is similar to the passporting exemption but more conditions will apply including giving assistance to ASIC, complying with directions and maintaining oversight of representatives.
- See What does the ‘comparable regulator exemption’ involve? below for more information.
- The fast tracking of wholesale AFSL applications for FFSPs authorised to provide financial services in comparable regulatory regimes will take the form of an exemption from the fit and proper person test.
- This exemption will remove the need to obtain solvency checks and criminal history checks for officers of the applicant and its controlling entities, which is a welcome development for foreign entities who have many overseas resident officers who would otherwise in scope for these checks.
- The exemption does not apply to AFSL applications more generally.
- See What is the proposed fast tracking? below for more information.
The position of foreign AFSL holders and applicants is not addressed in the Exposure Draft.
WHAT DOES THE ‘PROFESSIONAL INVESTOR EXEMPTION’ INVOLVE?
The differences between the limited connection exemption and this new professional investor exemption are quite significant and are summarised in the table below:
Factor |
Limited connection exemption |
Professional investor exemption |
---|---|---|
Australian clients |
Wholesale clients |
Professional investors (a subset of wholesale clients). This category does not include investors who hold a ‘qualifying accounting certificate’. |
Connection to Australia |
The FFSP was not able to provide services or products ‘while in Australia’. |
The FFSP’s head office and principal place of business must be located at one or more places outside Australia. The FFSP must provide the financial service ‘from a place outside Australia’. This is subtly different and intended to clarify that the FFSP may have a presence in Australia and appoint local representatives and may send representatives on infrequent visits to Australia. |
Notification to ASIC |
None required |
The FFSP must notify ASIC as soon as practicable (and before the 15th business day) after the first time that it starts to use the exemption. |
Content of notice to ASIC |
Not applicable |
This notice must state the FFSP’s intention to rely on the exemption and include the FFSP’s agreement:
This notice must be in writing and in a form that is approved by ASIC but may be submitted electronically. It must include the FFSP’s contact details, and any information, statements, explanations, or other matters required by ASIC and be accompanied by any other material specified by ASIC. |
Ongoing obligations and conditions |
None applied |
The FFSP must:
|
Liability for failing to comply with conditions and loss of exemption |
Not applicable |
If a FFSP fails to comply with a condition to the exemption ASIC may:
ASIC also has the power to cancel a FFSP’s exemption if:
|
This exemption is proposed to apply to all types of financial services and products at the outset but regulations may later prescribe that it cannot be used for specified services or products.
WHAT DOES THE ‘COMPARABLE REGULATOR EXEMPTION’ INVOLVE?
The comparable regulator exemption builds on the passporting exemptions to allow FFSPs to provide financial services and products to wholesale clients in Australia but:
- applies some more regulation and conditions; and
- seeks to expand the list of comparable regulators of FFSP (by the Minister’s determinations from time to time of foreign regulators administering a comparable regulatory regime to the AFSL), to expand the scope of FFSPs eligible to use this exemption.
The key differences and developments are summarised below.
Factor |
Comparable regulator investor exemption |
---|---|
Eligibility |
|
Notification to ASIC |
The FFSP must notify ASIC as soon as practicable (and before the 15th business day) after the first time that it starts to use the exemption. Passported FFSPs will need to re-apply to ASIC in order to use this exemption – their passporting exemption will not automatically roll over. |
Content of notice to ASIC |
This notice must state the FFSP’s intention to rely on the exemption and include the FFSP’s agreement:
For passported entities it is not clear how this new agreement will fit with the deed submitted with their passporting application. |
Ongoing conditions |
The FFSP must comply with a number of conditions similar to the passporting exemption conditions:
and comply with new conditions:
|
Loss of exemption |
As is the case for the ‘professional investor exemption’, under this ‘comparable regulator exemption’, ASIC has the power to cancel a FFSP’s exemption if:
(after giving notice of the proposed decision and an opportunity to appear at a hearing or make a submission). Additionally, ASIC can impose additional conditions on the FFSP’s use of the exemption and may apply to the court for a civil penalty and pecuniary penalty order. |
WHAT IS THE PROPOSED FAST TRACKING?
The fast tracking of wholesale AFSL applications for FFSPs authorised to provide financial services in comparable regulatory regimes will take the form of an exemption from the fit and proper person test.
This exemption will remove the need to obtain solvency checks and criminal history checks for officers of the applicant and its controlling entities, which is a welcome development for foreign entities who have many overseas resident officers who would otherwise in scope for these checks.
This exemption applies when the FFSP is a foreign company (see above in relation to the eligibility for the ‘comparable regulator exemption’) and applies for a wholesale AFSL. This exemption does not apply to AFSL applications more generally.
The exemption does not apply to AFSL applications submitted before the commencement of the new laws or if the FFSP applies to vary its AFSL to remove or amend a condition.
WHAT HAPPENS NEXT?
FFSPs may submit their views on the Exposure Draft before 12 January 2022.
If the Exposure Draft is implemented in its current form, FFSPs currently using the limited connection and passporting exemptions will need to:
- give a notice to ASIC in relation to their use of the new exemptions;
- put a new agreement in place in relation to accepting Australian jurisdiction (unless ASIC permits passported entities to continue to use the deeds they gave ASIC in relation to their passporting); and
- update their compliance arrangements for the ongoing conditions and obligations and, for limited connection exemption users, the narrowing of the scope of the exemption to professional investors only.
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