ASIC is Updating Relief for Foreign Financial Services Providers in Australia – What You Need to Know in 2020!

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A new year brings new compliance dates you need to mark in your diary.

Relief from holding an Australian Financial Services Licence (“AFSL”) applies until 31 March 2020 for Foreign Financial Services Providers (“FFSP“) in Australia. Those who rely on Limited Connection Relief and Sufficient Equivalence Relief will need to move across to the new frameworks provided by the Australian Securities and Investment Commission (“ASIC”) to continue operating in the Australian market.

Consultation Paper 315 (“CP315”) details the proposed changes that will replace and repeal the existing forms of relief available to FFSPs.

Timeline for the Changes

  • 31 March 2020 – Limited Connection and Sufficient Equivalence relief will be repealed;
  • 1 April 2020 – The new regime begins;
  • 30 September 2020 – deadline for FFSPs relying on Limited Connection Relief to transition to the new regime;
  • 31 March 2022 – deadline for FFSPs relying on Sufficient Equivalence Relief to transition to the new regime.

Key Points from CP315

It is proposed that the current relief frameworks will remain in place until 31 March 2020 and then repealed and replaced by the following new regimes:

Current Frameworks in place until 31 March 2020Proposed Replacement Frameworks to take effect on 1 April 2020
Limited Connection Relief - ASIC Instrument 2017/182.Funds Management Relief
Transition period until 30 September 2020.
Sufficient Equivalence Relief - ASIC Instrument 2016/396 and ASIC Instrument 2016/1109.Foreign AFSL
Transition period until 31 March 2022.

ASIC is not currently proposing to provide relief for FFSPs that provide financial services to a professional investor who made the initial application or inquiry for the service from the FFSP (reverse solicitation) due to ASIC’s concerns about their ability to monitor FFSPs providing financial services using reverse solicitation.

The New Regime

The three frameworks of relief available to FFSPs under ASIC’s new regime are:

1. Funds Management Relief:
This grants FFSPs an exemption from the requirement to hold an AFSL if the FFSP:

  • has less than 10% of its annual aggregated consolidated gross revenue generated from their services in Australia; and
  • agrees to the required conditions.

In order to meet the requirements for this form of relief, the FFSP must engage in funds management financial services. A definition of funds management financial services is provided in Table 2 of CP315 and includes portfolio management services to a limited extent.

As outlined in CP315, the aggregated revenue cap require FFSPs to obtain no more than 10% of  aggregated consolidated gross revenue from the provision of funds management financial services in Australia. To calculate the 10%, the aggregated gross revenue of the FFSP must include the FFSP itself and any other entity that is within their corporate group. The accounting practices to be used for this calculation are the practices enforced in the FFSP’s ‘home’ jurisdiction. For example, an FFSP based in the UK must use the accounting practices relied on in the UK and not Australia.  

Further, FFSPs must not be carrying on a business in Australia or hold an AFSL and thus, will be required to appoint a local agent. The FFSP must:

  • be willing to submit to the non-exclusive jurisdiction of the Australian Courts;
  • notify ASIC of the funds management financial services they intend to provide;
  • follow directions given by ASIC, maintain proof of compliance with the cap; and
  • assist ASIC with maintaining adherence to the relevant rules and laws.

ASIC has deemed this approach similar to other regulators globally including Canada. While measuring and monitoring the cap may be complex, ASIC has found it is a necessary step to protect Australia. For FFSPs under this form of relief who believe they may exceed the cap, ASIC has recommended the following solutions:

  • apply for a standard AFSL;
  • apply for and hold a Foreign AFSL;
  • reduce its activities to maintain an aggregated consolidated gross revenue below the cap; or
  • choose to limit activities so that it meets the existing statutory exemptions.

2. Foreign AFSL:
If a FFSP is licensed or holds authorisation in a foreign jurisdiction that has a sufficiently equivalent regime to that of Australia’s (as assessed by ASIC), the FFSP may be eligible for a Foreign AFSL. A Foreign AFSL will enable the FFSP to provide financial services to wholesale clients.

Under a Foreign AFSL, FFSPs will be exempt from certain requirements under Chapter 7 of the Corporations Act 2001 (Cth) as ASIC has deemed their participation in their foreign regime sufficient in obtaining similar outcomes to the Australian provisions.

ASIC’s draft RG 176 provides in depth information on the proposed regime for the Foreign AFSL.

In order to obtain a foreign AFSL, the FFSP must:

  • be authorised under a ‘sufficiently equivalent’ overseas regulatory regime;
  • be a registered foreign company if required by the Corporations Act 2001 (Cth);
  • provide the necessary proof documents to ASIC;
  • understand and be able to comply with the stipulated obligations and conditions of the licence; and
  • lodge and pay the application fee.

Countries with regimes in place that are ‘sufficiently equivalent’ are:

  • Germany;
  • Hong Kong;
  • Luxembourg;
  • United Kingdom;
  • Singapore; and
  • the United States of America.

3. Standard AFSL:
FFSPs can apply for a standard AFSL which will require them to meet the same obligations as Australian financial services providers.

Further Reading

If you are an existing FFSP or looking to become one and would like further advice on the best approach for your business, please contact us directly.

About The Author

Sophie Gerber

Sophie is the director of both Sophie Grace Legal Pty Ltd and Sophie Grace Pty Ltd. Sophie has worked with some of Australia’s largest financial services organisations in compliance, legal and operational roles. She has also worked with small businesses to provide tailored solutions with a strong understanding of business practicalities as well as obligations to regulators.