Astrid Raetze, Samantha Shields, Nick Alexander and Megan House examine ASIC's proposed changes for foreign financial services providers.
On 1 June 2018, the Australian Securities and Investments Commission (ASIC) released a consultation paper (CP 301) seeking feedback on its proposal to:
In our view, the proposal represents a clear departure from ASIC’s historical approach to the regulation of FFSPs, which to date has prioritised the facilitation of cross-border investment and liquidity into Australian wholesale markets. We expect that small to medium-sized FFSPs, in particular, will feel the brunt of the proposed changes. Relevantly, while ASIC has in large part justified the proposed changes by citing past instances of non-compliance with disclosure conditions by multinational investment banks, ASIC’s proposed regulatory response will impact all FFSPs with wholesale clients in Australia, including offshore fund managers.
The first is ASIC Corporations (Repeal and Transitional) Instrument 2016/396 (referred to by ASIC as the ‘sufficient equivalence relief’, but more commonly known as the ‘passport relief’) which conditionally exempts FFSPs from the requirement to hold an AFS licence on the basis that they are sufficiently regulated in their home jurisdiction. These jurisdictions are the United Kingdom (where authorised by the FCA), the United States (where authorised by the SEC, the Federal Reserve, the OCC, or the CTFC), Singapore (where authorised by the MAS), Hong Kong (where authorised by the SFC), Germany (where authorised by BaFin), and Luxembourg (where authorised by CSSF).
The second is any bespoke individual relief issued on similar terms to the sufficient equivalence relief. According to CP 301, such relief has only been granted to regulated FFSPs in Denmark, Sweden, France, and Brazil to date.
The third is ASIC Corporations (Foreign Financial Services Providers – Limited Connection) Instrument 2017/182 (more commonly known as the ‘limited connection relief’) which exempts FFSPs that are only carrying on financial services business in Australia by engaging in inducing conduct (i.e. promotional or marketing campaigns) in the Australian jurisdiction under s911D of the Corporations Act.
Under the proposed regime, from 30 September 2019 only FFSPs who are licensed or authorised in sufficiently equivalent jurisdictions (including FFSPs relying on individual relief issued on the basis of ASIC’s sufficient equivalence principles) will be eligible to apply for and maintain a lighter-touch form of AFS licence (FAFS licence) to carry on financial services business with wholesale clients in Australia.
Importantly, FAFS licensees would be exempt from four of the key general obligations of an AFS licensee under s912A of the Corporations Act. These include the requirements to:
We’ve highlighted the main takeaways for FFSPs below:
ASIC proposes to:
If you would like assistance with preparing a submission or preparing an application for FFSP relief or discussing the implications of CP 301 for your business, please do not hesitate to contact a member of our team.