Following the Budget announcement in May, the Australian Government has now released its Consultation Paper seeking feedback on options for the regime that will apply to foreign financial services providers (FFSPs) in Australia.  

The Consultation Paper considers options for:

• Establishing a framework for FFSPs with the goal of reducing duplicate regulatory requirements and encouraging greater engagement by FFSPs in the Australian market, while maintaining necessary protections.
• Fast-tracking the licensing process for FFSPs to diversify investment opportunities within Australian markets and encourage high yield international business and exceptional talent to relocate to Australia.

This follows ASIC extending the existing equivalent foreign regulation and limited connection exemptions for 12 months until 31 March 2023.

Submissions on the Consultation Paper are due by 30 July 2021. 

The Government is considering the full range of options from simply reinstating the old sufficient equivalence and limited connection exemptions without change to providing automatic licensing for overseas regulated FFSPs and a number of options in between.  The prospect of a more straightforward regime for FFSPs in Australia is certainly welcome.  However, the range of options being considered does mean that the uncertainty for FFSPs will continue until the Government decides on what the new regime will look like.  On the other hand, the very short consultation period does indicate the Government means to move quickly.

Options for FFSP framework

The Government has proposed 3 options for FFSPs:

1. Restore previous relief
2. Extend previous relief to additional jurisdictions
3. Extend previous relief to additional jurisdictions and all financial services

Option 1 has 2 alternatives: 

A. Restore both the previous sufficient equivalence and the limited connection relief for services provided to wholesale clients as they applied before they were repealed by ASIC on 31 March 2020.  

B. Restore the sufficient equivalence relief as it applied before it was repealed on 31 March 2020 but replace the limited connection relief with the funds management relief developed by ASIC.

Both of these alternatives would mean the sufficient equivalence relief would only apply to FFSPs regulated by the United Kingdom, United States, Hong Kong, Singapore, Germany and Luxembourg.

Option 2 would extend the sufficient equivalence relief to FFSPs regulated by Denmark, France, Ontario and Sweden as proposed by ASIC in its foreign licensing regime.  However, unlike ASIC’s regime, FFSPs would not need to apply for an Australian financial services (AFS) licence.  This option also proposes to extend the relief to deposit and certain related products.

Option 3 is the same as Option 2 but would extend to all financial services and products for which an AFS licence is otherwise required.  The main difference is that the relief would extend to insurance products.  

The Government is seeking submissions on what conditions should apply to Options 2 and 3 if adopted.  Options being considered include:

• whether only notification to ASIC is required or whether FFSPs should be required to apply to ASIC for approval to use the relief
• assisting ASIC in any supervision or investigation matters and complying with directions and information requests from ASIC
• not dealing with unauthorised or unlicensed entities
• complying with auditing and reporting requirements
• ensuring that financial services are provided efficiently, honestly and fairly
• applying protections for dealing with client’s money and property
• having adequate conflict of interest arrangements in place
• having adequate risk management systems in place
• notifying clients when the FFSP is relying on the relief
• ensuring representatives are appropriately trained
• providing periodical information to ASIC, such as the FFSP’s fund or business type, business activity, market presence and client groups targeted in Australia, the FFSP’s investment strategy, the number of Australian clients,  certain financial statements that cover the financial services provided in Australia, assets under management (AUM) of Australian investors in funds, dealings with derivatives, name of relevant promoters, annual compliance attestation, liquidity terms of the fund, investment redemption information
• breach reporting obligations to ASIC
• giving ASIC the power to impose additional conditions.

Consideration is also being given to enabling ASIC seek injunctions and negotiate enforceable undertakings with FFSPs and to attaching civil penalties to breaches.

The Government is also asking whether: 

• other options for FFSP relief should be considered and whether there is any FFSP relief offered elsewhere that could serve as a model for Australia
• there are other overseas regulatory authorities that should be considered for exemption under options 2 or 3.

Fast-tracking FFSP licence applications

In addition to the relief options discussed above, the Government is considering options for fast-tracking if an FFSP decides to apply for an AFS licence.  

Option 1: amend the fit and proper test.

This option would provide ASIC with the discretion to determine whether the fit and proper person test can be applied to a more limited list of people and give ASIC the discretion to rely on similar assessments by other regulators. 

Option 2: modified licensing regime for FFSPs dealing with wholesale clients.

This would apply to FFSPs that are regulated by an overseas regulatory authority that is a signatory to the IOSCO multilateral MOU.  They could be exempt from some licensing requirements and obligations where they would be duplicative to those applying in the home jurisdiction.  The Government is seeking submissions on which requirements and obligations should be exempted.

Option 3: automatic licensing for overseas licence holders dealing with wholesale clients.  This option applies to FFSPs regulated by an overseas regulatory authority that is an IOSCO board member – this is a broad group of regulators: visit IOSCO for more information.

Certain conditions would apply to Options 2 and 3 similar to those applying under the current equivalent regulator regime.  The Government also asks if there are any other conditions that should be imposed.

The Government also asks if there are any other licensing requirements or obligations that pose barriers to entry for FFSPs.

Submissions

Submissions on the Consultation Paper are due by 30 July 2021. 
Please let us know if you would like us to assist you to make a submission. 

Links to key material:
Treasury Consultation Paper