The Australian Government has introduced Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 (Bill) into the House of Representatives. Among other things, the Bill will give effect to changes to the regulatory regime for Foreign Financial Service Providers (FFSPs).
The Bill is yet to be debated in Parliament and has not yet been introduced to the Senate. As there are only a few sitting days before a Federal election is due to be called, it is not clear whether the Bill will be passed before that occurs. If not, it will need to be reintroduced after the election.
Differences to the Exposure Draft
The Government consulted on an Exposure Draft of the Bill over the Christmas break. Details of the Exposure Draft can be found in our previous Alert. The Bill retains the same approach as the Exposure Draft, but a number of changes have been made. The key changes are:
- FFSPs can make marketing visits to Australia of up 28 days per year, while relying on the professional investor exemption
- Partnerships and companies can rely on the comparable regulator exemption
- Oversight obligations have been changed for the comparable regulator exemption
- FFSPs will need to notify ASIC of services to be provided under both exemptions.
These and other changes are discussed in more detail below.
The professional investor exemption permits marketing visits
The Bill permits FFSPs relying on the professional investor exemption to make marketing visits to Australia. There are a number of rules regarding marketing visits:
- marketing visits cannot exceed 28 calendar days in any financial year
- there is currently no restriction on the types of financial services that may be provided during a marketing visit but there is a power to make such restrictions in the regulations
- an FFSP can have more than one representatives in Australia on a marketing visit at the same time – multiple representatives in Australia on the same day only count as one day for the purpose of the 28 day limit.
This is a welcome change. While not as long as the 45 day period we suggested in our submission, multiple visits can be made in the same year provided the 28 limit is not exceeded.
FFSPs who do intend to undertake marketing visits will need to make sure their visits and activities in Australia do not amount to 'carrying on a business in Australia', otherwise they will need to register as a foreign company. This is a separate regime to the licensing regime. The recent Federal Court case of TCL Airconditioner v Castel Electronics [2019] FCA 257 illustrates that a company may be found to be carrying on business in Australia even though the bulk of its business is conducted elsewhere.
Partnerships can rely on the comparable regulator exemption
The Exposure Draft limited reliance on the exemption to foreign companies. The Bill extends this to include partnerships formed outside Australia. Accordingly, both types of entities can now potentially rely on the comparable regulator exemption.
Comparable regulator exemption requires adequate oversight
The Exposure Draft required FFSPs relying on the comparable regulator exemption to maintain 'sufficient' oversight over representatives and take reasonable steps to ensure representatives comply with financial services laws.
The Bill has relaxed the oversight requirements. It requires that FFSPs have to maintain 'adequate' oversight of representatives and ensure representatives are adequately trained and competent to provide the relevant financial services. The Explanatory Memorandum specifies that FFSPs are expected to put in place appropriate systems and processes to ensure these requirements are met.
Note these requirements do not apply to the professional investor exemption.
Notification period for informing ASIC of reliance
Under the Bill, FFSPs are still required to notify ASIC of any reliance under either exemptions. However, the timing requirement has been adjusted to enable notification to be made before relying on one of the exemptions. The notification period:
- begins on the day that is 15 business days before a FFSP intends to start providing financial services in reliance on the exemption; and
- ends on the day that is 15 business days after the FFSP starts providing relevant financial services in reliance on the exemption.
Obligation to notify ASIC of services to be provided
When notifying ASIC about their intention to rely on either of the two exemptions, the Bill requires FFSPs to include information about each kind of financial service they provide, or intends to provide, in reliance on the exemption. This may mean that a further notice may need to be given to ASIC if the kinds of financial services that the FFSP provides, or intends to provide, changes after the initial notice is given.
The fit and proper test exemption
The fit and proper person test exemption under the Bill extends the exemption to applicant that is a partnership formed outside Australia (this in addition to foreign companies).
More information
For more information about the new proposed regime (and differences to the existing FFSP regime), please see our earlier alert here.
No formal need to wait for approval but it may be prudent to do so
Although ASIC is required to approve the form for the notification requirement, the EM specifies that the form is not an application form and ASIC is not required to approve notifications submitted by a person.
Industry practice in relation to the current sufficient equivalence regime was to wait to receive ASIC's acknowledgment of reliance before commencing reliance. This helps to avoid unforeseen issues with a notification, such as incorrect information or incomplete notifications. In those circumstances a question may arise as to whether the notification, and therefore the FFSP's reliance, is in fact invalid. However, waiting to receive ASIC's acknowledgment may not be feasible in the proposed new regime given the relatively narrow window in which the initial notification of reliance must be given to ASIC prior to commencing reliance (see above regarding the notification period). In addition, the new regime will specifically permit FFSPs to give notice after commencing reliance.
Helpfully, failure to comply with a requirement of the professional investor exemption or the comparable regulator exemption does not result in automatic cancellation of the exemption. However, ASIC may impose requirements on the FFSP, terminate its reliance on the exemption (fully or partially) and/or apply to the court for a civil penalty order.
Ability to restrict professional investor exemption
The Bill retains the power to make regulations that limit the professional investor exemption. However, the EM provides that this power is only intended to be made in exceptional circumstances where the application of the professional investor exemption is considered to pose a risk to investors, the regulatory regime, or the market.
When the new regime begins
The professional investor and comparable regulator exemptions will apply in relation to financial services provided on and after 1 April 2023. This aligns with the end of the transitional arrangements for FFSPs relying on the sufficient equivalence relief and the limited connection relief.
Importantly, we note that the existing sufficient equivalence regime remains closed by ASIC to reliance by any 'new' FFSP – that is only FFSPs that were relying on the regime as at 31 March 2020 can currently rely on that regime. Since the new comparable regulator regime will not commence until 1 April 2023, 'new' FFSPs looking to enter the Australia market will have to rely on the limited connection relief or another exemption, or apply for a licence.
The fit and proper person test exemption will also only apply to applications made for an AFS licence on or after 1 April 2023. Applications for an AFS licence made prior to this date remain subject to the existing requirements and must satisfy the fit and proper person test.
This article is the latest in a series of alerts closely tracking progress on changes related to FFSP over the last 12 months (previous alert).
Links to key material:
