New exemptions for FFSPs were included in the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 (Bill), which was introduced into Parliament on 17 February 2022. A summary of the Bill, and the differences in the Bill to the initial Exposure Draft, can be found in Foreign licensing exemption Bill in Parliament.
However, the legislation was not debated or considered in detail by any Parliamentary committee before the election was called on 11 April 2022. Unfortunately, the calling of the election caused the Bill (along with all legislation not passed by Parliament) to lapse. This means that it will need to be reintroduced into Parliament before it can become law.
This gives rise to significant uncertainty for the future of FFSP regulation in Australia. The position of the incoming Labor government on the Bill is unclear. It is not known whether the new government will reintroduce the Bill in its current form, make changes to it or decide to follow a different course altogether. It is not inconceivable that there will be yet further consultation on the appropriate regulation of FFSPs in Australia.
At best, the lapsing of the Bill is likely to result in some delay while the new government determines its position.
What should be done?
The government will no doubt announce its intentions in relation to the Bill. The question is how long that will take. If it does not happen soon, it is imperative that ASIC extends the existing relief and permits new entrants to take advantage of the sufficient equivalence relief. This should be done as soon as possible.
Why the urgency?
ASIC's extension of the transitional relief for FFSPs from the need to hold an Australian financial services (AFS) licence ends in just over 10 months on 31 March 2023. This applies to both the significant equivalence exemption (for those regulated by recognised regulators, such as the FCA, SEC, MAS and HKSFC) and the limited connection relief (for those who do not undertake any activity in Australia and do not have any agents or representatives here).
If nothing is done before 31 March 2023, the FFSP regime made by ASIC in 2020 will apply. That is, FFSPs will need to either obtain a foreign AFS licence before 31 March 2023 or rely on the funds management relief. Further details on these regimes are set out in our alert: Foreign financial services regime – your questions answered.
ASIC has not repealed the foreign licensing or funds management relief instruments. They remain law and will be the only option for FFSPs if nothing is done before 31 March 2023.
Australia’s FFSP regime has important consequences for Australia's reputation as an open economy, foreign investment and our ability to be a regional financial centre. It is therefore imperative that the new government announce its position on the Bill as quickly as possible - within weeks, not months. As financial services regulator, ASIC also has an important role here. It should immediately extend the existing sufficient equivalence and limited connection exemptions by 12 months and should make the sufficient equivalence relief available to new entrants.
What does this mean for FFSPs?
FFSPs currently serving or seeking Australian clients or planning to do so within the next year should consider their position. While we do not advocate lodging foreign licence applications immediately, it would be prudent to dust off the plans that were shelved when the former government announced its intention to replace the foreign licensing and funds management regimes developed by ASIC. And of course, keep a watching brief on this issue. If nothing happens within the next couple of months, FFSPs may have no choice but to reopen their foreign AFS licensing projects.
This article is the latest in a series of alerts closely tracking the progress on changes related to FFSPs over the last 12 months.
Links to key material: