On 3 July 2019, ASIC issued a further Consultation Paper Foreign financial services providers: Further consultation (CP 315) which sets out its proposal to:
- Exempt foreign financial services providers (FFSPs) from the requirement to hold an Australian Financial Services Licence (AFSL) in relation to the provision of certain funds or portfolio management services to Australian professional investors (subject to a cap on the scale of activities that may be undertaken in Australia); and
- Repeal the licensing relief known as ‘limited connection’ relief as previously proposed in Consultation Paper 301 Foreign financial services providers (CP 301),
as well as extending current regime relief (known as ‘sufficient equivalence’ relief and ‘limited connection’ relief, discussed immediately below) for a further six months until 31 March 2020 .
Subject to further consultation, ASIC does not currently propose to give licensing relief to an FFSP that provides financial services to a professional investor where the investor initiates the inquiry about the financial services (also known as ‘reverse solicitation’).
Current regime relief for FFSPs
Currently, FFSPs providing financial services to wholesale Australian clients are not required to hold an AFSL in certain circumstances under existing relief, broadly known as:
- sufficient equivalence relief : based on ASIC’s assessment of the overseas regulation of the relevant FFSP achieving similar regulatory outcomes as Australian regulatory requirements (see the ASIC Corporations (Repeal and Transitional) Instrument 2016/396 ); and
- limited connection relief: exempting FFSPs that are only engaged in inducing, or intending to induce, a person in Australia to use its financial services (see the ASIC Corporations (Foreign Financial Services Providers – Limited Connection) Instrument 2017/182).
These instruments were originally due to sunset on 27 September 2018 but will now be extended until 31 March 2020 .
Proposed replacement for the current regime
In brief, FFSPs which currently rely on sufficient equivalence relief should be aware of the following and make appropriate alternative arrangements:
- As discussed in our last update, ASIC intends to commence a foreign AFSL licensing regime on 1 April 2020, a modified form of AFSL. FFSPs currently relying on sufficient equivalence relief will have a two year transitional period ( from 1 April 2020 to 31 March 2022 ) to apply for a foreign AFSL and implement the necessary compliance arrangements.
- As an alternative to applying for a foreign AFSL, FFSPs should determine whether their activities in Australia fall within the terms of a proposed new ‘Funds management relief’ licensing exemption (discussed in the section below) or any other relevant licensing exemption currently contained in the Corporations Act 2001 (Cth) and associated regulations ( Existing Exemptions ).
For those FFSPs which currently rely on limited connection relief, and subject to further consultation and a transitional period ending on 30 September 2020 , ASIC is proposing to repeal that relief in its entirety. Prior to 30 September 2020, these FFSPs will need to have determined whether their activities in Australia fall within the terms of the proposed new ‘Funds management relief’ licensing exemption, or any other relevant Existing Exemptions.
Proposed ‘Funds management relief’
This proposed licensing relief will be subject to:
- a cap on the scale of those services (the FFSP will only have the benefit of the relief if less than 10% of its annual aggregated consolidated gross revenue, including the aggregated consolidated gross revenue of entities within its corporate group (for each of the previous and current financial years), is generated from the provision of funds management financial services in Australia); and
- conditions that apply to the operation of the relief (such as that the FFSP must not be carrying on a business in Australia, must enter into a deed submitting to the non-exclusive jurisdiction of Australian courts in relation to action by ASIC and other Australian government entities, and lodge it with ASIC, must notify ASIC of the types of funds management financial services it intends to provide to professional investors in Australia, must maintain adequate proof of its compliance with the proposed 10% aggregated revenue cap described above).
An FFSP will engage in a ‘funds management financial service’ for the purposes of this relief if they provide any of the following financial services to a ‘professional investor’ in Australia:
- dealing in interests of a managed investment scheme established outside Australia ( Scheme ) or securities of a body that carries on a business of investment that is not incorporated in Australia ( Body );
- providing financial product advice in relation to the interests or securities of the Scheme or Body; and/or
- making a market in relation to the interests or securities of the Scheme or Body; and
- portfolio management services to a limited category of professional investors (or ‘eligible Australian users’).
FFSPs should be aware that a ‘professional investor’ is a subset of ‘wholesale investor’ for the purposes of the Corporations Act and broadly include:
- AFSL holders
- APRA-regulated bodies
- a listed entity or a related body corporate of a listed entity
- a body corporate, or a person that controls at least A$10 million.
ASIC proposes to define ‘eligible Australian users’ to include:
- a person in Australia who is a trustee of:
- a superannuation fund, within the meaning of the Superannuation Industry (Supervision) Act 1993 (SIS Act), with net assets of at least A$10 million;
- an approved deposit fund, within the meaning of the SIS Act, with net assets of at least A$10 million;
- a pooled superannuation trust, within the meaning of the SIS Act, with net assets of at least A$10 million;
- a public sector superannuation fund, within the meaning of the SIS Act, with net assets of at least A$10 million;
- a person in Australia who operates a managed investment scheme, with net assets of at least A$10 million;
- a person who operates a statutory fund under the Life Insurance Act 1995 in Australia; and
- an exempt public authority (defined in the Corporations Act).
FFSPs currently carrying on a financial services business in Australia with wholesale clients, or intending to do so, are urged to consider the matters in CP 315 carefully.
Contact Hive Legal
Contact John Malon, David Reckenberg, Rebecca Lim or Mona Sukkar at Hive Legal if you wish to make a submission on CP 315 to ASIC before the 9 August 2019 deadline, or have any questions about how the proposed new regime may affect your financial services business in Australia.
This is for general information only and formal legal advice should be sought on matters of interest arising from this article.