Treasury releases consultation for FFSP licensing regime

This article was co-authored with Abhi Ravishankar and Joel McKay

In a much anticipated development, Treasury has released for consultation its exposure draft on Australian financial service (AFS) license exemptions for foreign financial services providers (FFSPs) (the exposure draft Bill and explanatory memorandum can be found here). This consultation comes off the back of the previous Federal Government’s Bill which was tabled in Parliament in early 2022 (please see our article here) and lapsed with the calling of the Federal election in May 2022.

What are the proposed licensing relief options?

1. Professional investor exemption – this exemption will replace the existing professional investor exemption under the Corporations Act 2001 (Cth) and the Corporations Regulations 2001 (Cth), however with a much narrower scope. In particular, the new professional investor exemption will not be available for dealing in financial products traded on certain licensed markets.
2. Comparable regulator exemption – foreign companies or partnerships authorised, registered or licensed to legally provide the same or substantially the same financial service by an approved regulator in a foreign jurisdiction and which provide those financial services to wholesale clients, will be exempt from holding an AFS licence. FFSPs must also comply with additional conditions, which includes agreeing to information sharing between ASIC and the FFSP’s home regulator. The current list of approved regulators will be the same as those recognised by ASIC for the foreign AFS licence and includes the US SEC, Singapore MAS, Hong Kong SFC, UK FCA and Ontario OSC.
3. Market maker exemption – this new exemption permits FFSPs from holding an AFS licence if the FFSP is a market maker in respect of derivatives that are traded on prescribed licensed markets. FFSPs must also comply with certain additional conditions.
4. Fit and proper exemption – FFSPs that are authorised, registered or licensed to legally provide financial services by a comparable regulator and which only provide financial services to wholesale clients, will be exempt from the fit and proper person test. This exemption removes certain administrative requirements for applicants and will serve to streamline the licensing process.

Other key changes

The draft Bill introduces a new condition on FFSPs relying on the proposed licensing relief to do all things necessary to ensure that the financial services are provided efficiently, honestly and fairly. This is subject to certain exceptions for financial product advice, dealing in a financial product or making a market or providing custodial or depository services in certain circumstances. ASIC will have the power to cancel any relevant exemption on the grounds that it reasonably believes the FFSP has contravened this efficiently, honestly and fairly condition.

In line with the previous Bill, the professional investor exemption allows FFSPs to conduct marketing visits to Australia of up to 28 calendar days each financial year.

Next steps

The consultation period closes on 8 September 2023 and the draft Bill is expected to come into force on 1 April 2024. Please contact a member of our team if you have any queries about the draft Bill legislation or to discuss available options.