ASIC has released CP 301, a consultation paper which proposes a modified licensing regime (in place of the current FFSP relief available for FFSPs in certain jurisdictions) for foreign financial services providers carrying on a financial services business in Australia, with submissions due by 31 July 2018.
In 2003, ASIC issued class order relief that conditionally exempted FFSPs regulated by sufficiently equivalent regulatory regimes from the requirement to hold an AFS licence when providing financial services to wholesale clients. These class orders were temporarily extended until 27 September 2018 to allow ASIC to review the relief. After conducting a review of the relief granted to FFSPs, ASIC has identified supervisory and regulatory concerns about the current operation of the FFSP relief, as well as changes in international regulation which suggest that the policy reflected in the FFSP relief may no longer be appropriate. As a result, ASIC will extend the current FFSP relief for 12 months (until 30 September 2019) to allow time for industry to engage with the proposals in CP 301.
The key proposals put forward by ASIC within CP 301 to modify the licensing and relief regime for FFSPs are as follows:
- ASIC proposes to repeal the ‘sufficient equivalence’ relief on 30 September 2019, as well as any individual relief issued on similar terms;
- ASIC proposes to repeal the ‘limited connection’ relief on 30 September 2019, upon which FFSPs which are not covered by the FFSP relief have sought to rely to provide financial services from outside of Australia to wholesale clients in Australia;
- ASIC proposes to implement a modified Australian Financial Services (AFS) licensing regime for FFSPs in the “sufficiently equivalent” jurisdictions (and under which FFSPs not from a sufficiently equivalent jurisdiction can apply for sufficient equivalence and, if eligible, a foreign AFS licence), to enable them to apply for and maintain a modified form of foreign AFS licence during a 12 month transitional period until 30 September 2020, to comply with the requirements of the modified AFS licensing regime (see paragraph (4)); and
- the modified AFS licensing regime would impose a number, but not all, of the requirements imposed on the holder of an AFS licence (including the obligation to ensure financial services are provided honestly, efficiently and fairly; acceptable conflicts of interest arrangements; adequate risk management systems; breach reporting and the obligation to comply with certain Australian financial services laws).
The introduction of foreign AFS licences will impose significant compliance costs on FFSPs. The costs associated with an application for an AFS licence can often be in excess of A$50,000, and this does not include the ongoing compliance costs. This is particularly problematic because providers of financial services who induce persons to use their services are covered by our licensing regime, even where the services are provided entirely from outside of Australia. This means FFSPs will be required to make significant upfront investment before they know whether they will be appointed by any Australian based clients.
The introduction of foreign AFS licences will also impose significant time delays on entry into the Australian market for FFSPs. At present, the time frame for processing a licence application can be up to 12 months. In this regard, we also consider the current proposed transition period of 12 months is unlikely to be sufficient, and should be lengthened to at least 24 months to provide sufficient time for FFSPs to obtain an AFS licence once ASIC has implemented the regulatory framework.
Consideration also needs to be given to grandfathering FFSPs who have been engaged to provide financial services to a small number of Australian wholesale clients and whose circumstances do not warrant the additional costs of obtaining a licence.
Whilst certain licensing obligations will not apply to FFSPs where there is a sufficient equivalent obligation in their home jurisdiction, many conduct obligations will still apply. FFSPs will need to implement compliance measures to meet these obligations.
ASIC has requested comments on the proposals within CP 301 by 31 July 2018, with a view to understanding the likely compliance costs, effects on competition and financial impact that they will have on FFSPs. We note that the proposals laid out above and presented within CP 301 are merely an indication of the approach ASIC may take and ASIC has indicated that it is open to considering alternative approaches.
Please contact us if you would like more information on ASICs proposed foreign AFS licensing regime, or if you would like assistance in making a submission or are happy to provide information to support our submission.
2019 guide to Foreign Private Issuer status
A company organized outside the US subject to provisions of the US federal securities laws receives benefits if it qualifies as an FPI.