Dentons

The Australian Securities and Investments Commission (ASIC) is proposing to repeal the conditional Australian financial services licence (AFSL) relief currently available to foreign financial services providers (FFSPs) providing financial services to wholesale clients in Australia, and replace that relief with a new ‘foreign AFSL’ regime.

In our view, the proposed foreign AFSL regime represents a major shift in ASIC policy and, if implemented, may have a significant impact on FFSPs looking to enter, or continue to participate in, the Australian market.

The consultation paper

On 1 June 2018, ASIC released Consultation Paper 301: Foreign financial services providers (CP 301), in which ASIC proposes to repeal:

  • ASIC Corporations (Repeal and Transitional) Instrument 2016/396 (Instrument 2016/396), which provides conditional “passport relief” to FFSPs that are subject to regulation in their home jurisdiction which is sufficiently equivalent to the Australian regulatory regime; and
  • ASIC Corporations (Foreign Financial Services Providers – Limited Connection) Instrument 2017/182 (Instrument 2017/182), which provides relief to certain FFSPs that do not carry on business in Australia (for example, because they do not a have a physical presence here),

and implement a modified AFSL regime for certain FFSPs providing financial services to wholesale clients in Australia.

Comments and submissions in response to CP 301 are due by 31 July 2018.

Proposal to repeal the relief

The existing relief was due to expire (or ‘sunset’) in September 2018.  ASIC proposes to extend the relief until 30 September 2019, at which time it will be repealed.  There will be a further 12 month transitional period to 30 September 2020 during which FFSPs can apply for their foreign AFSL.

ASIC has been reviewing the current relief framework since 2016.  It is now proposing to repeal the relief because it considers that the relief “no longer strikes the appropriate balance between cross-border investment facilitation, market integrity and investor protection” envisaged by ASIC when the relief was introduced in 2003 and 2004.  In particular, ASIC has raised the following concerns:

  • non-compliance with relief conditions by some FFSPs;
  • limitations on ASIC’s ability to adequately enforce overseas regulatory requirements and supervise the conduct of FFSPs in Australia;
  • ASIC’s relief appears to be broader than relief available in overseas jurisdictions to Australian financial services providers wishing to operate in those jurisdictions;
  • reform is required to ensure ASIC’s approach to FFSPs remains consistent with IOSCO’s recent guidance on minimising risks in wholesale markets.

The proposed foreign AFSL regime

Under a foreign AFSL, FFSPs would be:

  • required to comply with some, but not all, of the general obligations under s912A(1) of the Corporations Act, including obligations to:
    • act efficiently, honestly and fairly;
    • have adequate arrangements to manage conflicts of interest;
    • take reasonable steps to ensure that representatives comply with the financial services law; and
    • have adequate risk management arrangements;
  • exempt from the application of certain requirements under Chapter 7 of the Corporations Act where ASIC considers that the overseas regulatory regime achieves similar regulatory outcomes to the Corporations Act; and
  • subject to a number of other provisions along with other AFSL holders, including:
    • breach reporting requirements;
    • ASIC’s power to suspend or cancel an AFSL; and
    • ASIC’s surveillance and directions powers.

If ASIC decides to adopt the proposals in CP 301, it intends to issue specific guidance about the process for lodging applications for a foreign AFSL.

 

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