Foreign financial service providers – a step closer to greater certainty

In September 2018 these legislative instruments were either repealed or due to lapse, but the relief was extended under transitional arrangements implemented by ASIC in anticipation of the foreign financial services licensing regime, which was introduced in April 2020. In May 2021 Treasury announced a consultation on the regulatory relief available to FFSPs who are licensed and regulated in jurisdictions with comparable financial service rules and obligations or have a limited connection to Australia. 

Following consultation earlier this year, the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Bill) was recently tabled in the Australian Parliament. If passed, four AFS licencing exemptions that facilitate the provision of cross border financial services by FFSPs to wholesale clients will come into effect from 1 April 2025. We consider each of these below.

Transitional arrangements

ASIC has also extended the passporting and limited connection transitional relief until 31 March 2025. The transitional passporting relief is only available to FFSPs that have relied on the relief since 31 March 2020. All other FFSPs wanting to rely on sufficient equivalence relief must apply to ASIC for equivalent relief.

Professional investor exemption

The proposed professional investor exemption replaces the existing professional investor AFS licencing exemption that applies to a limited number of financial products. This new exemption is applicable to all financial services provided only to professional investors and is available where:

• the financial service is provided from outside this jurisdiction by an FFSP or by a representative of the FFSP during limited marketing visits to Australia;
• the FFSP’s head office and principal place of business are located outside Australia;
• the FFSP reasonably believes providing the same financial services would not contravene any law applying in any jurisdiction in which the FFSP’s head office or principal place of business, or the provider of the financial service, is located; and
• the FFSP has notified ASIC that it will be relying on this exemption.

To qualify as a limited marketing visit, none of the FFSP’s representatives can provide financial services in this jurisdiction for more than 28 days in any financial year. This limit does not include any days during which the representative is not engaging in such activities and is specific to the representative rather than the FFSP. Accordingly, the FFSP can conduct marketing activities in this jurisdiction for more than 28 days, provided those activities are undertaken by representatives that each individually do not exceed the 28 day limit.

FFSPs relying on this exemption are also subject to several conditions which did not apply to the existing exemption and require them to:

• provide the relevant financial services efficiently, honestly and fairly;
• submit to the non-exclusive jurisdiction of the Australian courts;
• comply with ASIC’s requests for reasonable assistance and information related to the FFSP’s provision of financial services or its financial services business;
• notify ASIC of any changes to the FFSP’s contact details; and
• notify each person receiving financial services that the FFSP is exempt under the exemption from the requirement to hold an AFS licence.

Comparable regulator exemption

The proposed comparable regulator exemption will replace the existing passporting relief, and permits eligible FFSPs to provide financial services to wholesale clients without an AFS licence. Only foreign companies and partnerships that are authorised to provide financial services by the regulator of a regulatory regime the Minister recognises as comparable to our own are eligible to rely on this exemption. It is expected that the following regulators will be recognised in this way:

• US Securities and Exchange Commission;
• US Federal Reserve and Office of the Comptroller of the Currency;
• US Commodity Futures Trading Commission;
• Monetary Authority of Singapore;
• Hong Kong Securities and Futures Commission;
• Bundesanstalt für Finanzdienstleistungsaufsicht of Germany;
• Luxembourg Commission de Surveillance du Secteur Financier;
• UK Financial Conduct Authority or Prudential Regulatory Authority;
• Danish Financial Supervisory Authority;
• Sweden’s Finansinspektionen;
• Autorité des Marches Financiers of France;
• Autorité de contrôle prudentiel et de resolution of France; and
• Ontario Securities Commission.

The exemption only applies to eligible FFSPs providing financial services covered by an authorisation from the comparable regulator either from within Australia or a jurisdiction regulated by the comparable regulator.

In addition to the conditions applicable to the professional investor exemption, FFSP’s relying on this exemption must:

• consent to the sharing of information between ASIC and the relevant comparable regulator;
• notify ASIC of significant actions taken against the FFSP by a regulatory, government authority or financial market operator; and
• have an agent in Australia.

These obligations are similar to the conditions imposed under the passporting relief.

Market maker exemption

The market maker exemption permits FFSPs to make a market outside Australia for wholesale clients in relation to derivatives able to be traded on a prescribed financial market in any jurisdiction without holding an AFS licence. FFSP’s can rely on the relief if:

• the FFSP’s head office, principal place of business and the location from which the service is provided are all provided from outside Australia;
• the FFSP reasonably believes that providing the same or substantially the same financial service would not contravene any law applying in the jurisdictions the FFSP’s head office or principal place of business or provider of the service is located; and
• the FFSP notifies ASIC that it intends to rely on this exemption to provide the financial service.

Like the other exemptions above, an FFSPs relying on this exemption is subject to the same obligations as those relying on the professional investor exemption, other than the requirement to notify clients that it is relying on this exemption.

Fit and proper person test exemption

Foreign companies and partnerships that are authorised to provide financial services by a comparable regulator are also exempt from the requirement to satisfy the fit and proper person test that applies when applying for, or to vary, an AFS licence. The exemption applies to applications relating to AFS licences that only authorise the provision of financial services to wholesale clients that are covered by an authorisation from the comparable regulator. Fit and proper persons include the applicant, its controllers and their officers (or senior managers if it is a partnership). Obtaining the documentation to demonstrate a foreign person is a fit and proper person can be difficult and time consuming and includes obtaining bankruptcy checks and criminal history checks.

Where to from here?

Legislative reform to the FFSP regime has been somewhat tortured, with repeated extensions of existing relief required to enable business to continue. If passed into law, the Bill will provide much needed certainty and stability for FFSPs wishing to engage in business with Australian investors.

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