AFSL exemptions for foreign financial services providers

The new professional investor exemption provides an exemption from the requirement to hold an AFSL for FFSPs that comply with the following:

• provide financial services from outside Australia (except during limited marketing visits);

• only provide financial services to professional investors, being a subset of wholesale clients under the the Corporations Act 2001 (Cth) (Corporations Act );

• the financial service does not involve a dealing in certain financial products tradeable on certain licensed markets;

• the FFSP’s head office and principal place of business are located at one or more places outside Australia;

• the FFSP reasonably believes that providing the same or substantially the same financial service would not contravene any law applying in the FFSP’s principal place of business, head office or the place from where the financial services are provided; and

• certain other conditions such as the requirement to do all things necessary to ensure that financial services are provided efficiently, honestly, and fairly (see below table).

This exemption is intended to replace the current exemption relevant to professional investors under s911A(2E) of the Corporations Act.

The consultation proposes an exception to the requirement that the financial service be provided from a place outside Australia where the financial service is provided by a representative of the FFSP during one or more limited marketing visits. Representatives are employees, directors, employees or directors of related bodies corporate or any other person acting on behalf of the FFSP. For the purposes of this exception, the total length of marketing visits that the FFSP may make in any financial year is no more than 28 calendar days. This includes public holidays and weekends. Marketing visits are not required to be undertaken in a single visit or by a single representative of the FFSP however the 28 day limit for marketing visits includes each full or partial day on which the representative is in Australia, whether or not a financial service is provided on that day.

The comparable regulator exemption provides an exemption from the AFSL requirement for foreign companies and partnerships formed offshore that provide financial services to wholesale clients and are authorised, registered or licensed (as necessary) by a comparable regulator to legally provide the same or substantially the same financial service in a comparable jurisdiction. A financial service provided under the comparable regulator exemption may be provided from within Australia or from the comparable jurisdiction. For example, an FFSP providing a financial service for which the comparable regulator is the United Kingdom Financial Conduct Authority, the FFSP may only provide that financial service from the United Kingdom or from Australia.

FFSPs seeking to rely on the comparable regulator exemption must comply with certain conditions including the following:

• consent to information sharing between ASIC and each comparable regulator;

• notify ASIC of any significant enforcement action, disciplinary action or investigation undertaken against the FFSP by any regulator, government authority, or relevant financial market operator in any place outside Australia;

• have an agent in Australia;

• maintain adequate oversight over its representatives and take reasonable steps to ensure that its representatives are adequately trained and competent to provide the financial services; and

• a requirement to do all things necessary to ensure that financial services are provided efficiently, honestly, and fairly (see below table).

The comparable regulator exemption is designed to replace the current sufficient equivalence / passport relief regime. There is no list of comparable jurisdictions however the consultation paper notes that the Minister who is responsible for determining comparable jurisdictions must have regard to the following (among other matters):

• whether the regulatory regime is clear, transparent, certain, and adequately enforced;

• whether the regulatory regime is broadly consistent with the Objectives and Principles of Securities Regulation, developed by the International Organization of Securities Commissions;

• whether the regulator is either a signatory to the Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information, developed by the International Organization of Securities Commissions or is otherwise a party to any other effective cooperation arrangement with ASIC; and

• advice from ASIC.

The market maker exemption provides an exemption from the requirement to hold an Australian financial services licence for an FFSP making a market for derivatives in the following circumstances:

• the FFSP is making a market for derivatives that are able to be traded on a licensed market that is prescribed by the regulations;

• the FFSP provides the financial service from outside Australia and the FFSP’s head office and principal place of business are located at one or more places outside this jurisdiction; and

• the FFSP reasonably believes that providing the same or substantially the same financial service would not contravene any law applying in any of the places referred to in the above dot points (being the place where the FFSP’s head office and principal place of business is located or location where the FFSP provides the financial service).

An FFSP that uses the market maker exemption must comply with certain other conditions such as the requirement to do all things necessary to ensure that financial services are provided efficiently, honestly, and fairly (see below table).

The consultation paper notes that this exemption is intended to apply to exchange traded futures.

This option isn’t a licensing exemption but simplifies the AFSL application process for certain FFSPs by reducing associated administrative burden. Currently, all AFSL applicants must satisfy the ‘fit and proper’ person test under s 913A of the Corporations Act and this is typically evidenced by providing criminal history and bankruptcy checks for each fit and proper person (eg, officers of the applicant and all controllers). However, under this exemption, certain FFSPs do not need to comply with this requirement when making an application for an AFSL or the imposition, variation or revocation of conditions on an existing AFSL.

The conditions for such FFSPs are:

• only providing financial services to wholesale clients;

• being a foreign company or partnership formed outside Australia; and

• being regulated by a comparable regulator. It is expected that the list of comparable regulators will include the following (being the list of regulatory authorities specified in the ASIC Corporations (Foreign Financial Services Providers—Foreign AFS Licensees) Instrument 2020/198:

  • US Securities and Exchange Commission (US SEC);

  • US Federal Reserve and Office of the Comptroller of the Currency (OCC);

  • US Commodity Futures Trading Commission (US CFTC);

  • Monetary Authority of Singapore (Singapore MAS);

  • Hong Kong Securities and Futures Commission (Hong Kong SFC);

  • Bundesanstalt fr Finanzdienstleistungsaufsicht of Germany (German BaFin);

  • Luxembourg Commission de Surveillance du Secteur Financier (CSSF);

  • UK Financial Conduct Authority or Prudential Regulatory Authority (UK FCA or PRA);

  • Danish Financial Supervisory Authority (Danish FSA);

  • Finansinspektionen (Swedish FI);

  • Autorit des Marches Financiers of France (French AMF);

  • Autorit de contrle prudentiel et de resolution of France (French ACPR); and

  • Ontario Securities Commission (Ontario OSC).