Client Update: Passporting relief threatened in ASIC Class Order repeal
29 September 2016
In brief: Foreign financial services providers relying on passporting a foreign licence to provide their services in Australia will find their regulatory relief could be expiring in two years – and has become subject to a new condition – following ASIC's actions to repeal the ASIC Class Orders which give effect to Australia's passporting relief regime1.
Other foreign financial services providers with very limited and infrequent activities in Australia who rely upon ASIC Class Order [03/824] (CO 03/824) to provide financial services in Australia without a licence may find their relief repealed sooner – with ASIC undertaking a round of public consultation on CO 03/824's future. Partner Penny Nikoloudis (view CV), and Associate Jonathan Gardner discuss the implications and the option for clients to contribute to a submission.
Who is affected?
This action will impact foreign licence holders from the US, UK, Singapore, Hong Kong and Germany who rely on passporting relief to avoid the need to hold an Australian Financial Services Licence (AFSL) as each of the existing 'passporting' class orders which foreign financial services providers rely upon have been repealed by instrument ASIC Corporations (Repeal and Transitional) Instrument 2016/396, effective 28 September 2016.
The existing class orders and their conditions on relief are continued by the instrument for two years from 28 September 2016. However, a new condition is imposed that a person 'complies with any written notice given by ASIC directing the person to give to ASIC, within the time specified in the notice, a written statement containing specified information about the financial service business operated by the person in this jurisdiction'. This new power will presumably use this new information gathering tool as a way to compel information to assess compliance with the relief, with ASIC noting in a related consultation paper (discussed below) it has 'recent evidence of non-compliance with our relief for FFSPs'.
Significantly, now that ASIC has provided this transitional relief, ASIC must take proactive steps to implement a new passporting regime – otherwise industry may find it can no longer rely on existing passporting relief. In a related consultation paper (discussed below) ASIC has announced it plans to undertake an extensive review of its relief for financial services providers to determine whether this relief should continue long-term. ASIC intends that its review will occur between October and December 2017, before releasing a detailed consultation paper on remaking its passporting relief in January 2018.
CO 03/824 consultation
ASIC has also released CP 268 Licensing relief for foreign financial services providers with a limited connection to Australia (CP 268), containing ASIC's intention to repeal CO 03/824. The purpose of this consultation is to determine whether replacement relief is needed, or if case-by-case exemptions combined with other licensing exemptions will apply instead. We anticipate many foreign financial services providers currently relying on CO 03/824 will be unable to find a suitable exemption – and will, accordingly, need to explore passporting a foreign licence (if this regime continues or the provider operates in one of the recognised jurisdictions) or to obtain an AFSL in their own right.
Allens will be preparing a submission to the current consultation under CP 268 highlighting the significant benefits our clients derive from this regulatory relief and why it should be continued. We encourage all industry participants to make a submission to this important consultation, with the consultation period closing on 2 December 2016. Unless it is remade, CO 03/824 will expire on 1 April 2017.
If you have any queries about how these changes impact your business or would like to contribute to our submission, please contact one of the authors.
- The relevant class orders are:
ASIC Class Order [CO 03/1099] UK regulated financial service providers;
ASIC Class Order [CO 03/1100] US SEC regulated financial service providers;
ASIC Class Order [CO 03/1101] US Federal Reserve and OCC regulated financial service providers;
ASIC Class Order [CO 03/1102] Singapore MAS regulated financial service providers;
ASIC Class Order [CO 03/1103] Hong Kong SFC regulated financial service providers;
ASIC Class Order [CO 04/829] US CFTC regulated entities; and
ASIC Class Order [CO 04/1313] German BaFin regulated financial service providers.
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