INSIGHT

Less than one year before the new foreign financial services providers regime begins

By Penny Nikoloudis, Jo Ottaway, Mai Go
Financial Services Funds

Key dates and critical steps for FFSPs 4 min read

In our last Insight we discussed the new foreign financial services regime introduced by the Australian Securities and Investments Commission (ASIC) and how the changes will affect foreign financial service providers (FFSPs).

Since then, the Sufficient Equivalence Relief has been repealed (subject to a transition period), the foreign Australian financial services (AFS) licensing regime has begun and we are less than one year away from the repeal of the Limited Connection Relief and the end of the transition period for Sufficient Equivalence Relief.

The new FFSP regime is well and truly at our doorstep and so, if you've not already done so, it's time for FFSPs to think about what your options are and what actions need to be taken to be ready for the new regime.

Summary of changes to existing FFSP regime

The key changes to the existing FFSP regime are the repeal of the following two forms of licensing relief that are currently available to FFSPs:

  • 'Sufficient Equivalence Relief', which applies where an FFSP provides certain financial services to wholesale clients only, and is regulated by an overseas regulatory regime that is sufficiently equivalent to the Australian regulatory regime (at present, the UK, the USA, Singapore, Hong Kong, Germany and Luxembourg); and
  • 'Limited Connection Relief', which applies where an FFSP is not carrying on business in Australia under the ordinary tests, but is deemed to be carrying on a financial services business in Australia only because it 'engages in inducing, or intending to induce, a person in Australia to use its financial services', and provides financial services only to wholesale clients in Australia.

These two forms of relief are to be replaced with:

  • a new Foreign AFS licensing regime that was introduced on 1 April 2020 (principally for FFSPs that would otherwise have relied on the 'Sufficient Equivalence Relief'); and
  • a new form of relief known as 'Funds Management Financial Services' relief to begin on 1 April 2022 (Funds Management Relief) (principally for certain FFSPs that would otherwise have relied on the 'Limited Connection Relief').

Please see our last Insight for more detail on those changes.

The key upcoming dates for transitioning to the new FFSP regime are shown below.

What are the options available to FFSPs?

If you are an FFSP… You should…

…that is relying on Sufficient Equivalence Relief

…continue relying on Sufficient Equivalence Relief up until 31 March 2022 while you determine whether to:

  • apply for a Foreign AFS Licence;
  • apply for a standard AFS Licence (if, for any reason, you do not qualify for a Foreign AFS Licence);
  • rely on any other licensing exemption under the Corporations Act or associated regulations or other relief (such as the Funds Management Relief from 1 April 2022, or relying on a local AFS licensee to facilitate the provision of cross-border services); or
  • cease to provide financial services in Australia.

…that is relying on Limited Connection Relief

…continue relying on Limited Connection Relief up until 31 March 2022 while you determine whether to:

  • rely on the Funds Management Relief (if eligible) from 1 April 2022, or any other licensing exemption under the Corporations Act or associated regulations (eg relying on a local AFS licensee to facilitate the provision of cross-border services), or other relief (if applicable);
  • apply for a Foreign AFS Licence (if eligible);
  • apply for a standard AFS Licence; or
  • cease to provide financial services in Australia.

…that wishes to provide financial services to wholesale investors in Australia and is not currently relying on either of the above forms of relief

  • consider whether you are eligible to rely on Limited Connection Relief (until 31 March 2022), or any other licensing exemption under the Corporations Act or associated regulations (eg relying on a local AFS licensee to facilitate the provision of cross-border services), or other relief (if applicable);
  • apply for a Foreign AFS Licence (if eligible); or
  • apply for a standard AFS Licence.

…that already holds a standard AFS Licence or has been appointed as an authorised representative of an AFS Licensee

  • no action required.

Is it too late to apply for a Foreign AFS Licence?

No, it's not too late for a FFSP to apply for a Foreign AFS Licence, but we highly recommend that you start the process now. Notwithstanding the streamlined application process, it can take several months to prepare the application and the accompanying 'proof' documents, and once submitted, ASIC is likely to take a minimum 6-8 months to review and approve Foreign AFS Licence applications.

If you would like to discuss your options or any other issues raised in this Alert, please contact any of the people below.