Background to the Australian financial services reforms for foreign financial service providers
In the Federal budget delivered on 11 May 2021, the Federal Government announced a U-turn in relation to the proposed cessation of the existing licensing exemptions for foreign financial service providers (FFSPs), declaring that the Federal Government:
- will consult on options to restore previously well-established regulatory exemptions from holding an Australian financial service licence (AFSL) for FFSPs who:
- are licensed and regulated in jurisdictions with comparable financial service rules and obligations, or
- have a limited connection to Australia,
and deal with wholesale clients, in order to reduce duplicate regulatory requirements; and
- will also consult on options to create a fast-track licensing process for FFSPs who wish to establish more permanent operations in Australia with the intention of shortening application timeframes and reducing barriers to entering the Australian market.
For more background, please refer to our article entitled Surprise licensing exemption developments for foreign financial service providers (FFSPs).
What has ASIC announced today?
Today, ASIC announced that it has:
- provided a welcome 12 month extension (from 31 March 2022 to 31 March 2023) to the passporting exemptions and limited connection exemption for FFSPs (under ASIC Corporations (Amendment) Instrument 2021/510);
- delayed the commencement of the new funds management exemption until 1 April 2023. For more information on the funds management exemption, please refer to our article entitled And Finally….The Foreign Financial Service Provider (FFSP) Licensing Reforms Are Confirmed; and
- paused its assessment of foreign AFSL applications lodged by FFSPs to date (unless the foreign AFSL applicant specifically requests otherwise), noting that it will consider:
- new applications for individual temporary licensing exemptions; and
- new standard or foreign AFSL applications,
from entities that cannot rely on the existing passporting exemptions or limited connection exemption,
pending any legislative changes arising from Treasury’s upcoming consultation.
What does ASIC’s announcement mean for FFSPs?
FFSPs that are currently providing financial services to wholesale clients in Australia in reliance on the passporting exemptions or limited connection exemption can continue to rely on those exemptions until 31 March 2023, provided that they have not already notified ASIC that they have ceased to rely on the passporting exemption, in which case they may wish to consider applying for an individual temporary licensing exemption or a licence.
This gives those FFSPs additional time to consider their options and to make a decision about next steps once Treasury’s upcoming consultation is complete.
FFSPs that have applied for a foreign AFSL will need to consider whether they want to specifically request that ASIC continues to process it.
We expect that FFSPs that were preparing to make a foreign AFSL application will not progress that workstream until the completion of Treasury’s upcoming consultation, so that they can make an informed decision about their next steps.
ASIC’s full media release can be accessed here.
What happens next?
We understand that Treasury will shortly be releasing its consultation paper on the options for restoring the passporting exemptions and limited connection exemption in permanent form (and what conditions and changes may apply to those exemptions).