Treasury consults on proposed changes to FFSP licensing regime
13 July 2021
What you need to know
Licensing relief
- The CP consults on the following options for licensing relief:
- Option 1A – Restore Sufficient Equivalence Exemption and Limited Connection Exemption as they applied before they were repealed on 31 March 2020.
- Option 1B – Restore Sufficient Equivalence Exemption as it applied before it was repealed on 31 March 2020, and continue the Funds Management Exemption in place of the Limited Connection Exemption.
- Option 2 – Provide relief to "eligible FFSPs" providing certain financial services in relation to certain financial products to wholesale clients.
- Option 3 – Provide relief to "eligible FFSPs" covering all financial services and financial products.
- The exemptions proposed under Options 2 and 3 would only be available to FFSPs regulated in jurisdictions recognised by ASIC as being sufficiently equivalent under the foreign AFSL regime (which is a broader list of jurisdictions than what is recognised under the Sufficient Equivalence Exemption regime) and who were willing and able to comply with a number of conditions.
The CP also consults on whether FFSPs should be required to notify ASIC of their reliance on the relief, or apply to ASIC for approval to rely on the relief.
Further, the CP consults on the proposed ongoing conditions that should apply to an FFSP relying on the relief. Although a number of these proposed conditions are similar to those that apply under the Sufficient Equivalence Exemptions and previously proposed Foreign AFSL regime, other conditions proposed for consultation are new and include obligations relating to client money, training for representatives, not dealing with unauthorised or unlicensed entities, and providing periodical information to ASIC such as annual attestations and confirmations that financial services are only provided to wholesale clients or professional investors.
Under the proposed relief, ASIC would have the power to impose additional conditions on an FFSP and exclude the FFSP from relying on the relief in certain circumstances, including where the FFSP fails to comply with one of the conditions.
Finally, the CP seeks feedback as to whether ASIC should be provided with the ability to apply to the court for an injunction or negotiate an enforceable undertaking where there has been a breach of the ongoing conditions, and whether civil penalties should be attached to breaches to some or all of the ongoing conditions similar to those that apply to breaches of AFSL obligations.
Fast tracking the licensing process
- The CP consults in the following options for a potential "fast tracked" licensing process:
- Option 1 – Amend the law to provide ASIC with the discretion to determine whether a fit and proper person test is required for certain individuals (including officers of the applicant and officers of controllers of the applicant, but not including responsible managers). Where a fit and proper test is required, ASIC would have the discretion to rely on similar fit and proper assessments conducted by other regulators.
- Option 2 – Apply a modified licensing regime to FFSPs regulated by an overseas regulatory authority that is a signatory to the IOSCO multilateral MOU, and which provides financial services to wholesale clients in Australia. Such FFSPs would be exempt from some provisions relating to the licensing process or obligations under Chapter 7 of the Corporations Act. Conditions would be imposed on the FFSP, similar to some of those that apply to FFSPs relying on the Sufficient Equivalence Exemption (including notifying ASIC of significant investigations, enforcement or disciplinary action by an overseas regulator within 15 business days).
- Option 3 – Grant an AFSL to FFSPs that provide appropriate evidence to demonstrate that they are regulated by an overseas regulatory authority that is an IOSCO board member, holds an existing authorisation and is specifically authorised to provide the financial services intended to be provided in Australia, and will only provide financial services to wholesale clients in Australia. Conditions would be imposed on the FFSP, similar to some of those that apply to FFSPs relying on the Sufficient Equivalence Exemption (including notifying ASIC of significant investigations, enforcement or disciplinary action by an overseas regulator within 15 business days).
Licensing relief
The CP seeks feedback on the following options for FFSP licensing relief. We adopt the same numbering as set out in the CP.
| Option | Scope of relief |
Eligible entities |
|---|---|---|
|
1A Restore Sufficient Equivalence Exemption and Limited Connection Exemption |
Option 1A would restore the Sufficient Equivalence Exemption and Limited Connection Exemption as they applied before they were repealed on 31 March 2020 for eligible FFSPs. |
FFSPs regulated in Germany (by BaFin), Hong Kong (by the SFC), Luxembourg (by the CSSF), Singapore (by the MAS), UK (by the FCA) and US (by the CFTC, the Federal Reserve and the OCC, or the SEC). It would not be available to FFSPs regulated in the jurisdictions most recently recognised by ASIC under the foreign AFSL regime as being sufficiently equivalent (i.e. Denmark (by the FSA), France (by the AMF or the ACPR), Canada (by the OSC) and Sweden (by the FSA)), or any other jurisdiction. |
|
1B Restore Sufficient Equivalence Exemption only |
Option 1B would restore the Sufficient Equivalence Exemption as it applied before it was repealed on 31 March 2020, and continues the Funds Management Exemption in place of the Limited Connection Exemption for eligible FFSPs. |
|
|
2 Relief for certain financial services provided to wholesale clients |
Option 2 would provide relief to eligible FFSPs providing:
in relation to one or more of the following financial products:
to "wholesale clients" (as that term is defined in the Corporations Act). |
Offshore regulatory status Relief would potentially be available to FFSPs regulated in jurisdictions recognised by ASIC under the foreign AFSL regime as being sufficiently equivalent – i.e. Denmark (by the FSA), France (by the AMF or the ACPR), Germany (by BaFin), Hong Kong (by the SFC), Luxembourg (by the CSSF), Canada (by the OSC), Singapore (by the MAS), Sweden (by the FSA), UK (by the FCA), and the US (by the CFTC, the Federal Reserve and the OCC, or the SEC). Ongoing conditions The CP is seeking feedback on whether FFSPs should apply to ASIC to rely on the relief, or notify ASIC of their reliance on the relief. FFSPs would need to also comply with a number of ongoing conditions in order to rely on the relief. Some of the proposed conditions are similar to those under the Sufficient Equivalence Exemption – for example:
Other proposed conditions are similar to those that were proposed to apply to foreign licensees – for example:
Other proposed conditions do not fall into the above categories – for example:
Consequences of failing to comply with ongoing conditions If an FFSP fails to comply with the imposed conditions, ASIC may determine that further conditions can be imposed or that the FFSP is no longer eligible to rely on the relief. Consideration is also being given to providing ASIC with the ability to apply to the court for an junction or negotiate an enforceable undertaking with the FFSP, and attaching civil penalties to breaches to some or all conditions similar to those that apply to breaches of AFSL obligations. |
|
3 Relief for all financial services provided to wholesale clients |
Option 3 would provide relief to all financial services provided by eligible FFSPs to "wholesale clients". In other words, it differs from Option 2 because it would not be limited to prescriptive categories of financial products and services. |
Fast track licensing process
The CP also consults on three options to fast track the licensing process for FFSPs applying for a foreign or standard AFSL.
Option 1 proposes amending the law to provide ASIC with the discretion to determine whether a fit and proper test is required for every relevant person listed in section 913BA (including officers of the applicant, and officers of controllers of the applicant, but not including responsible managers). Where a fit and proper person test is conducted, ASIC will have the discretion to rely on similar assessments by other regulators rather than be required by law to form their own assessment.
Option 2 proposes modifying the licensing regime that would apply to FFSPs that provide financial services to wholesale clients in Australia and are regulated by an overseas regulatory authority that is a signatory to the IOSCO multilateral MOU. Under this option, FFSPs could be exempt from some provisions relating to the licensing process or obligations under Chapter 7 of the Corporations Act. The CP proposes imposing conditions on FFSPs under this modified licensing regime, many of which are similar to those currently imposed under the Sufficient Equivalence Exemption – including:
- the FFSP must carry on a business in the relevant foreign jurisdiction;
- the FFSP must requirement to appoint a local agent;
- the FFSP must reasonably believe it would not contravene any laws of its home jurisdiction relating to the provision of financial services;
- the FFSP must notify ASIC of certain matters within 15 business days, including significant investigation, enforcement or disciplinary action, changes to FFSP's authorisations in home jurisdiction, and significant exemptions or other relief that the FFSP obtains in home jurisdiction.
Option 3 proposes granting AFSLs to FFSPs that provide appropriate evidence to demonstrate that the FFSP is regulated by an overseas regulatory that is an IOSCO board member, holds an existing licence and is specifically authorised to provide the financial services intended to be provided in Australia, and will provide services to wholesale clients in Australia only. The FFSPs would be subject to all of the obligations that apply to the holder of a standard AFSL, as well as the additional conditions set out under Option 2 above.
Submissions on the CP
Submissions on the CP are due 30 July 2021. Ashurst will be preparing a submission in response to the CP.
For further details in relation to the CP, see here.
Authors: Jonathan Gordon, Partner; Corey McHattan, Partner; Lisa Simmons, Partner; Con Tzerefos, Partner; Nicky Thiyavutikan, Senior Associate; Cindy Lam, Associate.
