ASIC Announces New Foreign Financial Services Regulation in Australia

The Australian Securities & Investments Commission (ASIC) has announced a new regulation for foreign financial service providers (FFSP) in Australia. There is a two-year transition period for this new framework.

10 March, 2020 | AtoZ Markets – ASIC has published new regulations for Foreign Financial Service Providers (FFSPs) serving wholesale customers in Australia. The new regulatory framework was developed following extensive consultations with the industry and foreign regulators. The details of the new framework contained in the update of ASIC regulatory guide 176 entitled “Foreign financial services providers” (RG 176).

The new framework has two key elements:

  1. A new Australian Foreign Financial Services (AFS) licensing regime for FFSPs, and
  2. The granting of licenses to providers of financial fund management services that seek to attract certain types of professional investors.

Two Year Transition Period for New Framework

Foreign providers who are currently relying on a pre-existing exemption will have a two-year transition period, until March 31, 2022. They have to make arrangements to continue their operations in Australia, which may include applying for a foreign AFS license. Cathie Armour, ASIC Commissioner, noted:

Our new regulatory framework facilitates Australian wholesalers’ access to foreign investment opportunities. It also preserves market integrity against misconduct in the wholesale markets and strengthens ASIC’s capacity to take effective regulatory and surveillance.

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Our ability to effectively oversee all participants in the Australian market is crucial for confident investor participation.

As of April 1, 2020, new foreign providers will be able to apply for a foreign AFS license to provide financial services in Australia to wholesale customers. The foreign provider must be authorized under a foreign regulatory regime to be eligible, that ASIC has deemed sufficiently equivalent to the Australian regulatory regime.

In general, you must hold an AFS license to exercise a financial services activity in Australia. Since 2003, ASIC has granted two types of license relief to foreign wholesale financial services providers in Australia:

  • Sufficient equivalence relief, and
  • Limited connection relief.

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Foreign AFS Licensing Regime

An FFSP holding a foreign AFS license will be exempted from certain obligations that apply to AFS license holders, such as financial requirements. ASIC also recognizes that an equivalent overseas requirement will achieve regulatory oversight and similar results. The exemption granted to foreign AFS license holders is subject to several conditions, such as:

  • The foreign holder of an AFS license must exercise activity in the foreign jurisdiction concerned. This condition aims to guarantee that the holder of the license is subject to foreign regulatory oversight in this jurisdiction;
  • Unless the foreign holder of an AFS license is a company, it must have an agent appointed at the time. It must not fail to have an agent for a consecutive period of 10 working days;
  • The foreign holder of an AFS license must reasonably believe that it would not contravene any law of its jurisdiction of origin.

Funding license relief will begin on April 1, 2022. Moreover, the relief is available to foreign providers who encourage certain types of professional Australian investors to use the financial management services they provide. 

This incentive does not require a license. Incentives include attempts to persuade, influence or encourage a particular person to become a customer, for example, mass marketing campaigns. However, foreign providers should consider whether they need to have a license to provide financial services effectively.

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