New ASIC Regulatory Framework for FFSPs

New ASIC Regulatory Framework for FFSPs

The Australian Securities & Investment Commission (ASIC) has released its new regulatory framework for foreign financial services providers (FFSPs) supplying financial services to wholesale clients in Australia.

Summary of Changes
To date, there have been two forms of licensing relief 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 (currently, 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.

ASIC has replaced these with:

* a new Foreign AFS licensing regime (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 (Funds Management Relief) (principally for certain FFSPs that would otherwise have relied on the ‘Limited Connection Relief’).

Details can be found in ASIC’s Regulatory Guide 176 Foreign financial Services Providers (RG 176).

Timeframes
The current ‘Sufficient Equivalence Relief’ will be repealed on 31 March 2020, subject to a transitional period until 31 March 2022 for FFSPs relying on the relief on 31 March 2020. The current ‘Limited Connection Relief’ will be repealed on 31 March 2022.

The new Foreign Australian Financial Services (AFS) licensing regime will begin on 1 April 2020 for eligible FFSPs that are able to satisfy a sufficient equivalence test.

The new ‘Funds Management Relief’ will take effect on 1 April 2022. This will provide a limited form of licensing relief for FFSPs that provide ‘funds management financial services’ to a subset of professional investors in Australia known as ‘eligible Australian users’.

Action
FFSPs should read through all aspects of the new regulatory framework, including RG 176 and details of the new Funds Management Relief, in great detail.

For some, this may require significant re-engineering of current in house processes and provisions.

Relevant staff, including Executives and Board members, will need to be trained. Policies, procedures and legal instruments may need to be refined.