ASIC extends by a further year licensing relief for foreign financial service providers

In brief

The recent ASIC Corporations (Amendment) Instrument 2018/807 extends by a further year licensing relief for foreign financial service providers who carry on a financial services business in Australia without an Australian financial services licence. While it's another welcome licensing reprieve for such providers, it is likely to be short lived, as ASIC continues to consult on its proposals in Consultation Paper 301. Partner Penny Nikoloudis, Financial Services Counsel Jo Ottaway and Lawyer Tom Lawson report.

Extension of relief

On Friday 21 September 2018, ASIC released ASIC Corporations (Amendment) Instrument 2018/807 (Instrument 2018/807), which extends existing relief for foreign financial service providers (FFSPs) to carry on a financial services business in Australia without an Australian financial services (AFS) licence until 30 September 2019.¹ 

More specifically, Instrument 2018/807 extends the licensing relief available under the following ASIC instruments, which were due to expire towards the end of September 2018:

• ASIC Corporations (Repeal and Transitional) Instrument 2016/396;
• ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109; and
• ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 (previously known as Class Order 03/824).

The extension of this relief was foreshadowed in Consultation Paper 301 (CP 301), and aims to give ASIC time to continue its consultation in relation to the proposals advanced in that paper (see further below).²

Background

Under the AFS licensing regime, if a person carries on a 'financial services business' in Australia, they must hold an AFS licence unless a relevant licensing exemption applies.

To date, there have been two principal avenues of licensing relief for FFSPs from the requirement to hold an AFS licence. Namely:

• '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 (Sufficient Equivalence Relief); and
• 'limited connection relief', which provides an exemption for an FFSP that is 'only engaged in inducing, or intending to induce, a person in Australia to use its financial services' (Limited Connection Relief).³

The Sufficient Equivalence Relief was originally contained in seven ASIC Class Orders:

• [CO 03/1099] UK regulated financial service providers;
• [CO 03/1100] US SEC regulated financial service providers;
• [CO 03/1101] US Federal Reserve and OCC regulated financial service providers;
• [CO 03/1102] Singapore MAS regulated financial service providers;
• [CO 03/1103] Hong Kong SFC regulated financial service providers;
• [CO 04/829] US CFTC regulated financial services providers; and
• [CO 04/1313] German BaFin regulated financial service providers.

These Sufficient Equivalence Class Orders were repealed in September 2016; however, the relief provided under them was temporarily extended to 27 September 2018 under ASIC Corporations (Repeal and Transitional) Instrument 2016/396 (see Client Update: Passporting relief threatened in ASIC Class Order repeal for details.⁴

In November 2016, ASIC passed ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109, which extended Sufficient Equivalence Relief until 28 September 2018 for FFSPs regulated in Luxembourg.

The Limited Connection Relief was originally contained in ASIC Class Order [CO 03/824] Licensing relief for financial services providers with limited connection to Australia dealing with wholesale clients (CO 03/824). CO 03/824 has also been repealed, but the relief provided under it was extended to 27 September 2018 under ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 following industry consultation.⁵

Update on CP 301

ASIC recently announced in CP 301 its intention to curtail Sufficient Equivalence and Limited Connection relief, with the imposition of a 'modified' AFS licensing regime for FFSPs. Please see Client Update: ASIC overhauls AFS licensing relief for foreign financial service providers for details.

Submissions on CP 301 closed on 31 July 2018. ASIC received a total of 36 submissions (including one from Allens) in relation to the proposals.⁶ ASIC has indicated in the media release accompanying Instrument 2018/807 (Media Release) that it is in the process of reviewing the submissions and that ASIC 'anticipate[s] engaging over the next few months with industry participants about their responses to our proposals in CP 301.'⁷

Unfortunately, ASIC has yet to give an indication of when it will release details of its final policy position regarding the regulation of FFSPs. As detailed in CP 301, the Media Release highlights that a further 12-month transition period is proposed until 30 September 2020 'if ASIC proceeds with the modified licensing regime'.⁸

Given the amount of work involved in applying for an AFS licence (which can take several months), and the fact that ASIC is currently taking between 9-12 months to approve AFS licence applications, we can only hope that ASIC will release details of its final policy position sooner, rather than later, and ideally by the end of this year.⁹