Did You Know…

Transitional relief for foreign financial service providers has been extended

On 11 May 2021, the Government handed down the Federal Budget for 2021-22, which explored several options in ensuring Australia’s recovery from the COVID-19 pandemic.  One of these pathways includes a promise to consult on options to “restore previously well-established regulatory relief for foreign financial service providers”,[1] to encourage global investment in Australia.  As a result, on 11 June 2021, the Australian Investments and Securities Commission (ASIC) announced an extension of the transitional period of relief currently in effect for foreign financial service providers (FFSPs) for a further 12 months, set to expire 31 March 2023.

In March 2020, ASIC announced that two forms of licensing relief available to FFSPs were being repealed:[2]

• ‘Sufficient Equivalence Relief’ (also known as ‘Passport Relief’) – that is, FFSPs which provide financial services to wholesale clients and are regulated by a regulatory regime outside of Australia, that is sufficiently equivalent to the Australian regulatory framework; and
• ‘Limited Connection Relief’ – where a FFSP is not carrying on business in Australia, however, is deemed to be carrying on a financial services business within Australia merely as it engages (or intends to) in encouraging persons in Australia to use its financial services, providing financial services only to wholesale clients in Australia.

At the time, ASIC also announced that from 1 April 2022, Sufficient Equivalence and Limited Connection relief would be replaced with a new regime:

• ‘foreign Australian financial services licence’ regime – a new regulatory framework, introduced 1 April 2020, for FFSPs that would have previously relied on the ‘Sufficient Equivalence Relief’; and
• ‘Funds Management Financial Services’ relief – a new form of relief for FFSPs that might otherwise have relied on Limited Connection Relief, commencing 1 April 2022.

FFSPs relying on Sufficient Equivalence or Limited Connection relief were given two years to transition and obtain the requisite licences and exemptions (until 31 March 2022)

However, following the 2021-22 Budget, FFSPs relying on Sufficient Equivalence or Limited Connection relief can continue to rely on that relief until 31 March 2023, by which time they must either have a Foreign AFSL or qualify for Funds Management Financial Services relief.  The Government is also contemplating a “fast-track” licensing process for FFSPs considering more permanent operations within Australia, which would decrease application timeframes and “reduce barriers to entering the Australian market”.[3]

It is important to note that ASIC has in most cases ceased evaluating Foreign AFSL applications, subject to any legislative changes or other further announcements following the Government’s consultation.  ASIC will also consider applications for temporary relief for foreign providers that do not benefit from the transitional relief.  This includes FFSPs that hold a foreign licence but wish to operate in Australia.

This guide is intended to be a general overview, not a comprehensive summary or advice that is specific to your circumstances.

[1] The Commonwealth of Australia, Budget Paper No.2, Budget Measure 2021-22 (11 May 2021) 190 <https://budget.gov.au/2021-22/content/bp2/download/bp2_2021-22.pdf>.

[2] Australian Securities and Investments Commission, Foreign financial service providers: Practical guidance on transitional arrangements (Web Page, 13 March 2020) <https://asic.gov.au/for-finance-professionals/afs-licensees/applying-for-and-managing-an-afs-licence/licensing-certain-service-providers/foreign-financial-services-providers-practical-guidance-on-transitional-arrangements/>.

[3] The Commonwealth of Australia, Budget Paper No.2, Budget Measure 2021-22 (11 May 2021) 190 <https://budget.gov.au/2021-22/content/bp2/download/bp2_2021-22.pdf>.

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