28 September 2016

ASIC makes key announcements concerning licence exemptions for foreign financial service providers

This article was written by Jim Boynton, Damien Richard and Kenneth Tam.

Today ASIC has made key announcements for foreign financial service providers (FFSPs) who rely on Australian financial services licence exemptions when providing financial services to wholesale clients in Australia. FFSPs who are regulated by approved foreign regulators and rely on a Class Order “passport” exemption have had their exemptions temporarily extended for 2 years. ASIC has announced a review of those exemptions during the temporary extension. ASIC has also announced consultation on the proposed repeal of Class Order [CO 03/824], an important exemption for FFSPs with a limited connection to Australia.

FFSPs that rely on their own individual passport licence exemptions should check how the repeal of the Class Orders, and continuation of the exemptions for 2 years, impacts on their own exemption. FFSPs that rely on relief under Class Order [CO 03/824] should consider the impact of ASIC’s proposed repeal of [CO 03/824], and the availability of alternative exemptions.

Access the ASIC media release (16-328MR) and related ASIC instrument and Consultation Paper here.

“Passport” Class Order licence exemptions – 2 year extension

Once implemented by lodging documentation with ASIC, the “passport” Class Orders listed below provided conditional licence exemptions to FFSPs that are regulated by approved foreign regulators, when providing certain financial services to wholesale clients in Australia.

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

The Class Order exemptions were due to sunset (expire) in October 2016 or April 2017. ASIC has now issued ASIC Corporations (Repeal and Transitional) Instrument 2016/396, which repeals the Class Orders and at the same time extends the effect of the exemptions for a 2 year period, to 1 October 2018.

While the exemption conditions in the Class Orders will continue to apply during the 2 year extension, ASIC has introduced an additional condition which contains a broader information gathering power. ASIC can require an FFSP to provide a written statement with specified information about “the financial services business operated by the [FFSP] in [Australia]”.

ASIC has confirmed that FFSPs relying on a Class Order before its repeal will not need to lodge new implementation documents with ASIC in order to be covered by the 2 year extension.

FFSPs previously relying on the Class Orders should check if references to the Class Orders in their client disclosure or other documents need to be updated to reflect the new exemption arrangements. Further, some FFSPs that rely on their own individual passport licence exemptions should check how the repeal of the Class Orders, and continuation of the exemptions for 2 years, impacts on their own individual exemption. This is especially the case for individual exemptions that cross-refer to a now repealed Class Order.

ASIC has temporarily extended the exemptions to allow it to consider whether its current relief settings should continue on a long-term basis. The review will consider:

  • in light of recent evidence of non-compliance by FFSPs, the extent to which the current relief settings allow ASIC to effectively monitor FFSPs and take regulatory action for non-compliance; and
  • the impact of increased regulatory focus on wholesale cross-border markets since the relief was originally granted.

Following a comprehensive review period, ASIC intends to release a further consultation paper in January 2018 with its proposals to remake relief for FFSPs.

Consultation on proposed repeal of Class Order [CO 03/824]

ASIC Class Order [CO 03/824] provides an important licence exemption to FFSPs who do not (or cannot) implement a passport Class Order exemption, or rely on any other licence exemption. It applies where an unlicensed FFSP:

  • provides financial services to wholesale clients; and
  • does not carry on a financial services business in Australia based on certain provisions in the Corporations Act and principles developed in case law.

The exemption can allow financial services to be provided on a cross-border basis by FFSPs that would otherwise be caught by a provision in the Corporations Act which gives the licensing regime a very broad territorial reach (section 911D). The Consultation Paper explains “The original policy rationale for this relief was to ensure that isolated transactions by a foreign entity with Australian wholesale clients would not require that entity to hold an AFS licence”.

In the Consultation Paper released today ASIC proposes to repeal [CO 03/824], subject to a one year transitional period so that FFSPs relying on the exemption can make other arrangements. ASIC asserts that repealing the exemption is appropriate because it substantially replicates the exemption in section 911A(2E) of the Corporations Act, and therefore no longer serves a regulatory purpose for the financial services specified in section 911A(2E).

The exemption in section 911A(2E) is, however, narrower than [CO 03/824], in terms of the services, products and clients covered, and this is acknowledged in the Consultation Paper. Section 911A(2E) only covers dealing, advisory and market making services to professional investors relating to derivatives, foreign exchange contracts and carbon credits.

We therefore expect that the repeal of [CO 03/824] has the potential to have a very significant impact on FFSPs that have a limited connection to Australia and are unable to rely on an alternative exemption.

It will be important that submissions are lodged with ASIC that point out the importance of [CO 03/824] for FFSPs with a limited connection to Australia, having regard to the limited scope of other exemptions such as 911A(2E). ASIC has indicated that “Where only a small number of entities engaging in activities not covered by s911A(2E) identify themselves in this consultation, we will consider repealing [CO 03/824] and encourage those entities to apply for individual relief”.

Submissions on the proposal are due by 2 December 2016.


If you would like to discuss how these developments affect your organisation, please contact any member of the King & Wood Mallesons Financial Services Regulation team.

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