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The Art of Dispute: Key case law and recent developments in dispute resolution
Our newsletter provides practical advice and a concise analysis of key case law and recent developments in dispute resolution.
Australia | Publication | February 2022
In a welcome development, on 20 December 2021 Federal Treasury released exposure draft legislation implementing exemptions from Australian financial services (AFS) licensing requirements for foreign financial service providers (FFSPs). This follows through on the Federal Government’s intention (announced in last year’s Budget) to restore previously well-established relief for FFSPs and create a fast-tracked licensing process for those that wish to establish a more permanent operation in Australia. It also leverages the feedback provided through Treasury’s consultation paper on possible options for how to address the relief. Please refer to our previous updates here and here.
The approach taken with the draft legislation strikes a balance between facilitating the exemptions and ensuring ASIC has greater oversight. However, questions remain as to how transition will work and how practically ASIC will administer the exemption process.
The exposure draft Bill and Explanatory Memorandum can be found here.
By way of recap, the licensing exemption regime for FFSPs offering financial services into Australia has undergone significant change in the last couple of years. The Australian Federal Government announced in its 2021-22 budget that it would consult on options for providing certain regulatory relief to FFSPs from holding an AFS licence and reduce barriers to entering the Australian market where relief is not available. As a consequence of the consultation, in June 2021, ASIC extended the transitional period for those FFSPs relying on the sufficient equivalence Class Order relief and limited connection relief until 31 March 2023. In addition, ASIC put a pause on assessing foreign AFS licence applications lodged to that point, pending the outcome of the Federal Government’s reforms.
Which brings us to the new exemptions proposed under the draft Bill. The proposals broadly break down into 3 parts, comprising a revamped professional investor exemption, a new comparable regulator exemption (replacement for the current sufficient equivalence relief) and relief from the fit and proper requirements for certain foreign firms:
Notably, the exemptions do not contemplate a reintroduction of the limited connection relief after it expires – currently scheduled to be at the end of March 2023, with no proposed transition arrangements.
While the news of the draft Bill is overall very positive, there are number of unanswered questions as to how the new regime will function.
Importantly, details of transitional arrangements are yet to come although we may expect to see these in ASIC guidance once the Bill is passed. In particular, FFSPs currently relying on the sufficient equivalence Class Order or individual relief and those operating on the basis of the current professional investor exemption are facing the prospect of a mandatory notification to ASIC in order to move onto the new exemptions. The timing of this notification process and when ASIC will be able to process notices will be critical particularly for FFSPs for whom the current relief is scheduled to expire at the end of March 2023.
A related administrative issue concerns the detail around the notification and documentation process. Some documentation required for the comparable regulator exemption is likely to have already been given to ASIC by FFSPs when they previously notified under the Class Order relief. ASIC may therefore need to consider concessions for FFSPs where this is the case.
In addition, a key issue in the Treasury consultation process concerned which regulators would be recognised for the purposes of the exemptions. As noted above, it appears that existing overseas regulators recognised by ASIC would also be approved under the new regime. However, it has been proposed that further regulators also be added to the list. How likely this will be and what the timing may look like will be a question for those FFSPs seeking to take advantage of the relevant exemptions.
FFSPs providing or who are planning to provide services into Australia will need to plan ahead for the required ASIC notification. For these purposes, they should give careful consideration to the proposed scope and conditions applying under the professional investor and comparable regulator exemptions. Based on our experience with the foreign AFS licensing regime, FFSPs would also be well-served to prepare for the compliance requirements that attach to those conditions.
More generally, FFSPs should stay tuned for further updates and any changes to the draft legislation.
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