Federal Budget 2021-2022: Revisiting Licensing Relief for Foreign Financial Services Providers
21 May 2021
In brief
The Australian Federal Government has announced in its 2021-2022 Budget that it will “consult on options to restore previously well-established regulatory relief for foreign financial services providers” (FFSPs) as part of its plans to develop a more efficient foreign financial services licensing regime. The announcement has created uncertainty for the future of the new regulatory framework for FFSPs, which was introduced by the Australian Securities and Investments Commission (ASIC) on 1 April 2020, and proposed to commence on 1 April 2022.
We understand that following the announcement, Treasury will be developing its consultation process. We recommend for FFSPs to temporarily pause their plans for preparing for a foreign Australian Financial Services Licence (AFSL) application pending further announcements by Treasury and ASIC in the coming weeks.
We will continue to actively track the development of these changes and keep you updated.
In detail
Background
An entity wishing to undertake a financial services business in Australia or into Australia requires an Australian Financial Services Licence (AFSL) from ASIC, unless they can rely on an exemption or regulatory relief. Traditionally, many FFSPs who do not hold an AFSL have relied on the “sufficient equivalence relief” or the “limited connection relief”.
As many FFSPs know, ASIC had introduced a new regulatory framework for FFSPs, comprising of a new foreign AFSL regime and a more limited form of “limited connection relief” designed to assist fund managers, known as the “funds management relief“. Under the new regulatory framework announced last year, FFSPs currently relying on the existing sufficient equivalence relief or limited connection relief have until 31 March 2022 to obtain an AFSL or foreign AFSL, or ensure that they can rely on the funds management relief or another exemption, to continue providing financial services into Australia. The framework was developed following ASIC’s extensive consultation with industry and overseas regulators. Our previous alert included a summary of the existing regulatory relief and the new regulatory framework.
Budget announcement
The Government in its Budget Paper No. 2 has indicated that it will consult on options to restore the existing regulatory relief available to FFSPs (which is set to expire on 31 March 2022). Following the restoration, FFSPs providing financial services to wholesale clients and professional investors in Australia may be relieved from the requirement to hold an AFSL provided that they are licensed in jurisdictions with comparable financial service rules or have a limited connection to Australia.
The Government also announced it would consult on options to create a “fast-tracked licensing process” for FFSPs who are intending to have more permanent operations in Australia, however, no detail has been provided to date in relation to the types of financial services that would require an FFSP to be licensed in Australia that would qualify for fast-tracking. Fast-tracking is intended to shorten application timeframes and encourage more FFSPs to enter the Australian market. This measure has been welcomed by certain industry bodies such as the Financial Services Council which views it as an opportunity to drive greater diversity and competition of financial markets.
These measures have the effect of reversing the changes to the foreign financial services regulatory framework previously introduced by ASIC. We understand that many FFSPs are already moving forward with their plans to apply for a foreign AFSL or have recently submitted their application with ASIC. It is unclear whether ASIC will continue with their assessment of the existing applications and whether the changes announced by the Government will overturn the foreign AFSL regime. We therefore recommend that FFSPs temporarily pause their plans for preparing for a foreign AFSL application, continue to rely on the existing relief and wait for further announcements in the coming weeks.
We expect that the new form of ASIC’s regulatory framework will be discontinued if the Government proceeds with restoring the previous regulatory relief or extending it beyond 31 March 2022.
Finalisation of Corporate Collective Investment Vehicles
The Government has also separately announced that it will finalise the implementation of a new Corporate Collective Investment Vehicle (CCIV) regime, originally announced in the 2016-17 budget, with a new commencement date of 1 July 2022.
The CCIV is a hybrid investment vehicle that will provide flow-through tax treatment to a corporate structure and is intended to encourage inbound foreign financial investments by allowing fund managers to use an investment vehicle that is similar and more familiar to overseas investors and to provide an alternative to unit trusts (which are not as well understood by offshore investors, thereby adding additional complexity and risk for those investors).
PwC has published regular updates of the developments of the new CCIVs since 2017. Our first alert examined the basic features of the CCIV regime and some of the issues raised by the first iteration of the new legislation’s Exposure Draft. Our second alert considered the proposed duties of the CCIV’s corporate director in greater depth. Our third alert considered the key features of the Tranche 2 Exposure Draft and explanatory materials, in particular, the proposed provisions relating to external administration of a CCIV in a winding up situation and the proposed application of the takeovers provisions in Chapters 6 to 6C of the Corporations Act 2001 (Cth) to CCIVs. Draft legislation is yet to be released.
Let's talk
For further information on the existing relief that is in place till 31 March 2022, the upcoming changes announced in the 2021-22 Budget and the potential impact on you and your business, please contact us.
