What is the Foreign AFS Licensing Regime?

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Table of Contents

• The Foreign AFS Licensing Regime
• Eligibility Criteria for a Foreign AFS Licence
• Who Are Wholesale Clients?
• Financial Services Under the Foreign AFS Licence
• Obligations Under a Foreign AFS Licensing Regime
• The Application Process
• Key Takeaways 

A business that wants to provide financial services in Australia must first obtain an Australian financial service licence (AFSL) and comply with a number of ongoing obligations. Foreign financial services providers (FFSP) can provide financial services to wholesale clients in Australia by holding a ‘foreign AFSL’. This is a modified and less stringent licensing regime compared to the AFSL regime. This article discusses the eligibility criteria to apply for a foreign AFS Licence, the obligations a foreign AFS Licensee must adhere to and the application process. 

The Foreign AFS Licensing Regime

The foreign AFS Licensing regime commences on 1 April 2024. Until then, the current passporting relief system will continue to operate. Under the passport relief system, foreign financial services providers (FFSP) regulated by regulators in the USA, UK, Singapore, Germany, Luxembourg and Hong Kong can provide financial services to wholesale clients in Australia without an AFS Licence. 

Eligibility Criteria for a Foreign AFS Licence

A business can apply for a foreign AFS Licence if:

• the business has:
  • (a) obtained authorisation to provide similar services in a foreign jurisdiction that the Australian Securities and Investment Commission (ASIC) deems to be substantially similar to the AFS licensing regime; and 
  • (b) is regulated by a regulator in that foreign jurisdiction; and

• the business will only provide services to wholesale clients and not retail clients. 

ASIC currently recognises the following countries as those with a regulatory regime that is substantially similar to the AFS regime:

• the USA; 
• the UK;
• Singapore; 
• Germany; 
• Hong Kong; 
• Denmark; 
• France; 
• Germany; 
• Luxembourg; 
• Canada (Ontario); and 
• Sweden. 

ASIC has indicated that it may add to or remove from this list in the future.

Who Are Wholesale Clients?

A person is likely to be seen as a wholesale client if, among others, the person:

• purchases financial products or financial services related to financial products for an amount over the prescribed threshold, which at the time of writing this article was $500,000; 
• has assets of at least $2.5 million or has a gross annual income of $250,000 for each of the past two financial years; or
• is a professional investor – this includes AFSL holders, listed entities, banks and other entities with specialised expertise or access to professional advice that justifies them as a wholesale client.

Financial Services Under the Foreign AFS Licence

The financial services that FFSPs can provide in Australia under the foreign AFS Licence can vary depending on:

• the foreign business’ home jurisdiction; and 
• the specific regulator within that jurisdiction that regulates the business. 

ASIC has set out a list of financial services a relevant FFSP can conduct under a foreign ASF Licence.

Obligations Under a Foreign AFS Licensing Regime

The businesses that obtain a foreign AFS Licence will be exempt from several obligations that regular AFS Licensees must comply with. Notably, some of the obligations that foreign AFS Licensees are exempt from include the obligation to: 

• notify ASIC of any material adverse changes to the business’ financial position;
• ensure that representatives are trained appropriately; and
• have adequate financial resources for custodial or depository service providers.

These exemptions exist because the regulatory outcomes intended from these obligations are achieved by the laws in the foreign AFS Licensee’s home jurisdiction. However, each Foreign AFS Licensee must comply with all other applicable obligations under Australian law. Further, ASIC may impose additional conditions on the foreign AFS Licensee. 

The Application Process

A business wanting to obtain a foreign AFS Licence must apply with ASIC. The application process will be more straightforward and quicker than the application process to obtain a regular AFS licence. 

ASIC only grants a foreign AFS Licence if the business (among other requirements):

• meets the eligibility criteria; 
• provides the relevant supporting documents that ASIC requires to understand the financial services the business wants to provide to wholesale clients in Australia; and
• shows ASIC that it understands and can comply with the obligations applicable to foreign AFS licensees.

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Key Takeaways 

A foreign financial services provider (FFSP) may provide financial services to wholesale clients in Australia without an AFS Licence after 1 April 2024 if it holds a foreign AFS Licence. A foreign AFS Licence is a modified form of the AFS Licence that exempts the licensee from complying with some obligations that regular AFS licensees must follow. To get a foreign AFS Licence, a FFSP must make an application with ASIC. To be eligible, the FFSP must be regulated in a jurisdiction that ASIC considers to have a regulatory regime that is substantially similar to the AFS regime. 

If you would like to know more about engaging in financial services as a FFSP, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.