Providing Financial Services in Australia as a Foreign Financial Service Provider

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Table of Contents

• What is a ‘Financial Service’ Under Australian Law?
• Retail vs. Wholesale Clients
• Australian Financial Services License Regime
• Exception From Needing an AFSL for FFSPs 
• Other Exceptions From Needing an AFSL
• Key Takeaways

Australia’s regulatory environment, which welcomes financial technology (FinTech), draws in many foreign financial service providers (FFSPs). If your financial services business aims to enter Australia to provide financial services, you must understand the legal obligations that may impact you. This article gives you an overview of the legal obligations in Australia for FFSPs seeking to offer financial services. It highlights differences in licensing rules for retail and wholesale clients.

What is a ‘Financial Service’ Under Australian Law?

Your business provides a financial service in Australia if it:

Individuals use financial products as tools for:

Retail vs. Wholesale Clients

Australian law categorises consumers of financial services into retail or wholesale clients. A person is likely a wholesale client if:

• they purchase financial products or services related to financial products, exceeding the current $500,000 limit; 
• they possess assets of at least $2.5 million or have earned a gross annual income of $250,000 for the past two financial years; or
• they are a professional investor.

Otherwise, the person is considered a retail client.

Australian Financial Services License Regime

Any FFSP providing financial services in Australia must have an Australian financial services licence (AFSL) unless an exception applies. To obtain an AFSL, an FFSP must apply with ASIC and comply with any ongoing obligations.

Financial services aimed at retail clients (or likely to be accessed by them) are more heavily regulated. This includes additional obligations such as preparing disclosure documents under certain circumstances. Retail clients generally have less sophistication and are more prone to financial harm when accessing unsuitable financial services. This recognition prompts measures to protect you. On the other hand, wholesale clients typically have better safeguards for their interests.

Exception From Needing an AFSL for FFSPs 

An FFSP that carries out financial services exclusively for wholesale clients in Australia may not need an AFSL if:

• the foreign business is allowed to provide similar services in its home country and is regulated by regulators there; and
• ASIC considers regulations in the foreign business’ home country equivalent to AFSL rules for regulating financial services.

In the US, Singapore, Hong Kong, Germany, and the UK, regulators allow businesses to offer financial services to Australian wholesale clients without an AFSL. However, this exemption is currently transitioning into a foreign AFSL rule starting 1 April 2024. Under these rules, foreign businesses from 11 countries can provide financial services to Australian wholesale clients with a ‘foreign AFSL’. A foreign AFSL is a modified version of an AFSL, exempting licensees from several obligations they would otherwise comply with.

Other Exceptions From Needing an AFSL

Other cases exempt from requiring an ASFL involve situations where the FFSP operates as an authorised representative of a business holding an ASFL. However, it is crucial to ensure a clear principal-agent relationship between the parties, ensuring representatives avoid actions exclusive to principals, such as issuing or disposing of financial products. Other exemptions include scenarios where the FFSP functions as a financial counselling agency or where providing financial service is not the primary business of the FinTech business. 

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Key Takeaways

All businesses, including FFSPs, wanting to provide financial services in Australia must obtain an AFSL and comply with various ongoing obligations. The obligations vary depending on whether the financial services are for retail or wholesale clients. A foreign business regulated by authorities in another country can offer financial services in Australia without an AFSL if ASIC deems their regulations similar to Australia’s. This means you can operate in Australia without an AFSL if your home country’s regulations are comparable. However, starting from 1 April 2024, these businesses need a modified form of the AFSL called a foreign AFSL.

If you would like to know more about engaging in financial services as an FFSP, our experienced FinTech 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.