Are you distributing your fund to Australian wholesale investors? Jeremy Brugmans, Commercial Director in Australia, gives a detailed introduction of the Foreign Australian Financial Service License (AFSL) and changes to the Passporting Exemptions.
In July 2019. the Australian Securities and Investment Commission (ASIC) released the Consultation Paper 315. CP 315 which elaborates on the licensing relief for Foreign Financial Services Providers (FFSPs) who would like to provide financial services in Australia to wholesale or professional investors only. This means it's also aimed at foreign fund and asset managers that wish to distribute their foreign funds to Australian wholesale or professional investors.
ASIC proposes to provide a new funds management relief (which essentially is narrow in scope) and repeal the current Limited Connection licensing relief. They also have proposed to abolish the 'Passporting Exemptions' (with a transitioning period) and replace it with the new Foreign AFSL regime.
Possibility of fund management relief is limited
Fund management services covers advising, dealing and markets-making in offshore funds and management of offshore assets.
ASIC proposes that an FFSP will only qualify for a relief (of holding an AFSL) if less than 10% of its annual aggregated consolidated gross revenue, including the aggregated consolidated gross revenue of entities within its corporate group, is generated from the provision of fund management services in Australia. By applying this requirement to qualify for an exemption, ASIC wants to ensure that fund management services don't form a substantial part of the FFSP's business. The 10% threshold represents the level of services by reference to the revenue arising from professional investors in Australia that ASIC is comfortable in permitting an FFSP to provide without an AFSL.
In order to qualify for the relief, an FFSP must be an unregistered foreign company and not already holding an AFSL authorising fund management services.
This means that the scope of the exemption is pretty narrow. This is generally due to all foreign companies, considered to be carrying on business in Australia, being required to become a registered foreign company.
If the FFSP is expecting that it'll be exceeding the proposed aggregate revenue cap, the FFSP should consider the following options:
- apply for a normal AFSL
- apply for a Foreign AFSL (this is only attractive if it's regulated under sufficient equivalence overseas regulatory regimes)
- to ensure it still qualifies for the benefit of the relief, the FFSP should reduce its activities
- (if applicable) limit its activities to that covered by existing statutory exemptions
Extension dates applying to Limited Connection exemption
ASIC is to repeal the Limited Connection licensing relief. The current exemption was due to expire on 30 September 2019 (with a 12 month transition period to 30 September 2020). However, ASIC has now confirmed the relief will extend to 31 March 2020 and can be extended for an additional six month period of transition to 30 September 2020 (under circumstances).
Timing: Passporting Exemptions extended and introduction of the Foreign AFSL regime
With regards to the Passporting Exemptions, ASIC has confirmed that the extension of the relief will be until 31 March 2020. The new Foreign AFSL regime will commence on 1 April 2020. There will be a transitioning period for FFSPs who are currently relying on the Passporting Exemption. FFSPs will get a transition period of 24 months from 1 April 2020 to comply with the new requirements of the Foreign AFSL. The transition period should allow sufficient time for those FFSPs that are going to apply for an AFSL and for ASIC to assess such an application. FFSPs that already know they wish to transition to the new Foreign AFSL regime should apply on time as processing times can be a number of months. For further details please also refer to draft RG 176.
Highlights applying for a Foreign AFSL
FFSPs considering to apply for a Foreign AFSL, should take in consideration the following points:
- the FFSP is eligible to apply for a Foreign AFS license (this means the FFSP should be licensed in a 'sufficiently equivalent jurisdiction' for the relevant financial services)
- it's properly registered with ASIC as a foreign company (to the extend required under the Corporations Act)
- provide the required supporting "proof" documents with its application (the set of documents required are substantially less than for the application of a normal AFSL)
- comply with its obligations as a foreign AFS licensee and the license conditions attached to it
- pay the application fee when lodging the application
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.