Explanatory Statement
ASIC Corporations (Amendment) Instrument 2024/497
This is the Explanatory Statement for ASIC Corporations (Amendment) Instrument 2024/497.
The Explanatory Statement is approved by the Australian Securities and Investments Commission (ASIC).
Summary
1 The ASIC Corporations (Amendment) Instrument 2024/497 (Amendment Instrument) amends ASIC Corporations (Repeal and Transitional) Instrument 2016/396, ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 and ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 (the Principal Instruments).
Purpose of the instrument
2 On 30 November 2023, the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 (Bill) was introduced into Parliament.
3 The Bill will provide licensing exemptions for FFSPs dealing with Australian wholesale and professional industry in addition to other unrelated matters. These exemptions will apply to entities that:
(i) provide financial services from outside Australia to professional investors (professional investor exemption);
(ii) are regulated by comparable regulators and that provide financial services to wholesale clients (comparable regulator exemption); and
(iii) provide financial services that involve making a market for derivatives that are able to be traded on a specified licensed market (market maker exemption).
4 The Bill also establishes a fast-track licensing process for persons seeking to establish more permanent operations in Australia by providing an exemption for persons regulated by comparable regulators from the fit and proper person test when applying for an AFS licence to provide financial services to wholesale clients.
5 The licensing exemption regime under the Bill is expected to commence on 1 April 2025. However, in order to ease transition for entities that are currently relying on ASIC’s sufficient equivalence relief or limited connection relief, the Amendment Instrument will allow those entities to continue to rely on the relevant relief until 1 April 2026.
6 The purpose of the Amendment Instrument is to preserve the effect of the relief in ASIC Corporations (Repeal and Transitional) Instrument 2016/396, ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 and ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 until 31 March 2026. This will ensure that those entities that are currently relying on ASIC’s sufficient equivalence relief or limited connection relief can continue to rely on that relief for a further 12 months.
7 The Amendment Instrument also delays the commencement date of ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 until 1 April 2026. However, subject to passage of the Bill, ASIC intends to repeal Instrument 2020/199 before it commences as its provisions will be superseded by the licensing relief under the Bill.
8 The Amendment Instrument will provide certainty for industry by extending the transitional relief for an additional year for those entities that currently rely on the transitional relief. This will also assist with the orderly introduction of the regime proposed in the Bill, both for industry and ASIC.
ASIC’s sufficient equivalence relief
9 ASIC Corporations (Repeal and Transitional) Instrument 2016/396 and ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 (together, the sufficient equivalence relief) conditionally exempt foreign financial services providers (FFSPs) from the requirement to hold an Australian financial services (AFS) licence when providing specified financial services in Australia where:
(i) the financial services are provided to wholesale clients only;
(ii) the financial services are regulated by an overseas regulatory authority;
(iii) the regulatory regime overseen by the overseas regulatory authority is sufficiently equivalent to the Australian regulatory regime;
(iv) there are effective cooperation arrangements between the overseas regulatory authority and ASIC; and
(v) the FFSP meets all the relevant conditions of the relief.
10 In September 2016, ASIC made ASIC Corporations (Repeal and Transitional) Instrument 2016/396 to repeal seven legislative instruments that provided licensing relief to seven jurisdictions assessed as sufficiently equivalent to the Australian regulatory regime by ASIC and provide transitional relief to preserve the effect of these legislative instruments for a period of two years from the commencement of the instrument to enable ASIC to conduct a review of the policy settings underlying the relief. These legislative instruments are:
(i) ASIC Class Order [CO 03/1099] UK FCA regulated financial service providers
(ii) ASIC Class Order [CO 03/1100] US SEC regulated financial service providers
(iii) ASIC Class Order [CO 03/1101] US Federal Reserve and OCC regulated financial service providers
(iv) ASIC Class Order [CO 03/1102] Singapore MAS regulated financial service providers
(v) ASIC Class Order [CO 03/1103] Hong Kong SFC regulated financial service providers
(vi) ASIC Class Order [CO 04/829] US CFTC regulated financial services providers
(vii) ASIC Class Order [CO 04/1313] German BaFin regulated financial service providers.
11 In November 2016, ASIC made ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 based on the policy set out in RG 176 and on similar terms to [CO 03/1099]. The instrument was issued for a fixed period to be consistent with the expiry of the relief contained in ASIC Corporations (Repeal and Transitional) Instrument 2016/396.
12 ASIC extended the sufficient equivalence relief in 2018 and 2019 to allow ASIC to consult on further proposals about the regulation of FFSPs.
13 In 2020, ASIC Corporations (Repeal and Transitional) Instrument 2016/396 was amended to provide an extension of the sufficient equivalent relief for 2 years until 31 March 2022. This extension was granted to allow time for industry to comply with the new requirements that apply to FFSPs under ASIC’s updated policy on FFSPs in Regulatory Guide 176 Foreign Financial Service Providers which was issued in March 2020.
14 In 2021, ASIC Corporations (Repeal and Transitional) Instrument 2016/396 was again amended to provide a further extension of the sufficient equivalent relief for 12 months until 31 March 2023. This extension was granted pending the outcome of the Australian Government’s consultation about the regulation of FFSPs as announced on 11 May 2021.
15 In 2022, ASIC Corporations (Repeal and Transitional) Instrument 2016/396 was again amended to provide a further extension of the sufficient equivalent relief for 12 months until 31 March 2024. This extension was granted to provide certainty for industry given the lapsing of the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 following the dissolution of the House of Representatives on 11 April 2022.
16 In 2023, ASIC Corporations (Repeal and Transitional) Instrument 2016/396 was again amended to provide a further extension of the sufficient equivalent relief for 12 months until 31 March 2025.
ASIC’s limited connection relief
17 In September 2003, ASIC made ASIC Class Order [CO 03/824] Licensing relief for foreign entities with limited connection to Australian wholesale clients (limited connection relief) to provide relief from the requirement to hold an AFS licence where the person providing the financial services is:
(i) not in this jurisdiction;
(ii) dealing only with wholesale clients; and
(iii) carrying on a financial services business by engaging in conduct that is intended to induce people in this jurisdiction to use the financial services the person provides, or is likely to have that effect: see s911D(1) (‘inducing conduct’).
18 The relief granted by [CO 03/824] was to ensure that infrequent, arms-length transactions by a FFSP with Australian wholesale clients would not require a licence where there is a limited connection between the FFSP and Australia. It was largely made due to concerns that overseas counterparties to derivatives and foreign exchange transactions may be caught engaging in ‘inducing’ activities under section 911D of the Act, requiring an AFS licence, when issuing financial products to Australian wholesale clients. This would require those overseas counterparties to be licensed to enter into derivatives and foreign exchange contracts on an ad hoc basis with Australian wholesale clients.
19 In March 2017, ASIC made ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182, which gave relief on similar terms to [CO 03/824] until 27 September 2018, to align it with the expiry of the sufficient equivalence relief. ASIC extended the limited connection relief in 2018 and 2019 to allow ASIC to consult on further proposals about the regulation of FFSPs.
20 The ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 was amended in 2020 to provide an extension of the limited connection relief for 2 years until 31 March 2022. This extension was granted to allow time for industry to comply with the new requirements that apply to FFSPs under ASIC’s updated policy on FFSPs in Regulatory Guide 176 Foreign Financial Service Providers which was issued in March 2020.
21 The ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 was again amended in 2021 to provide a further extension of the limited connection relief for 12 months until 31 March 2023. This extension was granted pending the outcome of the former Government’s consultation about the regulation of FFSPs as announced on 11 May 2021.
22 The ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 was again amended in 2022 to provide a further extension of the limited connection relief for 12 months until 31 March 2024. This extension was granted to provide certainty for industry given the lapsing of the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 following the dissolution of the House of Representatives on 11 April 2022.
23 The ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 was again amended in 2023 to provide a further extension of the limited connection relief for 12 months until 31 March 2025.
ASIC’s funds management relief
24 In March 2020, ASIC issued ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 (funds management relief), which provides licensing relief to providers of funds management financial services to some categories of Australian professional investors with a commencement date of 1 April 2022.
25 In 2021, this commencement date was delayed until 1 April 2023 also pending the outcome of the former Government’s consultation about the regulation of FFSPs as announced on 11 May 2021.
26 In 2022, the commencement date was again delayed until 1 April 2024 to provide certainty for industry given the lapsing of the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022 following the dissolution of the House of Representatives on 11 April 2022.
27 In 2023, the commencement date was again delayed until 1 April 2025 to provide certainty for industry.
Consultation
28 ASIC did not undertake consultation about the Amendment Instrument because it is minor and machinery in nature and temporarily extends the relief in the Principal Instruments.
Operation of the instrument
29 The Amendment Instrument amends:
(i) the ASIC Corporations (Repeal and Transitional) Instrument 2016/396 by preserving the effect of the ASIC Class Orders until 31 March 2026, but an FFSP would only be able to rely on this instrument if it was able to rely on the instrument as at 31 March 2020;
(ii) the ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 by preserving the effect of the instrument until 31 March 2026, but an FFSP would only be able to rely on this instrument if it was able to rely on the instrument as at 31 March 2020;
(iii) the ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 by preserving the effect of the instrument until 31 March 2026; and
(iv) the ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 by delaying the commencement of the instrument until 1 April 2026.
30 This Amendment Instrument commences on the day after it is registered.
Legislative instrument and primary legislation
31 The subject matter and policy implemented by the Amendment Instrument is more appropriate for a legislative instrument rather than primary legislation because the instrument extends the operation of the Principal Instruments, which are themselves legislative instruments.
32 The Principal Instruments will become unnecessary if the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023 is passed.
Duration of the instrument
33 The effect of the instrument is to extend the duration of the Principal Instruments by 12 months. This allows entities who are currently relying on the relief under the Principal Instruments to transition into the new licensing exemption regime under the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, if the bill is passed.
Legislative authority
34 ASIC makes the Amendment Instrument under paragraph 911A(2)(l) of the Act and subsection 916A(2) of the Act.
35 Paragraph 911A(2)(l) of the Act provides that ASIC may exempt a person from the requirement to hold an Australian financial services (AFS) licence for a financial service they provide in circumstances where the provision of the service is covered by an exemption specified by ASIC in writing and published in the Gazette.
36 Subsection 926A(2) of the Act provides that ASIC may exempt a class of persons from all or specified provisions of Part 7.6 of the Act, other than Divisions 4 and 8 of Part 7.6.
37 Under subsection 33(3) of the Acts Interpretation Act 1901, where an Act confers a power to make, grant or issue any instrument (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.
Statement of Compatibility with Human Rights
38 The Explanatory Statement for a disallowable legislative instrument must contain a Statement of Compatibility with Human Rights under subsection 9(1) of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is in the Attachment.
Attachment
Statement of Compatibility with Human Rights
This Statement of Compatibility with Human Rights is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
ASIC Corporations (Amendment) Instrument 2024/497.
Overview
1 ASIC Corporations (Amendment) Instrument 2024/497 amends ASIC Corporations (Repeal and Transitional) Instrument 2016/396, ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109 and ASIC Corporations (Foreign Financial Services Providers—Limited Connection) Instrument 2017/182 so that the Australian financial services licensing relief provided under those instruments is extended by 12 months until 31 March 2026.
2 ASIC Corporations (Amendment) Instrument 2024/497 also amends ASIC Corporations (Foreign Financial Services Providers—Funds Management Financial Services) Instrument 2020/199 to delay the commencement date until 1 April 2026.
Assessment of human rights implications
3 This instrument does not engage any of the applicable rights or freedoms.
Conclusion
4 This instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.