IAA Comments on Australian Consultation on Foreign Financial Services Providers Regulation

September 8, 2023

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Capital Markets and Financial Regulators Branch|
Financial System Division
The Treasury
Langton Crescent
Parkes ACT 2600
Australia

Re:      Exposure Draft Bill: Treasury Laws Amendment (Measures for Future Bills) Bill 2023: Licensing exemptions for foreign financial services providers

Dear Sir or Madam:

The Investment Adviser Association (IAA),[1] writes in strong support of the Government’s Exposure Draft Bill (Exposure Draft Bill), which will provide Australian financial service licensing exemptions to Foreign Financial Services Providers (FFSPs).[2] IAA members that are FFSPs provide portfolio management services to wholesale clients and professional investors in Australia or advise offshore funds. The IAA’s comments are consistent with those submitted on the Government’s previous Exposure Draft Bill that would have restored eliminated relief from licensing for FFSPs.[3]

A. The IAA Supports the Proposed Exemptions that Would Restore and Extend Relief from Licensing for FFSPs

The Exposure Draft Bill proposes two exemptions from the licensing regime for FFSPs that would largely restore and extend the relief under the former class orders: (1) the comparable regulator exemption; and (2) the professional investor exemption. We commend the Government for proposing to restore and extend the existing relief and urge the Government to adopt both of the proposed exemptions.

1. Comparable Regulator Exemption (to Replace the Former Sufficient Equivalence Class Order)

The proposed comparable regulator exemption is similar to the former sufficient equivalence relief and provides an exemption from the requirement to hold an Australian financial services license (AFSL) for foreign companies that provide financial services to wholesale clients. The comparable regulator exemption would only be available where the foreign company is authorized, registered, or licensed to provide the same financial service by a regulator in a foreign jurisdiction and the Government has determined that the regulator administers a comparable regulatory regime.[4]

We support the exemption, which includes jurisdictions deemed substantially in compliance with the regulations as determined by ASIC under the funds management relief.[5] However, we note that Canada’s securities regulation falls under provincial jurisdiction that includes regulators in 10 provinces and three territories that operate under a harmonized regulatory framework and not just the Ontario Securities Commission, and we continue to request that the final comparable regulator exemption include FFSPs regulated by any of the Canadian provincial regulators, not just Ontario.

2. Professional Investor Exemption (to Replace the Former Limited Connection Class Order)

The Government’s revised proposed professional investor exemption is similar to the former limited connection class order. It provides an exemption from the requirement to hold an AFSL for persons that provide financial services from outside Australia to professional investors. The exemption is available if the financial service is provided only to professional investors, the person provides the financial service from a place outside Australia (except during limited marketing visits), its head office and principal place of business are outside of Australia, and it reasonably believes that the provision of the financial service does not contravene any laws in the location of its principal place of business, head office, or from where the financial service is provided.

We strongly support the exemption, consistent with our previous comments. Availability of the exemption will be important – as was the former limited connection relief – to FFSPs seeking to raise capital and/or gauge interest in investments, but that do not otherwise carry on a financial services business in Australia. It will also be important as interim relief for firms that have progressed their business in Australia to the point of seeking to obtain an AFSL and/or applying for relief under a different exemption, as it will allow them to operate in a compliant manner during the application period.

3. Fit and Proper Test Exemption

Currently, all AFSL applicants must satisfy the “fit and proper” person test under Section 913A of the Corporations Act—this is typically evidenced by providing criminal history and bankruptcy checks for each fit and proper person (e.g., officers of the applicant and all controllers). Under this exemption, certain FFSPs do not need to comply with this requirement when making an application for an AFSL or the imposition, variation, or revocation of conditions on an existing AFSL. The IAA supports this exemption that would expedite the AFS license process for FFSPs from jurisdictions with comparable regulatory regimes to provide financial services to wholesale clients while they establish permanent operations in Australia.

B. The IAA Commends the Government for Streamlining the Proposed Exemptions

We commend the Government for streamlining the conditions associated with relying on the proposed exemptions as we believe that these conditions strike a more reasonable and appropriate balance between the Government’s investor protection objectives and the industry’s concerns about the disproportionate compliance burdens.

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We appreciate your consideration of the IAA’s comments and would be happy to provide any additional information that may be helpful. Please do not hesitate to contact the undersigned at 1-202-293-4222 if we can be of further assistance.

Respectfully Submitted,

Gail C. Bernstein
General Counsel

William A. Nelson
Associate General Counsel

[1] The IAA is the leading organization in the United States dedicated to advancing the interests of investment advisers. For more than 85 years, the IAA has been advocating for investment advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower investment advisers to effectively serve their clients, the capital markets, and the U.S. economy. Our members range from global asset managers to the medium- and small-sized firms that make up the core of our industry. Together, the IAA’s members manage more than $35 trillion in assets for a wide variety of clients, including individuals, trusts, investment companies, private funds, pension plans, state and local governments, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org.

[2] See Licensing exemptions for foreign financial services providers (Aug. 7, 2023), available at https://treasury.gov.au/consultation/c2023-430917. The Exposure Draft Bill is based on Schedule 1 to the Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians) Bill 2022, which was introduced in February 2022 but lapsed in April 2022. See https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6857.

[3] The IAA commented on the Government’s July 2021 Consultation, supporting restoring the former class order exemptions that the Australian Securities and Investments Commission (ASIC) eliminated in March 2020. See IAA Letter on Relief to Foreign Financial Service Providers – Consultation Paper (July 29, 2021), available at https://www.investmentadviser.org/resources/relief-to-foreign-financial-service-providers-consultation-paper/ (IAA July 2021 Consultation Response). The IAA also commented on the Government’s December 2021 Consultation, supporting the proposed comparable regulator and professional investor exemptions, consistent with our comments in the IAA July 2021 Consultation Response. See IAA Letter on Relief for Foreign Financial Service Providers – Consultation Paper (Jan. 11, 2022), available at https://www.investmentadviser.org/resources/relief-for-foreign-financial-service-providers-proposed-legislation-for-licensing-exemptions/.

[4] The FFSP must also comply with certain conditions, including the same conditions applicable to the proposed professional investor exemption, consenting to information sharing between ASIC and the foreign company’s home regulator, notifying ASIC of any significant enforcement or disciplinary actions taken against the foreign company in any place outside Australia, appointing an agent in Australia, and maintaining sufficient oversight over its representatives.

[5] The Exposure Draft Bill Explanatory Memorandum anticipates that the regulators that have already been assessed by ASIC as having comparable regulatory regimes will be taken to be comparable regulators for the purposes of the first legislation instrument made by the Minister for the purposes of the exemption. See Exposure Draft Bill Explanatory Memorandum (Aug. 7, 2023), available at https://treasury.gov.au/sites/default/files/2023-08/c2023-430917-em.pdf.