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29 June 2004
Exempt Financial Services
In December 2003 the Australian Securities and Investments Commission (ASIC) announced a number of class orders relieving some wholesale foreign financial services providers from the requirement to hold an Australian financial services licence.
The orders were the first to be made by ASIC under its policy on such providers and recognize overseas regulation of:
In each case, the relief applies to specific financial services provided to
wholesale clients in Australia. The class orders were issued under Section 911A(2)(1)
of the Corporations Act 2001, in accordance with the policy of ASIC
outlined in Policy Statement 176, entitled "Licensing: Discretionary Powers - Wholesale
Foreign Financial Services Providers".
Each foreign financial services provider may rely on the relevant class order to provide financial services to wholesale clients in Australia in a manner that transposes as far as possible its home regulatory requirements.
However, each provider must continue to consider the individual circumstances of its operation, determining whether it is carrying on a business in Australia. If so, it must be registered under Part 5B.2 of the Corporations Act. If it is not (and is not therefore a registered foreign company under Part 5B.2), the relief provided in the relevant class order will overlap with Class Order 03/824 and either may be relied upon for exemption from licensing.
As a result of the class orders, certain providers in the United Kingdom, the United States, Hong Kong and Singapore will be able to provide limited financial services with respect to specific financial products (eg, derivatives, foreign exchange contracts and securities), provided that they comply with the conditions set out in the relevant class order.
As a result of the financial services reform, from March 10 2004 any company or individual wishing to operate a financial services business or to provide advice with respect to a financial product in Australia must hold a licence. It is an offence to carry on a financial services business without a licence.
The requirement to hold a licence affects banks, building societies and credit unions, life and general insurance companies, insurance agents and brokers, managed investment scheme operators, superannuation funds, securities dealers, financial planners and financial advisers, futures brokers and advisers, and foreign exchange dealers. The new licensing system replaces the system of separate licences.
In general, anyone who advises on or sells financial products, and anyone who
represents someone who holds a licence, must hold a licence.
Under the reform a licence is required if a financial service provider performs any of the following activities:
The definition of a 'financial product' is very broad and covers all products
which involve making a financial investment, managing a financial risk or making
Some products are specifically included in the definition, including the following:
The licence is issued by the ASIC and ASIC ensures that each licensee has the appropriate skills, financial
resources and compliance systems. The application process is stringent and may
result in ASIC imposing other licence conditions to ensure continuing
Licensees have extensive obligations under the relevant legislation and their specific licence conditions.
Relief from the Australian financial services licensing requirements under Policy Statement 176 may be granted to a wholesale foreign financial services provider where it can satisfy a two-pronged equivalence test. For an applicant to fulfil this test, ASIC must be confident that: (i) the applicant's overseas regulatory authority delivers regulatory outcomes that are sufficiently equivalent to the Australian regulatory regime; and (ii) there are effective cooperation arrangements between ASIC and the overseas regulatory authority.
ASIC may provide either an individual or a class order exemption to a foreign financial services provider. It may revoke a provider's exemption if its home regulatory regime is no longer sufficiently equivalent to the Australian regime or if the provider fails to comply with any of the conditions imposed.
The financial services must be provided only with respect to the following financial products:
To rely on a class order, the relevant provider must provide ASIC with:
The foreign financial services provider must provide financial services in Australia in a manner which complies as far as possible with the regulatory requirements of its home jurisdiction were it providing such services there in the same circumstances.
The foreign financial services provider must notify ASIC of the following:
The provider must disclose in writing to all of its clients in Australia that:
(i) it is exempt from the requirement to hold a licence under the Corporations
Act with respect to the financial services provided; and (ii) the financial
services it provides are regulated by its home regulatory body under the laws
of its home jurisdiction, which differ from Australian laws.
The disclosure is required to be made only once to each person to whom financial services are to be provided and must be given prior to the financial services being provided. No fee is payable to rely upon the class order or to make any notifications under the class order.
For further information on this topic please contact Jeannine Clark at Atanaskovic Hartnell by telephone (+61 2 9777 7000) or by fax (+61 2 9777 8777) or by email (firstname.lastname@example.org).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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