Relief for Foreign Financial Service Providers – Proposed Legislation for Licensing Exemptions
January 11, 2022
Financial System Division
Parkes ACT 2600
Re: Exposure draft legislation: Relief for Foreign Financial Service Providers (December 20, 2021)
Dear Sir or Madam:
The Investment Adviser Association (IAA), the leading not-for-profit association in the United States dedicated to advancing the interests of investment advisers, writes in support of the Government’s exposure draft legislation (Exposure Draft Legislation) that will restore previously eliminated relief from licensing for Foreign Financial Service Providers (FFSPs). The Exposure Draft Legislation follows the Government’s public consultation issued on July 9, 2021 seeking feedback on options for FFSPs including whether to restore the previously well-established regulatory relief provided for FFSPs that are licensed and regulated in jurisdictions with comparable financial service rules and obligations. The IAA commented on the July Consultation, supporting restoring the former class order exemptions that the Australian Securities and Investments Commission (ASIC) eliminated in March 2020. We appreciate that the Government considered our recommendations and now proposes two exemptions to restore this relief. We strongly support the proposed exemptions.
IAA members that are FFSPs provide portfolio management services to wholesale clients and professional investors in Australia or advise offshore funds. The IAA has submitted comments to ASIC over the past few years on behalf of these members. In 2018, we urged ASIC to retain the “sufficient equivalence” class order relief in lieu of imposing a licensing requirement and wrote again in 2019 expressing concerns with the limited and narrow nature of ASIC’s proposed “funds management relief” that would replace this class order. These class orders allowed our members to provide services to wholesale clients and professional investors in Australia without having to obtain a license from ASIC to do so. They also played a significant role in facilitating competition and giving access to a wider range of products and services to Australian wholesale investors.
The July Consultation sought feedback on options for restoring the relief provided under these class orders to reduce duplicative regulatory requirements on FFSPs that are subject to primary regulation in other jurisdictions and to encourage more participation by FFSPs in the Australian market, while maintaining appropriate protections. The IAA supported the proposed option that would have restored both class orders, with a recommendation to broaden the jurisdictions where equivalence would be recognized.
The IAA Supports the Proposed Exemptions that Would Restore and Extend Relief from Licensing for FFSPs
The Exposure Draft Legislation proposes two new exemptions from the licensing regime for FFSPs that would largely restore and extend the relief under the class orders. We commend the Government for proposing to restore and extend the relief and urge the Government to adopt the proposed exemptions.
Comparable Regulator Exemption (to Replace the Former Sufficient Equivalence Class Order)
The proposed comparable regulator exemption is similar to the 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 is only 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.
We support the exemption and appreciate that it is not limited to those jurisdictions only identified in Option 1A in the July Consultation but, as we had recommended, is also available to other recognized jurisdictions. These include jurisdictions deemed substantially in compliance with the regulations as determined by ASIC under the funds management relief. However, we note that Canada’s securities regulation falls under provincial jurisdiction which 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 recommend that the final comparable regulator exemption include FFSPs regulated by any of the Canadian provincial regulators, not just Ontario.
Professional Investor Exemption (to Replace the Former Limited Connection Class Order)
The Government’s revised professional investor exemption is similar to the 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, 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 support the exemption, consistent with our comments in the IAA July Consultation Response. Availability of the exemption will be important – as was the 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.
Finally, 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 that the original consultation proposed on FFSPs.
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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 contact Monique Botkin, IAA Associate General Counsel, or the undersigned at (202) 293-4222 if we can be of further assistance.
Gail C. Bernstein
 For more than 80 years, the IAA has been advocating for investment advisers before the U.S. Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. The IAA’s member firms manage more than $35 trillion in assets for a wide variety of individual and institutional clients in the United States and globally, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information, please visit www.investmentadviser.org.
 See Relief for Foreign Financial Service Providers, Australian Government, The Treasury (Dec. 20, 2021), available at https://treasury.gov.au/consultation/c2021-231877. Our comments are limited to the two proposed exemptions from licensing requirements for FFSPs and do not address other aspects of the Exposure Draft Legislation.
 See Treasury’s July 9, 2021 Consultation, available at https://treasury.gov.au/consultation/c2021-189465 (July Consultation). The July Consultation was intended in part to help the Government assess the options available – and the costs and benefits thereof – for restoring relief from licensing to FFSPs.
 See IAA Letter on Relief to Foreign Financial Service Providers – Consultation Paper (July 29, 2021), available at https://investmentadviser.org/resources/relief-to-foreign-financial-service-providers-consultation-paper/ (IAA July Consultation Response).
 See Letter from the IAA to ASIC on Consultation Paper 301: Foreign Financial Services Providers (Nov. 14, 2018), available at https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/November_13__2018_-_IAA_Comment_Letter_to_ASIC_re_Consultation_Paper_301.pdf and Joint Letter from the IAA and ICI Global to ASIC on Consultation Paper 315: Foreign financial services providers: Further consultation (Aug. 8, 2019), available at https://higherlogicdownload.s3.amazonaws.com/INVESTMENTADVISER/aa03843e-7981-46b2-aa49-c572f2ddb7e8/UploadedImages/about/Comment_Letter_Compendiums/2019/August_8__2019_-_Letter_on_ASIC_CP315_on_FFSPs_FINAL.pdf.
 Despite comments from us and others urging ASIC to retain the existing relief for FFSPs, ASIC repealed the sufficient equivalence order as well as a separate “limited connection” class order in March 2020, replacing them with the narrower funds management relief it had proposed. See Treasury Laws Amendment (Measures for Consultation) Bill 2021: Licensing Exemptions for Foreign Financial Service Providers; Exposure Explanatory Memorandum (Dec. 20, 2021) at 6, available at https://treasury.gov.au/sites/default/files/2021-12/c2021-231877-explanatory_memorandum.pdf.
 The comparable regulator exemption would exempt FFSPs authorized to provide financial services in a comparable regime from the requirement to be licensed in Australia when dealing with “wholesale clients.” The professional investor exemption would exempt FFSPs that provide financial services from outside Australia to professional investors from the requirement to be licensed.
 The FFSP must also comply with certain conditions, including the same conditions applicable to the 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.