Beware ASIC acts on licensing exemption compliance failures

Earlier this week the Australian Securities and Investments Commission (ASIC) accepted an enforceable undertaking (EU) from three related foreign financial services providers (FFSPs), which included a payment of $500,000. Each of the FFSPs relied on a class order exemption from the requirement to hold an Australian financial services licence (AFSL) when providing financial services to wholesale clients in Australia.

The EU followed a failure by the FFSPs:

  • to provide the required disclosure to clients prior to providing financial services;
  • to notify ASIC of this disclosure breach; and
  • to notify ASIC of certain offshore investigation and enforcement matters within the required timeframe.

The enforcement action taken by ASIC is a timely reminder for all foreign financial services providers who rely on class order exemption to check their procedures for ensuring compliance with the conditions of the licensing exemption in the relevant ASIC Instrument or risk losing the exemption.

Compliance obligations

There are currently class order exemptions for certain financial services providers who are regulated in Hong Kong, the United Kingdom, Singapore, the United States of America, Germany and Luxembourg from the requirement to hold an AFSL when providing financial services to Australian wholesale clients. These exemptions are subject to strict conditions.

Generally, when relying on a class order exemption a FFSP's ongoing obligations include:

  1. providing the services in Australia in a manner that complies, as far as possible, with the regulatory requirements in the FFSP's home jurisdiction;
  2. providing written disclosure (in a prescribed form) to any persons before financial services are provided to that person;
  3. notifying ASIC within 15 business days of any significant change to the FFSP's registration in its home jurisdiction, its authorisations to provide financial services or any significant enforcement action, disciplinary action or investigation; and
  4. complying with any request from ASIC for specified information about the financial services provided in Australia.

Please consult the relevant class order to confirm the specific conditions that may apply to your organisation.

Notification obligations

If a FSSP breaches any of the conditions of the relevant exemption, it must:

  1. provide full particulars of the failure to ASIC (to the extent that it knows those particulars or would have known them if it had undertaken reasonable enquiries), within 15 business days after the date it became aware of the breach or should reasonably have become aware of the breach; and
  2. if ASIC decides the FFSP should continue to have the benefit of the exemption, ASIC will notify the FFSP of its decision within 30 business days of receiving the notification.

If ASIC does not respond within 30 business days or the FFSP fails to notify ASIC of such a breach, the relief under the relevant exemption will automatically lapse.

ASIC consultation

This reminder follows ASIC's extension of this relief for a period of two years, which it considers whether the terms of the relief should be amended. Accordingly, we expect to see increased surveillance and review of FFSPs operating in Australia by ASIC.

For more information on any of the conditions of the relevant exemption, please contact a member of our financial services team.

The authors are grateful for the assistance of Cate Shirley, Lawyer, in preparing this Insight.

Nikki Bentley

I understand the financial services industry and thrive on helping our clients in this industry succeed.

Nikki Bentley Partner

Nikki is the Group Leader of Henry Davis York's Corporate Group, which includes the legal teams for Corporate / Mergers & Acquisitions; Investments & Financial Services and Tax.

Nikki is a leading investment funds advisor specialising in financial services and corporate law.  She specialises in business establishment and structuring, fund establishment, funds merger and acquisition, product disclosure and distribution. Nikki leads HDY's corporate group which combines expertise from the Financial Services, M&A and Tax areas.

Nikki provides advice to leading Australian and global fund managers on a full range of corporate, commercial and regulatory issues facing their businesses. She has considerable experience in assisting clients with fund establishment (onshore and offshore), disclosure and distribution. Nikki regularly advises clients on establishing, buying, selling and restructuring their businesses. She also regularly assists clients responding to regulatory enquiries and investigations.

With more than 15 years funds management experience in private practice, government and as an in-house lawyer, Nikki's practice spans the range of funds management products, with particular expertise in hedge funds, property funds and equities.

Nikki is regularly involved in industry and government discussions on regulatory reforms impacting the Australian funds management industry. Nikki is a passionate advocate for the development of a new corporate collective investment vehicle because of the opportunities it could provide to grow the funds management industry. She is the Honorary Legal Counsel and Chair of the Regulatory Committee for the Australian branch of the Alternative Investment Management Association (AIMA) and is a regular participant on the Financial Services Council (FSC) working groups.

see my profile
Jon Ireland

I constantly strive for technical excellence and commercial outcomes that add real value for my clients.

Jon Ireland Partner

Jon has extensive experience in corporate and financial services law, specialising in complex transactions, funds management and investment distribution. Jon also advises on regulatory issues relating to the use of technology in financial services.

Jon provides advice to leading Australian and international financial services clients on the full range of corporate, commercial and regulatory issues facing these businesses. He has considerable experience advising them on establishing, buying into, selling and restructuring their businesses.

Jon regularly advises on funds management issues including fund structuring, disclosure, investment management and outsourcing arrangements. He has particular expertise in the area of investment distribution and has advised on key projects for platform operators and advice providers.

Recently, Jon has advised on the establishment of a fully digital investment platform, the negotiation of a material outsourcing arrangement for a global investment bank and a scheme modernisation project for a leading Australian fund manager. Jon has also recently advised on the establishment of the Australian operations of a global diversified financial services business, including regulatory and corporate issues related to its expansion.

Jon's clients value his advice on recent law reforms, including around product disclosure statements and the digital provision of financial services. Jon is consulting to the Committee for Sydney and is a regular participant on Financial Services Council working groups.

see my profile
Vinod Kumar

I aim to exceed expectations with commercial, innovative and engaging legal advice.

Vinod Kumar Senior Associate

Vinod advises fund managers and other financial institutions on corporate, commercial and regulatory issues facing their businesses. He specialises in funds management and general corporate law.

Vinod specialises in regulated and unregulated corporate transactions, funds management and financial services regulation. Vinod also provides general corporate advice on matters such as Corporations Act, ASX and regulatory compliance, corporate governance and disclosure.

Vinod's experience includes:

  • advising on a range of listed and unlisted funds, inbound and outbound investment and complex investment products including expertise in superannuation funds
  • foreign financial institutions establishing businesses in Australia
  • assisting clients to establish wholesale and retail funds (managed investment schemes and trusts). Assisting clients to apply for, vary, and administer Australian Financial Services Licences and Australian Credit Licences
  • advising trustees and responsible entities on governance, financial and operational requirements. Developing, implementing and reviewing compliance and risk management policies and procedures
  • advising on trust restructures and schemes, mergers and acquisitions of funds, fund investments and divestments
  • advising on financial services regulations including the Corporations Act 2001 (Cth), Superannuation Industry (Supervision) Act 1993 (Cth) and related regulations
  • launching new financial products including preparing information memoranda, product disclosure statements and advising on disclosure obligations generally, including under the ASX Listing Rules.


see my profile
Matthew Farnsworth

It's rewarding to partner with clients to find solutions that add value and help them succeed.

Matthew Farnsworth Special Counsel

Matthew has extensive experience in funds management and financial services law. He advises leading Australian and international financial services clients across a wide range of transactional and regulatory matters.

Matthew advises leading Australian and international financial services clients on transactional and regulatory matters.

Clients look to Matthew to assist them to establish, offer and operate retail and wholesale investment funds. He advises on Australian financial services licensing, fund governance, offer documents and fund restructures, including managed investment schemes and other collective investment vehicles (CIVs).

He also advises on outsourcing arrangements, compliance issues and on ongoing regulatory developments in the financial services sector.

Matthew is experienced in the full range of asset classes and has particular experience in the property funds sector, including fund establishment, capital raising and restructures.

He is also experienced in a wide range of transactions in the financial services sector, joint ventures and funds M&A.

see my profile