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.
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:
- providing the services in Australia in a manner that complies, as far as possible, with the regulatory requirements in the FFSP's home jurisdiction;
- providing written disclosure (in a prescribed form) to any persons before financial services are provided to that person;
- 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
- 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.
If a FSSP breaches any of the conditions of the relevant exemption, it must:
- 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
- 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.
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.