In Australia, the processes and procedures of financial and investment organisations, including Unlisted Property Trusts, are governed by an Australian Financial Services Licence (AFSL),.). An AFSL is provided by the Australian Securities and Investment Commission (ASIC), Australia’s corporate regulator. Financial Services businesses must hold an AFSL to conduct a financial services business in Australia unless an AFSL exemption applies.
What are the AFSL Exemptions?
There is a myriad of exemptions to hold an AFSL found in. Chapter 7 of the Corporations Act 2001 (Cth) (Corporations Act),
AFSL Exemptions are:
- Foreign Financial Services Providers (FFSPs)
- Financial Counselling Agencies (FCA)
- Foreign Collective Investment Schemes (FCIS)
- businesses carried out in connection with an AFS licensee
- when the financial services business is not the only or main focus of the activity
- financial services that only involve the financial services provider
- when the financial service is under the authority of an alternative regulatory regime
Foreign Financial Services Providers
Prior to April 2020, ASIC provided two avenues of exemptions to FFSPs that provided financial services to Australian wholesale clients. The two exemptions are:
- sufficient equivalence relief: applies when the FFSP provides financial services to only wholesale clients, and ASIC considers the overseas regulatory regimes to be sufficiently equivalent to the Australian regime ( at present ASIC deems the UK, the USA, Singapore, Hong Kong and Luxembourg to be sufficiently equivalent); and
- limited connection relief: applies when the FFSP is deemed to be carrying on the financial services business in Australia as a means to engage and induce Australians.
However, the two exemptions have since been reappealed. ASIC implemented transitional licensing relief to allow FFSPs relying on either exemption to continue doing so until 31 March 2023. Since the implementation of that transitional period, there has been new developments with respect licensing exemptions for FSSPs. ASIC has recently extended the transitional relief by another year, which means that FFSPs that are currently utilising either exemption will be able to continue to do so until 31 March 2024. The extension is a result of the lapsing of the Bill which sought to introduce permanent licensing relief from 1 April 2023.
As it stands, it is unclear what permanent licensing relief options available to FFSPS after the transitional period expires on 31 March 2024.
Financial Counselling Agencies (FCA)
ASIC Corporations (Financial Counselling Agencies) Instrument 2017/792 provides financial counselling agencies with an exemption to holding an AFSL. A financial counselling agency (FCA) predominately provides counselling and advocacy services for individuals or small business who experience financial difficulty.
Financial counselling agencies are exempt from holding an AFSL if they:
- do not charge clients for services rendered or take any renumeration.
- take reasonable steps to ensure that each person that provides a financial service on its behalf is an eligible member of a financial counselling association and has taken appropriate training;
- do not provide or participate in a financial services business; and
- take reasonable steps to guarantee their staff does not provide or participate in a financial services business.
AFS licensing requirement for trustees of unregistered managed investment schemes
Generally, a trustee that issues, varies, or disposes of interests in an unregistered scheme must hold an AFS licence that authorises it to deal in a financial product by issuing, varying or disposing of interests in a managed investment scheme.
In certain circumstances, a trustee may rely on exemptions from the requirement to hold an AFS licence. Exemptions from the requirement to hold an AFS licence include:
- the authorised representative exemption – pursuant to 911A(2)(a) of the Corporations Act.
- the intermediary exemption – pursuant to section 911A(2)(b)
Authorised representative exemption
The authorised representative exemption is a limited exemption from the requirement to hold an AFS licence.
The authorised representative exemption enables a person or company that does not hold an AFSL to provide financial services as representative of an AFSL. The representative must carry out services that are covered under the AFSL for which it is a representative of.
Intermediary authorised exemption
This exemption enables an unlicensed product provider to operate a financial services business by entering into an arrangement (intermediary authorisation) with a financial services licensee. The arrangement enables a person or company to carry out a financial services business under an intermediary authorisation.
To provide a financial service to clients in Australia, a person or company must be a holder of an AFSL issued by ASIC. The AFSL is a legal licence that governs the processes, and procedures of financial and investment organisations, including Unlisted Property Trusts. There are exemptions that apply, depending on the circumstances.