AUSTRALIA

FINANCIAL SERVICES
LICENSING REGIME

As a result of the Financial Services Reform Act 2001, Australia has adopted a much more unified financial services licensing regime. This regime came into full effect on 11 March 2004.

As of that date, all persons who carry on a financial services business in Australia are required to have an Australian financial services license or have the benefit of an exemption from this requirement.

Australian financial services licenses are issued by ASIC on satisfaction of the relevant licensing application criteria. License applications can require quite extensive proofs in support. License holders have an extensive range of obligations imposed on them.

Breaches of the Australian financial services licensing regime can lead to criminal sanctions and the possibility that unlicensed Australian counterparties can rescind transactions.

Under the relevant Australian legislation:

- A financial service provider may be deemed to carry on a financial services business in Australia even though it has no physical presence in Australia, and

- There is no general licensing exemption based merely on the fact that a financial service provider only deals with institutional Australian counterparties (eg Australian banks, financial services license holders, insurers and fund managers).

Lenders are, generally speaking, not covered by this licensing system, but most other types of financial services are covered (for example, deposit taking, foreign exchange contracts, derivatives, custody, managed investments, stock-broking, insurance and superannuation). This also includes wholesale over-the-counter treasury and derivative trading, potentially even by entities who would consider themselves end-users of these products.

Examples of a foreign company which may be affected by the Australian financial services licensing regime include:

- a foreign company entering into spot, swap, repo, option or forward transactions in currency, commodities, metals, rates and indexes with persons in Australia through either the over-the-counter markets or through automated dealing systems
- a foreign company issuing securities, shares, stocks, deposits, debentures, bonds, managed investment products or insurance to persons in Australia
- a foreign company effecting secondary market trades in securities, shares, stocks, debentures, bonds or managed investment products as an agent or trustee of a person in Australia
- a foreign company, whilst acting as an agent or trustee of a third person, entering into secondary market trades in securities, shares, stocks, debentures, bonds or managed investment products with counterparties who are persons in Australia
- a foreign company providing giropost or other electronic non-cash payment facilities to persons in Australia, or
- a foreign company provider holding securities, shares, stocks, debentures, bonds, managed investment products, or interests in such products, on trust for persons in Australia.

A number of exemptions may be available to foreign financial service providers. These can include:

- transactions arranged or effected by an Australian financial services licensee
- certain products or services offered to Australian wholesale clients by financial services providers who are regulated by certain approved foreign regulators, such as the Securities and Exchange Commission in the US or the Financial Services Authority in the UK, and comply with other applicable conditions so as to qualify for this relief, and
- certain foreign service providers who are not otherwise carrying on business in Australia and who only provide limited financial services to Australian wholesale clients from outside Australia.

The exact scope of these exemptions is technical and complex. Much depends on the individual circumstances of the relevant financial services provider.

The Australian financial services regime differentiates between retail and wholesale clients. There are significant additional disclosure and conduct requirements where financial services are provided to retail clients.

In addition, persons who operate financial markets in Australia must obtain an Australian market license or fall within an exemption from this requirement. In certain circumstances, this market licensing regime may affect foreign companies that operate markets in financial products in which Australian persons are participants.

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