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Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services providers to operate in Australia without an AFSL.
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services providers to operate in Australia without an AFSL.
In a move that many have argued has backtracked on the work implemented since the Hayne royal commission, the government said it will consult on options to allow foreign financial services providers (FFSPs) who are licensed and regulated in foreign “jurisdictions with comparable financial services rules”, or “have limited connection to Australia”, to operate Down Under without an Australian Financial Services Licence (AFSL).
The government will also consult on options to create a fast-track licensing process for financial services providers who wish to establish more permanent operations in Australia.
“Fast-tracking is intended to shorten application time frames and reduce barriers to entering the Australian market,” the budget reads.
And while the Financial Services Council (FSC) has applauded the government’s intentions, noting that they will “drive greater diversity of investment strategies and competition among fund managers”, Australian financial experts are concerned.
Speaking to nestegg, RMIT’s Dr Angel Zhong said that despite the government’s chosen limit – the exempted firms must deal with wholesale clients and professional investors with assets of at least $2.5 million – this move could put Aussie firms at risk.
“This linear attitude towards regulating foreign firms would actually increase the risk of shoddy investment advice to other services. It will actually harm the domestic industry, because financial planners in Australia have to be licensed, and it costs them on average $50,000 per adviser per annum.
“Australia’s financial services industry is arguably the most heavily scrutinised and regulated industry compared to other countries,” Dr Zhong explained.
Given the high fees and strict education requirements, Dr Zhong said this could be a “double standard” for the domestic financial industry.
At the moment, FFSPs must hold an AFSL in order to provide financial services in Australia, or be able to rely on an exemption.
In 2018, ASIC began taking steps to repeal some of these exemptions.
In fact, on 31 March 2022, ASIC’s finalised FFSP reforms were due to take effect, which would have seen the termination of the ‘limited connection’ and ‘passporting’ exemptions, as well as the introduction of the new foreign AFSL framework for FFSPs regulated in a ‘sufficiently equivalent’ manner overseas.
It is now unclear whether this termination date will be deferred.
But while she is concerned for the local market, Dr Zhong does see some benefits in what the government is proposing.
“This is part of the strategy to attract global talent, increase competition, and the industry may benefit from the fintech innovations from other countries. This may benefit Australian investors, as fierce competition may mean lower fees,” Dr Zhong added.
“The details of implementation remain to be seen, but hopefully fair rules should be in place so that local advisers are not disadvantaged,” she concluded.
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