Does a Foreign Business or Person Need to Apply for an Australian Financial Services Licence (AFSL)?

Introduction

Generally, any entity carrying on a financial services business in Australia is required to hold an Australian Financial Services Licence (AFSL). This requirement, under the Corporations Act 2001 (Cth), is overseen by the Australian Securities and Investments Commission (ASIC), the regulatory body responsible for administering financial services laws.

For foreign financial service providers (FFSPs) seeking to provide financial services to Australian clients, navigating the Australian regulatory regime can be complex. However, there are various licensing relief and exemption options available to FFSPs, offering pathways to provide financial services in Australia without necessarily obtaining a standard AFSL.

Understanding When an Australian Financial Services Licence (AFSL) is Required for Foreign Entities

The Core Requirement: Carrying on a Financial Services Business in Australia

Both Australian and foreign entities generally require an Australian Financial Services (AFS) licence if they are carrying on a financial services business in Australia. This principle forms the foundation of Australia’s financial regulatory regime.

The ASIC oversees this licensing framework. For foreign entities looking to provide financial services in Australia, determining whether they need an AFS licence is essential—unless an exemption applies.

Defining “Financial Services” and “Financial Products” in the Australian Context

Under Australian law, “financial services” and “financial products” are defined broadly, and understanding these terms is central to determining whether an AFS licence is required.

Financial services encompass various activities, including:

• Providing financial product advice
• Dealing in a financial product
• Making a market for a financial product
• Operating a registered managed investment scheme
• Managing the operations of a corporate collective investment vehicle (CCIV)
• Providing custodial or depository services
• Offering traditional trustee company services
• Supporting crowd-funding services
• Acting as a superannuation trustee
• Handling and settling claims services

Financial products, on the other hand, include facilities through which individuals:

• Make financial investments
• Manage financial risks
• Execute non-cash payments

Examples of financial products include securities, interests in managed investment schemes, derivatives, and various types of insurance, such as general and life insurance. Because the AFS licensing regime revolves around financial services provided in relation to financial products, these definitions are crucial.

“Carrying on Business” and “Inducing Conduct”: Triggers for AFSL Requirement

For foreign entities, holding an AFS licence becomes necessary when they are determined to be “carrying on a financial services business in Australia.” Two primary concepts underpin this requirement:

1. Carrying on a business in Australia
2. Inducing conduct

The interpretation of “carrying on a business in Australia” is highly dependent on the specifics of each case, as determined by the courts. General indicators considered by the courts include:

• Evidence of system, repetition, and continuity in activities conducted in Australia
• The presence of a place of business in Australia
• Use of a share transfer or registration office in Australia
• Administration, management, or dealings with property located in Australia

A foreign entity will typically be seen as “carrying on a business in Australia” if its regulated activities have a sufficient connection to the country.

Inducing conduct, on the other hand, becomes relevant even if the foreign entity does not meet the strict criteria for carrying on a business. This refers to activities aimed at—or likely to—induce people in Australia to use the entity’s financial services. Actions falling under this category can trigger the requirement for an AFS licence, subject to available exemptions.

Individual Relief for New Entrant Foreign Financial Service Providers

Individual Relief for FFSPs Regulated by a “Sufficiently Equivalent” Overseas Regulator

Individual relief provides FFSPs entering the Australian market an opportunity to offer financial services under a modified Australian Financial Services (AFS) licence, easing their regulatory obligations. For FFSPs regulated by an overseas authority deemed “sufficiently equivalent” to ASIC’s standards, the process to obtain individual relief is relatively streamlined.

ASIC has identified the following overseas regulatory authorities as having requirements sufficiently equivalent to Australia’s:

• Danish Financial Supervisory Authority (FSA) of Denmark
• Autorité des marchés financiers (AMF) or Autorité de contrôle prudentiel et de resolution (ACPR) of France
• Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) of Germany
• Securities and Futures Commission (SFC) of Hong Kong
• Commission de Surveillance du Secteur Financier (CSSF) of Luxembourg
• Ontario Securities Commission (OSC) of Ontario, Canada
• Monetary Authority of Singapore (MAS) of Singapore
• Finansinspektionen (FI) of Sweden
• Financial Conduct Authority of the United Kingdom
• Commodity Futures Trading Commission (CFTC), Federal Reserve, Office of the Comptroller of the Currency (OCC), or Securities and Exchange Commission (SEC) of the United States

To qualify under this pathway, FFSPs must meet the following criteria:

1. They are regulated by one of the listed “sufficiently equivalent” overseas regulators.
2. They provide financial services exclusively to wholesale clients in Australia.
3. The financial services offered align with the types specified in Schedule 1 of the ASIC Corporations (Foreign Financial Services Providers – Foreign AFS Licensees) Instrument 2020/198.

Individual Relief for FFSPs Regulated by a “Non-Sufficiently Equivalent” Overseas Regulator

For FFSPs whose home regulatory authority is not considered “sufficiently equivalent” by ASIC, relief remains possible, but the process requires a more involved application. These FFSPs must submit a detailed explanation of the regulatory framework governing their operations to ASIC. This submission facilitates ASIC’s evaluation of their home jurisdiction’s standards and oversight.

Irrespective of the jurisdiction, the following conditions are mandatory for all FFSPs applying for relief:

1. Services must be offered exclusively to wholesale clients in Australia.
2. The types of financial services and products provided must adhere to restrictions tied to the applicant’s jurisdiction.

For FFSPs from non-sufficiently equivalent jurisdictions, a detailed explanation of their home country’s regulatory regime is crucial. This explanation helps ASIC assess the suitability of the framework and determine whether individual relief can be granted.

Existing Relief Options for Foreign Financial Service Providers (FFSPs) Currently in the Australian Market (Except Individual Relief)

Class-Based Sufficient Equivalence Relief (Closed to New Entrants)

Class-based sufficient equivalence relief provided a streamlined entry point for Foreign Financial Services Providers (FFSPs) to operate in Australia. This relief was based on ASIC’s recognition of certain overseas financial regulatory regimes as sufficiently comparable to Australia’s.

Under this relief, FFSPs regulated by specific foreign authorities, such as those in the USA, UK, Singapore, Germany, Luxembourg, and Hong Kong, were exempted from obtaining an Australian Financial Services Licence when offering financial services to wholesale clients in Australia. These foreign authorities include:

Country	Regulator	Class Orders (CO) or legislative instrument
UK	UK Financial Conduct Authority or Prudential Regulatory Authority	CO 03/1099
US	US Securities and Exchange Commission	CO 03/1100
US	US Federal Reserve and Office of the Comptroller of the Currency	CO 03/1101
US	US Commodity Futures Trading Commission	CO 04/829
Singapore	Monetary Authority of Singapore	CO 03/1102
Hong Kong	Hong Kong Securities and Futures Commission	CO 03/1103
Germany	Bundesanstalt für Finanzdienstleistungsaufsicht of Germany	CO 04/1313
Luxembourg	Luxembourg Commission de Surveillance du Secteur Financier	ASIC Corporations (CSSF-Regulated Financial Services Providers) Instrument 2016/1109

Key details about class-based sufficient equivalence relief:

• Closed to new entrants: This relief is closed to new applicants as of 1 April 2020.
• Transitional arrangements: FFSPs that relied on this relief as of 31 March 2020 may continue operating under it until 31 March 2026.

Given the 2026 cessation, FFSPs currently depending on this exemption must explore other compliance pathways soon to ensure continued access to the Australian market.

Limited Connection Relief (Ending 31 March 2025)

Limited connection relief was designed to accommodate FFSPs with a minimal presence in Australia. This exemption applies to FFSPs whose activities in Australia are restricted to “inducing conduct”—specific actions intended to encourage wholesale clients in Australia to use their financial services.

To qualify for limited connection relief, FFSPs must meet the following requirements:

• Limited physical presence: They cannot have a business presence in Australia beyond inducing conduct.
• Target clients: Services must be provided exclusively to wholesale clients.

Transition to the Funds Management Relief:
This relief is set to end on 31 March 2025 and will be replaced by the Funds Management Relief introduced under the ASIC Corporations (Foreign Financial Services Providers – Funds Management Financial Services) Instrument 2020/199. The new relief will apply to:

• A narrowed scope of services, focusing specifically on “funds management financial services.”
• A stricter, more limited category of professional investors.

Affected FFSPs must prepare for this transition and assess whether they qualify for the Funds Management Relief or need to adopt a different regulatory approach. Failure to do so will disrupt their ability to operate in Australia beyond 1 April 2025.

Standard Australian Financial Services Licence (AFSL)

When a Standard AFSL is Required

Foreign Financial Services Providers (FFSPs) must obtain a standard AFSL when they are not eligible for other forms of licensing relief or exemptions. This is particularly relevant for FFSPs intending to provide financial services to retail clients in Australia.

If options such as individual relief or exemptions—like funds management relief—do not apply, a standard AFSL serves as the primary pathway for legally operating a financial services business within Australia. To secure this licence, FFSPs must submit a detailed online application to the Australian Securities and Investments Commission (ASIC), including evidence demonstrating their ability to meet the obligations of an AFS licensee.

Key Aspects of Obtaining a Standard AFSL

To successfully obtain a standard AFSL, FFSPs are required to:

• Submit a comprehensive online application to ASIC.
• Provide supporting evidence demonstrating their compliance capabilities, including proof of resources, systems, and processes to meet ASIC’s regulatory standards.

Upon approval, FFSPs are subject to the standard AFS licensing arrangements and obligations, as outlined under sections 912A and 912B of the Corporations Act 2001. These obligations include the following:

1. Ensuring operations are conducted efficiently, honestly, and fairly.
2. Complying with general licensee requirements, including regulatory record keeping, training, and financial adequacy.

Unless specific relief is granted by ASIC, standard AFSL holders must comply with all ongoing obligations under Australia’s regulatory regime. These requirements are integral to ensuring the protection of clients and the integrity of the Australian financial services industry.

Proposed New Licensing Exemptions for Foreign Financial Service Providers (FFSPs) Commencing 1 April 2025

Professional Investor Exemption

As part of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023, the Australian Government has proposed the Professional Investor Exemption, which is expected to take effect on 1 April 2025, subject to the successful passage of the legislation.

This exemption allows FFSPs to provide financial services to professional investors without holding an Australian Financial Services (AFS) licence. However, certain conditions must be met, including:

• Restricted client base: The services can only be provided to “professional investors,” a subset of wholesale investors as defined under Australian law.
• Offshore provision of services: The service must be delivered from a location outside of Australia, though up to 28 calendar days per year are permitted for marketing visits within Australia.
• Location of operations: The FFSP’s head office and principal place of business must be located outside Australia.
• Legal compliance assurance: The FFSP must reasonably believe that offering the same, or substantially the same, financial service would not breach laws in the jurisdiction where their head office and principal place of business is located.
• Notification requirement: The FFSP must notify ASIC of their intent to rely on the exemption.

These conditions aim to balance access to international service providers with regulatory safeguards in the Australian market.

Comparable Regulator Exemption

The Comparable Regulator Exemption is another proposed pathway for FFSPs and is also part of the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023. This measure is designed to replace the individual relief currently available to FFSPs and is slated to take effect on 1 April 2025.

This exemption is intended for FFSPs regulated by comparable overseas regulatory authorities and provides relief from the requirement to hold an AFS licence. To qualify, FFSPs must meet these specific criteria:

• Foreign regulatory oversight: The FFSP must be authorised, registered, or licensed by a “comparable regulator” to provide the same or substantially similar financial services outside Australia.
• Wholesale client exclusivity: The financial services provided in Australia must be offered solely to wholesale clients.

This exemption mirrors the principles of previous class-based sufficient equivalent relief policies and seeks to streamline compliance obligations for FFSPs operating under comparable regulatory standards.

Market Maker Exemption

The Market Maker Exemption is the third proposed licensing exemption for FFSPs under the Treasury Laws Amendment (Better Targeted Superannuation Concessions and Other Measures) Bill 2023. It focuses on FFSPs engaged in specialised market-making activities and is likewise slated to commence on 1 April 2025, contingent on the bill’s approval.

This exemption applies to FFSPs providing market-making financial services, subject to the following conditions:

• Scope of services: The financial services must involve making a market for derivatives.
• Eligibility for trading: These derivatives must be capable of being traded on a specified licensed market in Australia.

By recognising the unique nature of market-making activities, this exemption aims to encourage the participation of FFSPs in the Australian derivatives market while maintaining regulatory oversight for these high-level activities.

Conclusion

Successfully navigating Australia’s regulatory framework is essential for FFSPs looking to offer financial services. Several pathways are available, including individual relief, class-based and limited connection reliefs (some of which are transitional), proposed licensing exemptions, and the standard AFSL. Understanding the distinct eligibility requirements and compliance obligations of these options is critical to selecting the most suitable route.

Given the complexities and the ever-changing regulatory environment, expert guidance is vital. AFSL House is here to help foreign financial service providers identify and pursue the right pathway. Contact our experienced team today to explore your options and ensure seamless compliance with Australian regulatory requirements.

Frequently Asked Questions