Reversing into a regulator – reverse solicitation pitfalls

Entities operating under an Australian Financial Services Licence (AFSL) must exercise caution when interacting with clients located outside of Australia.

The Australian Securities and Investments Commission (ASIC) has previously indicated in Consultation Paper 315 (CP 315) and Report 656 that ASIC does not support licensing relief based solely on reverse solicitation, citing concerns about monitoring, investor protection, and regulatory enforcement. The same is broadly true for other advanced markets AFSL-holders may interact with.  

This issue is more prevalent than ever with the globalisation of financial markets, particularly in the digital assets space.

Reverse solicitation

Reverse solicitation remains a limited and complicated basis for engaging non-Australian clients, particularly in highly regulated jurisdictions such as the United Kingdom or European Union, where financial promotions and cross-border financial services laws are actively enforced.

Reverse solicitation refers to circumstances in which a client initiates contact with a financial services provider entirely of their own accord, without any prior advertising, marketing, solicitation, or inducement. If properly documented, reverse solicitation may reduce regulatory risk in jurisdictions where the provider is not licensed. However, it is not a safe harbour under Australian law, nor under the majority of international regimes. At best, it provides some evidentiary value in demonstrating that the provider did not actively offer or promote services into the foreign jurisdiction in seeking to avoid regulatory consequences.

Flipping FFSP Guidance

ASIC made its position clear in CP 315, stating that it did not consider there to be sufficient justification for licensing relief based on reverse solicitation i.e. to Australian investors. This was reaffirmed in Report 656, which noted that no such relief would be granted to FFSPs servicing Australian professional investors, and that the risks to Australian investors and the integrity of the regulatory framework were too great. This approach reflects ASIC’s broader concerns about compliance oversight in cross-border service provision.

The position taken by ASIC aligns with the approach of other regulators, such as the UK’s Financial Conduct Authority (FCA). Under the UK financial promotions regime, governed by the Financial Services and Markets Act 2000 (FSMA), any invitation or inducement to engage in investment activity must be issued or approved by a UK-authorised person. Reverse solicitation is not a formal exemption in the UK, and the FCA applies a broad interpretation of what constitutes a “promotion” of a financial product, including websites, social media content, and responses to inbound inquiries where the initial contact was indirectly driven by advertising.

In the European Union, reverse solicitation is governed by MiFID II, specifically Article 42, which permits third-country firms to provide services at the exclusive initiative of the client. However, the European Securities and Markets Authority (ESMA) has repeatedly cautioned against the abuse of this exemption. In particular, ESMA has emphasised that the mere acceptance of EU-based clients following any form of marketing or general outreach — even indirectly — may disqualify a firm from relying on reverse solicitation. Post-Brexit, scrutiny has intensified, with several EU national regulators issuing warnings against firms allegedly circumventing local licensing regimes under the guise of client-initiated contact.

For AFSL holders, this creates significant legal and reputational risk. Even when a prospective offshore investor appears to initiate contact, if that interaction was prompted by general advertising, content marketing, or any other form of indirect inducement, the client relationship may still be considered a “promotion” in many jurisdictions. "Indirect inducement" is notoriously factually difficult. Even if a prospective offshore client initiates contact, that enquiry may be invalidated if it was influenced — however subtly — by earlier promotional efforts. This includes general advertising, SEO-driven content, social media posts, or third-party referrals that mention the firm’s services.

Australian firms must take care to assess the full marketing and distribution journey that may have led to an enquiry, and avoid relying on reverse solicitation where there is a risk that indirect outreach has occurred, even unintentionally. Missteps in this area can expose a firm to enforcement action, fines, or bans on operating in certain markets.

Practical guidance

To mitigate these risks, AFSL holders should take a proactive and structured approach when engaging with offshore clients. Ideally, this begins with a jurisdictional risk assessment — identifying the countries in which prospective clients are located and understanding the regulatory regimes that apply to the provision of financial services and the making of financial promotions in each.

Marketing and client acquisition strategies should be carefully reviewed to avoid unlawful cross-border promotion. Firms should avoid sending promotional materials, advertisements, deal invitations, or newsletters to individuals or entities in jurisdictions where they are not authorised. Public-facing websites and platforms should include clear disclaimers and geo-blocking where feasible, to limit access from high-risk jurisdictions.

Where reverse solicitation is relied upon, the risks must be properly appreciated and it must be properly documented in risk frameworks, policies, procedures and controls. AFSL holders should implement onboarding flows that require prospective clients to acknowledge, in writing or via digital click-through, that they initiated contact without any prior promotion or inducement. The acknowledgment should also make clear that the firm is licensed under Australian law only, that the services are not offered under the investor's local laws, and that the investor may not benefit from local consumer or investor protections. Records of these acknowledgments, along with supporting metadata such as IP addresses, timestamps, and user logs, should be retained for audit and regulatory purposes.

In some cases, where a firm’s business model involves regular or substantial engagement with offshore clients, it may be advisable to establish a locally licensed affiliate or partner with a regulated local entity to ensure full compliance. Additionally, care should be taken to separate “on-platform” and “off-platform” activity if they involve different regulatory risks — for instance, connecting foreign counterparties in off-platform securities transactions may require further structuring or disclaimers.

Conclusion

In conclusion, while reverse solicitation may assist in reducing legal exposure when servicing offshore clients, it should not be used in isolation / carries clear legal and compliance risk which should be tested. If adopted, it must form part of a broader compliance strategy that includes onboarding controls, jurisdictional analysis, tailored disclaimers, and robust documentation. Regulators in Australia and overseas are increasingly vigilant in the cross-border financial services space, and AFSL holders must ensure they are operating within the law wherever their clients reside.

Firms that are planning international growth, expanding digital platforms, or engaging in off-platform intermediary activity should seek legal advice to confirm their approach is compliant with both Australian and foreign regulations.

‍