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ASIC today registered the following Class Orders.
- ASIC Class Order [CO 13/1406] – it notionally inserts s912AAB into the Corporations Act which contains the minimum standards that a responsible entity must meet in relation to the holding of interests in land required for the operation of a registered managed investment scheme to ensure the land holding arrangements enable the scheme to be operated efficiently, honestly and fairly.
- ASIC Class Order [CO 13/1409] – it notionally inserts ss601FCAA and 601FCAB into, and provides relief from subparagraph 601FC(1)(i)(ii) of, the Corporations Act to impose minimum standards on responsible entities for holding and dealing with scheme property, to ensure that efficient operational arrangements exist, and scheme property is not exposed to unnecessary risks because of the way it is held.
- ASIC Class Order [CO 13/1410] – it notionally inserts ss912AAC, 912AAD and 912AAE into the Corporations Act to impose minimum standards on custodians for holding custodial property, to ensure that efficient operational arrangements exist and that custodial property is not exposed to unnecessary risks because of the way it is held.
- ASIC Class Order [CO 13/1411] – it amends Class Order [CO 04/194] by inserting paragraphs 1.22A to 1.22S and paragraphs 2.8A to 2.8C to specify the minimum standards that a managed discretionary account service (MDA) operator must meet in holding client property or arranging for client property to be held by another asset holder and minimum content requirements for the MDA operator's agreement with a custodian.
- ASIC Class Order [CO 13/1412] – it amends ASIC Class Order [CO 13/763] by amending s912AD notionally inserted into the Corporations Act to impose minimum standards on IDPS operators for holding investor directed portfolio services (IDPS) property to ensure that efficient operational arrangements exist and IDPS property is not exposed to unnecessary risks because of the way they are held.
- ASIC Class Order [CO 13/1413] – it amends the ASIC Class Order [CO 13/760] by amending s912AA notionally inserted into the Corporations Act. It expands the definition of special custody assets which affects net tangible assets (NTA) calculations of responsible entities and IDPS operators, clarifies the time by which certain custodians engaged by a responsible entity or IDPS operator must obtain an audit report and the period to which the report must relate and confirms the NTA requirements that apply to a licensee that does not operate any registered schemes or IDPSs.
ASIC has today updated Information Sheet 155 Shorter PDSs: Complying with requirements for superannuation products and simple managed investment schemes (INFO 155).
After full commencement of the shorter Product Disclosure Statement (PDS) regime in June 2012, ASIC has reviewed a sample of shorter PDSs for superannuation and simple managed investment schemes and has identified areas where industry may benefit from further guidance when preparing a shorter PDS.
INFO 155 provides concise guidance for industry on technical issues related to implementation of the product disclosure regime under Pt 7.9 of the Corporations Act 2001 (Corporations Act) and the related Corporations Regulations for superannuation products and simple managed investment schemes, referred to as 'the shorter PDS regime'. Updates to INFO 155 post ASIC's review clarify:
- page restrictions, font size and formatting of 'warnings';
- employer-sponsored members and employer PDSs;
- whether and how investment options may change; and
- treatment of accumulation and pension interests in the one superannuation fund.
In response to other common issues identified the following points should also be considered when preparing shorter PDSs.
- Shorter PDSs must explain the cooling-off period. This includes shorter PDSs for public offer superannuation funds, unless intended only for employer-sponsored members.
- If a product feature has a benefit and a cost and the PDS refers only to the benefit, ASIC’s view is that the PDS may be misleading unless it also refers to the cost.
ASIC has stop order powers in relation to PDSs (including shorter PDSs) that contain misleading or deceptive statements: see section 1020E of the Corporations Act.
Stronger Super reforms soon to be implemented will affect PDS fee disclosure in both superannuation and managed investments.
ASIC has today released revised guidance on the custody of assets and standards to be met by asset holders.
The revised guidance in Regulatory Guide 133, renamed Managed investments and custodial or depository services: Holding assets (RG 133), and six class orders, updates existing measures to:
- apply minimum standards to asset holders for managed investment schemes and holders of financial products, and affects responsible entities, licensed custodians, platform operators and managed discretionary account operators;
- ensure agreements with asset holders have certain minimum terms; and
- require primary production scheme responsible entities to safeguard the land on which the scheme operates.
ASIC has also updated Regulatory Guide 166 Licensing: Financial requirements (RG 166) to accommodate industry practice of custody of certain assets like derivatives and certain bank accounts and private equity interests when these are held by a responsible entity of a managed investment scheme where existing financial resource requirements would not otherwise allow this.
The revised requirements apply from 2 January 2014 to asset holders that first hold assets, or arrange for them to be held, after that date. Otherwise they have until 2 January 2015 to comply with the new requirements and until 1 November 2015 to ensure agreements with asset holders comply with the changes.
Primary production schemes with interests on issue after 2 January 2014 will have to comply from 1 July 2014.
For further details refer to the ASIC website.
ASIC today released a consultation paper on financial reporting by stapled securities issuers.
A stapled security is one issued by an entity whose securities are required to be traded together with the securities of another entity. Consultation paper CP 217 Presentation of financial statements by stapled entities (CP 217) seeks feedback on proposals for presenting combined financial information covering these stapled entities.
Stapled entities may be unable to present combined financial statements covering entities in a stapled group under the new Australian Accounting Standard AASB 10 Consolidated Financial Statements which applies for reporting periods beginning on or after 1 January 2013.
ASIC is seeking feedback on proposals to:
- provide class order relief to allow stapled entities to present combined financial statements;
- require such statements to be audited or reviewed;
- state that combined financial statements are necessary to meet the true and fair view requirement;
- not relieve stapled entities from presenting the financial statements required by accounting standards, and
- continue to allow the financial statements of all stapled group entities to be presented together in a single financial report.
Submissions close 30 November 2013.
For further details refer to the ASIC website.
ASIC has today released an updated version of RG 175 Licensing: Financial product advisers - Conduct and disclosure (RG 175). The changes are technical and reflect the repeal of s945A and s945B of the Corporations Act on 1 July 2013.
ASIC has today refined the definition of a hedge fund to ensure its disclosure requirements are appropriately targeted at those funds that pose more complex risks to investors.
Following extensive consultation with industry, Class Order [CO 13/1128] Amendment of Class Order [CO 12/749] and an updated Regulatory Guide 240 Hedge funds: Improving disclosure (RG 240), make changes to the characteristics that prompt a registered managed investment scheme to be classified as a hedge fund relieving some lower-risk funds from the more extensive disclosure obligations imposed on a hedge fund under RG 240.
ASIC's disclosure requirements for hedge funds commence from 1 February 2014.
ASIC has today released Report 370 The Australian hedge fund sector and systemic risk.
- hedge funds ASIC identified manage only a small share of Australia's $2.1 trillion managed funds industry with more than half of these holding less than $50 million each;
- the survey indicates Australian hedge funds do not currently appear to pose a systemic risk to the Australian financial system; and
- listed equities represent surveyed hedge fund managers' greatest asset exposure, with 32 per cent of this being in Australian-listed share.
Surveyed qualifying hedge funds also use low leverage and appear to have adequate liquidity to meet obligations.
The survey was representative of the state of the Australian hedge fund industry as a whole, with the assets of the 12 surveyed qualifying hedge funds representing approximately 42 per cent of the assets held by single-strategy hedge funds in Australia.
Australian wholesale investors are the main investors in the surveyed funds. Their hedge-fund investment relative to their total investments is minimal, which tends to reduce systemic impact of any problems in the sector.
By asset class, listed equities (over US$19 billion) are the surveyed fund managers' greatest gross exposures, with almost one-third of this being Australian equities. Equity derivatives and G10 sovereign bonds are the next two most-significant asset classes, with exposures of US$8.2 billion and US$6.9 billion respectively.
Hedge fund redemptions exceeded applications in 2012, compared with the substantial inflows in 2010. However, the 2012 redemptions are unlikely to result in liquidity pressures because the average redemption size is relatively small as a percentage of funds' net asset value.
The average time in which surveyed funds can liquidate 92 per cent of their portfolio is less than 30 days. However, creditors can demand 99 per cent of fund liabilities in less than 30 days. If the Australian market were subject to significant stress, the sector may struggle to meet redemption requests. However, this risk is offset by all the surveyed funds being able to suspend redemptions, if required.
For further information refer to ASIC's website.
ASIC today released a consultation paper proposing a replacement process to the ASIC Training Register, which has been under review since 24 September 2012.
Consultation Paper 215 Assessment and approval of training courses for financial product advisers: Update to RG 146 (CP 215) outlines proposed changes to the process for assessment and approval of training courses for financial advisers.
Prior to the ASIC Training Register being placed under review, approved training courses which met the requirements in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146) were assessed by an authorised assessor and listed on the ASIC Training Register.
CP 215 proposes that courses will no longer need to be listed on the ASIC Training Register. Instead, it is proposed that authorised assessors will assess training courses to determine if they meet the training standards in RG 146.
Submissions to CP 215 close 30 September 2013.
ASIC has released its market integrity rules on dark liquidity and high-frequency trading. These final rules aim to improve the transparency and integrity of crossing systems and strengthen the requirements for market participants to deter market manipulation. The rules will come into force in stages over nine months.
ASIC also released guidance on the rules which clarifies ASIC's expectations of market operators and participants, and a report on submissions made on the proposed rules.
ASIC will release guidance on automated trading and market manipulation in coming months.
The Minister Assisting for Financial Services and Superannuation, David Bradbury, today announced a package of market integrity rules directed at better protecting investors and the stability of Australia's financial markets.
The new rules were refined after industry consultation by ASIC.
The rules provide for:
- public disclosure of information so that market users can understand how their orders may be handled and executed;
- details on the operation of the dark pool to be disclosed to clients;
- dark pools to be operated by a common set of procedures, which do not unfairly discriminate between users;
- investor choice to opt-out of trading in the dark pool if they wish;
- dark pool operators to monitor orders and trades for compliance with the common set of procedures, and report suspicious activity to ASIC;
- extension of existing automated order processing rules to dark pools;
- dark pool operators to notify users and ASIC about system issues as soon as practicable;
- clarification that tick sizes on dark pools are to be the same as those on lit markets;
- improved management of dark pool operator's conflict of interest issues;
- prohibition of negative commissions as payment for order flow; and
- harmonisation of market manipulation rules across markets.
These rules will come into force in stages over a nine month period. ASIC will also issue guidance to clarify the new rules and expectations of market operators and participants.
Once the new rules are registered they will be available on the ASIC website.
For more information see ASIC's media release.
ASIC today put forward a number of proposals to update the record-keeping obligations for those who provide financial advice.
The move comes as the financial advice industry beds down the Future of Financial Advice (FOFA) and Stronger Super reforms, which will result in big changes for most Australian financial services (AFS) licensees including a thorough review of how they go about compliance.
One of the key FOFA reforms is the new best interests duty.
Consultation Paper 214 Updated record-keeping obligations for AFS licensees (CP 214) outlines the types of records that must be kept, including:
- records to prove that the licensee and its representatives have complied with the best interests duty and related obligations;
- records of ongoing fee arrangements entered into with a client;
- copies of documents – such as, fee disclosure statements and renewal notices – that fee recipients must receive for an ongoing fee arrangement, and
- records to prove the licensee and its representatives have complied with the ban on conflicted remuneration.
On the Stronger Super reforms, ASIC is also considering whether to impose a specific requirement on superannuation trustees to keep certain records where the trustee provides personal advice to members which they charge collectively as 'intra-fund' advice.
In line with ASIC's approach to the FOFA and Stronger Super reforms more broadly, ASIC will take a facilitative approach to compliance with the requirements until 30 June 2014.
For further details refer to the ASIC website.
ASIC has recently completed two significant engagement programs with AFS licensees who advise retail clients. These programs are part of ASIC's gatekeeper monitoring and ensuring these gatekeepers are adequately informed and resourced for the functions they undertake.
Report 362 Review of financial advice industry practice: Phase 2 (REP 362), released today, summarises the findings of ASIC's recent review of the business and risk practices of the top 21 to 50 Australian financial services (AFS) licensees that provide personal financial advice.
The report highlights that:
- licensees are focused on risk management and compliance, though different licensees identified different key risks;
- licensees employ different methods to manage risks, and some deploy significantly more resources than others to risk management;
- proactive licensee monitoring should be instrumental in detecting incidents and breaches; and
- advisers should not rely on risk profiling tools without also considering if the outcomes are appropriate for their clients' circumstances.
REP 362 completes ASIC's review of the top 50 licensees. ASIC's findings on the top 20 licensees are discussed in Report 251 Review of financial advice industry practice (REP 251).
ASIC have also recently concluded visits to 24 financial advice licensees who have only recently obtained their AFS licence. These visits aimed to help new licensees better comply with AFS obligations.
ASIC asked licensees questions about their business model, advice processes and approach to risk and compliance. Key findings from the project include:
- licensees need to carefully consider whether their advisers are adequately trained for the advice they are authorised to give. For example, while 83 per cent of the licensees offered self managed super fund (SMSF) services, only 48 per cent of those licensees required their advisers to complete additional training on SMSFs;
- use of external compliance service providers is very common among new advice licensees. 86 per cent of the licensees visited used a compliance service provider on an ongoing basis. Licensees need to be mindful that they retain responsibility for achieving compliance and should consider their appointment of external compliance service providers very carefully; and
- 67 per cent of the new licensees, even those with a small number of advisers and clients, had a paraplanning function. This suggests licensees recognised the value in allowing paraplanners to perform more routine or administrative functions, freeing up advisers' time to focus on services that add value to their clients.
Given the positive feedback ASIC received from the licensees visited, a similar program will be undertaken in the 2013-14 financial year.
For further details refer to the ASIC website.
The Parliamentary Joint Committee on Corporations and Financial Services has tabled a report entitled Statutory Oversight of the Australian Securities and Investments Commission: the role of gatekeepers in Australia's financial services system.
The committee held a public hearing on 21 June 2013 which took the form of a roundtable comprising representatives from the key gatekeepers in Australia's financial services system: financial planners and financial advisers, research houses, custodians, trustees, responsible entities (REs) and auditors.
The roundtable was designed to examine some of the issues that were raised in chapter 7 of the committee's report into Trio Capital, and in particular the expectation gaps between what investors and the public expects gatekeepers and regulators to achieve, what is legally required of them, and what their roles involve in practice. The committee was also interested not only in how the gatekeepers saw their own role and responsibilities, but in how they perceived the roles of other gatekeepers in the financial system.
The report deals with the key issues arising from the roundtable discussion with financial system gatekeepers, and includes ASIC's response to these issues.
ASIC has today registered Class Order [CO 13/897] extending the relief in ASIC Class Order [CO 13/18] to enable the temporary operation of a litigation funding arrangement and a proof of debt funding arrangement without compliance with the requirements of the National Consumer Credit Protection Act 2009 and National Credit Code until 12 July 2014. This is to allow further time for the Government to implement regulations for the purposes of exempting litigation funding arrangements and proof of debt funding arrangements from the Credit Act.
ASIC has also registered Class Order [CO 13/898] to provide for Ch 5C of the Corporations Act 2001 to apply as if the definition of a 'managed investment scheme' in s 9 of the Act were varied to exclude a litigation funding scheme and a proof of debt funding scheme funded by conditional costs agreements. It also exempts lawyers and their representatives from the requirements to hold an AFSL or act as an authorised representative of a licensee to provide financial services associated with a litigation funding scheme and a proof of debt funding scheme that is funded by conditional costs agreements. The Class Order has effect until 12 July 2014.
For background details, refer to our Breaking News for 11 January 2013.
The Corporations Amendment Regulation 2013 (No 5) which was registered today on the FRLI and commences on 1 July, amends the Corporations Regulations 2001 in respect of the provisions in Parts 7.7A and 10.18 of the Corporations Act 2001, dealing with the ban on conflicted remuneration.
Specifically, the Regulation outlines the application of the ban on conflicted remuneration as follows:
- for benefits paid by platform operators, the ban will apply in relation to new clients from 1 July 2014; and for non-platform providers, the ban will apply in relation to new clients and investments in new products by existing clients from 1 July 2014;
- for benefits paid to employees under an enterprise agreement in force immediately prior to 1 July 2013, the ban will apply from 6 months after the nominal expiry date (NED) of the agreement (or 1 July 2014 for those agreements which passed their NED before 1 July 2013); and
- for benefits paid to employees under non-enterprise agreements, the ban will apply from 1 July 2014.
In addition, the Regulation excludes the following benefits from the ban on conflicted remuneration:
- benefits made in relation to the purchase or sale of a financial advice business and the payment of these benefits to third parties on or after the commencement of the ban that result from an arrangement entered into before 1 July 2013; and
- grandfathered benefits that are passed onto other parties that were not subject to the agreement which gave rise to the grandfathered benefit (but which the passed-on benefit is given under a pre-application day arrangement) eg, an authorised representative or a financial adviser who is an employee of a licensee or authorised representative.
ASIC has today announced that it had strengthened the financial requirements for custodial and depository service (custody) providers. The new rules also apply to asset holders for registered schemes or investor directed portfolio services.
Under the changes, custodians (not including incidental providers) and asset holders will be required to hold net tangible assets (NTA) amounting to the greater of:
- $10 million, or
- 10% of average revenue.
Providers who meet the definition of 'incidental provider' will be required to hold NTA amounting to the greater of:
- $150,000, or
- 10% of average revenue.
All custody providers and asset holders will be subject to new requirements regarding the preparation of cash flow projections and liquidity.
The changes are outlined in updated Regulatory Guide 166 Licensing: Financial requirements (RG 166) and implemented through a class order.
ASIC has today released a consultation paper proposing enhancements to the training standards for people who provide financial product advice.
Consultation Paper 212 Licensing: Training of financial product advisers - Updates to RG 146 (CP 212) outlines proposed changes to the training standards that are set out in Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146).
CP 212 proposes to retain the current training standards in RG 146 as 'base level' standards, and to introduce two further regimes of training. These are proposed to come into effect in 2015 and 2019.
CP 212 proposes increases in the:
- generic knowledge requirements;
- specialist knowledge requirements for financial planning, securities and superannuation;
- skill requirements for personal advice; and
- educational level requirements.
CP 212 is also seeking feedback on the time frame for implementation of the proposed new training standards, and the appropriate training standards for personal sickness and accident insurance and consumer credit insurance.
Submissions on CP 212 close on 30 September 2013.For more information see ASIC's media release. For further background details, refer to our Breaking News for 2 July 2012.
ASIC has today registered ASIC Class Order [CO 13/779] to extend the transitional period for compliance with the breach reporting conditions in ASIC Class Order CO 08/1 Group purchasing bodies by another 12 months.
CO 08/1 gives conditional relief from the AFS licensing regime and Chapter 5C of the Corporations Act 2001 for some group purchasing bodies (GPBs) who arrange or hold risk management products (insurance) for the benefit of third parties. GPBs include sporting and other not-for-profit organisations which arrange insurance for third parties (eg, players or volunteers). CO 08/1 provides conditional relief to a limited class of GPBs that organise insurance on a non-commercial basis.
The transitional period for compliance with the breach reporting conditions in CO 08/1 was scheduled to end on 30 June 2013. CO 13/779 extends the transitional period for compliance with the breach reporting conditions in CO 08/1 by another 12 months while the Government considers the issue. That is, until the first time that the body acquires, renews or renegotiates the terms of, the risk management product on or after 30 June 2014 but before 30 June 2015. For background information, refer to our Breaking News for 26 June 2012.
The Corporations Amendment Regulation 2013 (No 4) which was registered today on the FRLI amends the Corporations Regulations 2001 to implement regulations relating to the treatment of stockbroking activities under the Future of Financial Advice (FoFA) reforms.
The amendments are in respect of the treatment of stockbroking-related activities in relation to the bans on conflicted remuneration and asset-based fees on borrowed amounts. These bans were introduced by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012. The Regulation extends the scope of existing stockbroking-related exemptions to provide that:
- brokerage fees are exempt from the ban on asset-based fees on borrowed amounts; and
- fees can be paid between licensees in relation to the dealing on behalf of the retail clients, where those trades are requested by the client through online 'white-label' trading services and where clients do not receive personal advice.
The exemptions provided in the Regulation will be subject to a two year review by ASIC to ensure that they are working as intended.
ASIC has today released an information sheet to assist those intending to apply for a limited Australian financial services (AFS) licence.
The current 'accountants' exemption' under regulation 7.1.29A of the Corporations Regulations 2001 permits accountants to provide advice on the establishment of self-managed superannuation funds without the need for an AFS licence. As part of the FOFA reforms, this exemption will cease to apply on 1 July 2016. From 1 July 2013, accountants will be able to apply for the new limited AFS licence.
Information Sheet 179 Applying for a limited AFS licence (INFO 179) gives practical guidance to help applicants work through the licensing process.
- Provides guidance about ASIC's licensing application process, and how it will apply to those seeking a limited AFS licence;
- outlines what information needs to be submitted in support of a limited AFS licence application; and
- gives information about which ASIC guidance will be most relevant for those seeking a limited AFS licence.
For further details and to access the information sheet, refer to ASIC's website.
ASIC today released revised regulatory guidance to assist operators of registered managed investment schemes and their advisers understand ASIC's views on the constitutional content requirements for schemes in s601GA and s601GB of the Corporations Act 2001.
The revised guidance is contained in an updated version of Regulatory Guide 134 Managed investments: Constitutions (RG 134). The relief is contained in ASIC Class Order CO 13/655 Provisions about the amount of consideration to acquire interests and withdrawal amounts not covered by [CO 05/26], ASIC Class Order CO 13/656 Equality of treatment impacting on the acquisition of interests and ASIC Class Order CO 13/657 Discretions affecting the amount of consideration to acquire interests and withdrawal amounts.
RG 134 sets out ASIC's policy and the action it may take in assessing constitutional provisions relating to:
- the consideration to acquire an interest in the scheme;
- the powers and rights of the responsible entity;
- complaints handling for retail clients and wholesale clients;
- withdrawal rights of members of the scheme;
- winding up the scheme; and
- the legal enforceability of the constitution.
ASIC is providing the managed investments industry until 1 October 2013 to comply with the new requirements. For schemes registered before 1 October 2013, ASIC will not require responsible entities to amend their constitutions to comply with the revised guidance.
For further information on today's announcement and background information, refer to the ASIC media release.
The Corporations Amendment Regulation 2013 (No 3) was registered on the Federal Register of Legislative Instruments today. It amends the Corporations Regulations 2001 to create a new limited licensing regime from 1 July 2013 which allows accountants (and others) to provide a broader range of financial product advice than currently allowed for under the existing accountants' exemption.
The amendments remove the current exemption which allows accountants to provide financial advice on self-managed superannuation funds without an Australian Financial Services Licence (AFSL) from 1 July 2016 and provides alternative licensing arrangements from 1 July 2013. This will provide a three-year transition period for accountants utilising the existing exemption to transition to the new regime.
Specifically, the amendments to the Corporations Regulations:
- remove the accountants' licensing exemption in regulation 7.1.29A from 1 July 2016;
- provide that recognised accountants, partnerships or corporations who apply for an AFSL between 1 July 2013 and 30 June 2016 and only provide particular advice services do not have to demonstrate that they meet the experience required for the purposes of the organisational competence requirement in s 912A(1)(e) of the Corporations Act;
- provide that licensees who receive an AFSL under this streamlined process must within three years of being granted the licence, if requested in writing by ASIC, demonstrate to ASIC they have the requisite knowledge and the competence to provide the financial services covered by their licence; and
- provide that any licensee who only provides particular advice services and does not handle client-money can lodge an annual compliance certificate instead of an auditor's report.
ASIC has today released a consultation paper proposing relief for retail clients who apply for an interest in a registered simple managed investment scheme through the proposed ASX Managed Funds Service (AMFS).
The AMFS is a facility that allows investors to electronically apply for or redeem units in simple managed investment schemes that have been admitted to the service through brokers who are authorised to participate in the service.
Under ASIC's proposals contained in Consultation Paper 208 ASX Managed Funds Service: Relief from the application form requirement (CP 208):
- the proposed relief would apply to responsible entities of registered simple managed investment schemes for applications made through the AMFS;
- the applications would be automatically processed using the ASX electronic settlement system, the Clearing House Electronic Sub-register System (CHESS); and
- the system will ensure investors are provided with a Product Disclosure Statement (PDS) before making any application to purchase an interest in the financial product available through the AMFS.
The message will also indicate whether the investor has downloaded the current PDS from the AMFS broker's website or otherwise been given the current PDS before applying.
Submissions on CP 208 close on 11 July 2013.
For further information on today's announcement and background information, refer to the ASIC media release.
ASIC has today announced that it will consider submissions from industry to refine the definition of hedge fund due to concerns the current definition affected a number of funds that do not exhibit the same risks to investors as true hedge funds.
In June 2012, ASIC released Class Order CO 12/749 Relief from the Shorter PDS regime which excludes hedge funds from the shorter product disclosure statement (PDS) regime. CO 12/749 was at the Minister's request and is a temporary exclusion (until 22 June 2014) to allow the Government to develop a permanent solution. However, under the class order if an issuer had issued a shorter PDS for a hedge fund on or before 22 June 2012, it can continue to use the shorter PDS.
Following industry feedback, ASIC had decided to extend until 1 February 2014 the transitional relief to hedge fund issuers under CO 12/749 that had previously issued a shorter PDS on or before 22 June 2012.
ASIC will also extend the start of RG 240 until 1 February 2014 to allow consideration of submissions and continued engagement with a number of issuers. A PDS issued after 22 June 2012 for a fund which satisfies the definition of hedge fund must issue a longer form PDS.
The Corporations Amendment Regulation 2013 (No 2), which was registered today on the FRLI and commences on 1 July, amends the Corporations Regulations 2001 to provide that Pt 7.7A of the Corporations Act 2001 does not have effect in relation to an Australian Financial Services Licensee or representative in respect of retail clients not in this jurisdiction.
In addition, consistent with existing ASIC Class Order relief, the regulation provides an exemption from the obligations in Div 2 of Pt 7.7A of the Corporations Act (the best interests obligations) for financial advice providers in situations where the conditions in the following ASIC Class Orders are satisfied:
- ASIC Class Order 05/736 Low value non cash payment facilities;
- ASIC Class Order 05/1122 Relief for providers of generic calculators;
- ASIC Class Order 08/01 Group purchasing bodies; and
- ASIC Class Order 11/1227 Relief for providers of retirement estimates.
For further information about the FoFA legislation, refer to the FoFA section of the Federal Treasury website.
ASIC today released guidance to help third-party litigation funders manage conflicts of interest.
Regulatory Guide 248 Litigation schemes and proof of debt schemes: Managing conflicts of interest (RG 248) also applies to insolvency practitioners and lawyers involved in proof of debt schemes during the winding-up of insolvent companies.
RG 248 provides guidance on:
- effective disclosure of conflicts of interest to members of the scheme;
- controlling situations where interests may diverge or conflict (including identifying divergent interests, assessing and evaluating those interests and implementing an appropriate response);
- recruitment of prospective members (including designating a senior person to oversee recruitment practices and ensure they are not misleading and deceptive);
- the situation where the lawyer acts for both the funder and the members (including ensuring that the members' interests are adequately protected);
- the situation where there is a pre-existing relationship between the funder, lawyers and members (including disclosure of any pre-existing relationship);
- the terms of any funding agreement, and
- approval of the terms of settlement of a litigation scheme where proceedings have not been commenced by an independent panel or counsel.
ASIC will also shortly be producing material for consumers to help them decide whether they should participate in a class action.
For further details and to access a copy of this guidance, refer to the ASIC website.
The Government has today introduced into the House of Representatives the Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill which, among other things, introduces the following reforms:
- Schedule 1 amends the Corporations Act to facilitate improved trading of retail corporate bonds in Australia; and
- Schedule 2 amends the Corporations Act to define the terms 'financial planner' and 'financial adviser' and to restrict the use of these and similar terms. This measure supports the FoFA reforms by empowering consumers of financial services to identify genuine providers of financial product advice.
For further details, refer to the Minister's media release.
ASIC has today announced that it is updating its guidance and regulation of managed discretionary accounts (MDAs) and has issued Consultation Paper 200 Managed discretionary accounts: Updates to RG 179, which proposes that ASIC:
- revoke two temporary no-action positions which cover certain MDA arrangements and incorporate ASIC's final position on those issues into its main guidance and relief;
- implement one of three alternative proposals which seek to ensure MDA investors are adequately informed when their MDA operator has discretion to invest in products where recourse is not limited (eg, contracts for difference);
- insist on more detailed and specific upfront disclosure from MDA operators on key issues; and
- update its guidance to provide greater certainty, and to reflect the changes in the law that have been implemented as part of the FoFA reforms.
ASIC said it also proposes to update the financial requirements for MDA operators to ensure they are consistent with the obligations imposed by ASIC on other financial products.
Comments on CP 200 are due by 19 April and ASIC plans to release its updated regulatory guidance and accompanying class order relief by the end of this year. For more information and to access a copy of CP 200 and ASIC's current MDA guidance, refer to the ASIC website.
The Federal Government has today released a draft regulation that proposes to amend the current arrangements (under section 1528 of the Corporations Act and the Corporations Amendment Regulation 2012 (No 8)) to grandfather certain benefits that relate to the investments of existing clients prior to 1 July 2014. The ban on conflicted remuneration will apply to all new clients after that date.
In summary, the draft regulation proposes to insert a new:
- regulation 7.7A.12EA to specify a type of monetary benefit that would not be conflicted remuneration for the purposes of section 963B(1)(e) of the Corporations Act. It is intended to cover what are commonly referred to in the financial advice industry as 'buyer of last resort' arrangements. These arrangements allow a licensee to acquire the business of a representative for a purchase price using a specified formula. This proposed regulation would deem that purchase price not to be conflicted remuneration if it is based, in whole or in part, on the number or value of financial products held by the representative's clients and the weighting attributed to the financial products that are issued by the licensee are the same as the weighting attributed to other financial products.
- regulation 7.7A.16 which would prescribe circumstances in which the ban on conflicted remuneration in Div 4 of Pt 7.7A of the Corporations Act would not apply to a benefit given by a platform operator. The effect of new regulation 7.7A.16 would be to grandfather benefits given under pre-FoFA arrangements except where they relate to a new client coming onto the platform after 1 July 2014. Arrangements between financial services licensees and platform operators entered into after 1 July 2013 would not be grandfathered and must be negotiated on a FoFA-compliant basis.
The closing date for submissions on the draft regulation is 18 March 2013.
ASIC has today released RG 246 Conflicted remuneration to help industry understand the practical operation of the ban on conflicted remuneration and how ASIC will administer it.
RG 246, which follows consultations throughout 2012, including a consultation paper released in September 2012, covers:
- volume-based benefits;
- performance benefits for employees (and, in relation to this, ASIC has noted that its final guidance on performance benefits as part of employee remuneration focuses on the principles underlying when a performance benefit is more likely to be conflicted remuneration - this change was made following feedback on its draft guidance, which had included indicative thresholds as to when ASIC would be more likely to scrutinise such a benefit);
- volume-based shelf space fees;
- asset based fees on borrowed amounts;
- transitional provisions;
- the anti-avoidance provision.
For further details (including to access RG 246), refer to ASIC's media release.
ASIC has today announced it will consider applications for approval of Future of Financial Advice (FoFA) codes following the release of guidance. The guidance, which is included in an update to RG 183 Approval of financial services sector codes of conduct, details how ASIC will approve codes and use its relief powers, and follows consultation in 2012, including a consultation paper released in October 2012.
ASIC's guidance is intended to assist code applicants to decide whether to submit a new or existing code for approval. It will also help licensees and representatives to decide whether to comply with the opt-in requirement or to subscribe to an approved code.
- confirms ASIC will, for the purposes of FoFA codes only, accept an application for approval of a code with limited content;
- confirms ASIC will not accept an application for approval of a single entity FoFA code;
- includes a checklist of code content that 'obviates the need' for complying with the opt-in requirement; and
- introduces a requirement that an administrator of a FoFA code must maintain a public register of members.
Following inquiries from key stakeholders during ASIC's FOFA Workshops, ASIC has also amended RG 245 Fee disclosure statements (RG 245) (at [RG 254.62]) to clarify the operation of one of ASIC's no-action positions.
For further information on today's announcement, refer to the ASIC media release.
ASIC has today released its latest relief applications report, covering the period 1 June-30 September 2012.
Report 325 Overview of decisions on relief applications (June to September 2012):
- provides information about decisions ASIC makes when asked to exercise its discretionary powers to grant relief from provisions of the:
- Corporations Act 2001 (Corporations Act)
- National Consumer Credit Protection Act 2009 (National Credit Act); or
- National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Transitional Act);
- discusses the various relevant publications released by ASIC during that three month period;
- summarises examples of situations where ASIC has exercised, or refused to exercise, its exemption and modification powers under the Corporations Act and the licensing and responsible lending provisions of the National Credit Act, and also highlights instances where ASIC has considered adopting a no-action position regarding specified non-compliance with statutory provisions;
- provides examples of decisions that demonstrate how ASIC has applied its policy in practice which ASIC thinks will be of particular interest for capital market participants and for participants in the consumer credit and financial services industries; and
- includes an appendix detailing the relief instruments referred to in the report.
For more information and to access a copy of REP 325, refer also to ASIC's media release.
ASIC has released Regulatory Guide 245 Fee disclosure statements, which outlines the FOFA fee disclosure statement (FDS) obligations that will apply to AFS licensees and their representatives who receive ongoing fees from retail clients to whom they have given personal advice.
RG 245 explains:
- the FDS obligations and when they apply;
- who must give an FDS;
- the circumstances giving rise to the obligation to give an FDS; and
- the information that must be disclosed in the FDS.
RG 245 also sets out three limited no-action positions ASIC is taking to assist industry make a smooth transition to meeting the FDS obligations within the FOFA regime.
ASIC has noted in its media release that it will take a facilitative approach for the first 12 months of the FOFA reforms (ie, until 1 July 2014). It expects industry participants to make a reasonable effort to comply with the new regime, and it will take a measured approach where inadvertent breaches arise, or system changes are underway. However, it will take action where there are deliberate and systemic breaches.
For further details and to access a copy of this guidance, refer to the ASIC website.
ASIC has today announced the following class order relief relating to the application of the National Consumer Credit Protection Act 2009 (Cth) and the Corporations Act (Cth) to funded representative actions and funded proof of debt arrangements.
- Relief from the application of the National Credit Act
New class order CO 13/18 Funded representative proceedings and funded proof of debt arrangements exclusion from the National Credit Code, which will apply until 12 July 2013, removes the need for compliance with the requirements that would otherwise apply to funded representative proceedings and funded proof of debt arrangements if they amount to 'credit' to which the National Credit Act applies. The relief means funded representative proceedings and proof of debt arrangements can commence or progress without needing to comply with specific requirements, including holding an Australian credit licence and complying with the conduct, disclosure and responsible lending requirements.
- Relief from the application of the Corporations Act
Class order CO 13/19 extends the relief made available by ASIC in class order CO 10/333 Funded representative proceedings and funded proof of debt arrangements until 12 July 2013.
ASIC first announced the class order relief in relation to this issue in May 2010. The relief has been extended to allow time for the commencement of the Corporations Amendment Regulations 2012 (No 6) which will commence on 12 July 2013. From that date:
- a litigation scheme and a proof of debt scheme will be exempt from the definition of a 'managed investment scheme' in section 9 of the Corporations Act; and
- funders and lawyers providing financial services for litigation schemes and proof of debt schemes will be exempt from the requirements that would otherwise apply under Ch 7 of the Corporations Act, including the licensing, conduct and disclosure requirements, but they must have adequate arrangements to manage conflicts of interest. (ASIC released Consultation Paper 185 Litigation schemes and proof of debt schemes: Managing conflicts of interest (CP 185) in August last year, which outlines ASIC's proposals for how funders and lawyers can satisfy this conflicts management obligation.)
ASIC has published its amended regulatory guidance for clearing and settlement facilities (in updated RG 211 Clearing and settlement facilities: Australian and overseas operators).
The updated guidance:
- takes into account updated international standards and recent Council of Financial Regulators policy;
- ensures continuing access by Australian-based CS facilities to overseas participants and provides an appropriate degree of regulatory influence over foreign-based facilities that wish to offer services in Australia;
- provides clarity for overseas CS facilities operating in Australia and domestic CS facilities seeking to move or outsource some operations overseas;
- sets out examples of when ASIC may advise the Minister to impose conditions on cross-border CS facilities; and
- provides examples of the types of conditions ASIC may advise the Minister to impose.
ASIC has today:
- released final guidance for two aspects of the Future of Financial Advice (FoFA) reforms – the best interests duty and scaled advice; and
- provided an update on its proposed guidance for the FOFA conflicted remuneration provisions.
The 'best interests duty' guidance is contained in an update to Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure and covers:
- acting in the best interests of the client;
- satisfying the 'safe harbour' for the best interests duty;
- providing appropriate personal advice; and
- prioritising the interests of the client.
The 'scaled advice' guidance is contained in Regulatory Guide 244 Giving information, general advice and scaled advice. ASIC has provided specific and practical guidance and examples about giving scaled advice while complying with the best interests duty. It includes worked examples of scaled advice by:
- general insurers;
- superannuation funds;
- financial planners; and
ASIC has also now revised its proposed guidance on the conflicted and employee remuneration ban (outlined in Consultation Paper 189, which was released in September 2012) as a result of feedback received from stakeholders. ASIC has decided that in assessing whether it should scrutinise a benefit to assess whether it might breach the conflicted and employee remuneration ban, it will focus on the principles underlying when a performance benefit is more likely to be conflicted remuneration. ASIC will release final guidance on conflicted remuneration in February 2013.
ASIC has today released updated regulatory guidance to improve the quality and reliability of research reports. RG 79 Research report providers: Improving the quality of investment research has been updated to help research providers (including research analysts, securities analysts and research houses) better comply with their legal obligations and to complement reforms under the Future of Financial Advice legislation aimed at improving the quality and accessibility of financial advice.
The updated guidance includes measures to address:
- management of conflicts of interest, particularly business model conflicts among research report providers;
- quality and robustness of the research process including the need to allocate appropriate resources and expertise to the research task;
- transparency of the research process including the way products are selected for research, what ratings mean and how they are applied; and
- the ability of users of research to form a view about the quality and reliability of the research.
ASIC expects research providers to give clients or subscribers information to help them understand the research service, including the:
- methodology applied and any limitations that apply to it;
- process by which products are selected for coverage and filters applied; and
- spread of ratings (eg, how many products or what percentage each type of rating received over the past year).
RG 79 also sets out ASIC's expectations that research providers effectively manage conflicts of interest so as to limit their impact on the integrity of investment research.
ASIC will conduct targeted surveillances of research report providers to assess compliance with this updated guidance and will, if necessary, consider specific law reform to ensure improved compliance.
For more information and to access a copy of RG 79, refer to ASIC's website.
ASIC has issued a new class order CO 12/1592, which was made on 26 November and published today on the FRLI, and amends ASIC class order CO 12/749.
New class order, CO 12/1592:
- extends the transitional period provided to responsible entities of hedge funds that had prepared and given a shorter PDS prior to the commencement of Class Order CO 12/749 from 31 January 2013 to 22 June 2013;
- amends the application of regulation 7.9.11S(7) under CO 12/749 to include issuers of hedge funds who had prepared and given a shorter PDS between 18 June 2012 to 22 June 2012, and provides these hedge funds with the benefit of the transitional period (to be extended to 22 June 2013), from the commencement of this class order; and
- extends the operation of Class Order CO 12/749 from 22 June 2013 to 22 June 2014.
For further details (and to access a copy of the class order), refer to the COMLAW website.
The government has today released an Options Paper, Australia's Financial Market Licensing Regime: Addressing Market Evolution, which discusses options for reforming Australia's financial market licensing (AML) regime, including the regulation of dark pools and non-market participant high frequency traders (HFTs). This options paper forms part of the government's early consideration of the limitations of the current AML regime (which was established in 2001 and in its current form provides limited scope for the flexibility needed to adapt to current market circumstances) and presents the opportunity for stakeholders to comment on potential changes to create a system better suited to today's marketplace. In general, it considers the adequacy of current AML arrangements, and raises two possible options for reform.
The two possible options for legislative reform that are discussed in this paper are to:
- create flexibility in the Australian Corporations Act 2001, augmented by ASIC rules and guidance issued by the Australian Companies and Securities Commission (ASIC). This model would create a number of market categories with tailored licensing requirements. It would also likely see a substantial reduction in the number of market licence exemptions granted, although the Minister would retain this power for novel applications; and
- construct an alternative trading systems regime within the legislation. This would involve creating a new, more targeted, AML regime that could cater for the various types of venues and trading systems. Enshrining an alternative regime in the legislation would provide clarity and certainty to the market. However, it could also limit the regime's flexibility to deal with future market innovation.
The relative merits of these options are considered in the paper, although both would allow for the regulatory regime in Australia more closely aligned with those internationally. This international alignment is important as it would help to facilitate mutual recognition of Australia's financial regulation by other jurisdictions such as the US, meeting Australia's G20 obligations and reducing the need for certain Australian operators to comply with both the Australian and US arrangements in order to deal with US businesses.
The government is seeking feedback on the relative merits of the two options or, if a preferable third option is identified, details of that option and reasons for that preference. The options paper also discusses the current limitations on ASIC's ability to take direct action against some HFTs for breaches of the market integrity rules. The government is seeking to put in place a system that gives ASIC the powers it needs in these circumstances.
Written submissions in response to the paper close on 1 February, 2013. The Australian government and ASIC will also be undertaking some face-to-face discussions before releasing any further documents for consideration.
The government has today released exposure draft legislation, the Corporations and Consumer Legislation Amendment (Consumer Financial Protection) Bill 2012, which is aimed at preventing anyone who is not a qualified financial planner or financial adviser from using those titles and telling investors that they hold those qualifications. These restrictions will supplement other relevant restrictions that already exist under Australian law.
In summary, the proposed new law:
- places restrictions on the use of the terms 'financial adviser' and 'financial planner' – it is an offence for a person to use (eg, in advertising material, business listings, or in communication with consumers) one of the terms (or a term of like meaning ) without meeting the statutory criteria for their use;
- a person does not contravene the provision if the statutory criteria are met and those criteria are that the person either:
- holds an Australian Financial Services Licence, under which the person can provide personal advice to retail clients on 'designated products'; or
- provides personal advice on designated products to retail clients on behalf of a licensee, where under that licence the licensee may provide personal advice on designated products to retail clients. A 'designated financial product' is a general insurance product (other than a sickness and accident insurance product), a consumer credit insurance product, a basic deposit product, a non cash payment product, or a First Home Saver Account product.
Submissions on the draft regulations close on 21 December 2012.
The government has released a draft Corporations Amendment Regulation 2012 which will enact the previously announced proposal to replace the current exemption under the Corporations Regulations 2001 which allows accountants to provide some forms of financial advice without needing to hold an Australian Financial Services Licence.
Under the proposed new arrangements, accountants (and anyone else who satisfies the licensing requirements) will be able to access a new form of limited licence from 1 July 2013 which will enable them to discuss a range of financial products with their clients. The range of products includes superannuation, securities, simple managed investment schemes, general insurance, life risk insurance and basic deposit products. However, generally, holders of this limited licence will only be able to talk about these products at a class of product level, meaning they cannot recommend specific products to their clients. Holders of this limited licence will also be able to lodge an annual compliance certificate rather than an auditor's report.
The current accountants' exemption under the Corporations Regulations will be repealed from 1 July 2016.
Submissions on the draft regulations close on 21 December 2012.
The Government has today announced a package of market integrity rules in relation to high frequency trading and dark pools, which are designed to better protect investors who use Australia's financial markets. The new rules, which have been developed following extensive consultation by ASIC, provide for:
- direct control over trading algorithms, including 'kill switches' to immediately stop an algorithm if required;
- new extreme trading rules in cases of large price movements;
- a requirement that dark pools offer meaningful price improvement over the 'lit' market, with exemptions for block trades; and
- additional data reporting requirements to assist ASIC in performing market surveillance.
The market integrity rules will provide for an immediate obligation on the market operators, ASX and Chi X, to enforce an extreme trading range for trades in securities. There will also be new data reporting requirements on operators from 2013.
In addition to these new rules:
- ASIC has launched two task forces focusing on dark liquidity and high frequency trading which are due to report to the Government in March 2013; and
- the Australian Treasury, at the Government's request, will be conducting a review of Australia's financial market licensing regime - while this review will examine the licensing of dark pools, it will also be directed at ensuring that the market licensing regime is generally fit for purpose. Stakeholders will have an opportunity to provide their views as part of this review.
ASIC has today released a consultation paper, CP 194: Financial requirements for custodial or depository service providers, which sets out its proposed changes to the financial requirements for providers of custodial or depository (C&D) services. The paper also sets out requirements that apply to responsible entities of registered managed investment schemes and platform operators that hold scheme property or other property and assets.
CP 194 seeks feedback about:
- doubling the NTA requirement for custodians (other than incidental providers) from $5m to the greater of $10m or 10 per cent of average revenue;
- increasing the NTA requirement for responsible entities holding scheme property or assets and investor-directed portfolio services (IDPS) operators responsible for holding IDPS property or assets in certain circumstances from $5m to the greater of $10m or 10 per cent of average revenue;
- defining the term 'incidental custodial or depository services';
- introducing an NTA requirement for incidental C&D service providers equal to the greater of $150,000 or 10
- per cent of average revenue;
- requiring C&D providers to produce 12-month cash flow projections; and
- specifying liquidity requirements for C&D providers.
ASIC is seeking feedback on CP 194 by 14 January 2013. For further details (and to access a copy of CP 194), refer to ASIC's website.
ASIC has today released updated versions of the following, which clarify the financial requirements with which AFS licensees must comply as part of their licensee obligations:
- Regulatory Guide 166 Licensing: Financial requirements, which explains the financial requirements that licensees must meet. Requirements vary in their application, depending on the nature, scale and complexity of the financial services business.
- Pro forma 209 Australian financial services licence conditions, which sets out standard licence conditions (ie, in addition to the prescribed conditions under reg 7.6.04 of the Corporations Regulations) that, subject to individual circumstances, will usually be applied to licenses authorising a person to provide financial services under an AFS licence.
The main changes to the updated RG 166 include:
- updated requirements for responsible entities (announced in November 2011 and updated in October 2012, which come into effect today (1 November);
- new requirements for issuers of OTC derivatives to retail clients – these were previously released in RG 239 Retail OTC derivative issuers: Financial requirements, but have now been incorporated into RG 166, and RG 239 will be withdrawn; and
- new guidance on financial requirements for market participants, to reflect changes to the way these AFS licensees are regulated since ASIC assumed responsibility for supervising market participant capital requirements from ASX on 1 August 2011.
All other requirements remain unchanged.
For further details (and to access a copy of these updated documents), refer to ASIC's media release.
ASIC has today:
- released a consultation paper, CP 191 Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement, which sets out its proposed approach to code approval and relief powers under the FoFA reforms; and
- confirmed that it will be taking a facilitative approach to the implementation of FOFA.
ASIC RG 183 Approval of financial services sector codes of conduct sets out ASIC's minimum expectations on codes of conduct. CP 191 is seeking feedback on how RG 183 should be amended for FOFA and covers matters such as:
- what constitutes a 'code' (as this isn't defined in the Corporations Act);
- appropriate content of a code submitted for approval, including methods to obviate the need for opt-in;
- administration, governance, monitoring and enforcement of codes, and
- ASIC's approval and relief process.
ASIC will consider applications for approval of a FOFA code once final policy is published in RG 183 (which ASIC expects will be in February next year). Note that ASIC expects the code approval process will be careful and rigorous and it will take months rather than weeks for ASIC to assess a code. ASIC also notes that unless a licensee opts in to the FOFA regime before 1 July 2013, the earliest date an adviser would need to comply with the opt-in requirement, or join an approved code, is 1 July 2015.
Submissions to CP 191 close on 3 December 2012.
ASIC has said that it will be taking a facilitative approach to the implementation of FOFA and that, during the first year, it is planning to adopt a measured approach where inadvertent breaches arise or systems changes are underway, provided industry participants are making reasonable efforts to comply.
For more information and to access CP 191, refer to ASIC's media release.
The Corporations Amendment Regulation 2012 (No 8), which provides for the 'grandfathering' of the conflicted remuneration provisions for benefits given by platform operators, was registered today on the FRLI and commences tomorrow (3 October). The amending regulation inserts a new regulation 7.7A.16 which provides that the conflicted remuneration provisions in Div 4 of Pt 7.7A of the Corporations Act 2001 do not apply to a benefit given by a platform operator under an arrangement that was entered into before the 'application day' for the provisions (ie, 1 July 2013 or an earlier date if the financial services licensee has lodged a notice with ASIC to adopt the provisions from that earlier date).
A new ASIC class order, CO 12/1295 (which amends class order CO 11/1140 which outlined new financial requirements for responsible entities of managed investment schemes and was issued in November 2011) was made on 25 September 2012 and registered today on the FRLI.
CO 12/1295 varies CO 11/1140 to clarify:
- the net tangible assets (NTA) financial requirement that applies to AFS licensees which are not operating a registered managed investment scheme (despite being authorised to do so); and
- the custody requirements relating to the NTA financial requirement and the definitions of adjusted liabilities, average RE revenue, special custody assets, stapled issuer and value of scheme property, which affect the licensee's NTA calculations under CO 11/1140.
CO 12/1295 will commence on 1 November 2012. To access a copy of the class orders, refer to the COMLAW website and for details of the earlier class order, refer to our Breaking News item on 7 November 2011.
ASIC has today announced that it will extend until 13 January 2013 the interim class order relief (under new class order CO 12/1301, which extends the original relief under CO 10/333) granted to lawyers and funders involved in legal proceedings structured as funded representative proceedings and funding claims lodged with liquidators to prove in the winding up of an insolvent company.
The relief has been extended to allow time for the commencement of the Corporations Amendment Regulations 2012 (No 6), which will commence from 13 January 2013. From that date:
- a litigation scheme and a proof of debt scheme will be exempt from the definition of a managed investment scheme in section 9 of the Corporations Act 2001; and
- funders and lawyers providing financial services for litigation schemes and proof of debt schemes will be exempt from the requirements that would otherwise apply under Chapter 7 of the Act, including the licensing, conduct and disclosure requirements, but they must have adequate arrangements to manage conflicts of interest. ASIC released Consultation Paper 185 Litigation schemes and proof of debt schemes: Managing conflicts of interest outlining its proposals on how funders and lawyers can satisfy this conflicts management obligation in August 2012.
For further information about today's announcement (including to access a copy of the new class order and also CP 185) and some background details, refer to ASIC's website. Also, for more details on the Corporations Amendment Regulations, refer to our Breaking News for 13 July 2012.
ASIC has today released a report, Overview of decisions on relief applications, outlining decisions on recent applications from capital markets participants, financial services providers, and credit providers and intermediaries.
The report, which covers applications considered by ASIC between 1 February and 31 May 2012, provides an overview of the circumstances in which ASIC exercised, or refused to exercise, its discretionary powers to grant relief and also outlines limited instances where ASIC decided to take a no-action position in relation to non-compliance with the relevant legislative provisions (under the Corporations Act and the National Credit legislation).
For further details (and to access a copy of the report), refer to the ASIC website.
ASIC has today released consultation paper, CP 189 Future of Financial Advice: Conflicted remuneration, which sets out ASIC's proposed guidance on complying with the conflicted remuneration provisions (which covers commissions and volume-based payments in relation to the distribution of and advice about retail investment products). The conflicted remuneration provisions are set out in Divisions 4 and 5 of Part 7.7A of the Corporations Act 2001 and commence on 1 July 2013 (unless Australian financial services licensees choose to comply with these provisions and other FOFA reforms earlier, in which case, they must register with ASIC).
Submissions on CP 189 close on 9 November 2012. For further details and to obtain a copy of CP 189, refer to ASIC's website.
The Government has today released for public consultation an Options Paper Strengthening APRA's Crisis Management Powers in which it is seeking comments on a range of options (including the regulatory impact associated with implementing any of the options) to enhance Australia's financial sector, particularly prudential regulation, and also with a view to aligning Australia's regulatory regime with international best practice following the GFC.
The options canvassed in the paper aim to:
- strengthen APRA's crisis management powers in relation to ADIs, superannuation entities and general and life insurers, including:
- giving APRA the ability to appoint statutory managers to a failing institution;
- extending APRA's capacity in relation to foreign entities;
- providing APRA with the ability to direct failing institutions in relation to disclosure requirements;
- ensuring the Financial Claims Scheme operates more smoothly to provide greater certainty; and
- providing APRA with directions power in superannuation to take pre-emptive action to address prudential concerns including the removal of an individual trustee, director or officer
- simplify APRA's regulatory powers across the various Acts it administers in the banking, insurance, and superannuation sectors, given that many firms operate across sectors; and
- make a series of minor and technical amendments to enhance the effectiveness of legislation administered by APRA.
The closing date for submissions is 14 December 2012. For further details, refer to the Ministerial media release.
ASIC has today issued a consultation paper, CP 186 Clearing and settlement facilities: International principles and cross-border policy (an update to RG 211) which proposes amendments to its regulatory guidance (in RG 211) for clearing and settlement facilities to take into account updated international standards and recent Council of Financial Regulators policy.
The proposals aim to align ASIC's oversight of CS facilities with the recently released Principles for Financial Market Infrastructures, which have been developed by the Committee on Payment and Settlement Systems and Technical Committee of the International Organization of Securities Commissions. (The RBA is also consulting on complementary proposals to determine new financial stability standards to take into account these policy developments.)
ASIC intends that the proposals will also provide certainty and transparency on how it proposes to put in place measures and update its existing guidance to ensure there is appropriate regulatory influence over cross-border CS facilities. The closing date for submissions on CP 186 is 19 October 2012.
For further information and to access CP 186, refer to ASIC's media release.
ASIC has today released an information sheet:
- reminding AFS licensees that they must notify ASIC of the particulars of the change in control no later than 10 business days after the change; and
- containing some guidance on 'what is a change in control' and how an AFS licensee can notify ASIC when that occurs.
For further details and to access the information sheet, refer to ASIC's website.
ASIC has today issued some guidance to promoters of 'crowd funding' to clarify arrangements which may be regulated by ASIC under the Corporations Act and the ASIC Act. In today's release, ASIC has defined 'crowd funding' as involving 'the use of the internet and social media to raise funds in support of a specific project or business idea'. ASIC has taken the opportunity to highlight potential breaches of the fundraising, financial services licensing and consumer laws applying in Australia and also to note some of the risks that can occur with this type of activity.
For more details, refer to ASIC's media release.
ASIC has today:
- published proposed rules and guidance on automated trading in Consultation Paper 184 Australian market structure: Draft market integrity rules and guidance on automated trading; and
- released its fourth report (REP 296 ASIC supervision of markets and participants: January to June 2012) on the supervision of Australian financial markets and market participants.
CP 184 (which follows on from CP 179 Australian market structure: Draft market integrity rules and guidance released by ASIC in June this year) outlines ASIC's proposed draft rules and guidance on participant level controls for automated trading, and includes the following:
- draft new market integrity rules requiring direct control over filters and automated controls to suspend orders and/or systems;
- draft rules that revise the process for certifying systems and reviewing changes at least yearly; and
- draft regulatory guidance on automated trading.
Submissions on CP 184 close on 14 September 2012 and ASIC has indicated the finalised regulatory guide will be issued in October.
Report 296 is ASIC's fourth report on the supervision of Australian financial markets and market participants and identified several trading alerts (with some requiring further consideration), matters that needed to be referred for investigation and breaches of insider trading and the continuous disclosure provisions under the Corporations Act. ASIC also noted that, for the first time, its report included information on its reviews of securities dealers (ie, AFS licence holders who are not market participants, but sell securities products through a market participant) and identified some concerns in relation to their conduct also. In future reports, this information on securities dealers will be included separately from market participants.
For further details (including to access the consultation paper and ASIC report), refer to ASIC's website.
ASIC has today announced new financial requirements for AFS licensees who issue over-the-counter derivatives to retail clients, including contracts for difference and margin foreign exchange. The changes, which aim to ensure these AFS licensees have adequate financial resources to operate their business in compliance with the Corporations Act and to carry out supervisory arrangements, are implemented through ASIC class order CO 12/752 Adequate financial resources for financial services licensees that issue OTC derivatives to retail clients, and outlined in RG 239 Retail OTC derivative issuers: Financial requirements.
For more information (and to access the class order and regulatory guidance), refer to ASIC's website.
The Corporations Amendment Regulation 2012 (No 6), which was registered on 13 July and commences on 13 January 2013, amends the Corporations Regulations 2001 to clarify that litigation funding schemes and similar arrangements are not managed investment schemes under section 9 of the Corporations Act 2001. Also, to clarify that these arrangements are not 'financial products' as defined in Chapter 7 of the Act, the regulation provides exemptions from the licensing, conduct and disclosure requirements in that Chapter and addresses potential conflicts between the interests of litigation funders and their clients in certain situations, for example when assessing proposed awards or settlements.
For details of prior class order relief granted by ASIC in relation to these arrangements, refer to our Breaking News for 29 February 2012.
The Corporations Amendment Regulation 2012 (No 4), which was registered today on the FRLI and commences on 13 July, amends the Corporations Regulations 2001 to implement provisions relating to charging ongoing fees to clients and conflicted remuneration as introduced by the Corporations Amendment (Future of Financial Advice) Act 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012. Specifically, the amendments:
- exclude product fees from the definition of an 'ongoing fee arrangement';
- delay the application date to 1 July 2013 for the ban on conflicted remuneration with respect to benefits that relate to group life risk insurance inside superannuation funds and all life risk insurance policies in default superannuation funds;
- exclude benefits given for advice relating to interests in time-sharing schemes from the ban on conflicted remuneration; and
- further detail the scope of the exemptions from the ban on conflicted remuneration for certain non-monetary ('soft-dollar') benefits and introduce record keeping requirements in relation to those benefits.
ASIC has today released REP 291 Custodial and Depository services in Australia following a review of the industry, in which ASIC has identified a number of key risks to the safety of client assets and has recommended some matters of 'good practice' that custodians and responsible entities may need to consider.
Report 291 aims to inform responsible entities, the custodial industry and users of custodial and depository services about the custodial industry, the current regulatory regime and matters that ASIC considers to be 'good practice'.
ASIC has noted that the report reflects ASIC's current regulatory position and is not intended to imply any new regulatory requirement or standard. However, the report also foreshadows ASIC's intention to consult with industry about updating its regulatory guidance for the holding of scheme property (and it will shortly be issuing a consultation paper). In addition, ASIC is proposing:
- changes to the financial resource requirements of custodians; and
- to require responsible entities and other financial product issuers to provide clearer disclosure about the role of custodians in retail marketing material, including product disclosure statements.
For further details and to access the ASIC report, refer to today's media release.
The Corporations Amendment (Future of Financial Advice) Bill and the Corporations Amendment (Further Future of Financial Advice Measures) Bill both received Royal Assent on 27 June 2012 and were registered on the FRLI on 2 July 2012. For further information and to access copies of the Acts and explanatory memoranda, see the COMLAW website.
ASIC and the FMA have today announced mutual recognition arrangements for Australian and New Zealand financial advisers, which will enable financial advisers to provide services to retail clients in each other's countries based on the qualifications and experience they have attained from their home country. In addition to the Trans-Tasman Mutual Recognition legislation, which already applies to Australian financial services licence holders, ASIC has updated its regulatory guides setting out the minimum training requirements for individual financial advisers in Australia (RG 146 Licensing: Training of financial product advisers and RG 206 Credit licensing: competence and training) and the FMA has issued a Financial Advisers (Australian Qualified Advisers) Exemption Notice.
For further details, refer to the joint media release (which also contains links to the updated ASIC regulatory guides and the FMA exemption notice) on the ASIC website.
ASIC has today released updated policy guidance on its approach to facilitating cross-border financial regulation to assist foreign providers of financial facilities, services and products wanting to operate in Australia. This updated guidance:
- reflects ASIC's support for more uniform regulatory approaches and strong supervisory and enforcement cooperation with its overseas counterpart regulators; and
- is intended to minimise regulatory duplication and remove impediments for foreign regulated entities where possible, while ensuring the interests of local markets and Australian investors are maintained.
The updated guidance is covered in the following updated guides, class orders and information sheets:
- Regulatory Guide 54 Principles for cross-border financial regulation, which outlines ASIC's overall approach to recognising overseas regulatory regimes for the purpose of facilitating cross-border financial regulation;
- Regulatory Guide 176 Foreign financial services providers, which is for foreign financial service providers (FFSPs) who provide financial services in Australia to wholesale clients only and provides guidance on when ASIC may exercise its discretion to exempt FFSPs from the requirement to hold an AFS license – it has been updated to reflect changes in RG 54
- Regulatory Guide 178 Foreign collective investment schemes, which is for operators of foreign collective investment schemes (FCISs) wanting to operate an FCIS in Australia and explains when ASIC may grant conditional relief from registration, licensing and product disclosure requirements – it has been updated to reflect changes in RG 54
- Class Order [CO 12/572] and Class Order [CO 12/573], which implement the key changes to the RG 176 and RG 178 suite of class orders, respectively
- Class Order [CO 12/574], which revokes related class orders that are no longer applicable
- Information Sheet 157 Practical guidance for foreign financial service providers, which has been developed to assist those wishing to apply for or rely on existing relief mechanisms under RG 176
- An updated version of Information Sheet 93 Practical guidance for operators of foreign collective investment schemes.
ASIC has also confirmed that it is currently reviewing Regulatory Guide 177 Australian market licences: Overseas operators to reflect ASIC's approach to cross-border financial regulation.
For further details and to access copies of the new guidance, refer to the ASIC website.
ASIC has today announced a new class order, CO 12/794 Emissions units: Relief for representatives, to apply from 1 July 2012 until 31 December 2012, which confirms that financial services representatives will be able to provide financial services involving regulated emissions units during that period, provided that they act for either:
- a person registered with ASIC to provide those financial services; or
- an AFS licensee holding a licence with an appropriate authorisation for regulated emissions units.
The class order addresses a technical concern in the law and provides certainty for representatives.
For further details and to access a copy of the class order, refer to the ASIC website.
For more information about the impact of the FSR regime on the Clean Energy Legislation package, refer to our client publication Focus: Financial Services licensing of carbon markets participants. Also, find out more about developments in Climate Change from our Climate Change website and our Climate Change blog.
ASIC has today released a revised version of RG 98 Licensing: Administrative action against financial services providers to assist participants in the financial services industry to understand when and how ASIC may take administrative action, such as a banning action.
RG 98 has been updated to:
- reflect amendments to ASIC's administrative powers under the Corporations Act, introduced as part of the Future of Financial Advice reforms which are due to commence on 1 July 2012 (and are compulsory from 1 July 2013); and
- ensure consistency between RG 98 and INFO 151 ASIC's approach to enforcement, which sets out how ASIC exercises its enforcement powers.
For further details and to access the updated RG 98, refer to ASIC's website.
ASIC today published a consultation paper, CP 179 Australian market structure: Draft market integrity rules and guidance, which marks the next stage of an ongoing consultation process with industry on these reforms. ASIC's consultation with industry began in November 2010. It announced its approach to the rules and guidance in April this year, and has today published the proposed rules and guidance for consultation.
Comments on the consultation material are due by 6 August 2012.
For further details and to access a copy of CP 179, refer to the ASIC website.
ASIC has today released an information sheet, INFO 156 Applying for a licence for emissions units, to help those intending to apply for an AFS licence to provide services in emissions units and related products from 1 July 2012.
INFO 156 is aimed at anyone intending to apply for either a new AFS licence or a variation to an existing licence to authorise them to provide financial services in relation to regulated emissions units and associated products. It covers:
- the new requirements for providing financial services in relation to regulated emissions units, and who is required to hold an AFS licence;
- when a person/entity must apply for an AFS licence or variation, and the transitional registration arrangements;
- how to apply for an AFS licence or variation; and
- how ASIC will assess organisational competence in emissions units.
For further details and to access a copy of INFO 156, refer to ASIC's website. For details on licensing requirements for providers of services in relation to regulated emissions units, refer to our Breaking News for 30 April 2012.
ASIC has today issued class order CO 12/750 Extension of period for compliance with breach reporting conditions in [CO 08/1], extending the transitional period for compliance with the breach reporting conditions in CO 08/1 Group purchasing bodies until 31 December 2012. (The transitional period for compliance with the breach reporting conditions in CO 08/1 was scheduled to end on 30 June 2012.)
Treasury has indicated that it may be appropriate for the regulation of these group purchasing bodies (and any appropriate exemptions from the AFS licensing and other Corporations Act requirements) to be addressed by regulations. However, as Treasury is still consulting on this issue, ASIC has now extended the operation of CO 08/1.
Under the terms of the amending class order (CO 12/750), the transitional period for compliance with the breach reporting conditions in CO 08/1 has been extended by another 6 months ie, until the first time that the body acquires, renews or renegotiates the terms of the risk management product on or after 31 December 2012 but before 31 December 2013. Accordingly, this means that on or after 31 December 2012, group purchasing bodies relying on relief under CO 08/1 will need to report any breaches of the conditions of CO 08/1 to ASIC by no later than 31 December 2013.
The Government has today announced a new limited Australian Financial Services Licence (AFSL) which will replace the current accountants' licensing exemption. According to the Government's media release, the holders of these limited AFSLs will be able to:
- dvise on self-managed superannuation (SMSF) funds and superannuation generally; and
- give 'class of product advice' on basic deposit products, general and life insurance, securities, and simple managed investment schemes.
However, they will not be allowed to give specific product recommendations under this form of AFSL.
As part of today's announcement, the Government has noted there will be a streamlined transition period that will be available for accountants between 1 July 2013 and 1 July 2016. These arrangements will make it easier for accountants to transition into the AFSL regime in recognition of their existing professional qualifications. The Government has also announced further details relating to SMSF auditor registration and the transitional arrangements that will apply for existing SMSF approved auditors.
The Government will consult later this year on draft regulations to give effect to these measures. For further details, refer to the Government's media release.
ASIC has today released the following information in relation to the shorter PDS regime, which starts in full on 22 June 2012:
- INFO 155, Shorter PDSs: Complying with requirements for superannuation products and simple managed investment schemes, which provides some guidance for industry on technical issues related to implementation of the new shorter PDS requirements in the Corporations Amendment Regulations 2010 (No 5);
- updated INFO 133 Shorter PDS regime: Superannuation, managed investment schemes and margin lending to reflect the amendments to the transition period implemented by the Corporations Legislation Amendment Regulations 2011 (No 2); and
- updated regulatory guides:
- RG 91 Horse racing and breeding schemes
- RG 160 Time-sharing schemes
- RG 173 Disclosure for on-sale of securities and other financial products.
ASIC has also provided interim class order relief, CO 12/749 Shorter PDS regime: Relief for superannuation platforms, multifunds and hedge funds, to exempt superannuation platforms, multifunds and hedge funds from the shorter PDS regime until 22 June 2013. In addition, ASIC has announced that it will consider individual applications for relief from responsible entities where they consider the operation of the class order produces anomalous results in relation to their fund or funds.
For further details (including to access copies of the guidance and the class order), refer to ASIC's website.
ASIC has today announced that it has revised the licensing application process to make it easier for those applying for an Australian Financial Services Licence (AFSL).
Under the changes, applicants for an AFSL will no longer be required to lodge:
- paper/hard copies of the signed application form and the supporting documentation, allowing applicants to submit these documents electronically; and
- certified true copies of background credential checks known as 'People Proof',
and ASIC has updated its AFSL kit guides to reflect these changes.
For further details, refer to ASIC's media release (which also contains links to the updated guidance).
The Government has today released for consultation the following draft regulations:
- Draft FoFA regulations, which relate to ongoing fee arrangements and conflicted remuneration and:
- exclude financial product fees from the definition of an 'ongoing fee arrangement';
- introduce a delayed commencement date (to 1 July 2013) for the ban on conflicted remuneration for group life risk insurance superannuation funds;
- exclude time-share schemes from the ban on conflicted remuneration;
- prescribe requirements for the soft-dollar exemptions from the ban on conflicted remuneration.
- Draft 'grandfathering' regulations, which deal with grandfathering certain benefits from the application of the ban on conflicted remuneration.
The release of these regulations follows the passage of the first and second tranches of the FOFA reforms set out in the Corporations Amendment (Future of Financial Advice) Bill 2011 and Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 by the House of Representatives. These Bills are currently before the Senate.
Submissions on the draft FoFA regulations and Grandfathering regulations are due by 5 June 2012. For further information, refer to the FoFA section of the Treasury website. (For background information, see our Breaking News for 22 March 2012, which also refers to other relevant news items.)
ASIC has today released a consultation paper, CP 177 Electricity derivative market participants: Financial requirements, which outlines ASIC's proposed changes to the financial resource requirements of electricity market participants who hold an Australian financial services licence, including to replace the current financial requirements applying to these electricity derivative issuers with a simpler net tangible asset measure, and new liquidity and cash forecasting requirements. ASIC plans a staged implementation of the new financial requirements over a three year period.
Comments on the consultation paper are due by 29 June 2012 and ASIC proposes to release the updated regulatory guidance by September 2012. For more information (including to access a copy of the consultation paper), refer to ASIC's media release.
ASIC has today issued a release reminding Australian Financial Services licensees that they:
- are prohibited from using the terms 'independent', 'unbiased' or 'impartial' if they receive commission or volume-based payments; and
- must ensure that statements made by representatives in any published material comply with the relevant provisions of the Corporations Act.
ASIC's announcement followed one of its recent surveillance programs, during which it found instances of insurance brokers and financial planners making statements about the independence of the licensee or the services they provide in breach of the Corporations Act.
For further details, refer to ASIC's media release.
Following the release earlier this week of information about the registration and licensing process for those intending to provide financial services in emissions units (see our Breaking News for 30 April), ASIC has today released updated versions of the following regulatory guides:
- RG 146 Licensing: Training of financial product advisers, which sets out ASIC's minimum standards for the training of all advisers providing financial product advice to retail clients and, in this context, notes the specialist knowledge requirements for advisers providing financial product advice to retail clients on emissions units
- RG 236 Do I need a licence to participate in carbon markets?
ASIC's has confirmed that RG 166 Licensing: Financial requirements, which sets out ASIC's current policy on financial requirements for Australia financial services AFS licensees, does not need to be updated; AFS licensees providing financial services for regulated emissions units should meet the current requirements of RG 166.
For further details, including to access copies of the updated guides, refer to ASIC's website.
The Government has today confirmed that financial advisers will be granted an extension to their exemption from the taxation agent services regime until 30 June 2013. This decision will extend for one year the current exemption, which expires on 30 June 2012, and will allow for a smooth transition to the new regulatory regime, which will bring taxation advice provided in the context of financial product advice within the scope of the Tax Agent Services Act 2009.
The Government has confirmed that the new regulatory arrangements will focus on the principles of consumer protection and the delivery of quality taxation advice by financial advisers who offer this as part of their financial product advice services. The Government will consult further on these changes and ensure the required legislation is introduced before the changes will take effect on 1 July 2013.
ASIC has today released details on the registration and licensing process for those intending to provide financial services in relation to emissions units from 1 July 2012 under the Federal Government's carbon pricing mechanism.
Registrations for those involved in advising, dealing, making a market or providing a custodial or depository service in relation to emissions units can be lodged with ASIC from 1 May until 30 June 2012. Those who register before 1 July (either to apply for an Australian financial services licence or amend an existing licence) will be able to offer financial services in emissions units until 31 December 2012, provided they have applied for an AFS licence by 31 October 2012. From 1 January 2013, it will be an offence to provide financial services in emissions units without a licence, unless exempt.
ASIC has developed the following guidance, forms and tools to assist those wanting to register and ultimately seek to be licensed or to amend an existing licence:
- RG 236 Do I need a licence to participate in carbon credits? Note that this will be updated shortly to take into account regulations made since the guide was released on 9 March 2012;
- a dedicated carbon webpage on the ASIC website with further details regarding the registration and licensing process;
- registration form Application to register to provide financial services in emissions units;
- how to transition to registration and licensing; and
- a call centre for applicants to talk to trained staff: 1300 300 630.
For more information, refer to today's media release.
The Government has today announced the release of the latest report of the Trans-Tasman Outcomes Implementation Group which, among other things, notes that ASIC and the New Zealand Financial Markets Authority are expected to agree by mid year on technical standards for the mutual recognition of financial advisers. The report also recognises the continuing work by both regulators to ensure that investors and other users of financial products in Australia and New Zealand receive comparable disclosures.
For further information (including to access a copy of this and earlier reports), refer to the media release issued today by the Parliamentary Secretary to the Treasurer (which also includes a link to the Trans Tasman Outcomes Implementation Group website).
The Corporations Amendment Regulation 2012 (No 1) was made on 5 April and registered today on the FRLI. It amends the Corporations Regulations 2001 to recognise Australian carbon credit units issued under the Carbon Farming Initiative, eligible international emissions units issued in accordance with the Kyoto rules or another relevant international agreement and carbon units issued under the Clean Energy Legislation, as financial products (although some modifications (in relation to disclosure obligations) and exemptions from the FSR regime will apply in relation to these new financial products).
For more information about the impact of the FSR regime on the Clean Energy Legislation package, refer to our Breaking News for 9 March and our recent client publication Focus: Financial Services licensing of carbon markets participants. Also, find out more about developments in Climate Change from our Climate Change website and our Climate Change blog.
ASIC has today released Report 281 ASIC enforcement outcomes: July to December 2011, its first formal report detailing ASIC enforcement actions, which follows the release of Information Sheet 151 ASIC's approach to enforcement, Information Sheet 152 Public comment and Regulatory Guide 100 Enforceable undertakings.
The report outlines categories of 'gatekeepers' of Australia's financial system against whom ASIC has taken action (including financial advisers, responsible entities, credit licensees, market participants, directors, company officers, insolvency practitioners and auditors) having regard to their obligations to act with:
- honesty (eg, by respecting other people's property and not using a position of trust for self-advantage);
- diligence (eg, by applying due care and skill to advice or decision-making);
- competence (eg, by meeting any applicable conduct, licensing, registration and training obligations); and
- independence (eg, by managing conflicts of interest appropriately).
The enforcement outcomes set out in the report relate to a wide range of matters, from offences attracting significant penalties to record-keeping type offences (and the appendix to the report sets out statistics about ASIC's enforcement activities).
ASIC will continue to release similar reports half yearly.
For more information (and to access a copy of the report and the related information sheets), please refer to the ASIC website.
ASIC has today released Report 279 Shadow shopping study of financial advice, which contains the findings of its 'shadow shopping' research examining financial advice given to people to help them plan for retirement.
ASIC's research found that people have difficulty in assessing the quality of the financial advice they have received. Participants in the study rated their advisers and the advice they received highly, even when they received poor advice. In that regard, ASIC found that:
- over a third of the advice examples were poor (39 per cent)
- there were only two examples of good quality advice (3 per cent)
- the majority of advice examples reviewed (58 per cent) were adequate.
ASIC's report identifies a range of actions that are being taken to help improve the quality of advice. In addition to the FoFA reforms and industry codes of conduct, ASIC will:
- work with the financial planning industry associations and individual firms to provide more information on the findings in the report to help them focus on areas that will improve advice quality; and
- review the Getting Advice booklet and further refine MoneySmart website content to ensure that consumers are well equipped to find the right financial adviser.
For further details about ASIC's findings, refer to ASIC's media release (which also contains a link to REP 279).
The Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011) today passed the House of Representatives with amendments, the most notable being the change to the proposed opt-in requirement under the first of the FoFA Bills. In its original form, that Bill would have required financial advisers to obtain client agreement every two years to continue charging them ongoing fees. However, after negotiations between the Government and independents members, the Bill passed by the House now provides that ASIC may exempt advisers who belong to professional bodies and adhere to an ASIC-approved code of conduct from the opt-in requirement. Apart from approving the code of conduct, ASIC must also be satisfied:
- that the code of conduct obviates the need for persons bound by the code to be bound by the opt-in requirement; and
- of 'any other matters prescribed by the regulations'.
The exemption from ASIC must also be in writing and ASIC must publish notice of it in the Gazette.
The Bills now pass to the Senate for consideration.
For further information, please refer to the FoFA section of the Treasury website.
For background on FoFA, refer also to our Breaking News for 29 February 2012 (which also contains links to other relevant news items on FoFA).
ASIC has today released the following two documents in relation to the financial services licensing implications that arise under the Clean Energy Legislation package (and other carbon markets operating in Australia and overseas):
- Regulatory Guide 236 Do I need a licence to participate in carbon markets?, which is designed to help entities and individuals understand whether they require an Australian financial services licence to provide financial product advice and other financial services in relation to carbon markets and emissions units, and, if so, what are the next steps and where people can find more information; and
- Consultation Paper 175 Carbon markets: Training and financial requirements, which invites feedback on ASIC's proposals for applying its current polices on training for financial product advisers and financial requirements to these licensees.
ASIC is seeking comments on the proposals in CP 175 by 10 April 2012 and aims to have the updated regulatory policy by the end of April/early May.
ASIC says it will continue to publish information on its website about the new regulatory framework, including the licensing process, general obligations and the timetable in which requirements will take effect.For further details, refer to the media release on ASIC's website (which also contains links to the guidance released today).
The Parliamentary Joint Committee on Corporations and Financial Services has today released its report on its inquiry into the two Bills which will implement the Future of Financial Advice (FoFA) reforms – the Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011.
The PJCCFS majority made 15 recommendations. In summary, while they noted some areas where further clarification is required, they agreed that the FoFA provisions should generally commence on 1 July 2012, although it was noted that where institutions face substantial systems changes, ASIC has agreed to adopt a 'facilitative compliance approach' for the first 12 months of the FoFA reforms. However, the four dissenting Coalition members, who made 16 recommendations:
- recommended that the FoFA commencement should be deferred until 1 July 2013 (to align it with the MySuper start date)
- called for a transition period of at least 12 months from the date of finalisation of all legislation
- called for removal of the 'opt-in' rules and amendments concerning intra fund advice.
For further information, refer to the PJCCFS report. For further details on the FoFA Bills and ASIC's plans for how it will administer the FoFA reforms, refer to our Breaking News for 29 August, 28 September and 13 December in 2011.
ASIC has today announced it will extend, until 30 September 2012 (under new class order CO 12/158, which extends the original relief under CO 10/333):
- the interim class order relief granted to lawyers and funders involved in legal proceedings structured as funded representative proceedings; and
- relief on funding claims lodged with liquidators to prove in the winding up of an insolvent company.
The granting of this extension will:
- enable the temporary operation of a litigation funding scheme and a proof of debt funding scheme that is characterised as a managed investment scheme without having to comply with the requirements of the Corporations Act 2001; and
- exempt litigation and proof of debt funding arrangements that are otherwise characterised as financial products from complying with the requirements in the Corporations Act (ie, having to hold an AFSL; general licensing obligations, preparing PDSs and ongoing disclosure requirements).
The relief has been extended to allow additional time for the Federal Government to implement legislative reform it previously announced (with an exposure draft of proposed regulations released for comment by the Government in July last year) and to avoid any interim disruption that could adversely impact plaintiffs, or interfere with the timely and efficient running of litigation.
For further information about today's announcement (including to access copies of the new class order) and some background details, refer to ASIC's website.
ASIC has today released the following guidance on how it undertakes investigations and enforcement activity:
- Information Sheet 151: ASIC's approach to enforcement, which discusses how ASIC approaches enforcement and why it responds to different breaches of the law in different ways;
- Information Sheet 152: Public comment, which replaces the public comment policy in Regulatory Guide 47 Public comment and deals with when ASIC may comment publicly on investigations and enforcement actions; and
- Regulatory Guide 100 Enforceable undertakings, which outlines what an enforceable undertaking is and when ASIC will consider accepting an enforceable undertaking.
As part of today's announcement, ASIC has also noted that it will soon publish a report on key enforcement outcomes finalised during the period from 1 July to 31 December 2011 and that it will issue such reports bi-annually.
For further details (including to access a copy of the guidance issued today), refer to ASIC's website.
ASIC today released an investor guide and regulatory guidance with new disclosure benchmarks and principles for agribusiness managed investment schemes to improve investor awareness of the risks associated with these products.
These risks have been highlighted since 2008 when several operators of agribusiness schemes failed, causing investors significant losses. The collapses highlighted features of agribusiness schemes and raised concerns about whether these features and associated risks were adequately disclosed to investors.
Regulatory Guide 232 Agribusiness managed investment schemes: Improving disclosure for retail investors (RG 232) outlines five benchmarks and five disclosure principles that apply to all agribusiness schemes.
RG 232 is the latest in the series of 'if not, why not' disclosure benchmarks for sectors that pose particular risk to investors and financial consumers. It follows the issue of disclosure benchmarks for the infrastructure and over-the-counter contracts for difference sectors in Regulatory Guide 231 Infrastructure entities: improving disclosure for retail investors (RG 231) and Regulatory Guide 227 Over-the-counter contracts for difference: Improving disclosure for retail investors (RG 227).
Agribusiness schemes must disclose whether they meet the benchmarks and if not, why not. 'Why not' means explaining how they will deal with the business factor or the issue underlying the benchmark.
Agribusiness schemes pose particular risks because unlike many other types of managed investment schemes, they don't generally use a traditional unit trust structure. For tax reasons, many agribusiness schemes are structured so that investors operate their agribusiness investment in their own right. Investors enter into contracts with the responsible entity or other parties to perform all the cultivation and management activities associated with the investor's agribusiness enterprise. Investors need to understand these complex arrangements as an investment in an agribusiness scheme is a long-term commitment and investors may have ongoing obligations in relation to the operation of their agribusiness enterprise.
RG 232 also outlines the standards ASIC expects responsible entities to meet when advertising agribusiness schemes to retail investors and guidance as to clear, concise and effective disclosure of the benchmark and disclosure principle information.
Responsible entities of agribusiness schemes should disclose the benchmark and disclosure principle information in any product disclosure statement dated on or after 1 August 2012.
For further information (and to access the relevant documents), refer to ASIC's website.
ASIC today released new disclosure benchmarks and principles for infrastructure entities to improve investor awareness of the risks associated with investing in these products.
Regulatory Guide 231 Infrastructure entities: Improving disclosure for retail investors (RG 231) outlines nine benchmarks and eleven disclosure principles that apply to infrastructure entities, aimed at addressing the risks peculiar to infrastructure entities.
Infrastructure entities must disclose whether they meet the benchmarks and if not, why not. 'Why not' means explaining how a responsible entity deals with the business factor or the issue underlying the benchmark. The benchmarks relate to topics such as corporate structure and management, remuneration of management, classes of units and shares, substantial related party transactions, cash flow forecast, base-case financial model, performance and forecast, distributions and updating the unit price.
Infrastructure entities are also required to disclose against 11 disclosure principles addressing key relationships, management and performance fees, related party transactions, financial ratios, capital expenditure and debt maturities, foreign exchange and interest rate hedging, base-case financial model, valuations, distribution policy, withdrawal policy, and portfolio diversification.
In addition to the benchmarks and disclosure principles, RG 231 also outlines the standards ASIC expects responsible entities to meet when advertising infrastructure entities to retail investors. These standards are consistent with draft guidelines for the advertising of financial products and financial advice, released in November 2011.
Responsible entities of infrastructure entities must disclose the benchmark and disclosure principle information in any existing and new disclosure dated on or after 1 July 2012.
ASIC has also published an investor guide for retail investors and financial consumers on the MoneySmart website to provide more information about this product class.
For further information (and to access the relevant documents), refer to ASIC's website.
For more see our 2011 news archive, 2010 news archive, 2009 news archive, 2008 news archive, 2007 news archive, 2006 news archive, 2005 news archive, 2004 news archive, 2003 news archive and 2002 news archive.