This section contains our 2013-2014 news updates. For 2000-2021 news updates, please see our Archive.
If you'd like to be added to our mailing lists and alerted when we add new publications, please go to the publications subscription page or you can subscribe to receive Australian Financial Services Regulation news updates by RSS feed.
You may also be interested in keeping up-to-date with the latest developments in the anti-money laundering and counter-terrorist (AML/CTF) reforms and how they affect financial services providers and other industries. Refer to our Anti-money Laundering section for more information.
The Asia Region Funds Passport (Passport) is an APEC initiative which aims to create a regulatory arrangement for the cross-border offer of collective investment schemes in participating economies. The Passport will enable fund operators in Passport member economies to offer eligible schemes to retail investors in other member economies under a streamlined process.
The Passport working group (Australia, Korea, New Zealand, the Philippines, Singapore and Thailand) has prepared a consultation paper (Arrangements for an Asia Region Funds Passport) to seek views from the public on the details of the proposed arrangements. This follows the signing of a statement of intent on the Passport by finance ministers from Australia, Korea, New Zealand and Singapore in September 2013, committing to jointly issue such a paper.
Following this consultation, economies who decide that they want to be Passport member economies will work to finalise the arrangements by early 2015 with a view to the Passport commencing in 2016.
Australia is represented on the Passport working group by officials from Treasury and ASIC.
The closing date for submissions is Friday, 11 July 2014.
For further details and to access a copy of this consultation paper see Treasury's media release.
ASIC today released Report 387 Penalties for corporate wrongdoing (REP 387).
REP 387 reviews penalties in Australia for corporate wrongdoing to assess whether they are proportionate and consistent. It compares ASIC’s penalties with:
- those in other countries;
- those of other Australian regulators; and
- across ASIC's regime.
The findings in REP 387 will inform ASIC’s submission to the Australian Government’s Financial System Inquiry.
The key findings show that:
- on the international comparison
- while our maximum criminal penalties (jail and fines) are broadly consistent with those available in other countries, there are significantly higher prison terms in the US, and higher fines in some overseas countries for certain offences;
- there is a broader range of civil and administrative penalties in other countries, they are higher, and they include the ability to remove financial benefit from wrongdoing (ie, disgorgement);
- on the comparison with other Australian regulators -
- the maximum civil penalties available to ASIC are lower than those available to other regulators and are fixed amounts, not multiples of the financial benefits obtained from wrongdoing; and
- on the comparison across ASIC's regime -
- there are differences between the types and size of penalties for similar wrongdoing. For example, providing credit without a licence can attract a civil penalty up to ten times greater than the criminal fine for those who provide financial services without a licence.
For further details refer to ASIC's website.
The Federal Government today introduced the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 into Parliament to implement its proposed amendments to the FoFA legislation.
The Bill includes the following key amendments to FoFA:
- removing the need for clients to renew their ongoing fee arrangement with their adviser every two years (also known as the 'opt-in' requirement);
- making the requirement for advisers to provide a fee disclosure statement only applicable to clients who entered into their arrangement after 1 July 2013;
- removing paragraph 961B(2)(g), the 'catch-all' provision, from the list of steps an advice provider may take in order to satisfy the best interests obligation;
- better facilitating the provision of scaled advice; and
- providing a targeted exemption for general advice from the ban on conflicted remuneration in certain circumstances.
ASIC today released updated guidance to facilitate and encourage the use of the internet and other interactive media for making offers of securities.
The updated Regulatory Guide 107 Fundraising: Facilitating electronic offers of securities (RG 107) aims to ensure that ASIC's guidance reflects current market practices and advances in technology.
The updated guidance includes:
- an explanation of ASIC's view on the way the internet and other electronic means can be used in making offers of securities;
- a 'good practice guide' to assist offerors, distributors, publishers and other parties involved in distributing offers; and
- continuation of relief for the use of personalised or Australian financial services (AFS) licensee created application forms.
As part of the update, ASIC confirms its view that the use of electronic disclosure documents is permitted under the law. Class Order [CO 00/44] Electronic disclosure documents, electronic application forms and dealer personalised applications has accordingly been revoked. ASIC has issued a new class order [CO 14/26] to continue relief for the use of personalised or AFS licensee created application forms.
ASIC also released Report 385 Response to submissions on CP 211 Facilitating electronic offers of securities: Update to RG 107 (REP 385). REP 385 highlights the key issues that arose from the submissions ASIC received in response to Consultation Paper 211 Facilitating electronic offers of securities: Update to RG 107 (CP 211).
ASIC today registered Class Order [CO 14/23]. It amends Class Order [12/749] by extending the interim relief contained in the Class Order for multifunds, superannuation platforms and hedge funds from the shorter Product Disclosure Statement (PDS) regime from 22 June 2014 to 30 June 2015.
The full PDS requirements under the Corporations Act 2001 apply to products that have been excluded from the shorter PDS regime. ASIC says it has extended the relief pending a future Government decision on the application of the shorter PDS regime to superannuation platforms, multifunds and hedge funds.
ASIC today published its Report 384 Regulating complex products (REP 384) about ASIC's review of its approach to regulating complex products.
- outlines the risks posed by complex products to retail investors;
- sets out ASIC's recent and current work on complex products, including considering the whole of the product lifecycle – development, distribution, sale, and post-sale; and
- identifies opportunities for further work, including working with industry, where appropriate.
Feedback on the report closes 31 March 2014.
For further details, refer to the media release on ASIC's website (which also contains a link to the report released today).
The Government has today released a further exposure draft for the third and final element of the Investment Manager Regime.
The exposure draft legislation is designed to remove tax impediments to foreign investment into or through Australia by foreign managed funds. Under this legislation, the gains of qualifying foreign funds from the disposal of certain financial arrangements will be exempt from Australian tax.
This exposure draft follows industry consultation, including submissions received on earlier exposure drafts.
Submissions close on 14 February 2014.
For further information refer to the Treasury website.
Treasury today launched the Financial System Inquiry website. The Inquiry is charged with examining how the financial system could be positioned to best meet Australia's evolving needs and support Australia's economic growth. In December 2013 the Treasurer had announced the final terms of reference of the Inquiry. Interested stakeholders can now lodge their initial submissions on issues to be examined by the Inquiry via the website. Submissions are due by 31 March 2014.
For background information, refer to our Breaking News for 20 December 2013.
The Assistant Treasurer today released for public consultation draft legislation and draft regulations to implement the Government's announced reforms to the Future of Financial Advice (FoFA) regime.
The Government's key amendments include:
- removing the opt-in requirement;
- streamlining the annual fee disclosure requirements;
- amending the best interests duty to allow for scaled advice;
- exempting general advice from conflicted remuneration; and
- amending grandfathering to allow for adviser movements.
The closing date for submissions is 19 February 2014.
For further details (and to access a copy of the draft regulations, draft legislation and explanatory materials) refer to the FoFA section of Federal Treasury website. For background information, refer to our Breaking News for 20 December 2013.
ASIC has today announced that it has decided to extend Class Order [CO 13/1050] Financial reporting by stapled entities which allows issuers of stapled securities (stapled entities) to continue to present consolidated or combined financial statements.
The amended class order extends the relief given to stapled entities for future financial years pending further consideration of reporting requirements by the IFRS Interpretations Committee.
Under a new accounting standard on consolidation accounting, it is not clear that stapled entities would be permitted to prepare consolidated financial statements in the absence of the class order.
The amended class order provides certainty that entities can continue their previous consolidated or combined reporting.
A stapled group which has not previously prepared a financial report under Chapter 2M can present consolidated financial statements under the class order.
Class Order [CO 13/1050] has also been amended to require disclosure:
- that the class order has been relied upon and whether consolidated financial statements or combined financial statements have been presented; and
- where consolidated financial statements are presented, of the amounts of the non-controlling interests that are attributable to the stapled security holders.
Class Order [CO 13/1050] also allows stapled entities in a stapled group to present their respective financial statements together in a single financial report.
The class order will be operative when registered on the Federal Register of Legislative Instruments, which is expected to occur in mid-January 2014.
ASIC has today issued [CO 13/1621] Exemption and declaration for the operation of mFund that provides relief that facilitates retail clients applying for interests in managed investment schemes through mFund Settlement Service (mFund).
mFund is a facility jointly operated by ASX and ASX Settlement where requests for the issue or redemption of interests in unlisted managed investment schemes can be made, and holdings recorded through CHESS. It is not a trading facility.
The key aspects of CO 13/1621 are:
- it exempts responsible entities (REs) of managed investment schemes available through the mFund from only issuing interests in response to an application form that was included in or accompanied a PDS; and
- REs will generally be allowed to issue on the basis of an electronic message through mFund indicating that the investor has been given the current version of the PDS.
The sender of the electronic message must be an Australian Financial Services licensee or an authorised representative and must not send an electronic message unless the investor has been given the latest product disclosure statement for the scheme.
For further information see ASIC's media release.
The Assistant Treasurer today announced the reforms the Government intends to make to the Future of Financial Advice (FoFA) legislation.
Key elements of the reforms include:
- Removing the 'opt-in' requirement: The Government will remove the need for clients to complete unnecessary paperwork in order to continue their arrangement with their adviser.
- Annual fee disclosure: The Government will streamline the existing requirements to ensure that the requirement to provide fee disclosure statements only applies to new clients from 1 July 2013. The Government considers that applying this requirement to existing clients is overly onerous as the fee disclosure arrangements are significantly more costly to apply to pre-1 July 2013 clients.
- Removing 'catch-all' from the best interests duty: The Government will amend the best interests duty to ensure that advisers can be confident that they have provided compliant advice to their clients. The Government said the existing catch-all arrangements have left advisers uncertain as to whether they have satisfied the best interests duty.
- Scaled advice: The Government will amend the best interests duty to explicitly allow for the provision of scaled advice. The changes will enable advisers to agree on the scope of advice to be provided with their clients, whilst ensuring that the advice is still appropriate for the client.
- Exempting general advice from conflicted remuneration: The Government will ensure that the ban on conflicted remuneration only applies to personal financial advice.
- Grandfathering: The Government will amend the existing grandfathering provisions to ensure that advisers can move between licensees whilst continuing to access grandfathered benefits. It said the current grandfathering provisions are reducing competition in the industry by impeding the movement of advisers between licensees.
For a detailed summary of the Government's amendments see the Assistant Treasurer's media release. For further information about the FoFA legislation, refer to the FoFA section of the Federal Treasury website.
The Treasurer today announced the final terms of reference for the Government's Financial System Inquiry and the appointment of four members to serve on the Inquiry panel which is being chaired by Mr David Murray AO.
The Treasurer, Mr Hockey said the next step for the Inquiry will be to receive submissions in line with the terms of reference. Submissions will open in early January 2014 and close at the end of March.
For further information see the Treasury website.
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 per cent 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.)
For more see our 2012 news archive, 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.
The following copyright notice applies to any information on this website that has been sourced from the website of the Australian Securities and Investments Commission:
ASIC – Australian Securities & Investments Commission. Reproduced with permission.