background
ASIC is Australia’s integrated corporate, markets, financial services, and consumer credit regulator. Under section 776A of the Corporations Act (“the Act”), AFS providers include persons, entities or entities’ representatives which carry out a financial service including among others the providence of a financial product advice to clients, dealing in a financial product by acquiring, issuing, varying, or disposing it, making a market for a financial product and/or operating a registered managed investment scheme. All AFS providers are regulated by ASIC, and it is recommended that providers follow the RGs. The purpose of the RGs is to primarily give practical guidance to AFS providers on how to comply with their obligations, and assist them to comply with their licence, and to analyse when and how ASIC will exercise specific powers under legislation, and explain how ASIC interprets the law, and describes the principles underlying ASIC’s approach.
CCIVs are registered companies limited by shares that are primarily used for funds management. For more information on CCIVs, please click here to read our article which outlines an in-depth analysis of CCIVs.
analysis of the changes to RGs
Reissued RGs that relate to CCIVs:
1. RG 1: applying for and varying an AFS licence and RG 2: preparing your AFS licence or variation application
Following the amendment of section 766A (1) of the Act to include the operation of business and conducting affairs of a CCIV in the definition of financial services, RG 1.2 was also amended to reflect the update. Additionally, RG 1.77 and RG 1.131 were updated to outline the process of registering an entity as a CCIV after such entity receives an AFS licence authorising it to operate as a CCIV. Further, RG 1 clarifies that to operate a business and conduct affairs of a CCIV, the company must meet the following requirements:
- the company must be a company limited by shares;
- the company must have a constitution that meets the constitution requirements in part 8B.3 of the Act;
- the sole proposed director of the company must be a public company that holds an AFS licence;
- the company must, on registration, have at least one sub-fund;
- each sub-fund of the company must, on registration, have at least one member;
- if the company is intended at the time of registration to be a retail CCIV, the company must have a compliance plan and compliance plan auditor; and
- notice must be given on the CCIV registration application form about whether the CCIV is intended to be a retail CCIV or a wholesale CCIV.
Additionally, RG 2 was reissued to provide more adequate and detailed guidance to the applicants for the preparation of their AFS or to the AFS licensees who wish to vary their existing licence.
2. RG 104: meeting the general obligations.
RG 104 focuses more on the analysis and description on what ASIC looks for when it assesses compliance of AFS licensees with their general obligations under section 912A (1) of the Act.
3. RG 105 AFS licensing: organisational competence.
RG 105 was reissued with the aim to support the licensing and other requirements for CCIVs which came into effect on 1 July 2022 and provides detailed guidance on what ASIC looks for when it assesses compliance with the organisation competence obligations AFS licensees have under section 912A (1) of the Act.
ASIC made the following adjustments to RG 105 whereby AFS licensees must:
- demonstrate that they understand the investment and operational issues of the assets under management (RG 105.41);
- have at least one responsible manager with the knowledge and skills for the kinds of assets under management or the business operated by the scheme or CCIV (RG105.44);
- have responsible managers who are experienced and qualifications or training that are relevant to their role in the business (RG 105.55);
- specify the dominant kind of scheme or type of CCIV assets (RG 105.77);
- indicate whether the application is for an authorisation to operate the business and conduct the affairs of the wholesale CCIV’s only, retail CCIVs only, or retail and wholesale CCIVs. It also needs to be specified which particular asset types are authorisation is being sought for (RG 105.102);
- apply for an authorisation to operate the business and conduct affairs of a retail CCIV only if it can be demonstrated that compliance with the additional obligations that apply to retail CCIVs is likely. Otherwise, application for an authorisation to operate the business of and conduct the affairs of a wholesale CCIV should be made (Ch 8B of the Act (RG 105.103);
- review the limit on operations of retail CCIVs (RG 105.104-105.109); and
- apply for an AFS licence authorisation to advise on and/or deal in ‘securities’. If there is an existing authorisation, an entity is considered to be authorised to advise on and/or deal in CCIV securities and will not need to apply to ASIC for a separate authorisation (RG 105.110).
In addition to updating the relevant RGs, ASIC has also published Information Sheet 272 which provides guidance on CCIV and initial sub-fund registration requirements, the application process, CCIV compliance plan requirements and the application process for registering further sub-funds.
Reissued RGs that relate to breaching reports:
Primarily, ASIC updated RG 1: applying for and varying an AFS licence, RG 36: financial product advice and dealing and RG 121: doing financial services business in Australia on 28 March 2022 to reflect the new breach reporting reforms under the financial sector which commenced on 1 October 2021. The breach reporting reforms address long-standing concerns about breach reporting, including ambiguity and inconsistency across the financial services industry. This is accomplished as the reform not only introduces new obligations of AFS licensees, but it also clarifies and strengthens the existing obligation on AFS licensees to self-report certain breaches of the law to ASIC and extends the obligation to credit licensees.
The new obligations the AFS licensees due to the breach reporting reforms are covered under parts 7.6, 7.7 and 7.8 of the Act and include among others the obligation of AFS licensees to report investigations. Precisely, AFS licensees are required to lodge breach reports with ASIC within 30 calendar days after the licensee is made aware of the breach or there are reasonable grounds to believe a reportable situation has arisen. Also, the obligations now introduced a duty of AFS licensees to identify material and significant breaches. Further, the credit licensees are now also obliged to report law breaches to ASIC. The relevant RGs were updated accordingly to reflect the above updates.
It is important to note that the breach reporting reforms amend the Corporations Regulations 2001, the National Consumer Credit Protection Regulations 2010, the Corporation (Fees) Regulations 2001 and the National Consumer Credit Protection (Fees) Regulations 2010.
overview
