ASIC Class Order [CO 02/0262]

Overview

The ASIC Class Order [CO 02/262], which came into effect on 11 March 2002 under the Corporations Act 2001, was introduced to streamline and regulate the process of switching managed investment products within registered schemes. This legislative instrument, prepared by the Australian Securities and Investments Commission (ASIC), exempts responsible entities of registered schemes from specific sections of the Act, provided certain conditions are met. The primary objective of this Class Order is to ensure that retail clients receive adequate information and have the opportunity to make informed decisions when switching managed investment products, thereby protecting investors' interests and maintaining market integrity. The Class Order requires responsible entities to ensure that clients receive a Product Disclosure Statement or a Short-Form PDS, which must include all necessary information about the arrangement and any updates or replacements to the Statement. Additionally, it mandates that responsible entities keep records of all applications and provide any missing disclosure documents to clients upon request. If the missing information is not materially adverse, the entity may proceed with the switch or allow the client to withdraw the application; if the information is materially adverse, the entity must either allow the client a month to withdraw the application or decline the application outright. This Class Order aims to enhance transparency and protect clients by ensuring they have all relevant information before making a decision to switch managed investment products.

Scope and Application

The ASIC Class Order [CO 02/262], as amended, operates under section 1020F(1)(a) of the Corporations Act 2001 to provide specific exemptions for responsible entities of registered schemes in relation to the receipt of application moneys from holders under certain conditions. This exemption applies to the responsible entities of registered schemes when they receive application moneys from holders in the context of a switch to another managed investment product within the same scheme, provided the application adheres to the prescribed arrangement and the holder has received an up-to-date Product Disclosure Statement. The exemption is contingent upon the responsible entity ensuring the holder has the requisite information and providing them with the latest disclosure documents, including any supplementary statements, free of charge upon request. The responsible entity must also maintain records to demonstrate compliance with the requirements of this order and the Act. This legislative instrument has a national reach, applying across Australia, and came into effect upon the commencement of Schedule 1 to the Financial Services Reform Act 2001.

Key Provisions

The ASIC Class Order [CO 02/262], which operates under section 1020F(1)(a) of the Corporations Act 2001, exempts responsible entities of registered schemes from certain sections of the Act in relation to application moneys received from holders, provided certain conditions are met. Specifically, Section 1 of the Order mandates that a responsible entity must believe on reasonable grounds that a holder has received a Product Disclosure Statement (PDS) or Short-Form PDS before accepting an application. This PDS must include a description of the arrangement for switching managed investment products, details on how and when information will be provided to holders, and statements about the possibility of updates to the PDS. Section 2 requires the responsible entity to maintain adequate records demonstrating compliance with the Order and the Act. Section 3 obliges the responsible entity to provide a copy of the PDS, including any supplementary statements, free of charge to any holder upon request. Section 4 outlines the actions the responsible entity must take if it is not satisfied that the holder has received the most recent PDS and any supplementary statements. If the changes in the missing documents are not materially adverse, the responsible entity may proceed with the switch or withdraw the application. If the changes are materially adverse, the responsible entity must give the holder one month to withdraw the application or withdraw the application themselves. The ASIC Class Order imposes several obligations on responsible entities. First, they must ensure that they only accept applications from holders who have received the required PDS or Short-Form PDS. Second, they must keep comprehensive records to demonstrate compliance with both the Order and the Act. Third, they must provide holders with a copy of the PDS and any supplementary statements upon request. Fourth, if a responsible entity determines that a holder has not received the most recent PDS or supplementary statements, they must promptly provide these documents to the holder. Depending on the nature of the changes in the missing documents, the responsible entity may either proceed with the switch, allow the holder to withdraw the application, or withdraw the application themselves. These provisions are designed to ensure that holders are adequately informed about the managed investment products they are switching into, thereby protecting their interests. The ASIC Class Order includes provisions that establish consequences for non-compliance. While specific penalties are not detailed within the Order itself, non-compliance with the Corporations Act 2001 can result in both civil and criminal penalties. Civil penalties can include fines and other monetary penalties, while criminal penalties may include imprisonment, fines, or both, depending on the severity and intent of the breach. Additionally, responsible entities that fail to comply with the Order may face reputational damage, loss of trust among investors, and potential legal action from affected parties. It is important for responsible entities to adhere strictly to the requirements of the Order to avoid these potential consequences.