ASIC Class Order [CO 02/238]

Administered by Department of the Treasury

Legislation au F2007B01018 Not in force Legislative Instrument

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Australian Securities and Investments Commission

Corporations Act 2001 - Paragraphs 601QA(1)(a) and (b), 911A(2)(1), 992B(1)(a) and 1020F(1)(a) - Revocation, Exemption and Modification

 

Under paragraphs 601QA(1)(a) and (b) of the Corporations Act 2001 (the "Act") the Australian Securities and Investments Commission ("ASIC") hereby revokes Class Order [00/203].

 

And under paragraphs 601QA(1)(a), 911A(2)(1) and 1020F(l)(a) of the Act, ASIC hereby gives the following exemptions.

 

1 Definitions

 

In this instrument:

 

"Commencement Date" means the date of commencement of Schedule 1 to the Financial Services Reform Act 2001;

 

"Disclosure Statement" means:

 

(a) where the new product disclosure provisions (as defined in subsection 1438(2) of the Act) apply to the interests in the Mortgage Business being offered or issued - a Product Disclosure Statement; or

(b) otherwise - a document relating to an offer of an interest in a Mortgage Business being offered which contains all the information that investors and their professional advisers would reasonably require, and reasonably expect to find, to make an informed assessment of:

(i) the rights and liabilities attaching to that interest; and

(ii) the assets and liabilities, financial position and performance, profits and losses and prospects of the Mortgage Business and of any Unregistered Related Scheme;

 

the "ISB conditions" are that:

(a) each loan under the Mortgage Business or any Unregistered Related Scheme is secured by a mortgage over land which has been valued at not less than:

(i) 125% of the amount agreed to be lent and any equal or prior security; or

(ii) where the loan is insured in full by a person authorised to insure mortgages under a relevant law of a State - at not less than 105% of that amount.

 

The valuation must be based on the unencumbered present day value of the land at the time of entry into the mortgage, not taking into account any future development which is to occur on the land;

 

(b) interests under the Mortgage Business or any Unregistered Related Scheme are not offered or issued to persons whose usual addresses are outside the jurisdiction in which the security property is situated (except for local offers in border areas);

 

(c) interests under the Mortgage Business or any Unregistered Related Scheme are not offered by public advertising;

 

(d) investors under the Mortgage Business and any Unregistered Related Scheme choose the mortgages in which their funds are invested; and

 

(e) cash forming part of the scheme assets of the Mortgage Business or any Unregistered Related Scheme is held in a designated trust account which complies with the rules of the supervising body and is regularly audited;

 

"made", in relation to a loan means there is an agreement to provide funds, performance of which is subject only to making title to the property securing the loan and completion of documentation;

 

"Mortgage Business" means a managed investment scheme, the only investments of which are mortgages over real estate and deposits with Australian ADIs; and

 

"Related Scheme" in relation to a Mortgage Business means any managed investment scheme concerning mortgages over real estate which is operated by the operator of the Mortgage Business or by an associate of the operator or of a partner of the operator.  If a Related Scheme is not a registered scheme, it is an "Unregistered Related Scheme".

 

2 Schemes with less than 20 investors

A. Under paragraphs 601QA(1)(a), 911A(2)(1), 992B(l)(a) and 1020F(l)(a) of the Act, ASIC hereby exempts each operator of a Mortgage Business from:

(a) sections 601ED, 992A and 992AA and Part 7.9 of the Act in relation to the operation of, and the making offers to issue or sell, recommendations to acquire and the issue of interests in; and

(b) the requirement to hold an Australian financial services licence for the provision of financial services by the person in relation to interests in,

 

a Mortgage Business:

(c) which together with any Related Scheme has no more than 20 members (applying subsections 601ED(4) and 601ED(7) of the Act); and

(d) the operator of which does not operate, and is not the associate or partner of a person who operates, a registered Mortgage Business.

B. Under paragraph 911A(2)(1) and 1020F(l)(a) of the Act, ASIC hereby exempts a person (other than an operator of the Mortgage Business) from:

(a) the requirement to hold an Australian financial services licence for the provision of financial services by the person in relation to interests in; and

 

(b) Part 7.9 of the Act in relation to a recommendation that a retail client acquire, and an offer to arrange the issue of an interest in,

 

a Mortgage Business which appears to meet the following requirements:

 

(c) the Mortgage Business together with any Related Scheme does not have more than 20 members (applying subsections 601ED(4) and 601ED(7) of the Act); and

(d) the operator of the Mortgage Business does not operate, and is not the associate or partner of a person who operates a registered Mortgage Business,

 

except where the person is aware, or ought reasonably to be aware, that the Mortgage Business does not meet these requirements.

 

3 Registering a mortgage business as a scheme

 

The operator of a registered scheme, the only investments of which are mortgages over real estate and deposits with Australian ADIs is exempt from section 601ED of the Act to the extent that subsection 601ED(l) may require each mortgage operated under the scheme to be registered as a separate scheme.

 

Note:  See also the modification relating to liquid schemes in Part 6.

 

4 Small industry-supervised schemes

A. A person is exempt from section 601ED of the Act in relation to operating a Mortgage Business, in the case where:

 

(a) the Mortgage Business and any Unregistered Related Scheme are operated under the supervision of one of the following bodies (each an "ISB") and in compliance with any applicable rules and directions of that body:

Law Society of New South Wales

Law Institute of Victoria;

(b) the Mortgage Business and any Unregistered Related Scheme are operated in accordance with the ISB conditions;

(c) no interests in the Mortgage Business are issued to a person unless the operator of the Mortgage Business reasonably believes that the person has received a copy of a Disclosure Statement in relation to that Mortgage Business which has been lodged with the relevant ISB;

(d) the total principal of loans outstanding under the Mortgage Business and any Unregistered Related Schemes does not exceed 7.5 million dollars; and

(e) the operator has previously complied with all of the applicable conditions of relief in Class Order [00/203].

 

5 Run-out schemes (transitional relief)

A person is exempt from section 601ED of the Act in relation to operating a Mortgage Business if, on the Commencement Date, the only mortgages which are investments of the Mortgage Business are not then due for repayment until 30 June 2002 on condition that and for as long as:

 

(a) the Mortgage Business and any Unregistered Related Scheme are operated under the supervision of one of the following bodies (each an "ISB") and in compliance with any applicable rules and directions of that body and with any additional requirements set out in the Schedule under the name of that body:

Law Society of New South Wales

Law Institute of Victoria

Law Society of Queensland

Law Society of Tasmania

The Finance Brokers Institute of South Australia Incorporated;

(b) the Mortgage Business and any Unregistered Related Scheme are operated in accordance with the ISB conditions or with any additional or alternative requirements set out in the Schedule under the name of the relevant ISB;

(c) no new loans are made under the Mortgage Business or any Unregistered Related Scheme;

(d) the operator has previously complied with all of the applicable conditions of relief in Class Order [00/203].

 

provided that a person shall not be so exempt in relation to operating a specified Mortgage Business if ASIC has published a written notice to that effect and has given a copy of that notice to the person.

 

Note: This transitional relief can be used pending registration under Chapter 5C, or the run-out of a scheme's book to qualify for continuing ISB relief or to reduce the number of lenders to less than 20. The conditions applicable to this exemption will cease to apply to a scheme, once it falls into one of the continuing categories. Where the operator of a transitional scheme secures registration of a scheme under Chapter 5C, existing business can continue under this exemption, or be transferred to the registered scheme.

 

6 Modification in relation to registering mortgage businesses

Under paragraph 601QA(1)(b) of the Act ASIC declares that subsection 601GA(4) and Part 5C.6 of the Act have effect in relation to the registered schemes to which Part 3 of this instrument applies, as if each reference in those provisions to a scheme which is liquid (or not liquid) were a reference to a mortgage administered under the scheme which is liquid (or not liquid), and references to members of the scheme were references to members who have interests in the mortgage. This does not apply to references to the constitution of a scheme.

 

 

SCHEDULE

 

Queensland Law Society - additional conditions for transitional relief

 

1 The scheme operator or Queensland Law Foundation Pty Ltd, ACN 066 550 687 (QLF) as nominee of Queensland Law Society ("QLS"), holds current insurance cover of at least $950,000 (mortgage fidelity insurance) in respect of direct pecuniary loss suffered by another person arising out of the person's fraudulent or dishonest acts in relation to a Mortgage Business conducted by the person.

 

2 Either QLF or QLS holds from the scheme operator a bond or bank guarantee under which an amount of not less than $50,000 can be immediately and unconditionally demanded or called upon in respect of claims for pecuniary loss arising out of the person's fraudulent or dishonest acts in relation to a Mortgage Business.

 

3 The QLF and QLS shall ensure that mortgage fidelity insurance is provided by an insurer authorised by law (and fully re-insured under a contract or contracts of re-insurance as may be appropriate with a re-insurer authorised by law) to enable claims to be made in respect of a period of up to 5 years following the expiry of the current term of the mortgage fidelity insurance cover held in respect of that person.

 

4 That QLS shall not add to, amend or revoke any rule affecting the conduct or operation by a person in connection with a Mortgage Business without ASIC's prior written consent.

 

5 The loan secured by the mortgage is repayable not more than three years from the date it is made.

 

Law Institute of Victoria - alternative condition for transitional relief

 

If the Mortgage Business is operated by a person whose name is entered on the Solicitor's Contributory Mortgage Practice register maintained by the Solicitor's Contributory Mortgage Practice Committee of the Law Institute then a loan forming an interest in the scheme, instead of complying with paragraph (a) of the ISB conditions, may be secured by a mortgage over the legal title to land situated in the Commonwealth of Australia (where the loan is uninsured), with a municipal valuation of not less than 400% of the total amount of the loan and all other indebtedness secured over the land with equal or prior security.

 

Commencement

 

This instrument takes effect on the Commencement Date.

 

Dated the 28th day of February 2002

 

 

 

 

Signed by Brendan Byrne

as a delegate of the Australian Securities and Investments Commission

Overview

The Australian Securities and Investments Commission Corporations Act 2001 (Cth) was enacted to regulate corporate activities in Australia and ensure transparency and accountability. This legislative instrument, effective from the date of commencement of Schedule 1 to the Financial Services Reform Act 2001, primarily aims to address issues related to financial services and managed investment schemes, particularly those involving mortgages over real estate. The Australian Securities and Investments Commission (ASIC), acting under the authority granted by the Corporations Act 2001, has revoked Class Order [00/203] and issued exemptions to streamline and simplify compliance for smaller mortgage businesses and industry-supervised schemes. These exemptions are designed to reduce the regulatory burden on operators of small mortgage businesses while maintaining necessary safeguards for investors. The exemptions cover operators of mortgage businesses with no more than 20 members, allowing them to bypass certain licensing requirements and disclosure obligations. Additionally, the instrument provides relief for small industry-supervised schemes and transitional arrangements for run-out schemes. The policy objective is to facilitate the operation of smaller, less complex financial schemes while ensuring that investors are adequately informed and protected. The instrument was signed by Brendan Byrne as a delegate of ASIC, effective from the commencement date specified.

Scope and Application

The Australian Securities and Investments Commission Corporations Act 2001, specifically addressing the revocation of Class Order [00/203] and providing exemptions under certain provisions, applies to operators of Mortgage Businesses and related entities. These Mortgage Businesses are defined as managed investment schemes where the only investments are mortgages over real estate and deposits with Australian authorised deposit-taking institutions. The exemptions pertain to operators of Mortgage Businesses with no more than 20 members, who do not operate or are not associated with a registered Mortgage Business. The exemptions also cover individuals who are not operators of such businesses but provide financial services concerning these investments, provided the Mortgage Business meets specified criteria. Exemptions extend to certain requirements under the Act, including sections 601ED, 992A, 992AA, and Part 7.9, as well as the necessity to hold an Australian financial services licence. The exemptions are contingent on the Mortgage Business being supervised by an industry supervisory body and adhering to stipulated conditions, including loan valuation, geographical restrictions, and investment selection transparency. The exemptions also cover transitional relief for run-out schemes, provided certain conditions are met. The geographic and jurisdictional reach of this legislation is national, applying across Australia, with specific conditions and exemptions detailed to ensure compliance with relevant legal standards and industry regulations.

Key Provisions

The Australian Securities and Investments Commission (ASIC) has revoked Class Order [00/203] under paragraphs 601QA(1)(a) and (b) of the Corporations Act 2001 (the "Act"). Simultaneously, ASIC has issued exemptions under paragraphs 601QA(1)(a), 911A(2)(1), 992B(1)(a), and 1020F(1)(a) of the Act. These exemptions are intended to provide relief to certain operators and participants in the mortgage business sector. Operators of mortgage businesses, which are defined as managed investment schemes with investments limited to mortgages over real estate and deposits with Australian authorised deposit-taking institutions (ADIs), are exempted from several sections and requirements of the Act. Specifically, these exemptions apply to operators of mortgage businesses that, together with any related schemes, have no more than 20 members and are not operated by an associate or partner of a person who operates a registered mortgage business. The exempted sections include 601ED, 992A, 992AA, and Part 7.9 of the Act, which pertain to the operation, offer, sale, and recommendation of interests in a mortgage business. Additionally, these operators are exempt from the requirement to hold an Australian financial services licence for the provision of financial services related to interests in a mortgage business. Persons other than the operators of mortgage businesses are also exempted from certain requirements under the Act. These include the requirement to hold an Australian financial services licence and Part 7.9 of the Act concerning the recommendation and offer to arrange the issue of interests in a mortgage business, provided certain conditions are met. For instance, the mortgage business must have no more than 20 members, and the operator must not be associated with a registered mortgage business, unless the person is aware or should reasonably be aware that these conditions are not met. Operators of registered schemes, the only investments of which are mortgages over real estate and deposits with Australian ADIs, are exempt from the requirement to register each mortgage under the scheme as a separate scheme under section 601ED of the Act. Furthermore, operators of mortgage businesses that are supervised by certain industry supervisory bodies and meet specific conditions are exempt from section 601ED of the Act. These conditions include compliance with the rules and directions of the supervisory body, adherence to the ISB conditions, issuance of a Disclosure Statement to investors, a limit on the total principal of loans outstanding, and prior compliance with the applicable conditions of relief in Class Order [00/203]. Additionally, operators of mortgage businesses that, on the commencement date of the Financial Services Reform Act 2001, have mortgages that are not due for repayment until 30 June 2002, are exempt from section 601ED of the Act, provided they meet certain conditions. These include supervision by a specified industry supervisory body, compliance with ISB conditions or additional requirements, cessation of making new loans, and prior compliance with the applicable conditions of relief in Class Order [00/203]. However, this exemption does not apply if ASIC has published a written notice to that effect and provided a copy to the operator. The Act also modifies the registration requirements for mortgage businesses. Specifically, it declares that certain provisions relating to liquid schemes apply to registered schemes as if references to the scheme were references to the mortgage administered under the scheme and references to scheme members were references to members with interests in the mortgage. This modification does not apply to references to the constitution of a scheme. Breach of the conditions or requirements set out in this instrument could result in civil or criminal penalties under the Act. The specific penalties would depend on the nature and severity of the breach, and could include fines, imprisonment, or both. The exact penalties are not specified in the instrument itself but would be determined in accordance with the relevant provisions of the Act.

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