ASIC Class Order [CO 04/1431]

Overview

The ASIC Class Order [CO 04/1431] was introduced in 2004 to address the need for clearer disclosure of costs associated with certain financial products, including derivatives, foreign exchange contracts, and insurance products. This legislative instrument was enacted under the Corporations Act 2001, specifically paragraph 1020F(1)(a), by the Australian Securities and Investments Commission (ASIC). The primary policy objective of this Class Order is to ensure that Product Disclosure Statements for these financial products provide consumers with transparent information about significant factors that may affect the cost of acquiring these products. This was intended to address a gap in the comprehensive disclosure of costs that could potentially mislead consumers regarding the true expenses involved with these financial products. The Class Order specifies exemptions from certain disclosure requirements under the Corporations Act, contingent on the inclusion of detailed explanations of cost factors and their impacts in the Product Disclosure Statements. These exemptions are not applicable if ASIC issues a written notice prohibiting reliance on the exemption. This legislative instrument aims to balance the need for disclosure with the practicalities of financial product documentation, ensuring consumers are well-informed without overly burdensome compliance requirements for financial institutions.

Scope and Application

ASIC Class Order [CO 04/1431], enacted under the Corporations Act 2001, applies to responsible persons who prepare Product Disclosure Statements (PDS) for certain financial products including derivatives, foreign exchange contracts, general insurance products, and life risk insurance products. This legislation is administered by the Australian Securities and Investments Commission (ASIC) and primarily concerns the disclosure obligations related to the costs of acquiring these products. Specifically, the Class Order exempts responsible persons from certain disclosure requirements stipulated in paragraph 1013D(1)(m) of the Act, provided that the PDS specifies significant factors affecting the cost of acquiring the financial product and explains the impact of each of these factors on the cost. This exemption does not apply if ASIC issues a written notice stating that the exemption cannot be relied upon from a specified date, and the notice has not been withdrawn by ASIC. The geographic reach of this legislation is national, applying across Australia as it is a Commonwealth instrument. There are no explicit exclusions other than the conditions outlined for the exemption to apply, and it does not extend or restrict its application through subordinate instruments beyond the specifics mentioned in the Class Order.

Key Provisions

The ASIC Class Order [CO 04/1431] provides certain exemptions from specific disclosure requirements under the Corporations Act 2001 for Product Disclosure Statements of certain financial products. Specifically, paragraph 2 of the Order exempts responsible persons for general insurance products or life risk insurance products from disclosing information other than details about any excess or deductible that applies to a claim under such a financial product. Similarly, paragraph 3 exempts responsible persons for derivatives, foreign exchange contracts, or warrants from disclosing information under the Act. These exemptions are conditional, as outlined in paragraph 4, and only apply if the Product Disclosure Statement specifies any significant factors that will affect the cost of acquiring the financial product and includes an explanation of the impact of each of those factors on the cost of acquiring the financial product. The obligations imposed by the Class Order on the parties it governs are primarily focused on the preparation and disclosure of Product Disclosure Statements for specified financial products. Responsible persons must ensure that any Product Disclosure Statement for general insurance products, life risk insurance products, derivatives, foreign exchange contracts, or warrants specifies any significant factors that will affect the cost of acquiring the financial product and includes an explanation of the impact of each of those factors on the cost of acquiring the financial product. Failure to comply with these requirements can result in the exemption being withdrawn, as stipulated in paragraph 5. This means that ASIC can issue a written notice to a person stating that they may not rely on the exemption from a specified date, and the notice cannot be withdrawn by ASIC in writing. The consequences for breach of the provisions in this Class Order are not explicitly stated within the Order itself, but breaches of the Corporations Act 2001 or its regulations can result in both civil and criminal penalties. Under section 1317E of the Act, individuals can be subject to fines of up to $210,000 and/or imprisonment for up to five years for serious or repeated breaches. Corporations can face even higher penalties, with fines of up to $1.05 million for serious or repeated breaches and up to $5.25 million for the most serious breaches. Additionally, ASIC has the power to seek injunctions, compensation orders, and other remedies as deemed appropriate to address breaches of the Act or its regulations.