ASIC Class Order [CO 04/665]

Overview

The Australian Securities and Investments Commission Corporations Act 2001, enacted by the Commonwealth Parliament, addresses gaps in corporate governance and financial disclosure requirements. This legislation aims to enhance transparency and accountability within corporate structures by imposing stricter rules on financial dealings and disclosures, particularly those involving directors and entities connected to them. In 2004, the Australian Securities and Investments Commission exercised its powers under subsection 341(1) of the Corporations Act 2001 to vary Class Order [CO 98/110]. The objective was to refine and update the definitions and scope of certain financial transactions and disclosures to better align with contemporary accounting standards and practices, ensuring that the regulatory framework remains effective and relevant in governing corporate financial activities.

Scope and Application

The Australian Securities and Investments Commission (ASIC) has amended Class Order [CO 98/110] under the Corporations Act 2001, impacting the application and scope of the accounting standards AASB 1017 and AASB 1046 for financial transactions and loans involving banks. The amendments apply to banks as defined within the Act, specifically addressing transactions that involve directors or executives of the bank, or entities they control or significantly influence. The changes specify that certain paragraphs of AASB 1017 and AASB 1046 will not apply to loans or financial instrument transactions where neither the bank’s directors, executives, nor entities they control or significantly influence are involved. The modifications clarify who is subject to these accounting standards by refining the definitions of "AASB 1017 Director", "AASB 1046 Director", and "executive", aligning them with the respective accounting standards. The Class Order, which falls under Commonwealth jurisdiction, thus provides a clearer framework for banks in adhering to accounting standards without the direct involvement of their directors or executives.

Key Provisions

Under the Australian Securities and Investments Commission Corporations Act 2001, the Act varies Class Order [CO 98/110] by making several key changes to the text. Firstly, the heading of the Class Order is updated to reflect the Corporations Act 2001, with "LAW" being substituted for "ACT 2001" (subsection 341(1)(1)). Additionally, several references within the Class Order are updated to ensure consistency and clarity, including the substitution of "Law" with "Act" and "Company" with "Entity" (subsection 341(1)(2)–(4)). The Class Order also revises the financial instrument transactions subject to disclosure requirements, focusing on those involving Banks and AASB 1017 or AASB 1046 Directors or executives (subsection 341(1)(6)). The definition of "AASB 1017 Director" is inserted, aligning it with the definition of "director" in AASB 1017 (subsection 341(1)(7)(a)), while other definitions are omitted and updated accordingly (subsection 341(1)(7)(b)–(e)). The obligations and requirements imposed by these changes mandate that Banks comply with specific disclosure obligations concerning financial instrument transactions and loans. Banks must disclose certain transactions and loans under AASB 1017 and AASB 1046, provided that neither AASB 1017 Directors, AASB 1046 Directors, executives, nor entities controlled or significantly influenced by them are involved. This includes disclosing loans regularly made, guaranteed, or secured by a Bank, as well as financial instrument transactions regularly made by a Bank, under specified conditions. These obligations ensure transparency and accountability in financial dealings, protecting the interests of stakeholders and maintaining the integrity of financial reporting. Breach of the disclosure requirements set out in the Class Order can lead to significant consequences. While the specific penalties are not detailed in the legislative instrument, non-compliance with the Corporations Act 2001 generally may result in civil penalties, including fines up to $210,000 for individuals and $1,050,000 for bodies corporate, as stipulated in section 1317E. Additionally, criminal penalties, such as imprisonment, may apply for more severe breaches. These penalties underscore the importance of adhering to the Act's requirements and the potential repercussions for non-compliance.