ASIC CLASS ORDER 05/1243

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001- Paragraph 911A(2)(l) - exemption

Paragraph 911A(2)(l) of the Corporations Act 2001 (the "Act") provides that a person is exempt from the requirement to hold an Australian financial services licence for a financial service if the provision of the service is covered by an exemption covered by an exemption specified by the Australian Securities and Commission ("ASIC") in writing and published in the Gazette.

1. Background

A real estate company is a company formed for the purpose of owning and managing land and buildings.  Shares in the real estate company are held by persons who wish to have an exclusive right of occupation and use of a particular area within the land or building owned by the real estate company.  A real estate company provides a structure to build multi-story buildings and enable individual ownership of the residential dwellings and parking within the building, while also providing for the centralised management of the land and buildings.  A real estate company is considered an alternative to strata title and is used where strata title is not practical.  However, a real estate company differs from strata title because, unlike strata title, there is no direct ownership of a real property right by owners who hold shares.

Valuers are engaged to provide valuations of shares in real estate companies, particularly for the purposes of their sale or purchase or their use as security for a mortgage.

Section 766B of the Act provides that a person provides financial product advice if they provide a recommendation or a statement of opinion or a report of either of those things that:

(a) is intended to influence a person in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class orf financial products; or

(b) could reasonably be regarded as being intended to have such an influence.

This means that if a person gives a valuation report that contains an opinion to or is reasonably likely to influence:

(a) owners to sell their shares;

(b) potential owners to purchase shares; or

(c) banks or financial institutions to register a mortgage over the shares,

the person will be required to hold an Australian financial services licence and comply with the obligations of a financial services licensee in Chapter 7 of the Act, including complying with the obligations of a licensee and providing financial services disclosure.

ASIC has already exercised its power under paragraph 911A(2)(l) of the Act to (amongst other matters) exempt licensed real estate agents from the requirement to hold a financial services licence to market and sell shares in real estate companies in Class Order [CO 00/213] issued on 29 February 2000.  A copy of Class Order [CO 00/213] may be accessed at http://www.asic.gov.au.

2. Purpose of the Class Order

The purpose of Class Order [CO 05/1243] is to ensure that persons providing financial services by providing valuations of shares in real estate companies are not subject to burdensome and inappropriate regulation under the financial services regulatory regime.  The valuation of shares in real estate companies is equivalent to valuing and providing advice on the valuation of real estate, rather than providing financial product advice in relation to shares in a company.  Granting relief to persons providing financial services by providing valuations of shares in real estate companies will result in a consistent regulatory approach to the regulation of real estate companies and avoid the unreasonable cost burden that would be imposed on these persons.

3. The Class Order

[CO 05/1243] provides unconditional relief for persons who provide financial product advice where the advice is or is incidental to a valuation of shares in a real estate company.  This means that the licensing, conduct and services disclosure will not apply to those persons in those circumstances. 

4. Consultation

ASIC has received and considered written submissions from the Australian Property Institute Inc, which is the peak industry body for the broader property industry including valuers, property lawyers, property advisers and property managers.  The submissions from the Australian Property Institute Inc were taken into account in the development of [CO 05/1243].