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].
Overview
The ASIC Class Order 05/1243, published in 2005, was enacted to address the regulatory burden on individuals providing valuations of shares in real estate companies under the Corporations Act 2001. The objective of this Class Order is to exempt these individuals from the requirement to hold an Australian financial services licence, ensuring a consistent regulatory approach and avoiding disproportionate costs. The Australian Securities and Investments Commission (ASIC) exercised its power under paragraph 911A(2)(l) of the Corporations Act to exempt these professionals from the financial services regulatory regime. This exemption applies to the provision of valuations of shares in real estate companies, which is considered equivalent to valuing and providing advice on the valuation of real estate rather than financial product advice concerning shares in a company. ASIC consulted with the Australian Property Institute Inc, the peak industry body representing the broader property industry, which included valuers, property lawyers, property advisers, and property managers, and their submissions were considered in the development of this Class Order.
Scope and Application
The ASIC Class Order 05/1243 provides an exemption under the Corporations Act 2001 for certain persons providing financial services by way of valuations of shares in real estate companies. This exemption applies to persons who provide a valuation report that may influence decisions regarding the sale or purchase of shares or the use of shares as security for a mortgage. The purpose of this Class Order is to relieve valuers of the burden of complying with financial services licensing requirements when providing such valuations, which are considered equivalent to valuing and advising on real estate rather than providing financial product advice in relation to shares in a company. The exemption applies unconditionally to those providing such valuations, ensuring a consistent regulatory approach and avoiding an unreasonable cost burden. The scope of the exemption is limited to the provision of valuations of shares in real estate companies and the advice incidental to those valuations, and it does not extend to other forms of financial product advice. The Class Order does not specify any exclusions, exemptions, or thresholds beyond those defined in the Corporations Act itself, and its application is not extended or restricted by any subordinate instruments.
Key Provisions
The main operative sections of the ASIC Class Order 05/1243 (paragraph 911A(2)(l)) provide an exemption for certain financial services related to the valuation of shares in real estate companies. Specifically, section 766B of the Corporations Act 2001 outlines the circumstances under which financial product advice is provided, and this Class Order exempts those providing valuations of shares in real estate companies from needing an Australian financial services licence. This exemption applies where the advice given is incidental to a valuation, ensuring that such activities are not subject to the burdensome financial services regulatory regime.
The obligations imposed by this Class Order are primarily on valuers and those providing financial services by way of valuations for shares in real estate companies. These individuals or entities are relieved from the need to hold a financial services licence when their activities are limited to providing valuations of shares in real estate companies. This exemption aims to ensure that the regulation of real estate companies is consistent and avoids placing an unreasonable cost burden on those providing these specific services. The relief applies to any advice or opinion provided that is incidental to the valuation process.
Breach of the provisions in the Corporations Act 2001 can lead to various civil and criminal consequences. Although the specific penalties for breaches of this Class Order are not detailed within the explanatory statement, breaches of the Corporations Act generally can result in significant penalties. These can include fines for individuals up to $210,000 and for bodies corporate up to $1,050,000, as well as potential imprisonment terms. Additionally, under the Act, there can be orders for pecuniary penalties, disqualification from managing corporations, and corrective measures to address the breach. The precise penalties depend on the nature and severity of the breach, as well as any mitigating or aggravating factors.