ASIC Class Order [CO 05/21]

Overview

The ASIC Class Order [05/21] was enacted to address a technical gap in the application of auditing requirements for financial services licensees under the Corporations Act 2001. This legislation, issued by the Australian Securities and Investments Commission (ASIC), was prompted by the changes introduced by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004, which replaced section 327 of the Corporations Act with new provisions in Part 2M.4. The primary policy objective of this class order is to clarify and ensure that financial services licensees are not subject to conflicting or redundant auditor appointment requirements under different sections of the Act, thus maintaining legal certainty and streamlining compliance processes. The Explanatory Statement prepared by ASIC confirms that this instrument was issued without stakeholder consultation, given its technical nature aimed at achieving the intended legislative effect.

Scope and Application

The ASIC Class Order [No 05/21] is a legislative instrument designed to clarify the application of specific provisions of the Corporations Act 2001 (the Act) to financial services licensees, particularly in relation to the appointment of auditors. The Order applies to financial services licensees who are body corporates and aims to remove ambiguity regarding whether such entities must comply with auditor appointment requirements under both Chapter 2M and Part 7.8 of the Act. The jurisdictional reach of this Order is Commonwealth-wide, as it is issued by the Australian Securities and Investments Commission (ASIC) under the authority granted by the Corporations Act. It is important to note that this instrument does not extend to any other types of entities or individuals outside the scope of financial services licensees. There are no exclusions or exemptions specified in this Order, but its application is inherently restricted to the defined class of financial services licensees as described. Additionally, the Order does not create new law but modifies existing provisions to achieve its purpose, ensuring that financial services licensees are not subjected to conflicting requirements for auditor appointments.

Key Provisions

The ASIC Class Order [05/21], under section 992B(1)(c) of the Corporations Act 2001, makes specific modifications to the application of Part 7.8 of the Act for certain financial services licensees concerning the appointment of auditors. Section 990A of the Act, which previously exempted financial services licensees from certain auditor appointment requirements under Part 7.8, was rendered less effective due to the repeal of section 327 by the CLERP 9 Act. The Class Order rectifies this by ensuring that section 990A operates as if it referred to the new provisions in Division 6, Subdivision A of Part 2M.4 of the Act, thus clarifying the requirements for financial services licensees and resolving any ambiguity about the necessity to appoint auditors under both Chapters 2M and 7 of the Act. The primary obligation of this Class Order is to provide clarity and certainty to financial services licensees regarding their obligations to appoint auditors. It ensures that these licensees are not subject to conflicting requirements under different parts of the Corporations Act. By modifying the reference in section 990A, the Class Order aligns with the current legislative framework established by the CLERP 9 Act, specifically addressing the appointment of auditors under Part 2M.4. This legislative adjustment is intended to streamline the compliance requirements for financial services licensees, preventing them from facing dual obligations that could be confusing and burdensome. The Class Order does not detail specific offences or penalties for non-compliance as it is a technical clarification rather than a regulatory mandate with associated sanctions. However, it is important to note that any financial services licensee who fails to comply with the applicable auditor appointment provisions, as clarified by this Class Order, may face broader legal consequences under the Corporations Act. Such consequences could include civil penalties, disqualification from managing corporations, or other enforcement actions by ASIC, depending on the nature and severity of the non-compliance. The maximum penalties for breaches of the Corporations Act can vary widely, but they may include substantial fines and, in some cases, imprisonment. Given the technical nature of this Class Order, ASIC did not undertake any consultation with stakeholders before issuing it. The decision to forgo consultation was based on the understanding that the Class Order serves to correct an unintended legislative inconsistency rather than to introduce new regulatory requirements or substantial changes to existing obligations. This approach ensures that the law operates as intended without the need for extensive stakeholder engagement, focusing instead on maintaining the integrity and coherence of the legislative framework governing financial services licensees.