ASIC CLASS ORDER [CO 05/27]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
Paragraph 951B(1)(a) – Exemption
Paragraph 951B(1)(a) of the Corporations Act 2001 (the Act) provides that the Australian Securities and Investments Commission (ASIC) may exempt a person or class of persons from all or specified provisions of Pt 7.7 of the Act.
- Background
Subsections 941A(1) and 941B(1) require a person (the providing entity) who is a financial services licensee or an authorised representative of a financial services licensee to give a Financial Services Guide (FSG) if a financial service is to be provided to a person as a retail client.
The FSG must include the information required by the Corporations Regulations 2001: s942B(4) and 942C(4). Regulations 7.7.04(2) and 7.7.07(2) require an FSG to include certain detailed statements about remuneration, commissions and other benefits. These regulations apply even where the required information is not relevant to the financial services that will be or are likely to be provided to the client receiving the FSG or where the remuneration commissions or other benefits relate solely to services for which an FSG would not be required.
2. Purpose of the class order
Class order [CO 05/27] Financial Services Guides – Tailoring Relief relieves providing entities of unnecessary disclosure requirements. The relief addresses unforseen circumstances and unforseen consequences of compliance with the FSG content requirements. It also facilitates providing entities preparing tailored FSGs aimed at better meeting the information needs of particular client groups. Clients will not need to receive an FSG which contains information which is not relevant to the financial services in which they are interested. This will result in FSGs which are less complicated and, therefore, less likely to confuse or mislead clients.
3. The class order
Class Order [CO 05/27] exempts providing entities from the obligation to include in an FSG the information on remuneration, commissions and other benefits required by regs 7.7.04(2) and 7.7.07(2), where that information:
- does not relate to a financial service that the providing entity reasonably believes will be or is likely to be provided to the client; or
- relates exclusively to financial services which themselves do not require the provision of an FSG because of s941C(2), (3) and (4) or because the financial service would not be provided to the client as a retail client.
4. Consultation
ASIC wrote to select industry and consumer associations and seeking comment on practical difficulties faced by providing entities in complying with s941A and 941B. In particular, the industry associations were asked to consider and comment on the following issues:
- whether the Act allows a licensee to give a tailored FSG and in what circumstances? and
- whether an FSG is required to include information in relation to financial services for which an FSG is not required?
They were also asked to identify practical difficulties faced, the circumstances in which those difficulties arise and the circumstances in which a tailored FSG would be appropriate.
ASIC received responses from one law firm and 3 industry associations. [CO 05/27] takes into account those responses received.
Overview
The ASIC Class Order [CO 05/27] was enacted in 2005 under the Corporations Act 2001 to provide relief to financial services licensees and their authorised representatives from certain disclosure requirements when providing Financial Services Guides (FSG) to retail clients. The primary objective of this class order is to alleviate the burden on providing entities by exempting them from the obligation to include information on remuneration, commissions, and other benefits in an FSG, where such information is not relevant to the financial services the client is likely to receive or where those services do not require the provision of an FSG. This class order responds to the problem of overly complicated FSGs that may confuse or mislead clients by including irrelevant information. The class order was introduced by the Australian Securities and Investments Commission (ASIC) following consultations with industry and consumer associations to address practical difficulties faced by providing entities in complying with existing disclosure requirements.
Scope and Application
ASIC Class Order [CO 05/27] applies to financial services licensees and authorised representatives who are required under the Corporations Act 2001 to provide a Financial Services Guide (FSG) to retail clients. This class order exempts these entities from the obligation to include certain details about remuneration, commissions, and other benefits in an FSG, provided that such information is not relevant to the financial services likely to be provided to the client or relates to services that do not necessitate an FSG. The exemption aims to alleviate the burden on providing entities, ensuring that clients receive only pertinent information, thereby enhancing clarity and reducing the potential for confusion or misguidance. The class order operates within the framework of the Corporations Act 2001, which has a national jurisdictional reach across Australia, impacting all states and territories. It is important to note that this class order does not extend or restrict the application of the primary Act through subordinate instruments, maintaining the scope as outlined in the legislation.
Key Provisions
The main operative sections of the ASIC Class Order [CO 05/27] (the Order) provide exemptions from certain disclosure requirements in the Corporations Act 2001 (the Act) concerning Financial Services Guides (FSGs). Specifically, section 951B(1)(a) of the Act allows ASIC to exempt a person or class of persons from all or specified provisions of Part 7.7 of the Act. The Order exempts providing entities from the obligation to include in an FSG information on remuneration, commissions and other benefits required by regulations 7.7.04(2) and 7.7.07(2), where that information either does not relate to a financial service that the providing entity reasonably believes will be or is likely to be provided to the client, or relates exclusively to financial services which themselves do not require the provision of an FSG (sections 2 and 3 of the Order).
The Order imposes obligations on financial services licensees and authorised representatives (providing entities) to ensure that FSGs are tailored to the needs of particular client groups, thus avoiding unnecessary and potentially confusing information. The providing entities must assess whether the information on remuneration, commissions and other benefits is relevant to the financial services in which the client is interested and whether the services themselves require an FSG. This assessment ensures that FSGs are less complicated and less likely to confuse or mislead clients.
The Act itself does not explicitly provide for the imposition of penalties for breaches of the provisions exempted by the Order. However, providing entities must ensure that they comply with the requirements of the Act and the regulations when preparing FSGs. Failure to provide an FSG or providing misleading information in an FSG could result in civil liability under the Act, including claims for compensation by affected clients. Additionally, serious or repeated breaches of the Act's disclosure requirements could lead to ASIC taking enforcement action against the providing entity, which may include fines, public censure, or other regulatory sanctions. The maximum penalties for breaches of the Corporations Act can vary significantly depending on the nature and severity of the breach, but can include substantial fines for both individuals and corporations.