ASIC Class Order [CO 05/737]

Administered by Department of the Treasury

Legislation au F2005L03616 Not in force Legislative Instrument

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ASIC CLASS ORDER [05/737]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Paragraph 601QA(1)(a) and subsection 765A(2) —Exemption and Declaration

Section 601QA(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 specified provisions of Chapter 5C of the Act.

Section 765A(2) of the Act provides that ASIC may declare that a specified facility, interest or other thing is not a financial product for the purposes of Chapter 7 of the Act.

1. Background

Section 763D of the Act provides that a person makes non-cash payments if they make payments, or cause payments to be made, otherwise than through the physical delivery of Australian or foreign currency in the form of notes and/or coins. The facility through which, or through the acquisition of which, a person makes such payments is a financial product: s763A(1)(c).

This means that if a person carries on a financial services business involving dealing in, or providing financial product advice on, a non-cash payment (NCP) facility in Australia, the person must hold an Australian financial services licence unless an exemption applies. Parts 7.7, 7.8 and 7.9 of the Act impose conduct and disclosure obligations on persons who provide financial product advice or deal in a financial product. The Act also prohibits the hawking of financial products to retail clients.

ASIC issued its Policy proposal paper Non-cash payment facilities (Non-cash payment facilities PPP) in December 2004. The Non-cash payment facilities PPP set out how ASIC proposed to regulate non-cash payment facilities and sought feedback from interested parties. (The Non-cash payment facilities PPP may be accessed at http://www.asic.gov.au.)

The Australian Government released its proposals paper Refinements to Financial Services Regulation on 2 May 2005. The proposals paper noted there is ‘[u]ncertainty as to whether loyalty schemes, retailer gift vouchers and certain low-value non-cash payment facilities are intended to be regulated under the financial services regime’. (This paper may be accessed at http://www.treasury.gov.au.) In response, ASIC announced it would issue guidance and/or relief to deal with the unintended application of the non-cash payment facility definition to certain kinds of facilities as part of its project on the regulation of non-cash payment facilities (see Information Release [IR 05-22] ASIC provides details on financial services refinement projects (12 May 2005), which can be accessed at http://www.asic.gov.au).

Loyalty schemes are schemes that are operated by, or on behalf of an issuer and are designed to encourage the purchase or use of goods and/or services of the issuer or other parties participating in the scheme.

2. Purpose of the class order

The purpose of Class Order [CO 05/737] is to declare that a loyalty scheme is not a financial product for the purposes of Chapter 7 of the Act. Such schemes are generally simple, easy-to-use and well understood by retail consumers. They are usually issued at limited (if any) cost to the client and as marketing tools ancillary to other services (such as credit). Accordingly, it appears that Parliament did not intend loyalty schemes to be caught by the financial services regulatory regime in Chapter 7 of the Act and that regulation of such schemes under the financial services regulatory regime is unnecessary and inappropriate.

In addition, unconditional relief from Chapter 5C of the Act is available where a loyalty scheme constitutes a managed investment scheme.

3. The class order

Under [CO 05/737], loyalty schemes are not financial products for the purposes of Chapter 7 of the Act where:

(a) their sole or main purpose is to promote spending on the goods and/or services of the issuer or third parties participating in the scheme;

(b) clients are allocated a measure of value (credits) as a result of acquiring or using goods and/or services of the issuer or third parties participating in the scheme, whether or not a monetary value is expressly attributed to the credits;

(d) the scheme is not part of another financial product.

This means the financial services licensing, conduct and disclosure requirements (including the anti-hawking provisions) and Part 7.10 of the Act will not apply to a loyalty scheme.

If applicable, such a scheme will also be exempt from the requirement to be registered as a managed investment scheme under Chapter 5C of the Act.

4. Consultation

In response to the Non-cash payment facilities PPP, we received 27 submissions, eight of which directly and primarily addressed issues confronting loyalty scheme providers. Those submissions were taken into account in the development of [CO 05/737].

ASIC has also taken into account the Australian Government’s proposals paper Refinements to Financial Services Regulation (2 May 2005).

In addition, a Regulation Impact Statement (RIS) was prepared for ASIC’s proposed Policy Statement 185 Non-cash payment facilities [PS 185] before [CO 05/737] was made. The RIS is attached to this statement.

Overview

The ASIC Class Order [CO 05/737], issued under the Corporations Act 2001, was enacted to address the issue of the unintended application of the non-cash payment facility definition to loyalty schemes. This was identified as a gap in the regulatory framework which could unnecessarily burden simple loyalty schemes with financial services licensing and conduct requirements. The objective of this Class Order is to clarify that loyalty schemes, which are primarily designed to promote spending on goods and services and are usually provided at no cost to the client, are not to be considered financial products for the purposes of Chapter 7 of the Corporations Act. Consequently, such schemes are exempt from the licensing, conduct, and disclosure obligations applicable to financial products, as well as from the anti-hawking provisions and the requirement to be registered as a managed investment scheme. The Australian Securities and Investments Commission (ASIC) developed this Class Order following feedback from 27 submissions, including eight specifically addressing loyalty scheme issues, and in alignment with the Australian Government’s proposals paper on refinements to financial services regulation.

Scope and Application

ASIC Class Order [CO 05/737] applies to entities offering loyalty schemes in Australia, ensuring they are not classified as financial products under the Corporations Act 2001. This class order aims to exempt specific loyalty schemes from the financial services licensing, conduct, and disclosure requirements, as well as registration obligations under the Act. It targets schemes designed primarily to encourage spending on goods and services, allocate credits to clients, and provide benefits or payments, provided they do not form part of another financial product. The exemption also extends to schemes that qualify as managed investment schemes. The class order is a response to regulatory uncertainty surrounding the application of non-cash payment facilities to loyalty schemes, as well as feedback from stakeholders and proposals from the Australian Government. The scope of this class order is limited to loyalty schemes and does not extend to other forms of non-cash payment facilities, thereby clarifying the regulatory landscape for such schemes in Australia.

Key Provisions

The ASIC Class Order [05/737], under sections 601QA(1)(a) and 765A(2) of the Corporations Act 2001, aims to clarify the regulatory landscape for loyalty schemes in Australia. It explicitly states that loyalty schemes do not qualify as financial products under Chapter 7 of the Act, provided they meet specific criteria. These criteria include having a primary purpose of encouraging spending on goods or services from the issuer or third parties (Section 601QA(1)(a)), allocating credits to clients based on their use of these goods or services (Section 601QA(1)(a)), allowing these credits to be redeemed for payments or benefits (Section 601QA(1)(a)), and not being part of another financial product (Section 601QA(1)(a)). This exemption means that loyalty schemes are not subject to the financial services licensing, conduct, and disclosure requirements, including the prohibition on hawking financial products, and are not required to be registered as managed investment schemes if they fall under Chapter 5C of the Act. The obligations imposed by the Class Order [05/737] on entities operating loyalty schemes are relatively minimal, given the exemption from financial services regulation. Operators of such schemes must ensure that their schemes align with the criteria outlined in the Class Order, specifically focusing on the purpose, allocation of credits, and the nature of the scheme itself. Failure to meet these criteria would mean that the scheme would not be exempt and could potentially fall under the financial services regulatory regime, requiring compliance with licensing, conduct, and disclosure obligations. Additionally, operators need to be aware of and comply with any other relevant legislation or regulations that may apply to their business operations outside the scope of financial services regulation. In terms of consequences for non-compliance, the primary risk for operators of loyalty schemes is that if their schemes do not meet the criteria specified in the Class Order [05/737], they may inadvertently fall under the financial services regulatory regime. This would impose a range of obligations, including the need to hold an Australian financial services licence, adhere to conduct and disclosure standards, and comply with anti-hawking provisions. While the Class Order itself does not specify penalties for non-compliance, failure to meet these regulatory requirements could result in enforcement actions by ASIC, which could include fines, legal proceedings, and other sanctions under the Corporations Act 2001. The maximum penalties for breaches of the Act can be substantial, depending on the nature and severity of the offence.

Area of Law: Financial Services Regulation
Instrument: Regulation
Concepts: Definitions & Interpretation; Regulatory Standards; Prohibited Conduct; Consultation Requirements

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Sourced from the Federal Register of Legislation at 26 August 2026. For the latest information on Australian Government law please go to https://www.legislation.gov.au.

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