ASIC CLASS ORDER [05/738]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Paragraphs 911A(2)(l), 926A(2)(a), 951B(1)(a), 992B(1)(a) and 1020F(1)(a) —Exemptions

Section 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 they provide if the provision of the service is covered by an exemption specified by the Australian Securities and Investments Commission (ASIC) in writing and published in the Gazette.

Section 926A(2)(a) of the Act provides that ASIC may exempt a person or class of persons from all or specified provisions of Part 7.6 of the Act (other than Divisions 4 and 8).

Section 951B(1)(a) of the Act provides that ASIC may exempt a person or class of persons from all or specified provisions of Part 7.7 of the Act.

Section 992B(1)(a) of the Act provides that ASIC may exempt a person or class of persons from all or specified provisions of Part 7.8 of the Act.

Section 1020F(1)(a) provides that ASIC may exempt a person or a class of persons from all or specified provisions of Part 7.9 of the Act.

1. Background

Section 763D of the Act provides that a person makes a non-cash payment 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 on 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).

Gift facilities (such as gift vouchers and cards) are a specific type of NCP facility.

2. Purpose of the class order

The purpose of Class Order [CO 05/738] is to ensure that persons providing financial services in relation to gift facilities constituting NCP facilities are not subject to unnecessary and inappropriate regulation under the financial services regulatory regime. These facilities are simple, easy-to-use and well understood by retail consumers. Generally, their provision does not constitute a significant part of the business of the person providing financial services in relation to the gift facility. Further, the risk posed by gift facilities is sufficiently low as to render conditions on the relief unnecessary. [CO 05/738] therefore recognises that the costs of compliance with the financial services regulatory regime are disproportionate to the risks to clients created through their use of the facility.

3. The class order

[CO 05/738] provides unconditional relief where the gift facility constituting the NCP facility has the following characteristics:

(a)                it has the ability to store monetary value;

(b)               the monetary value is not redeemable for cash, except where amounts that are unlikely to be conveniently used under the facility are withdrawn;

(c)                it is not reloadable – that is, a client can only make one payment for the gift voucher or card and no person can make additional payments that increase its value, after it is initially acquired;

(d)               it can be used on multiple occasions;

(e)                it is promoted or marketed solely as a gift product;

(f)                where it is subject to an expiry date, appropriate arrangements are in place to ensure prominent disclosure of that expiry date; and

(g)               it is not a component of another financial product.

This means that the financial services licensing, conduct and disclosure requirements (including the ongoing disclosure obligations and advertising provisions), as well as the anti-hawking provision of the Act, will not apply to these facilities.

4. Consultation

In response to the Non-cash payment facilities PPP, we received 27 submissions, six of which directly addressed issues confronting providers of gift facilities. These submissions were considered in the development of [CO 05/738].

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 05/738] was made. The RIS is attached to this statement.