ASIC CLASS ORDER [05/739]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
Subsection 765A(2) – Declaration
Section 765A(2) of the Corporations Act 2001 (the Act) provides that the Australian Securities and Investments Commission (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 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).
A facility that may be used solely for making non-cash payments of road tolls is a specific type of NCP facility.
2. Purpose of the class order
The purpose of Class Order [CO 05/739] is to declare that a facility for making road toll payments is not a financial product for the purposes of Chapter 7 of the Act. These facilities are simple, easy-to-use and well understood by retail consumers. Their provision does not generally constitute a significant part of the business of the provider. Accordingly, regulation of such facilities under the financial services regulatory regime is unnecessary and inappropriate.
3. The class order
Under [CO 05/739], a facility for making non-cash payments of road tolls is not a financial product for the purposes of Chapter 7 of the Act where the facility is used solely for such payments. This means the financial services licensing, conduct and disclosure requirements (including the anti-hawking provision) and Part 7.10 of the Act will not apply to such a facility.
4. Consultation
In response to the Non-cash payment facilities PPP, we received 27 submissions, three of which directly addressed issues confronting road toll facility issuers. These submissions were taken into account in the development of [CO 05/739].
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 05/739] was made. The RIS is attached to this statement.
Overview
The ASIC Class Order [05/739], enacted in 2005, addresses the issue of the unintended application of the financial services regulatory regime to certain non-cash payment facilities, particularly those used for road toll payments. The order was introduced by the Australian Securities and Investments Commission (ASIC) under the authority granted by subsection 765A(2) of the Corporations Act 2001. The primary objective of this legislation is to exempt specific facilities used solely for making non-cash payments of road tolls from being classified as financial products, thereby relieving their providers from the financial services licensing, conduct, and disclosure requirements, including anti-hawking provisions. This exemption is based on the recognition that such facilities are simple, easy-to-use, and well understood by consumers, and their provision does not generally constitute a significant part of the business of the provider, making the imposition of financial services regulation unnecessary and inappropriate.
Scope and Application
ASIC Class Order [CO 05/739] applies to facilities that are specifically used for making non-cash payments of road tolls. This means that such facilities are not considered financial products under Chapter 7 of the Corporations Act 2001, thereby exempting them from the financial services licensing, conduct and disclosure requirements, including the prohibition on hawking. The class order is applicable to entities operating these facilities across Australia, as the Act has a national reach. This regulatory relief is intended for facilities that are straightforward and commonly understood by consumers, and where the toll payment function is their sole purpose. The scope of the order excludes facilities that are part of a broader financial services business or that serve other functions beyond toll payments. The decision to issue this class order was informed by stakeholder feedback, including submissions in response to ASIC’s policy proposal paper on non-cash payment facilities and the Australian Government’s refinements to financial services regulation. The order does not extend or restrict application through subordinate instruments but represents a clear declaration by ASIC regarding the scope of financial product regulation as it pertains to road toll payment facilities.
Key Provisions
Section 765A(2) of the Corporations Act 2001 allows the Australian Securities and Investments Commission (ASIC) to declare that certain facilities, interests, or other things are not financial products for the purposes of Chapter 7 of the Act. Specifically, Class Order [CO 05/739] declares that a facility used solely for making road toll payments is not considered a financial product. This declaration exempts such facilities from the financial services licensing, conduct, and disclosure requirements, as well as the prohibition on hawking financial products.
The obligations under this Act require that any facility solely used for making road toll payments must meet the criteria set out in [CO 05/739]. For such facilities, there are no financial services licensing requirements, and the conduct and disclosure obligations that apply to financial product providers do not apply. This means that the facility issuers are not required to hold an Australian financial services licence, and they are not subject to the anti-hawking provisions of the Act. Furthermore, the facility issuers are not required to comply with the specific disclosure obligations outlined in Parts 7.7, 7.8, and 7.9 of the Act.
Failure to comply with the provisions of the Corporations Act 2001 can result in significant legal consequences. For example, if a facility that is declared not to be a financial product under [CO 05/739] is subsequently used for other purposes that do involve financial services, it may then be subject to the financial services licensing and conduct requirements. This could lead to civil penalties or criminal charges for non-compliance. The Act provides for both civil and criminal penalties for breaches, with the maximum penalties varying depending on the nature and severity of the offence. Civil penalties can include substantial fines, while criminal penalties may include imprisonment, reflecting the seriousness with which the Act treats non-compliance with its provisions.