ASIC CLASS ORDER [05/740]

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 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).

Prepaid mobile facilities are a specific type of NCP facility that enable clients of mobile telecommunications operators to, among other things, pay for services provided by other parties.

2. Purpose of the class order

The purpose of Class Order [CO 05/740] is to ensure that persons providing financial services in relation to prepaid mobile facilities are not subject to unnecessary and inappropriate regulation under the financial services regulatory regime. Prepaid mobile facilities are currently not intended to be used primarily for making non-cash payments to persons other than the issuer of the prepaid mobile facility and their provision is generally not a significant part of the business of the person providing services in relation to the prepaid mobile facility. An alternative regulatory regime also governs their supply (i.e. the Telecommunications Act 1997).

3. The class order

[CO 05/740] provides unconditional relief for prepaid mobile facilities constituting NCP facilities where:

(a) the facility is a part of an arrangement for the supply of a public mobile telecommunication service under which the service may be used to the extent it is covered by an amount paid in advance, which remains unused under the arrangement;

(b) the non-cash payments made under the facility are debited against the prepaid amount; and

(c) the facility 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 products.

4. Consultation

In response to the Non-cash payment facilities PPP, we received 27 submissions, four of which directly addressed issues confronting prepaid mobile phone providers. These submissions were taken into account in the development of [CO 04/740]. ASIC also met with the Australian Mobile Telecommunications Authority (and affected member representatives) and took into account the verbal submissions made.

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 05/740] was made. The RIS is attached to this statement.