ASIC CLASS ORDER [06/1012]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
Paragraphs 911A(2)(l) and 926A(2)(c) – Variations
The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 06/1012] Variation of Class Orders [CO 03/1096] and [CO 06/495] under s911A(2)(l) and 926A(2)(c) of the Corporations Act 2001 (the Act). Section 911A(2)(l) provides that a person is exempt from the requirement to hold an Australian financial services licence (AFSL) for a financial service they provide if the provision of the service is covered by an exemption specified by ASIC in writing and published in the Gazette. Section 926A(2)(c) provides that ASIC may declare that provisions of Pt 7.6 (except for Divs 4 and 8) apply in relation to a person or class of persons as if specified provisions were omitted, modified or varied as specified.
- Background
Actuaries
Class Order [CO 03/1096] Actuaries gives transitional relief in the form of an exemption from the requirement to hold an AFSL to providers of actuarial services.
ASIC has extended the relief given by [CO 03/1096] on three previous occasions: on 28 June 2005 with Class Order [CO 05/680] Transitional relief for actuaries; on 20 December 2005 with Class Order [CO 05/1194] Actuaries – amendment; on 14 June 2006 with [CO 06/469] Further transitional relief for actuaries. ASIC is extending this relief for a further 6 months while Government finalises its position on the regulation of actuaries.
Compensation
Section 912B(1) requires a financial services licensee (licensee) who provides financial services to retail clients to have in place arrangements to compensate those persons for loss or damage suffered because of breaches of obligations under Ch 7 of the Act. These arrangements must meet the requirements of s912B(2). Under s912B(2), the arrangements must:
(a) if the regulations specify requirements that are applicable to all arrangements, satisfy those requirements; or
(b) be approved in writing by ASIC.
Section 912B was introduced by the Financial Services Reform Act 2001 (FSR Act) but did not take immediate effect. Regulation 10.2.44(1) of the Corporations Regulations 2001 (the Regulations) deferred the application of s912B until 11 March 2004, in order to allow the Government to consult on the issue of compensation arrangements and to finalise regulations under s912B. The operation of s912B was further delayed until 31 December 2006 to give the Government more time to consult and consider a compensation regime: see reg 7.6.02AA and Class Order [CO 06/495] Extension of transitional compensation arrangements. Regulation 7.6.02AA was due to expire on 30 June 2006 but as a result of [CO 06/495] transitional compensation arrangements continued to apply to 31 December 2006.
After a review of possible compensation arrangements, the Government released draft regulation 7.6.02AAA on 2 November 2006 for public consultation. The draft regulation specifies the type of compensation arrangements required under s912B. The draft regulation is not yet final. Therefore, to allow the Government time to finalise the draft regulation, ASIC has further deferred the operation of s912B by class order. Under this Class Order [CO 06/1012] regulation 7.6.02AA and the transitional compensation arrangements will now expire on 31 March 200730 June 2007.
Under the transitional compensation arrangements, which are created by a combination of regulations and licence conditions, some licensees are required to have the following compensation arrangements:
(a) for licensees who would be required to be licensed under Pt 7.3 of the Corporations Act, as it applied immediately before commencement of the FSR Act, if that Part were not repealed - a $20,000 approved security bond (see reg 7.6.02AA and [PF 209], condition 31);
(b) for responsible entities and investor directed portfolio services – the professional indemnity insurance required by ASIC Policy Statement 131 Managed investments: Financial requirements [PS 131] (see reg 7.6.02AA and [PF 209], conditions 29 and 30); and
(c) for licensees who would have been subject to the professional indemnity insurance requirements in Insurance (Agents and Brokers) Act 1984 (IABA) if that Act were not repealed - the professional indemnity requirements that would have applied to the licensee under IABA (see reg 7.6.02AA).
In addition, market operators maintain compensation arrangements under Pt 7.5 of the Act.
2. Purpose of the Class Order
[CO 06/1012] continues temporary relief under [CO 03/1096] so that affected parties do not have to obtain an AFSL while Government finalises it position.
[CO 06/1012] varies [CO 06/495] so that the current transitional compensation arrangements are continued for a further 6 months, until 30 June 2007. ASIC has extended the current transitional compensation arrangements to enable the Government to finalise its draft regulation specifying compensation requirements under s912B.
3. Operation of the Class Order
[CO 06/1012] extends the operation of [CO 03/1096] until 30 June 2007. This preserves the relief provided to actuaries for a further 6 months.
[CO 06/1012] extends the operation of [CO 06/495] until 30 June 2007. This preserves the current transitional compensation arrangements for a further 6 months.
4. Consultation
ASIC consulted with the Government before [CO 06/1012] was made. ASIC did not undertake any specific consultation with other stakeholders before [CO 06/1012] was made because it is of a minor and machinery nature.