ASIC Class Order [CO 06/1012]

Administered by Department of the Treasury

Legislation au F2006L04138 Not in force Legislative Instrument

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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.

 

  1. 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. 

Overview

The Australian Securities and Investments Commission (ASIC) has introduced Class Order [CO 06/1012] under the Corporations Act 2001 to address transitional issues in the regulation of financial services, specifically targeting actuaries and compensation arrangements for financial services licensees. Enacted in 2006, this legislation seeks to provide temporary relief to actuaries by exempting them from the requirement to hold an Australian Financial Services Licence (AFSL) while the government determines the final regulatory framework. Simultaneously, it extends the transitional compensation arrangements for financial services licensees to provide continuity until the government can finalise the compensation requirements under section 912B of the Act. The Class Order varies existing Class Orders [CO 03/1096] and [CO 06/495], ensuring that the exemptions and transitional measures remain in effect until 30 June 2007. The policy objective is to offer stability and clarity to the financial services industry during this transitional period, allowing for adequate time to implement robust regulatory measures.

Scope and Application

ASIC CLASS ORDER [CO 06/1012], made under sections 911A(2)(l) and 926A(2)(c) of the Corporations Act 2001, applies to actuaries providing financial services and financial services licensees who provide services to retail clients. The purpose of this Class Order is to extend the transitional relief granted by earlier Class Orders [CO 03/1096] and [CO 06/495], allowing actuaries to continue providing services without holding an Australian Financial Services Licence (AFSL) and deferring the operation of compensation arrangements for licensees until the Government finalises its position on these matters. The Class Order is of national scope, impacting entities and individuals engaged in financial services across Australia. The relief for actuaries under [CO 03/1096] is extended until 30 June 2007, providing a further 6-month period for the government to finalise its regulatory stance on actuarial services. Additionally, the transitional compensation arrangements under [CO 06/495] are also extended until 30 June 2007, allowing the government additional time to finalise draft regulations specifying compensation requirements under section 912B of the Act. ASIC has not undertaken specific consultations with stakeholders for this Class Order, considering it to be of a minor and administrative nature, having already consulted with the government.

Key Provisions

The main operative sections of ASIC Class Order [CO 06/1012] include s911A(2)(l) and s926A(2)(c) of the Corporations Act 2001 (the Act). Section 911A(2)(l) provides an exemption from the requirement to hold an Australian financial services licence (AFSL) for providers of actuarial services if the service provision is covered by a written exemption specified by ASIC and published in the Gazette. Section 926A(2)(c) allows ASIC to declare that provisions of Pt 7.6 (excluding Divisions 4 and 8) apply to a person or class of persons as if specified provisions were omitted, modified, or varied. The Class Order itself extends the transitional relief for actuaries, provided by Class Order [CO 03/1096], for a further six months, until 30 June 2007, while the Government finalises its position on the regulation of actuaries. Additionally, it varies Class Order [CO 06/495] to continue the current transitional compensation arrangements until 30 June 2007, allowing the Government to finalise its draft regulation specifying compensation requirements under s912B. The Class Order imposes certain obligations and requirements on the parties it governs. Firstly, it exempts providers of actuarial services from the requirement to hold an AFSL, provided their activities fall within the scope of the exemption specified by ASIC and published in the Gazette. Secondly, it mandates that financial services licensees who provide services to retail clients must have in place arrangements to compensate clients for losses or damages resulting from breaches of obligations under Chapter 7 of the Act. These compensation arrangements must either meet the requirements specified in the regulations or be approved in writing by ASIC. The Class Order also defers the operation of s912B until 30 June 2007, maintaining the transitional compensation arrangements until the Government finalises its draft regulation. There are no specific offences, penalties, or civil/criminal consequences outlined for breaches of the Class Order itself. However, breaches of the underlying requirements of the Act, such as failure to hold an AFSL where required, can result in civil penalties. For instance, under s1317E of the Act, a person who contravenes a civil penalty provision can be fined up to $210,000 for a corporation and $42,000 for an individual. Additionally, contraventions of the compensation requirements under s912B could also result in civil penalties as outlined in the regulations and licence conditions, which defer to the compensation arrangements specified in draft regulation 7.6.02AAA. It is important to note that the exact penalties would depend on the specific breach and the provisions of the Act and related regulations.

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