ASIC CLASS ORDER [06/0068]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Paragraph 992B(1)(a) – Exemption

Paragraph 992B(1)(a) of the Corporations Act 2001 (the Act) provides that the Australian Securities and Investments Commission (ASIC) may exempt a person or class of persons from all or specified provisions of Part 7.8 of the Act. 

1.  Background

A financial services licensee is required under Division 6 of Part 7.8 of the Act to prepare and lodge audited financial statements and keep financial records in relation to its financial services business. These financial record keeping and financial reporting obligations apply equally to licensees which are incorporated in Australia and those which are incorporated or formed in a foreign jurisdiction (“foreign licensees”).

The principal purpose of requiring these financial statements to be lodged with ASIC is to enable ASIC to conduct surveillance activities on licensees to ascertain whether they are complying with the financial requirements imposed as conditions of their financial services licence.

ASIC’s licensing powers do not enable it to grant a financial services licence to an Australian branch of a foreign company because that branch is not a separate legal entity. Where a foreign company establishes a branch in Australia for the purposes of carrying on a financial services business in Australia, and ASIC is minded to grant a financial services licence to enable it carry on these activities, ASIC must grant the licence to the foreign company, being the legal entity incorporated or formed in the foreign jurisdiction. Accordingly, the financial record keeping and financial reporting obligations imposed by Division 6 of Part 7.8 will apply to the foreign company and not just to the branch operations in Australia.      

The costs of requiring foreign licensees to comply with the financial record keeping and financial reporting requirements of Division 6 of Part 7.8 is considered to be disproportionately burdensome having regard to the following factors: 
 

• the size and scope of the Australian financial services business of the foreign licensee is often relatively small in comparison to the size and scope of the foreign licensee’s global financial services business; and
   
• the financial information is already available to ASIC because of the requirement in subsection 601CK(1) to lodge financial statements in accordance with the foreign company’s home jurisdiction and, if applicable (eg for foreign general insurers and foreign life insurers), the financial returns required to be lodged with the Australian Prudential and Regulation Authority (APRA).   

ASIC has previously granted financial record keeping and financial reporting relief to foreign authorised deposit-taking institutions (“foreign ADIs”) under Class Order
[CO 03/823].  

2.  Purpose of the class order

The purpose of Class Order [CO 06/0068] is to exempt foreign licensees (except foreign ADIs) from those financial record keeping and financial reporting obligations of Division 6 of Part 7.8 which are considered to be disproportionately burdensome. The class order is intended to remove unnecessary regulatory duplication.         

3.  The class order

Class Order [CO 06/0068] relieves foreign licensees (except foreign ADIs) from the requirement under Division 6 of Part 7.8 to prepare and lodge audited financial statements and keep certain financial records in relation to its financial services business. The relief is available to all foreign licensees (except foreign ADIs), irrespective of whether the foreign licensee is regulated by APRA.   

A foreign licensee seeking to rely on the relief  must lodge with ASIC at least once a year a copy of its profit and loss statement, balance sheet and cash flow statement, as required to be prepared by the laws of the foreign licensee’s home jurisdiction. Where the foreign licensee is registered as a foreign company under Division 2 of Part 5B.2, and is therefore subject to the financial reporting obligation under subsection 601CK(1), compliance with that subsection will also result in the foreign licensee satisfying these conditions of the class order.

The foreign licensee must also ensure that the financial statements are audited in accordance with the requirements of the entity’s home jurisdiction and must lodge a copy of a document setting out the auditor’s views about those financial statements.   

The class order does not grant relief from the following requirements: 
 

• keep financial records that correctly record and explain the transactions and financial position of the financial services business carried on by the licensee (paragraph 988A(1)(a));
   
• maintain the financial records in writing in the English language or in a manner that enables them to be readily converted into writing in the English language (section 988C);
   
• on direction by ASIC, cause any financial records kept outside of Australia to be produced at a designated place in Australia (paragraph 988D(b));
   
• keep particular categories of financial records (section 988E);
   
• entries in the records taken to be made by, or with the authority of, the licensee (section 988G).
   

These abovementioned provisions relating to financial record keeping from which the class order does not grant relief, are not considered to impose a disproportionate burden  on a foreign licensee.

The class order does not apply to foreign ADIs because these entities are granted relief under existing Class Order [CO 03/823]. ASIC chose not to disturb the existing relief given to foreign ADIs.      

4. Consultation

The issue addressed by this class order was raised by, and discussed with, a number of individual foreign licensees and an industry association representing the interests of the general insurance industry. ASIC also consulted an industry association representing the interests of foreign banks.   

The Office of Regulation Review confirmed that a Regulation Impact Statement was not mandatory.