ASIC CLASS ORDER [CO 08/0405]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 08/0405] Wholesale equity schemes: licensing relief for trustees - Amendment under s911A(2)(l) 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 (AFS) licence 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.
1. Background
In May 2007, ASIC made Class Order [CO 07/74] Wholesale equity schemes: licensing relief for trustees. [CO 07/74] gives interim conditional relief until 31 December 2008 to trustees of wholesale equity schemes from the requirement to hold an AFS licence to provide wholesale equity financial services. Wholesale equity schemes are usually structured using a multiple unit trust structure with separate corporate trustees. [CO 07/740] applies where a fund manager that has an AFS licence and is a related body corporate of the trustees accepts responsibility for the conduct of the trustees.
ASIC granted interim relief under [CO 07/74] because of the disproportionate cost burden to trustees of wholesale equity schemes in obtaining an AFS licence. Interim relief enabled ASIC to further consider the appropriateness of the AFS licensing requirements to trustees and consult with industry on the appropriateness of granting ongoing relief.
2. Purpose of the class order
[CO 08/0405] extends the current interim conditional relief under [CO 07/74] so that it applies on an ongoing basis. Its purpose is to relieve wholesale equity schemes of the disproportionate cost burden of having to obtain AFS licences for multiple trustees where a licensed fund manager takes responsibility for and controls the operation of the scheme.
3. Operation of the class order
[CO 08/0405] amends [CO 07/74] to remove the expiry date of 31 December 2008. This gives trustees of wholesale equity schemes ongoing relief from the requirement to hold an AFS licence to provide wholesale equity financial services when a fund manager that has an AFS licence and is a related body corporate of the trustees accepts responsibility for the conduct of the trustees.
4. Consultation
ASIC consulted on its proposal to grant ongoing relief to trustees of wholesale equity schemes from the requirement to hold an AFS licence to provide wholesale equity financial services by publishing Consultation Paper 82 Wholesale equity venture capital schemes: Trustee licensing in May 2007 and inviting public comments on that consultation paper. The submissions ASIC received expressed support for ASIC's proposal.
Overview
The ASIC Class Order [CO 08/0405], enacted in 2008, extends the interim relief initially provided under Class Order [CO 07/74] to trustees of wholesale equity schemes, ensuring they are exempt from the requirement to hold an Australian Financial Services (AFS) licence. This was achieved under the Corporations Act 2001, enacted by the Commonwealth Parliament, which aims to regulate financial services and markets. The initial Class Order [CO 07/74] was introduced to address the disproportionate cost burden on trustees of wholesale equity schemes in obtaining an AFS licence, allowing them interim relief until 31 December 2008 while further consultation and consideration of the licensing requirements took place. The subsequent Class Order [CO 08/0405] removes the expiry date, thereby providing ongoing relief to these trustees, ensuring they can continue to operate without the need for an AFS licence, provided a licensed fund manager accepts responsibility for their conduct.
Scope and Application
ASIC Class Order [CO 08/0405] pertains to trustees of wholesale equity schemes, allowing them ongoing exemption from the requirement to hold an Australian Financial Services (AFS) licence for providing wholesale equity financial services, provided that a licensed fund manager, which is a related body corporate of the trustees, accepts responsibility for the conduct of the trustees. This legislation applies within the jurisdiction of the Commonwealth of Australia, as it is made under the Corporations Act 2001. The purpose of this Class Order is to alleviate the disproportionate cost burden on trustees of wholesale equity schemes in obtaining AFS licences by granting them ongoing relief. This relief is conditional on the fund manager being a related body corporate of the trustees and holding an AFS licence. The Class Order extends the interim relief provided by [CO 07/74], which was set to expire on 31 December 2008, to ensure that trustees of wholesale equity schemes can continue to operate without the need to individually obtain AFS licences.
Key Provisions
The ASIC Class Order [CO 08/0405] (section 911A(2)(l)) provides ongoing relief to trustees of wholesale equity schemes from the requirement to hold an Australian Financial Services (AFS) licence. This relief is granted under specific conditions, primarily when a licensed fund manager, who is also a related body corporate of the trustees, accepts responsibility for the conduct of the trustees. This amendment extends the interim relief initially provided by Class Order [CO 07/74], which was set to expire on 31 December 2008. By removing the expiry date, [CO 08/0405] ensures that trustees of wholesale equity schemes continue to be exempt from the licensing requirement indefinitely, provided the fund manager maintains their AFS licence and their relationship with the trustees remains as stipulated.
To qualify for the exemption, trustees of wholesale equity schemes must operate under a multiple unit trust structure, with separate corporate trustees. The fund manager must have an AFS licence and must be a related body corporate of the trustees. This means the fund manager must take on the responsibility for the conduct of the trustees and control the operation of the scheme. This arrangement is intended to mitigate the disproportionate cost burden on trustees of obtaining individual AFS licences, which ASIC deemed to be unreasonable. The Class Order is designed to streamline operations for these trustees while ensuring that oversight and compliance responsibilities are effectively managed by the licensed fund manager.
The obligations imposed by the Class Order are primarily on the fund managers and the trustees. Fund managers must maintain their AFS licence and ensure that they continue to accept responsibility for the trustees' conduct and the scheme's operations. Trustees, on the other hand, must comply with the conditions set forth by the Class Order and ensure that their operations align with the oversight provided by the licensed fund manager. Failure to adhere to these obligations can result in the loss of the exemption, thereby necessitating the acquisition of an AFS licence by the trustees.
Breach of the conditions stipulated by the Class Order can lead to significant consequences. Trustees who fail to comply with the requirements may lose their exemption and be required to obtain an AFS licence. This not only imposes additional financial and administrative burdens but also subjects them to regulatory scrutiny and potential enforcement actions. The penalties for non-compliance are not explicitly stated in the Class Order but could include fines, legal action, or other regulatory sanctions as determined by ASIC under the Corporations Act 2001. Given the potential severity of these consequences, it is imperative for trustees and fund managers to fully understand and adhere to the terms of the Class Order.