ASIC CLASS ORDER [CO 09/38]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 09/38] under s951B(1)(c) of the Corporations Act 2001 (the Act).
Section 951B(1)(c) provides that ASIC may declare that Part 7.7 applies in relation to a class of persons or financial products as if specified provisions of Part 7.7 were omitted, modified or varied as declared.
1. Background
ASIC Class Order [CO 04/1556] was issued on 21 December 2004 and permitted providing entities (i.e. financial advisers) to streamline the process of providing additional advice to retail clients. ASIC Class Order [CO 04/1556] did this by modifying Part 7.7 of the Act so that providing entities providing additional advice to a retail client may use a Statement of Additional Advice (SOAA) to avoid repeating some information required under Part 7.7 of the Act. SOAAs were permitted under [CO 04/1556] where retail clients had already received a document from the providing entity that set out all the information required in a Statement of Advice (SOA) under the Act. The repetition of certain information was avoided by allowing providing entities to incorporate by reference relevant information required under Part 7.7 from an SOA previously provided to the retail client.
Regulation 7.7.09B was introduced by the Corporations Amendment Regulations 2007 (No. 10) and permits providing entities to avoid repeating information previously provided to retail clients by permitting the incorporation of information by reference into a Statement of Advice facilitating the same end as [CO 04/1556].
2. Purpose of the class order
ASIC Class Order [CO 04/1556] is now redundant given that the incorporation of certain SOA information by reference when providing additional advice is now permitted under reg 7.7.09B. The purpose of [CO 09/38] is to revoke the now redundant [CO 04/1556].
3. Operation of the class order
Paragraph 3 specifies the date, 1 September 2009 on which [CO 04/1556] will be revoked.
Paragraph 4 revokes [CO 04/1556].
5. Consultation
ASIC Class Order [CO 09/38] was made following limited external consultation with the Financial Planning Association and the Association of Financial Advisers in 2008. More extensive consultation was not undertaken because [CO 09/38] is of a minor and machinery nature relating to the removal of a now redundant class order.
Overview
The Australian Securities and Investments Commission (ASIC) issued ASIC Class Order [CO 09/38] in 2009 under section 951B(1)(c) of the Corporations Act 2001, with the aim of revoking the previously enacted ASIC Class Order [CO 04/1556]. The 2004 order had allowed financial advisers, referred to as providing entities, to streamline the process of providing additional advice to retail clients by using Statements of Additional Advice (SOAA) instead of repeating information already provided in a Statement of Advice (SOA). However, the introduction of regulation 7.7.09B in 2007 now allows for the incorporation of certain SOA information by reference, achieving the same purpose as the earlier class order. As a result, ASIC Class Order [CO 09/38] serves to eliminate the redundant [CO 04/1556]. This class order was developed following limited consultation with industry associations in 2008 and is considered minor and machinery in nature.
Scope and Application
The ASIC Class Order [CO 09/38] applies to financial advisers who are providing entities under the Corporations Act 2001, and it is specifically aimed at streamlining the process of providing additional advice to retail clients. This Class Order revokes the previously issued ASIC Class Order [CO 04/1556], which permitted the use of Statements of Additional Advice (SOAA) to avoid repeating information already provided in a Statement of Advice (SOA). The jurisdictional reach of this Class Order is within the Commonwealth of Australia, as it is issued by the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001. There are no stated exclusions or thresholds specified in this Class Order, but it is noted that its purpose is to revoke the now redundant [CO 04/1556]. The application of the Class Order extends to the nationwide financial industry, impacting the practices of financial advisers and the documentation they provide to retail clients. The Class Order will come into effect on 1 September 2009, as specified in the Order.
Key Provisions
The main operative sections of ASIC Class Order [CO 09/38] include the revocation of the earlier ASIC Class Order [CO 04/1556]. This class order was previously in place to allow financial advisers to streamline the process of providing additional advice to retail clients by using a Statement of Additional Advice (SOAA) to avoid repeating certain information. However, the introduction of regulation 7.7.09B has rendered [CO 04/1556] redundant, as it already permits the incorporation of information by reference when providing additional advice. Paragraph 3 of the class order specifies the date of revocation, 1 September 2009, and paragraph 4 formally revokes [CO 04/1556].
The Act imposes certain obligations on financial advisers and providing entities to ensure that any additional advice given to retail clients adheres to the statutory requirements outlined in the Corporations Act 2001. While the specific requirements of the Act are not altered by this class order, financial advisers must still ensure that any Statements of Advice (SOA) and Statements of Additional Advice (SOAA) are compliant with the Act. This includes ensuring that all necessary information is provided and that any references to previously provided information are accurate and appropriately incorporated.
The class order itself does not introduce any new offences, penalties, or civil or criminal consequences. However, failure to comply with the underlying statutory requirements of the Corporations Act 2001 can result in significant penalties. For example, under s1317E of the Act, a person who contravenes a civil penalty provision can be subject to a pecuniary penalty of up to $210,000 for a corporation and $42,000 for an individual. Additionally, under s1317G, a person who engages in conduct that is misleading or deceptive can be subject to imprisonment for up to five years, a fine of up to $210,000 for a corporation, or both for an individual.
Given that this class order is primarily a machinery provision to remove a redundant class order, it is unlikely to have direct consequences for compliance. However, financial advisers must remain vigilant in ensuring that their practices comply with the overarching requirements of the Act to avoid potential penalties.