ASIC CLASS ORDER [CO 10/116]
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 10/116] under ss601QA and 911A(2)(l) of the Corporations Act 2001 (the Act).
Section 601QA(1)(a) provides that ASIC may exempt a class of persons from the provisions of Ch 5C of the Act.
Section 911A(2)(l) provides that ASIC may exempt a class of persons from the requirement to hold an Australian Financial Services licence (AFS licence) under Pt 7.6 of the Act.
1. Background
ASIC Class Order [CO 08/1] gives conditional relief from the AFS licensing regime and Ch 5C of the Act for some group purchasing bodies (GPBs) who arrange or hold risk management products (insurance) for the benefit of third parties. GPBs can include sporting and other not-for-profit organisations which arrange insurance for third parties (e.g. players or volunteers).
ASIC Class Order [CO 08/1] limits the relief provided to circumstances where the group purchasing body is most likely to be acting in the interests of the persons to be covered by the risk insurance product, rather than in its own interests or in the interests of anyone else. Given that the role played by certain group purchasing bodies is in many ways more like the buyer of risk management products rather than a seller, ASIC considers that there may be less need for strict compliance with the requirements of Chapters 7 and 5C. ASIC Class Order [CO 08/1] came into effect on 30 September 2008. In 2009, some participants in the insurance industry and some group purchasing bodies asked ASIC to clarify [CO 08/1] and its policy for relief as explained in RG 195 Group purchasing bodies for insurance and other risk management products (RG 195) to remove uncertainty about the conduct of group purchasing bodies that might bring them within the scope of the relief, to give more particular guidance about the practical operation of the eligibility tests for the relief, and to introduce greater flexibility into the notification requirements in the conditions of relief.
2. Purpose of the class order
ASIC Class Order [CO 10/116] clarifies the relief available for eligible group purchasing bodies that are arranging and holding risk management products or operating a risk management scheme. It also extends the transitional period for compliance with the breach reporting condition in [CO 08/1] to permit stakeholders time to understand the clarifications made to [CO 08/1] and RG 195.
3. Operation of the class order
Paragraph 4 amends [CO 08/1] by:
(a) extending relief to group purchasing bodies that are Australian financial services licensees and the authorised representatives of Australian financial services licensees where the interests in the risk management scheme are issued to officers or employees of the body or their relative, by inserting subparagraph 4(c), amending subparagraph 5(a), inserting subparagraph 5(aa) and amending paragraph 6;
(b) clarifying the eligibility test for not-for-profit group purchasing bodies by amending subparagraph 5(b)(i)(B);
(c) clarifying the eligibility test for independent group purchasing bodies by extending the persons from whom the body may receive payments in relation to the risk management product by amending subparagraph 6(a)(i) and inserting subparagraph 6(a)(ia);
(d) specifying the types of payments that a group purchasing body may receive by inserting subparagraph 6(a)(ia);
(e) varying the requirement to give notification if the risk management product is not or is no longer available by amending subparagraph 10(b) to introduce a “reasonable steps” qualification;
(f) varying the requirement to give specified information about the risk management product by amending subparagraph 10(e) to introduce a “reasonable steps” qualification;
(g) extending the cessation of the transitional period for compliance with the breach reporting requirement from 28 February 2010 until the first time that the group purchasing body acquires, renews, or renegotiates the terms of, the risk management product on or after 30 June 2010 but, in any event, no later than 30 June 2011; and
(h) making several related minor technical amendments to [CO 08/1].
4. Consultation
In preparing [CO 10/116] ASIC has taken account of concerns raised by the National Insurance Brokers Association of Australia, the Western Australian Hockey Association and the Australian Sports Commission. ASIC did not undertake further consultation with respect to [CO 10/116] as it is of a minor and machinery nature.
Overview
The Australian Securities and Investments Commission (ASIC) enacted ASIC Class Order [CO 10/116] under sections 601QA and 911A(2)(l) of the Corporations Act 2001 to address the need for clarifying the relief available for eligible group purchasing bodies arranging and holding risk management products, particularly insurance, and to provide greater flexibility in the notification requirements. This legislative instrument was introduced in response to requests from participants in the insurance industry and some group purchasing bodies seeking clarification and more particular guidance about the practical operation of the eligibility tests for relief as explained in Regulatory Guide 195 (RG 195). The primary objective of the class order is to remove uncertainty about the conduct of group purchasing bodies and to introduce more flexibility into the notification requirements. This class order was developed following consultations with the National Insurance Brokers Association of Australia, the Western Australian Hockey Association, and the Australian Sports Commission, and it extends the transitional period for compliance with breach reporting conditions in ASIC Class Order [CO 08/1] to provide stakeholders time to understand the clarifications.
Scope and Application
ASIC Class Order [CO 10/116] applies to specific entities, namely group purchasing bodies that arrange or hold risk management products such as insurance for the benefit of third parties, including not-for-profit organisations like sporting bodies. The Act provides conditional relief from the Australian Financial Services (AFS) licensing regime and certain provisions of the Corporations Act 2001 for these entities, provided they are acting in the interests of the insured parties rather than their own interests or those of others. The relief is contingent upon meeting specific eligibility criteria, such as the nature of payments received in relation to the risk management product and the identity of those benefiting from the insurance. The scope of the order extends across the Commonwealth of Australia and is applicable to both existing and new arrangements made after the order comes into effect. The transitional provisions allow for a more gradual implementation of the breach reporting requirements, providing entities with additional time to comply. ASIC Class Order [CO 10/116] introduces clarifications and adjustments to existing conditions set out in ASIC Class Order [CO 08/1], without altering the fundamental eligibility criteria for relief.
Key Provisions
ASIC Class Order [CO 10/116] primarily serves to refine and extend the relief provided to eligible group purchasing bodies (GPBs) under the Corporations Act 2001 (the Act). This Class Order builds on the previous relief given by ASIC Class Order [CO 08/1], which exempts certain GPBs from the AFS licensing regime and Chapter 5C of the Act, provided they meet specific conditions. The new order, under sections 601QA and 911A(2)(l) of the Act, aims to provide further clarity and flexibility to these GPBs, ensuring they are operating within the parameters intended by the original relief while accommodating their unique operational contexts.
The Class Order imposes several obligations on GPBs to qualify for the relief. Firstly, it extends the relief to Australian financial services licensees and their authorised representatives, provided the interests in the risk management scheme are issued to officers, employees of the body, or their relatives. Secondly, it clarifies the eligibility criteria for not-for-profit GPBs and independent GPBs, ensuring these entities can meet the necessary conditions to benefit from the relief. Additionally, it specifies the types of payments GPBs may receive and modifies the notification requirements, introducing a "reasonable steps" qualification for when GPBs need to provide information about risk management products. This flexibility is intended to reduce the administrative burden on GPBs while maintaining oversight.
Failure to comply with the conditions set out in ASIC Class Order [CO 10/116] can result in significant consequences. While the explanatory statement does not detail specific penalties, breaches of the Corporations Act 2001 or the AFS licensing regime can lead to civil penalties, including fines. For example, under the Act, individuals and corporations can face fines of up to $222,000 for breaches of certain sections. Additionally, severe breaches may result in criminal charges, potentially leading to imprisonment. The penalties underscore the importance of adhering to the conditions and requirements set out in the Class Order to avoid legal repercussions.
ASIC Class Order [CO 10/116] also extends the transitional period for compliance with the breach reporting condition in [CO 08/1]. This extension provides stakeholders with additional time to understand the clarifications and to adjust their operations accordingly. The transitional period ends on the first occasion a GPB acquires, renews, or renegotiates the terms of the risk management product on or after 30 June 2010, but no later than 30 June 2011. This allows GPBs to align their practices with the new requirements without facing immediate penalties for non-compliance during the transition period.