ASIC CLASS ORDER [CO 10/1219]

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 10/1219] under paragraphs 951B(1)(c) and 1020F(1)(c) of the Corporations Act 2001 (the Act).

Paragraph 951B(1)(c) provides that ASIC may declare that Part 7.7 of the Act applies in relation to a person or a financial product, or a class of persons or financial products, as if specified provisions of that Part were omitted, modified or varied as specified in the declaration.

Paragraph 1020F(1)(c) provides that ASIC may declare that Part 7.9 of the Act applies in relation to a person or a financial product, or a class of persons or financial products, as if specified provisions of that Part were omitted, modified or varied as specified in the declaration.

1. Background

Parts 7.6-7.9 of the Act permit a wide range of financial services disclosure to be delivered online.

A Product Statement (PDS) is a document that explains to an investor what financial product they are buying. Generally, it must be given when the financial product is offered. A Financial Services Guide (FSG) is a document that explains to an investor what financial services they can access. Generally, it must be given before the services are offered. A Supplementary FSG is a document that updates the information contained in the FSG or corrects a misleading or deceptive statement or an omission in the FSG. A Statement of Advice (SOA) is a document that explains to an investor what personal advice they are being given. Generally it must be given at the same time as the advice.

Subparagraphs 940C(1)(a)(ii) and 1015C(1)(a)(ii) of the Act state that a PDS, a FSG, a Supplementary FSG and a SOA can be sent to a client, or the client’s agent, at an electronic address nominated by the client or the client’s agent. Further, under the Act it is possible for a PDS, FSG, Supplementary FSGor SOA to be made available to the client, or the client’s agent, as agreed with the client or their agent (s940C(1)(a)(iii), 940C(2)(b)(iii) and reg 7.9.02A (1)).

The Corporations Regulations 2001 additionally require that a PDS, FSG and SOA must be delivered in a way that allows the providing entity to be satisfied, on reasonable grounds, that the client or the client’s agent has received the disclosure (see regs 7.7.01(2) and 7.9.02A(1)). 

2. Purpose of the class order

The purpose of the class order is to facilitate the online delivery of PDSs, FSGs, Supplementary FSGs and SOAs.

There are practical difficulties for providers wishing to deliver PDSs, FSGs, Supplementary FSGs and SOAs via hyperlinks or references to website addresses. Under the current law the provider must be satisfied on reasonable grounds that the client or the client's agent ‘has received’ the disclosure.  This could mean that the provider must have a mechanism to track whether the client has accessed the disclosure on the website.

Further, where a provider sends an email to a client with a hyperlink or with a reference to a website address where the PDS, FSG, Supplementary FSG or SOA can be found, it could be argued that the disclosure would not have been ‘sent’ to the client under s940C(1)(a)(ii), 940C(2)(b)(ii) or 1015C(1)(a)(ii). This is because the client would still need to take action to retrieve the disclosure upon receipt of the email.

These practical difficulties may discourage providers from delivering PDSs, FSGs, Supplementary FSGs and SOAs online.

If the client or the client’s agent agrees, the class order enables:

(a)   PDS, FSGs, Supplementary FSGs and SOAs to be delivered by sending clients a written (paper or electronic) notice with a reference to a website address where the disclosure can be found; and

(b)   PDSs, FSGs and Supplementary FSGs to be delivered by sending clients an email with a hyperlink to the disclosure.

The relief does not apply to enable SOAs to be delivered via a hypertext link to a website to reduce the risk that clients will be exposed to security risks such as phishing. This risk particularly applies to SOAs due to the personalized nature of the information typically provided in those documents.

3. Operation of the class order

Paragraph 4

Paragraph 4 of [CO 10/1219] modifies s940C of the Act to make explicit that if the client or the client’s agent agrees, FSGs, Supplementary FSGs, SOAs and the disclosures required by s941C(7) and s946B(6) can be given by making the disclosure available on a website that is maintained by or on behalf of the providing entity and notifying the client or their agent that it is available on the website. Notification can be via email or paper notice.

Paragraph 4 also makes explicit that relief has not been given to allow SOAs and disclosures required by s946B(6) to be delivered via a hypertext link to a website.

Paragraph 5

Subparagraph 5(a) of [CO 10/1219] modifies the application of reg 7.7.01(2) to  remove a minor drafting anomaly so that subregulation (2) applies to a Supplementary Financial Services Guide.

Subparagraph 5(b) of [CO 10/1219] modifies the application of reg 7.7.01(2) so that when a FSG or a Supplementary FSG is provided by sending an email with a hypertext link or when a FSG, Supplementary FSG or SOA is provided by sending a written notice with a reference to a website address, the providing entity does not have to be satisfied that the client or their agent has received the disclosure. This means that the provider is not required to track whether the client or client’s agent has accessed the disclosures on the website.

Paragraph 6

Paragraph 6 of [CO 10/1219] modifies s1015C(1) to make explicit that if the client or the client’s agent agrees, a PDS can be given by making the disclosure available on a website that is maintained by or on behalf of the responsible entity and notifying the client or their agent that it is available on the website. Notification can be via email or paper notice.

Paragraph 7

Paragraph 7 of [CO 10/1219] modifies reg 7.9.02A so that the responsible person does not have to satisfied, on reasonable grounds, that the client or the client’s agent has received the PDS (i.e. does not have to monitor whether the client or agent has accessed the PDS on the website).

4. Documents incorporated by reference

There are no documents incorporated by reference.

5. Consultation

Before making [CO10/1219] ASIC consulted twice with relevant stakeholders on how to better facilitate the online delivery of financial services disclosure.  

In April 2008, ASIC released Consultation Paper 93 Facilitating online financial services disclosures (CP 93). In response to the submissions received to CP 93, ASIC revised its proposals relating to the facilitation of online disclosure and in October 2009, ASIC released Consultation Paper 121 Facilitating online financial services disclosures (CP 121).

ASIC received 25 responses to the revised proposals in CP 121 from industry bodies and a wide variety of financial services providers. The majority of submissions were supportive of ASIC’s proposal to give relief to facilitate the delivery of PDSs, FSGs and SOAs via hyperlinks and references to website addresses.  

CP 93, CP121 and the non-confidential submissions received by ASIC in response to both consultation papers can be found on the ASIC website.