ASIC CLASS ORDER [CO 10/1225]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009

The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 10/1225] to amend ASIC Class Order [CO 10/907] Exempted special purpose funding entities – deferral of start date for EDR scheme membership for the purposes of paragraph 41(3)(d) of Schedule 2 to the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (the Transitional Credit Act ).

This paragraph of the Transitional Credit Act enables ASIC to declare that certain parts of that Act, and regulations made under it, apply in relation to a class of persons, as if specified provisions were omitted, modified or varied as specified in the declaration.

1. Background

Certain credit funding vehicles, established to raise or receive funds from investors and acting either as credit providers or lessors (including by way of legal assignment of rights from a credit provider or lessor) are exempt from having to register under the Transitional Credit Act, subject to certain conditions. One of those conditions is that the entity must become a member of an ASIC-approved external dispute resolution scheme (EDR scheme). This exemption is found in regulations 14B and 14C of the National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2010.

An equivalent exemption also applies in relation to the requirement to hold an Australian credit licence under the National Consumer Credit Protection Act 2009 (the Credit Act). This exemption is found in regulations 23B and 23C of the National Consumer Credit Protection Regulations 2010.   

These exemptions apply to two types of credit funding vehicles, namely:

(a) a fund raising special purpose entity, so long as it becomes and remains a member of an EDR scheme; and

(b) a securitisation entity, so long as it becomes and remains a member of an EDR scheme from 1 October 2010.

A fund raising special purpose entity is a company or trust that:

• has the sole purpose of raising funds in order to be a credit provider for a credit contract or a lessor for a consumer lease;
• raises the funds from persons other than individuals;
• only engages in credit activities as a credit provider under a credit contract or a lessor under a consumer lease;
• does not have any employees; and
• is not a credit licensee under the Credit Act or a registered person under the Transitional Credit Act.

A securitisation entity is a company or trust that:

• raises substantially all of its funds by issuing securitisation products (i.e. debt instruments or an interest in a managed investment scheme), on terms that the funds would be applied to the business it carries on;
• carries on a business of managing economic risk associated with assets, liabilities or investments by way of a securitisation transaction (whether the company or trust assumes the risk from another person or creates the risk);
• is an insolvency remote special purpose funding entity according to the criteria of an internationally recognised rating agency; and
• is a credit provider under a credit contract or a lessor under a consumer lease.

The statutory exemptions from credit registration and credit licensing for fund raising special purpose entities and securitisation entities were introduced following extensive consultations with stakeholders, including industry bodies, EDR schemes, consumer representatives and individuals based on an earlier version of a draft exemption for special purpose funding entities that was released as a package of draft materials for consultation on 20 November 2009 by the Minister for Financial Services, Superannuation and Corporate Law.

The Department of the Treasury introduced the later start date of 1 October 2010 for securitisation entities to become members of an EDR scheme to enable securitisation entities to negotiate changes to the Terms of Reference and/or Rules of the EDR schemes and to reflect the specific differences in their structure and operation, compared with fund raising special purpose entities.

ASIC deferred the start date for becoming a member of an EDR scheme for both  kinds of entities until 1 January 2011: see ASIC Class Order [CO 10/907].

2. Purpose of the class order

The purpose of this class order is to further defer the date by which fund raising special purpose entities and securitisation entities must join and continue to be a member of an EDR scheme under the conditions that apply to the statutory exemptions from the credit registration and credit licensing requirements.

The date has been further deferred until 1 April 2011.

ASIC has further deferred the start date for the following reasons:

• to enable the schemes to make any necessary changes to their processes and procedures, including their Terms of Reference or Rules;
• to allow industry sufficient time to adjust to the changes, including enabling the peak industry association, the Australian Securitisation Forum, to issue guidance to its members; and

to allow entities who are not already members of an  EDR scheme to have more time to join an EDR scheme and consider what practical steps they need to take. Consumers will not be significantly disadvantaged by this further deferral of the start date of the condition in relation to membership of an EDR scheme. Consumers will still be able to lodge a complaint with an EDR scheme against the entity on or after 1 April 2011 in respect of conduct that occurred before that time.

3. Operation of the class order

This class order declares that the regulations made under the Transitional Credit Act which provide the statutory exemptions from the credit registration requirements for fund raising special purpose entities and securitisation entities apply as if the specified provisions, which set out the condition relating to membership of an EDR scheme, were modified so that entities seeking to rely on the exemptions must become a member of an EDR scheme by 1 April 2011.   

The corresponding regulations made under the Credit Act which provide equivalent statutory exemptions from the credit licensing requirements have not been modified because the prohibition to which those exemptions relate does not commence until 1 July 2011.          
 

4. Consultation

ASIC consulted with the EDR schemes, industry (the Australian Securitisation Forum) and consumer representatives about the policy underlying this class order.