ASIC CLASS ORDER [CO 10/746]
EXPLANATORY STATEMENT
Prepared by the Australian Securities and Investments Commission
National Consumer Credit Protection Act 2009
The Australian Securities and Investments Commission (ASIC) makes ASIC Class Order [CO 10/746] under paragraph 109(3)(d) of the National Consumer Credit Protection Act 2009 (the Credit Act).
Paragraph 109(3)(d) of the Act provides that ASIC may, by legislative instrument, declare that provisions to which Part 2-6 of the Credit Act applies apply in relation to a class of persons as if specified provisions were omitted, modified or varied as specified in the declaration.
The provisions to which Part 2-6 of the Credit Act applies includes instruments made for the purposes of Chapter 2, which includes Chapter 2 of the National Consumer Credit Protection Regulations 2010 (the Credit Regulations).
1. Background
A person who engages in a credit activity regulated by the Credit Act may apply for an Australian credit licence by lodging an application with ASIC: section 37 of the Credit Act. A person may apply for a licence from 1 July 2010. The process for applying for a licence is set in Division 3 of Part 2-2 of the Credit Act.
Section 39 of the Credit Act enables the making of regulations to streamline the application procedures for particular classes of applicants by providing that the eligibility requirements in sections 36 and 37 of the Credit Act do not apply, and that alternative processes apply. Regulation 8 of the Credit Regulations sets out alternative processes for two classes of applicants:
- persons authorised to engage in credit activities under a law of a state or territory where the effect of that law is that those persons are already subject to obligations that are similar to those in the Credit Act; and
- persons authorised by the Australian Prudential Regulation Authority (APRA) to carry on business as a provider of lenders’ mortgage insurance.
This class order is made in relation to the first class of applicants.
Regulation 8 provides, in relation to the first class of applicants, that:
- the requirement in paragraph 37(1)(b) of the Credit Act (that ASIC must have no reason to believe the applicant is likely to contravene the obligations in section 47) does not apply to applicants:
who are authorised to engage in credit activities under a law of a State or Territory; and
where the State or Territory law requires those persons to meet requirements similar to those in the Credit Act (for example, it requires persons to comply with the law themselves and to ensure people they supervise also comply with the law); and
- the requirement in paragraph 37(1)(c) of the Credit Act (that ASIC must have no reason to believe the applicant is not a fit and proper person) does not apply to applicants:
who are authorised to engage in credit activities under a law of a State or Territory; and
where the State or Territory law has a requirement to the effect that persons engaging in credit activities are fit and proper persons (however described).
Temporal references to State and Territory laws
Subregulations 8(1) to (4) of the Credit Regulations use temporal expressions such as “is authorised” and “are required to” in relation to a person’s authorisation to engage in the credit activities under the State and Territory laws. The subregulations appear to have been drafted on the basis that the State or Territory laws would continue to have ongoing operation.
The relevant State and Territory laws do not have such ongoing operation. For example, the prohibitions for which licences were required under section 26 of the Finance Brokers Control Act 1975 of Western Australia and section 6 of the Credit (Administration) Act 1984 of Western Australia, ceased to have effect on 1 July 2010.
Consequently, the drafting of subregulations 8(1) to (4) appears to have the effect that persons previously regulated by those State and Territory laws are unable to rely on the streamlined application process.
Duration of the streamlined application process
Regulation 8 of the Credit Regulations does not specify the period of time for which the streamlined application process is to be available to eligible applicants.
Under the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (the Transitional Credit Act), a person must not engage in a credit activity unless the person is registered to engage in the credit activity and has applied for an Australian credit licence, or has such a licence: item 4 of Schedule 2 to that Act. This prohibition applies from 1 January 2011. The practical effect of this prohibition is that a registered person who does not hold an Australian credit licence must have at least applied for such a licence on or before 31 December 2010 in order to continue to lawfully engage in credit activities.
2. Purpose of the class order
The purpose of Class Order [CO 10/746] is twofold.
First, it overcomes the unintended consequences of the drafting of subregulations 8(1) to (4) that prevents persons who were previously regulated by State and Territory laws in relation to credit activities from relying on the streamlined application process for obtaining an Australian credit licence.
Secondly, it “sunsets” the streamlined application process for such eligible persons so that it is only available for a period of six months, commencing on 1 July 2010 and ending 31 December 2010. Six months is a sufficient period of time for eligible applicants to apply for a licence under the streamlined application process and is consistent with the deadline for applying for a licence under the Transitional Credit Act.
3. Operation of the class order
Temporal references to State and Territory laws
The declaration in the class order notionally modifies subregulations 8(1) to (4) of the Credit Regulations to replace temporal expressions which are premised on the State or Territory laws which regulated a person’s conduct in relation to credit activities having continued operation on and after 1 July 2010.
Retrospective operation
These notional modifications are expressed to commence on 1 July 2010. The notional modification are expressed to apply retrospectively because ASIC has granted a number of Australian credit licences to persons to whom the streamlined application process were intended to apply. Because of the temporal expressions in those subregulations, there may be issues about ASIC’s power to have considered such applications under the streamlined application process and to have consequently granted licences to those persons under section 37 of the Credit Act.
The operation of these notional modifications from 1 July 2010 does not disadvantageously affect the rights of any person or impose liabilities on a person in respect of anything done or omitted to be done before the date this class order is registered on the Federal Register of Legislative Instruments: subsection 12(2) of the Legislative Instruments Act 2003.
Duration of the streamlined application process
The declaration in the class order also notionally modifies paragraph 8(2)(a) of the Credit Regulations so that the eligible class of persons to whom the streamlining application process applies is limited to those persons who apply for an Australian credit licence on or before 31 December 2010.
4. Consultation
This class order is of a minor or machinery nature. ASIC consulted with the Department of the Treasury before making this class order to ensure that the declaration made by the class order gives effect to the intent of subregulations 8(1) to (4) of the Credit Regulations.