ASIC CLASS ORDER [CO 15/52]

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 15/52] under paragraphs 601QA(1)(a), 601QA(1)(b), 926A(2)(a), 992B(1)(a), 1020F(1)(a) and 1020F(1)(c) of the Corporations Act 2001 (the Act).

Paragraph 601QA(1)(a) of the Act provides that ASIC may exempt a person from a provision of Chapter 5C of the Act. 

Paragraph 601QA(1)(b) of the Act provides that ASIC may declare that Chapter 5C of the Act applies to a person as if specified provisions were omitted, modified or varied as specified in the declaration.

Paragraph 926A(2)(a) of the Act provides that ASIC may exempt a person or class of persons from all or specified provisions of Part 7.6 of the Act other than Divisions 4 and 8.

Paragraph 992B(1)(a) of the Act provides that ASIC may exempt a person or a class of persons from all or specified provisions of Part 7.8 of the Act.

Paragraph 1020F(1)(a) of the Act provides that ASIC may exempt a person or class of persons from all or specified provisions of Part 7.9 of the Act.

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

1. Background

CO 15/52 provides relief from certain Australian Financial Services (AFS) licensing, scheme registration, product disclosure, advertising and anti-hawking requirements in Chapters 5C and 7 of the Act to promoters and managers of small scale greyhound racing and breeding schemes (greyhound schemes).

The relief applies in conjunction with co-regulation arrangements between ASIC and the various state and territory based controlling bodies for the regulation of greyhound schemes within each respective jurisdiction (controlling bodies).

CO 15/52 amends no other class orders.

2. Purpose of the class order

ASIC has previously granted class order relief to horse racing and breeding schemes from the requirement to register a managed investment scheme under a co-regulation arrangement. These arrangements are set out in Regulatory Guide 91 Horse racing and breeding schemes (RG 91) and ASIC Class Order 02/319 (CO 02/319)

RG 91 and CO 02/391 recognise that co-regulation arrangements are a more appropriate form of regulation for small-scale horse racing schemes. Under these arrangements, certain horse racing clubs are approved as lead regulators by ASIC.

The industry of greyhound racing and breeding in Australia is subject to a governance structure similar to that of horse racing and breeding. In particular, there is a controlling body set up in each state or territory by statutes empowering these bodies to make rules for greyhound schemes (the relevant controlling body).

We consider that, subject to certain conditions, class order relief from certain provisions of the Act is appropriate for small-scale greyhound schemes.

Compared to the horse racing and breeding industry, the greyhound racing and breeding industry is generally smaller in terms of public participation and the amounts of money involved. Greyhound schemes are generally of a smaller scale, so that participants in these schemes are exposed to a relatively lower financial risk.

Co-regulation arrangements for greyhound schemes are likewise an appropriate form of regulation for small-scale greyhound schemes. The co-regulation arrangements ensure that the interests of investors in these schemes continue to be protected, while due recognition is given to the regulatory role played by the controlling bodies (state and territory-based greyhound racing organisations) and to their particular expertise.

Under the co-regulation arrangements, certain greyhound racing organisations act as controlling bodies for schemes that meet the specified criteria. ASIC continues to be involved in the regulation of those schemes, primarily through overseeing the controlling bodies’ relevant activities.

ASIC has recognised the controlling bodies on the basis that they demonstrate that they have the necessary procedures in place to be able to perform the functions set out in a memorandum of understanding with ASIC.

Relief for small -scale greyhound schemes

We provide conditional relief in [CO 15/52] to promoters and managers of small-scale greyhound schemes from the relevant managed investment, AFS licensing and product disclosure provisions of the Act.

We also give limited relief from the hawking provisions in s992AA of the Act and the advertising provisions in s1018A of the Act.

We consider a scheme to be small-scale if:

(a)   The promoter has not raised from members more than $2 million in total for all greyhound schemes for which this relief was relied on (or a PDS was required) over any 12 month period; and

(b)   The promoter has not raised from members (on becoming a member or subsequently) more than $150,000 in total for the particular scheme.

There is no upper limit on the number of members of a scheme for it to be considered "small scale".

Dispute resolution

Under the relief, promoters of greyhound schemes must comply with specific complaint handling and dispute resolution obligations but are otherwise exempt from the requirement to be a member of an ASIC-approved external dispute resolution scheme.

It is anticipated that the relevant controlling body of the scheme will have a formal role to hear greyhound scheme members’ complaints, in place of an ASIC-approved external dispute resolution scheme.

Disclosure to offerees and members of schemes

Under the relief, promoters of greyhound schemes do not need to give offerees a Product Disclosure Statement (PDS) and managers do not need to comply with any ongoing disclosure requirements under the Act. Instead, they must give offerees a disclosure document that complies with the requirements of this relief. It is anticipated that the greyhound rules will impose the detailed requirements for the content of disclosure documents, in respect to which compliance is monitored by the controlling bodies.

Managers must provide periodic statements to persons who were members during the relevant financial year within three months after the end of each financial year ending 31 December (or other date in the agreement with the member). The statement must include information on money contributed by members, expenses, winnings distributed to members and the opening and closing balances. This statement will take the place of a periodic statement under s1017D of the Act.

The manager must also provide financial statements for the greyhound scheme for the financial year.

3. Operation of the class order

The general exemptions

CO 15/52 subject to relevant conditions, exempts promoters and managers of a greyhound scheme from the need to:

(a)  hold an AFS licence in subsection 911A(1) of the Act;

(b) register a managed investment scheme under subsection 601ED(5) of the Act and

(c)  comply with the product disclosure requirements in Part 7.9 of the Act.

CO 15/52 also provides relief from the need to comply with subsection 911B(1) to persons acting on behalf of a promoter or manager, provided that the promoter or manager is eligible for an AFS licence exemption under this class order.

Conditions of the exemption

The general exemptions only apply to a promoter if the promoter:

(a)  has not raised more than $150,000 from members of the greyhound scheme; and

(b) has not raised more than $2 million within any 12 month period from members of (any) greyhound schemes in relation to which the promoter has relied on this relief or was required to give a PDS; and

(c)  has received written notice from the controlling body that they make offers of interests in the scheme.

In order to rely on the benefit of this exemption, promoters and managers must individually comply with various obligations imposed on them with respect to their promotion or management of the scheme.

CO 15/52 defines the “Promoter” of the scheme as a person who is the promoter of the scheme and is registered by the controlling body as the promoter of the scheme.

CO 15/52 defines the “Manager” of the scheme as the person who:

(a) before the scheme is registered with a controlling body, is named as the manager of the scheme in the application for registration of the scheme with a controlling body; or

(b) is registered by a controlling body with the person’s consent as the manager of the scheme.

Obligations of the promoter and the manager

The promoter and the manager must comply with the Applied Rules set out in the Schedule to CO 15/52. The Applied Rules are a summary of the rules of each controlling body as they apply either to the promoter or the manager of the scheme.

The promoter and the manager must provide any assistance and information in relation to the affairs of the scheme or their own affairs to ASIC in accordance with any written request from ASIC.

The promoter and the manager must not offer any interest in the scheme to a person as a retail client unless:

(a)   that person was given a disclosure statement at or before the time any offer was made to the person, and, if there is no offer made to the person, before the issue or sale was made to the person and

(b)   the promoter has received written notice (which has not been withdrawn) from the controlling body for the scheme that it may offer interests in the scheme.

Additional obligations of the promoter

The promoter must give the controlling body a copy of the scheme agreement and any amendments to that agreement, promptly after the agreement or amendments are made. The scheme agreement is the agreement between the promoter, the manager and the members of the greyhound scheme relating to the operation of the scheme.

The promoter must give the controlling body a copy of any document under which the promoter offers an interest in the greyhound scheme, before it is first given to a person to whom an offer is made.

The promoter must give the controlling body any advertisement or other statement that the promoter publishes that may draw attention to an offer of an interest in the greyhound scheme, promptly after the publication.

The promoter must apply to register the greyhound scheme with the controlling body under its rules within a reasonable time after all the interests in the scheme have been issued.

The promoter must hold all application money received from people applying for an interest in the scheme and all other money paid by them before the scheme is registered with the controlling body on trust for the applicants.  The promoter must hold the money on trust until:

(a)   the scheme is registered with the controlling body under its rules;

(b)   the money is returned to the applicants or

(c)   interests in the scheme are issued to the applicants and the money is applied to pay the amount agreed to by each applicant for their interest in the scheme.

The promoter must inform each person offered an interest in the scheme - the scheme agreement itself or at or before the time the person is given the scheme agreement - that they will deal with money in the manner so described.

If the scheme is not registered with the controlling body under its rules within 6 months after the time of the first application for interests in the scheme, or if the controlling body notifies the promoter that it will not register the scheme, the promoter must return the money contributed and any interest earned on that money to each applicant within 10 days, subject to the applicant transferring their interest in the greyhound to which the scheme relates to the promoter.

Additional obligations of the manager

The manager must retire only in accordance with the scheme agreement or on removal by the controlling body.

The manager must ensure that within 3 months after the end of each financial year, each person who was a member of the scheme during the financial year is given:

(a)   statement of any transactions affecting the person’s interest in the scheme,

(b)   a copy of the financial statements for the scheme for the financial year.

Exemption from the anti-hawking provision

Hawking of financial products is generally prohibited under s992AA of the Act. CO 15/52 provides qualified relief to promoters (who rely on the general exemptions) from s992AA, allowing them to initiate discussions or unsolicited meetings and offer interests in greyhound schemes at greyhound racing venues, on the day of a race, or at places where bets on greyhound races are lawfully placed. This is because these venues are likely to be attended by people who have an interest in the sport and who may be interested in participating in a scheme other than to obtain a financial return.

The relief only applies if:

(a)   the meeting is not prohibited by the occupier of the venue or place and

(b)   the offer includes a clear statement that the promoter will not issue or sell an interest in the greyhound scheme to the unsolicited offeree unless the offeree initiates further discussions on a later day.

Modification of the restriction on advertising

Section 1018A of the Act prohibits advertising of financial products including interests in managed investment schemes such as greyhound schemes that are available for acquisition by retail clients, unless the advertisement refers to the availability of a PDS and meets other requirements.

CO 15/52 provides relief to promoters (who rely on the general exemptions) from s1018A, allowing them to advertise interests in greyhound schemes on condition that the advertisement refers to the availability of the relevant disclosure document which has been approved by a controlling body and that a person should consider the disclosure document in deciding whether to participate in the greyhound scheme.

Where the relief applies, advertising must not be misleading or deceptive, or be likely to mislead or deceive.

4. Consultation

In preparing CO 15/52, we undertook consultation with the greyhound racing and breeding industry and the general public. We issued Consultation Paper 213 Greyhound Racing and Breeding Schemes (CP 213) in July 2013. We received 5 submissions in response. We undertook further consultation with Greyhounds Australasia and some controlling bodies. We revised some of our proposals in response to these further consultations.

The Office of Best Practice Regulation has agreed with ASIC's assessment that the class order will have a minor regulatory impact and therefore no Regulation Impact Statement is required.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the

Human Rights (Parliamentary Scrutiny) Act 2011

ASIC Class Order [CO 15/52]

This Class Order is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the legislative instrument

CO 15/52 provides relief from certain Australian Financial Services (AFS) licensing, scheme registration, product disclosure, advertising and anti-hawking requirements in Chapters 5C and 7 of the Act to promoters and managers of small scale greyhound racing and breeding schemes (greyhound schemes).

The relief applies in conjunction with co-regulation arrangements with various state and territory based controlling bodies for the greyhound racing and breeding industry.

Human rights implications

Under CO 15/52, managers of greyhound schemes are required to lodge with the relevant controlling body, the scheme agreement containing, among other things, the name, address, date of birth, and percentage interest holding of each member of the scheme. Where the scheme member is a natural person, the human right to privacy under Article 17 of the International Covenant on Civil and Political Rights (Article 17) may be engaged.  Article 17 prohibits unlawful or arbitrary interferences with a person’s privacy, family, home and correspondence.

ASIC considers that the class order is compatible with the right in Article 17. The right in Article 17 is not absolute. The right has implied limitations (‘unlawful’ and ‘arbitrary’) and may be subject to a permissible limitation where that limitation aims to achieve a legitimate objective, there is a rational connection between the limitation and the objective and the limitation is reasonable, necessary and proportionate. In this regard, any limitation imposed on the right by this class order has a clear legal basis, in that it:

(a) Aims to achieve a legitimate objective – An objective of the class order is to ensure that investors in a greyhound scheme receive adequate regulatory protection in lieu of the scheme being registered as a managed investment scheme under the Act. A controlling body of a greyhound scheme covered by the class order is required to perform a co-regulatory function with ASIC. Providing the controlling body with the relevant information about the members of the scheme is intended to assist the controlling body in its co-regulation of the scheme.

(b) Is reasonable, necessary and proportionate – The register is necessary for the formal and verifiable identification of each scheme member and his or her personal interest in the relevant scheme. The relevant details recorded in the register are necessary for this purpose – the class order does not require any additional information to be obtained and held in the register. In the absence of the class order, greyhound schemes the subject of the class order would generally require registration under the Act as managed investment schemes. This would require the responsible entity of the scheme to maintain a register of members of the scheme which would contain details of each member’s name, address and interest in the scheme and would be able to be inspected by any person.  

This class order does not otherwise engage any of the applicable rights or freedoms.

Conclusion

The class order is compatible with human rights. Any interference with the human right to privacy is incidental to its primary operation.  Where that interference occurs, it is reasonable, necessary and proportionate in order for scheme members to benefit from the regulatory protections the class order seeks to implement.