ASIC Class Order [CO 98/51]

Overview

The ASIC Class Order [CO 98/51] was enacted in 1998 under section 601QA(1)(a) of the Corporations Act 2001 to address the need for flexibility in managing assets of managed investment schemes without compromising the protection of investors. The Australian Securities and Investments Commission (ASIC) is the enacting body, and the policy objective of the Class Order is to provide relief from the duty to separate certain assets of a managed investment scheme, while ensuring that the responsible entities maintain appropriate controls and safeguards for the scheme property. The Class Order allows responsible entities to hold certain scheme property together with their own property or that of other schemes, provided that they perform regular reconciliation procedures and reasonably believe that separate holding would not be in the best interest of the members. The Class Order applies to various types of assets, including cash, accounts and deposits with financial institutions, securities, derivatives, and interests arising from Eligible SELECT Master Agreements offered by Deutsche Bank AG.

Scope and Application

ASIC Class Order [CO 98/51] provides relief from the duty to separate assets of a managed investment scheme under the Corporations Act 2001. Specifically, it exempts responsible entities of registered schemes from the requirement to hold certain scheme property separately from their own assets and the assets of the entity holding the property, provided that the responsible entity ensures regular reconciliation procedures are performed and reasonably considers that separate holding is not in the best interest of members. The exempted scheme property includes cash, bank accounts, securities, derivatives, and interests from an Eligible SELECT Master Agreement offered by Deutsche Bank AG. This relief applies nationally across Australia and is subject to the conditions outlined in the Class Order and its Schedule. The order has been amended several times to refine its application and interpretation, with the most recent amendment being [CO 06/226] on 31 March 2006.

Key Provisions

ASIC Class Order [CO 98/51] provides relief from the duty to separate assets of a managed investment scheme, which is typically required under the Corporations Act 2001 (the “Act”). According to section 601QA(1)(a) of the Act, the Australian Securities and Investments Commission (ASIC) has exempted responsible entities of registered schemes from subparagraph 601FC(1)(i)(ii) under certain conditions. The responsible entities are required to ensure that the entity holding the relevant scheme property performs regular reconciliation procedures that are appropriate to the nature of the asset and reasonably consider that holding the scheme property separately from property of other schemes would not be in the best interest of members (subsection 601FC(1)(i)(ii)). The class order applies to scheme property that is held separately from the assets of the responsible entity and the person holding the property where the property is comprised of cash, accounts and deposits with a bank or financial institution, securities, derivatives, or an interest arising from an “Eligible SELECT Master Agreement” (Schedule). The obligations imposed by this class order require responsible entities to perform due diligence to ensure that the entity holding the relevant scheme property performs regular reconciliation procedures appropriate to the nature of the asset. Furthermore, the responsible entities must reasonably consider that holding the scheme property separately from property of other schemes would not be in the best interest of members. The responsible entities must also ensure that any Eligible SELECT Master Agreement offered by Deutsche Bank AG does not materially differ from the terms of the agreement given to ASIC on 19 September 1997 (the standard form agreement) except for any variation that ASIC has permitted in writing or any variation as a result of the deletion of a provision from the agreement or the re-inclusion of a provision in the agreement, in accordance with the express terms of the agreement; the insertion of the relevant details in the Schedule and the Confirmation in the Annexure; and the variation of the definition of “Authorised Investments” in the Schedule, other than a variation that extends the categories of Authorised Investments outside the categories in the Schedule to the standard form agreement. Failure to comply with the provisions of this class order may result in civil or criminal consequences. The maximum penalty for contravention of this class order is 500 penalty units or imprisonment for a period of five years, or both (subsection 13AD(1) of the Criminal Code Act 1995 (Cth)). Additionally, responsible entities who fail to comply with the obligations imposed by this class order may be subject to enforcement action by ASIC, which may include pecuniary penalties, public censure, or disqualification from managing corporations.