ASIC Corporations (Employee Entitlement Schemes) Instrument 2026/199

Explanatory Statement

ASIC Corporations (Employee Entitlement Schemes) Instrument 2026/199

This is the Explanatory Statement for ASIC Corporations (Employee Entitlement Schemes) Instrument 2026/199.

The Explanatory Statement is approved by the Australian Securities and Investments Commission (ASIC).

Summary

1.              ASIC Corporations (Employee Entitlement Schemes) Instrument 2026/199 (the Instrument) provides for the regulation of operators of employee entitlement schemes, including:
   1.               a requirement to obtain an Australian financial services (AFS) licence with appropriate authorisations to operate the scheme (as a result of the repeal of previous relief from this requirement);
   2.              exemptions from the managed investment, product disclosure, design and distribution, and hawking provisions of the Corporations Act 2001 (the Act), but with additional specific conduct and disclosure obligations as a condition of the relief;
   3.               transitional arrangements; and
   4.              relief in relation to statutory employee entitlement schemes.
2.              The Instrument repeals the relief previously provided under ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150.

Purpose of the instrument

1.              Employee entitlement schemes are schemes to which employers make contributions where the primary objective of the scheme is to fund benefits payable to employees upon termination of employment, or long-service leave entitlements (and may also fund other entitlements that are incidental to employment).
2.              In ASIC’s view, employee entitlement schemes are likely to constitute a managed investment scheme and therefore a financial product regulated under the Act. This is because:
   1.               employers make contributions to an employee entitlement scheme on behalf of employees;
   2.              contributions are pooled; and
   3.               there is a lack of day-to-day control of the scheme by employee members.
3.              ASIC has historically provided operators of employee entitlement schemes relief from the licensing, managed investment and associated provisions of the Act since 2000. This relief was most recently contained in ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150.
4.              We consider it is appropriate to now change our approach to regulation of employee entitlement schemes, due to the growth in size of funds under management and expansion of activities undertaken by funds that were not contemplated when we gave our original relief (such as funding long-service leave, sick leave, training or insurance benefits to employees).
5.              Following a transitional period, operators of employee entitlement schemes will be required to obtain an AFS licence with relevant authorisations.
6.              Employee entitlement scheme operators will continue to have relief from the obligation to register the scheme under Chapter 5C of the Act, as well as from the product disclosure, design and distribution and hawking provisions of the Act, but will be required to comply with additional specific conduct and disclosure obligations as a condition of the relief.

Consultation

1.              ASIC published Consultation Paper 384 Employee redundancy funds in June 2025. We sought feedback on proposed changes to our definition of employee entitlement schemes (formerly referred to as ‘employee redundancy funds’) and possible options for the future regulation of employee entitlement schemes.
2.          We received 19 submissions from a range of stakeholders, including scheme operators, employer and industry organisations, unions and a charity that is currently funded by contributions from employee entitlement schemes.
3.          Most responses advocated for an increased level of regulation, although the responses were mixed as to the preferred degree of regulation and what (if any) exceptions should apply. 
4.          In response to these submissions, we consider that the approach to regulating employee entitlement schemes adopted in the Instrument is a proportionate and appropriate approach to introducing transparency and accountability requirements for employee entitlement schemes. Our approach will align the requirements for employee entitlement scheme operators more closely with those that apply to other retail managed investment schemes while recognising the difference between them. Bringing operators into the AFS licensing regime will strengthen oversight, transparency and accountability.

Operation of the instrument

Definitions

1.          Section 6 defines an employee entitlement scheme as a scheme to which employers make contributions where the primary objective of the scheme is to fund, for employees of those employers, benefits payable upon termination of employment or long-service leave entitlements, and which may also fund other entitlements for those employees that are incidental to employment.

Note:  The relief in sections 7 and 9 of the Instrument, and the conditions, apply in relation to employee entitlement schemes that currently receive contributions, as well as ‘closed’ or ‘dormant’ schemes that no longer receive contributions. See definition of ‘employee entitlement scheme’ in section 6 of the Instrument.

Regulation of employee entitlement schemes

1.          Subsection 7(1) provides relief for employee entitlement scheme operators from the requirement to register a managed investment scheme under section 601ED, the prohibition on hawking financial products under section 992A, and financial product disclosure under Part 7.9 of the Act.
2.          Subsection 7(2) provides relief from the need to prepare a target market determination in relation to an interest in an employee entitlement scheme where that would be required as a result of regulation 7.8A.10 of the Corporations Regulations 2001.

Note:  The relief in section 7 of the Instrument only applies to a person that holds an AFS licence authorising it to deal in respect of interests in an employee entitlement scheme and who operates an employee entitlement scheme. This means that a person who does not hold an appropriate AFS licence (for example, an authorised representative of an AFS licensee), will not be able to rely on our relief to operate the scheme. See definition of ‘EES operator’ in section 6 of the Instrument.

1.          Section 8 imposes conditions on the relief referred to in paragraphs 14 and 15 above. These conditions require the employee entitlement scheme operator to:

Operation of the scheme

1.               do all things necessary to ensure that in operating the scheme it acts efficiently, honestly and fairly; and
2.              perform its obligations in relation to the operation of the scheme with the degree of care of diligence that a reasonable person would exercise if they were in that person’s position; and
3.               have in place adequate arrangements for the management of conflicts of interest that may arise wholly, or partially, in relation to activities undertaken by the operator or a representative of the operator in the operation of the scheme; and
4.              have adequate resources (including financial, technological and human resources) to operate the scheme and carry out supervisory arrangements in relation to the operation of the scheme; and
5.               maintain the competence to operate the scheme; and
6.                ensure that its representatives are adequately trained, and are competent, to operate the scheme; and
7.              ensure that the internal dispute resolution procedure it has for the purposes of complying with subparagraph 912A(1)(g)(i) of the Act in relation to financial services provided to persons as retail clients also covers complaints (EES complaints) against it in connection with the operation of the scheme; and 
8.              comply with the internal dispute resolution procedure referred to in f. above in relation to EES complaints; and
9.                ensure the risk management systems it has for the purposes of complying with paragraph 912A(1)(h) of the Act in relation to financial services provided by it are also adequate for the management of risks associated with operating the scheme; and 

Note:  An operator will also need to comply with section 912A of the Act in relation to the financial services covered by its AFS licence.

1.                ensure that property of the scheme is clearly identified as scheme property, held (by itself or a custodian) on trust for persons holding interests in the scheme and held separately from its own property  and the property of any other managed investment scheme; and
2.              treat persons who hold interests in the scheme of the same class equally and persons who hold interests of different classes fairly; and
3.                if there is a conflict between the interests of persons who hold interests in the scheme and its own interests, give priority to the interests of those other persons; and

Website disclosures

1.            within 14 days of first relying on the relief, include, and after that time maintain as current, a clear and prominent explanation on its website of the following matters in relation to the scheme:
   1.                 how contributions to the scheme will be used;
   2.                 how income derived, directly or indirectly, from contributions or other scheme property will be used;
   3.                 the rights of persons holding interests in the scheme to receive payments from scheme property in relation to benefits payable upon termination of employment, long service leave entitlements, and other entitlements that are incidental to employment;
   4.                 the availability, and location, of annual financial statements and auditor’s reports required to be made publicly available;
   5.                 any significant risks associated with holding an interest in the scheme;
   6.                 any rights it or an associate has to be paid fees out of scheme property;
   7.                 any agreements or arrangements under which a benefit may be given out of scheme property to itself or an associate;

Note: The Instrument gives ‘associate’ the same meaning as it would have if that term was used in Chapter 7 of the Act, and also includes the following specified people:

1.   a shareholder of the employee entitlement scheme operator;
2.   organisation registered under the Fair Work (Registered Organisations) Act 2009 that is a party to an award or agreement under which employers make contributions to the employee entitlement scheme operated by the operator; and
3.   an associate (within the meaning of Chapter 7 of the Act) of a person referred to in (a) or (b) above.   

See definition of ‘associate’ in section 6 of the Instrument.

1.                 how complaints made by holders of interests in the scheme in relation to the operation of the scheme will be dealt with; and

Note:  The purpose of requiring a prominent explanation of these matters on the operator's website is to ensure persons who hold interests in the scheme can easily locate this information. Ideally, the information should at least be accessible by an easily identifiable hyperlink on the homepage of the operator's website.

Notification to ASIC

1.              notify ASIC in writing of reliance on the exemption and the name of the employee entitlement scheme, within 14 days of first relying on the exemption; and

Annual financial reporting

1.              prepare an annual financial report for the scheme; and
2.              have the annual financial report audited by a registered company auditor and obtain an auditor’s report; and
3.              make each annual financial report and auditor’s report publicly available in a prominent position on its website within four months after the end of the financial year;

Note 1:  The annual financial reports and audit reports that must be prepared in relation to an employee entitlement scheme are the same reports that would need to be prepared if the employee entitlement scheme was a registered scheme under Chapter 2M of the Act: see definitions of ‘audit report’ and ‘annual financial report’ in section 6 of the Instrument.

Note 2: The Instrument specifies the period in relation to which annual financial reports and audit reports must be prepared: see definition of ‘employee entitlement scheme financial year’ in section 6 of the Instrument.  

Record keeping

1.                keep written financial records that:
   1.                 correctly record and explain the employee entitlement scheme’s transactions and financial position and performance, and
   2.                 enable true and fair financial statements for the scheme to be prepared and audited.

Transitional arrangements

1.          Section 9 of the Instrument provides transitional relief from the requirement to hold an AFS licence, as well as the requirement to register a managed investment scheme under section 601ED, the prohibition on hawking financial products under section 992A, the requirement to prepare a target market determination as a result of Corporations Regulation 7.8A.10, and financial product disclosure under Part 7.9 of the Act.
2.          The transitional relief is subject to the following conditions in relation to operation of the scheme:
   1.        the conditions outlined in paragraphs 16(a) to (c) and (j) to (r) above, which apply as if the operator of the employee entitlement scheme were an ‘EES operator’: see paragraph (9)(5)(a) of the Instrument
   2.       a requirement to have an internal dispute resolution system which provides for the handling of complaints made by holders of interests in the scheme in relation to the operation of the scheme

Note:  The internal dispute resolution system maintained for the purpose of meeting this condition of the transitional relief may, but is not required to, meet the standards and requirements in ASIC Regulatory Guide 271 Internal dispute resolution.

1.        if it relies on the transitional relief on or before 30 June 2026—a tailored requirement to publish on its website the initial balance sheet, profit and loss statement and cashflow statement for the scheme (along with any notes and audit report prepared in relation to the statements), and a clear and prominent explanation of where those statements are located.

Note:  Paragraphs 9(5)(c) and (d) of the Instrument specify the period in relation to which these statements must be prepared and published, and the required timing of publication.

1.          Transitional relief is available until 1 September 2026. However, if the employee entitlement scheme operator has lodged with ASIC an application for an AFS licence and the application is pending on 1 September 2026, the transitional relief will continue until ASIC makes a decision in relation to the application or the operator withdraws the application.

Relief in relation to statutory employee entitlement schemes

1.          Section 10 of the Instrument exempts an interest in a statutory employee entitlement scheme from being a financial product for the purposes of Chapter 7 of the Act.
2.          A statutory employee entitlement scheme is:
   1.               an employee entitlement scheme that is, or is operated by a body, established by or under a law of the Commonwealth, a State or a Territory, other than a general law allowing incorporation as a company or body corporate;
   2.              the new scheme as defined in the Construction Industry (Long Service) Act 1997 (Tas);
   3.               the fund as defined in the Construction Industry Long Service Leave Act 1997 (Vic).

Repeal of existing relief

1.          Schedule 1 of the Instrument repeals the existing relief currently provided under ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150.

Commencement

1.          The Instrument commences on 1 April 2026 (or the day after the Instrument is registered on the Federal Register of Legislation, if this is later than 1 April 2026).

Legislative instrument and primary legislation 

1.          The subject matter and policy implemented by the Instrument is more appropriate for a legislative instrument rather than primary legislation because the matters contained in the instrument apply to only a relatively small subset of operators of managed investment schemes.
2.          It will be a matter for the Government and for Parliament to consider whether the Act or the Corporations Regulations 2001 may need to be amended in the future to include the substance of the Instrument in legislation

Duration of the instrument

1.          The Instrument has a duration of 5 years. This period allows sufficient time for the Government to decide whether to amend the primary legislation to include the relief or introduce new legislation for operators of employee entitlement schemes.

Legislative authority

1.          The Instrument is made under subsections 601QA(1), 765A(2), 926A(2), 992B(1), 994L(2) and 1020F(1) of the Act.
2.          The Instrument is a disallowable legislative instrument.

Statement of Compatibility with Human Rights 

1.          The Explanatory Statement for a disallowable legislative instrument must contain a Statement of Compatibility with Human Rights under subsection 9(1) of the Human Rights (Parliamentary Scrutiny) Act 2011. A Statement of Compatibility with Human Rights is in the Attachment.

Attachment

Statement of Compatibility with Human Rights

This Statement of Compatibility with Human Rights is prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.  

ASIC Corporations (Employee Entitlement Schemes) Instrument 2026/199

Overview

1.              ASIC Corporations (Employee Entitlement Schemes) Instrument 2026/199 (the Instrument) provides for the regulation of operators of employee entitlement schemes, including:
   1.               a requirement to obtain an Australian financial services (AFS) licence with appropriate authorisations to operate the scheme (as a result of the repeal of previous relief from this requirement);
   2.              exemptions from the managed investment, product disclosure, design and distribution, and hawking provisions of the Corporations Act 2001, but with additional specific conduct and disclosure obligations as a condition of the relief;
   3.               transitional arrangements; and
   4.              relief in relation to statutory employee entitlement schemes.

Assessment of human rights implications

2. This instrument does not engage any of the applicable rights or freedoms.  

Conclusion

3. This instrument 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.