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ASIC Class Order [CO 12/1295]

Authoritative Version
  • - F2012L01975
  • No longer in force
CO 12/1295 Orders/ASIC Class Orders as made
This class order amends ASIC Class Order [CO 11/1140].
Administered by: Treasury
Registered 28 Sep 2012
Tabling HistoryDate
Tabled HR09-Oct-2012
Tabled Senate09-Oct-2012
Date of repeal 02 Nov 2012
Repealed by Division 1 of Part 5A of the Legislative Instruments Act 2003

ASIC CLASS ORDER [CO 12/1295]

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 12/1295] under paragraph 926A(2)(c) of the Corporations Act 2001 (the Act).

Paragraph 926A(2)(c) provides that ASIC may declare that provisions to which section 926A applies apply in relation to a person or 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

Section 912A sets out the obligations of an Australian financial services (AFS) licensee, including that the licensee have available adequate resources (including financial) to provide the financial services covered by the licence (paragraph 912A(1)(d)) and to carry out supervisory arrangements and adequate risk management systems (paragraph 912A(1)(h)). This does not apply to bodies regulated by the Australian Prudential Regulation Authority (APRA).

ASIC imposes specific financial requirements on AFS licensees that are not regulated by APRA in accordance with ASIC Regulatory Guide 166 Licensing: Financial requirements.  The financial requirements that apply to AFS licensees vary depending on the nature of the financial service activities conducted by the licensee. For example, the operation of registered managed investment schemes attracts specific financial requirements.

 In November 2011, ASIC released new financial requirements for responsible entities in ASIC Class Order [CO 11/1140].  [CO 11/1140] modifies paragraph 912A(1)(d) of the Act as it applies to responsible entities (who are not market participants or clearing participants) by inserting notional section 912AA into the Act.  Responsible entities are required to comply with the financial requirements set out in notional section 912AA of the Act as part of satisfying the obligation to have adequate financial resources under paragraph 912A(1)(d) of the Act.  Those financial requirements come into effect on 1 November 2012.

2.      Purpose of the class order

 

The purpose of [CO 12/1295] is to vary [CO 11/1140] in order to clarify the net tangible assets (NTA) financial requirement that applies to AFS licensees which are not operating a registered managed investment scheme (despite being authorised to do so).  Further, [CO 12/1295] makes clarificatory changes to the custody requirements relating to the NTA financial requirement and the definitions of adjusted liabilities, average RE revenue, special custody assets, stapled issuer and value of scheme property, which affect the licensee's NTA calculations under [CO 11/1140]. 

 

3.      Operation of the class order

 

[CO 12/1295] amends [CO 11/1140], in notional section 912AA of the Act, by:

 

(a)               specifying that AFS licensees not operating a registered managed investment scheme (despite being authorised to do so) are required to satisfy the NTA requirement in subsection 912AA(5)(a) (as opposed to the NTA requirement in subsection 912AA(5)(b)) by holding an amount equal to the greater of the following in NTA:

 

(i)         $150,000; or

 

(ii)        0.5% of the average value of scheme property of the registered schemes and investor directed portfolio services operated by the licensee, up to $5 million; or

 

(iii)       10% of average RE revenue of the licensee;

 

(b)               specifying that the custody requirements under subsection 912AA(7) may be satisfied if the relevant scheme assets are held by a sub-custodian in accordance with the requirements of that subsection;

 

(c)               limiting amounts that are included in the calculation of adjusted liabilities (as defined in subsection 912AA(11)) by:

 

(i)                 excluding amounts guaranteed by the licensee in circumstances where the licensee's liability is recoverable out of the assets of a managed investment scheme (under [CO 11/1140], only amounts recoverable by the licensee as responsible entity of a registered managed investment scheme were excluded); and

 

(ii)               in most circumstances where the licensee is a member of a stapled group, excluding amounts guaranteed by the licensee in circumstances where the obligations guaranteed are the obligations of another member of the stapled group (under [CO 11/1140], this exclusion was only available if the stapled security was traded on a prescribed financial market);

 

(d)               varying the definition of average RE revenue in subsection 912AA(11) by replacing references to the number of years the licensee has operated a registered scheme as responsible entity with references to the number of years the licensee has been authorised to operate a registered scheme as responsible entity; and

 

(e)        varying the definitions of adjusted liabilities, special custody assets and value of scheme property for purposes of clarity.

 

4.      Statement of Compatibility with Human Rights

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

This Legislative 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 because it does not engage any of the applicable rights or freedoms.

 

5.      Consultation

 

ASIC undertook public consultation before making [CO 11/1140]. 

 

ASIC consulted and received submissions from selected private industry bodies before making [CO 12/1295], but did not undertake a formal consultation process.  External stakeholders were selected based on their engagement with the consultation process for [CO 11/1140] and their expertise given the technical nature of the variations contained in [CO 12/1295].