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ASIC Class Order [CO 13/1621]

Authoritative Version
  • - F2014L00039
  • In force - Superseded Version
  • View Series
CO 13/1621 Orders/ASIC Class Orders as made
This Class Order permits a responsible entity to issue an interest in a registered scheme to ‘the acquirer’ in response to an application submitted electronically on behalf of the acquirer through mFund.
Administered by: Treasury
Registered 07 Jan 2014
Tabling HistoryDate
Tabled HR11-Feb-2014
Tabled Senate11-Feb-2014

ASIC CLASS ORDER [CO 13/1621]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

 

 

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 13/1621] Exemption and declaration for the operation of mFund under paragraphs 1020F(1)(a) and (c) of the Corporations Act 2001 (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 of the Act 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

 

Paragraph 1016A(2)(a) of the Act requires a person (the issuer or seller) to only make a restricted issue or a restricted sale of a relevant financial product to a person (the recipient) if the issue or sale is made pursuant to an eligible application made to the issuer or seller by the recipient. In this explanatory statement, the terms in italics are defined in the Act.

 

In particular, relevant financial product includes a managed investment product, which captures an interest in a registered scheme. Further, eligible application is broadly an application made using an application form that was included in, or accompanied, the relevant Product Disclosure Statement (PDS) that was given to the applicant and not defective as at the time when the application was made, or its copy or direct derivation. 

 

ASX Limited ACN 008 624 691 and ASX Settlement Pty Limited ACN 008 504 532 (collectively, ASX) sought relief from section 1016A to facilitate the introduction of its ‘ASX Managed Fund Service’ that has since been renamed as ‘mFund Settlement Service’ (mFund). The mFund is a service where ‘settlement participants’ receive an investor’s instruction to acquire or redeem interests in a registered scheme and complete an application form on the Clearing House Electronic Sub-register System (CHESS) that would electronically transmit the information to the responsible entity. However, mFund is not a licensed market, the registered scheme would not be listed and interests in the scheme are not quoted or admitted to quotation and cannot be traded on mFund. Rather, the registered schemes will be ‘admitted to participate’ in mFund by ASX.

 

In May 2013, ASIC consulted on granting the relief the ASX sought from the application form requirements in section 1016A for mFund in Consultation Paper 208: ASX Managed Funds Service: Relief from the application form requirement (CP 208). Submissions received in response to the consultation were largely supportive of ASIC granting the relief.  Following industry consultation, ASIC issued [CO 13/1621].

 

2.      Purpose of this class order

 

The purpose of [CO 13/1621] is to permit a responsible entity to issue an interest in a registered scheme to ‘the acquirer’ in response to an application submitted electronically on behalf of the acquirer through mFund and to rely on an electronic confirmation accompanying the application that the investor was given a PDS before the application was made.

 

3.      Operation of this class order

 

The class order exempts a ‘responsible entity’ of a registered scheme from the requirements in subsection 1016A(2) of the Act and imposes obligations on a ‘financial services licensee’ by notionally inserting subsections 1016A(2A) and 1016A(2B) into the Act.  A responsible entity that issues interests in the circumstances set out in paragraph 5 of [CO 13/1621] can rely on the exemption in paragraph 4, but must comply with the conditions in paragraph 6.

 

Paragraph 4 of [CO 13/1621] exempts a responsible entity of a registered scheme from subsection 1016A(2) of the Act in relation to the issue of an interest in the scheme to a person (acquirer) in response to an electronic application made to the responsible entity on behalf of the acquirer through mFund. This exemption allows the responsible entity to issue an interest in a registered scheme to an acquirer in response to an electronic application made through mFund. The exemption only applies when the electronic application made through mFund was accompanied by an electronic confirmation that the acquirer was given a PDS prior to making an application and the criteria in paragraph 5 of [CO 13/1621] are satisfied.  

 

Paragraph 5 of [CO 13/1621] stipulates the circumstances in which the exemption in paragraph 4 applies. In particular, the application made through mFund must contain or be accompanied by an ‘electronic confirmation’ stating that a PDS with a specified date has been given to the acquirer by a financial services licensee (licensee) or an authorised representative of a licensee. The PDS referred to in the confirmation must have been prepared by the responsible entity and must not have been defective as at the time when the application was made. The responsible entity must have had no reason to believe that the requirements of the ASX Operating Rules and ASX Settlement Operating Rules (the Rules) have not been satisfied in relation to the application. The Rules can be accessed through www.asx.com.au.

 

Further, for the exemption in paragraph 4 to apply, paragraph 5 of [CO 13/1621] also requires the responsible entity to reasonably believe that the PDS referred to in the confirmation was available free of charge on the website of ASX Ltd as at the time the application was made and for mFund to be operated by ASX Ltd or by ASX Settlement. Finally, the operation of mFund must be authorised by an Australian market licence or mFund must be the subject of an exemption under section 791C of the Act. At the date of making this class order mFund was the subject of such an exemption.

 

Subparagraph 6(a) of [CO 13/1621] stipulates the conditions that a responsible entity that relies on the exemption in paragraph 4 must comply with. In particular, the responsible entity must, within 5 business days after the issue of the interest in a scheme, notify the acquirer in writing that a PDS with the date specified should have been given to the acquirer and if the acquirer has not received it, the acquirer should inform the responsible entity, and that the acquirer may obtain an electronic or hardcopy from the responsible entity free of charge. The responsible entity must also report to ASX in writing within 10 business days if it has reason to believe that a person who acquired an interest in the scheme as a retail client as a result of an application through mFund had not been given, before making the application, the PDS for the interest that was specified in the electronic confirmation in relation to the application. The responsible entity must keep records for 7 years to demonstrate compliance with subparagraph 6(a) of [CO 13/1621], a copy of all applications received through mFund and a record of any statement by an acquirer that states or implies that the acquirer was not given, before applying through mFund, the PDS that was specified in the electronic confirmation in relation to the acquirer’s application.

 

Paragraph 7 of the [CO 13/1621] insert subsections 1016A(2A) and 1016A(2B) into the Act. These subsections apply to a licensee who, or whose authorised representative, transmits an electronic application for the issue of an interest in a registered scheme through mFund.

 

Subsection 1016A(2A) of the Act stipulates the requirements that the licensee  must satisfy before transmitting the electronic application through mFund and the requirements that the licensee must ensure an authorised representative does before transmitting an electronic application through mFund. In particular subsection 1016A(2A) requires the licensee to give the person a PDS for the interest or be notified in writing by another financial services licensee or authorised representative (each the second providing licensee or representative) that the second providing licensee or representative has given the person a PDS for the interest before transmitting the electronic application through mFund. Further, subsection 1016A(2A) also requires the licensee to specify in the application form the date of the PDS that was given and ensure that the PDS given is the most recent PDS (relating to the product) available on ASX’s website by checking the date of the PDS.

 

Subsection 1016A(2B) of the Act stipulates that subsection 1016A(2A) does not apply where the licensee or its authorised representative believes on ‘reasonable grounds’ that an issue is not a restricted issue as defined in subsection 1016A(1).

 

4.      Consultation

 

On 30 May 2013, ASIC released CP 208 seeking feedback on our proposals to grant the relief applied for by ASX, subject to certain conditions. ASIC received 11 non-confidential responses to the proposals in CP 208 from brokers, fund managers and industry associations.  ASIC also met with a number of interested parties as part of the consultation process. The submissions and feedback were considered in the making of this class order. CP 208 can be found on ASIC’s website.

 

 


 

Statement of Compatibility with Human Rights

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

ASIC Class Order [CO 13/1621]

 

The 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 class order

 

Generally, a responsible entity of a managed investment scheme may only issue interests in the scheme to a retail investor in response to an application made in an application form accompanying a Product Disclosure Statement (PDS). The class order provides conditional relief from the application form requirement for responsible entities that offer interests through an electronic application and settlement facility known as mFund and operated by ASX Limited or by ASX Limited and ASX Settlement Pty Limited.

 

The class order also requires financial service licensees that transmit electronic applications through mFund to ensure that a PDS for the interests applied for has been given to the person before the electronic application is transmitted and for the electronic application to include the date of the PDS that was given to the person.

Human rights implications

 

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

 

Conclusion

 

This class order is compatible with human rights as it does not raise any human rights issues.