EXPLANATORY STATEMENT for
ASIC Corporations (Adara Advisors) Instrument 2015/628

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (Adara Advisors) Instrument 2015/628 under section 926A of the Corporations Act 2001 (the Act). Subsection 926A(2)(a) provides that ASIC may exempt a person or class of persons from provisions to which section 926A applies, and subsection 926A(3) provides that an exemption may be subject to specified conditions.

1.                               Background

Adara Advisors Pty Ltd ACN 119 655 499 (Adara Advisors), an Australian financial services licensee (licensee), has a business which relies on prominent members (Panel Members) of the financial services industry to work on corporate advisory matters on a pro bono basis for Adara Partners Pty Limited ACN 601 898 006 (Adara Partners). Adara Partners is an authorised representative of Adara Advisors. The fees generated from services rendered to wholesale clients of Adara Partners are donated to an international development organisation.

Adara Advisors applied for relief from ASIC, requesting that ASIC exercise its powers under subsection 926A(2) of the Act and modify subsection 911B(1) so that Panel Members, acting as authorised representatives of Adara Advisors, may provide financial services to wholesale clients of Adara Partners, without also needing to be appointed as authorised representatives of another licensee (Panel Member Firm) on whose behalf the Panel Member, as an employee or director, provides financial services.

Operation of relevant sections of the Act

Under paragraph 911B(1)(a), Panel Members, may, in the course of their regular occupation, qualify as providers of financial services on behalf of a licensee (or a person who is otherwise exempt from having to hold an Australian financial services licence under section 911A(2)), in the capacity of an employee or director of the licensee. Should such a Panel Member be nominated as an authorised representative of Adara Advisors, subparagraph 911B(1)(b)(iv) would require that the Panel Member also be appointed as an authorised representative of their respective Panel Member Firm. Adara Advisors sought relief from this requirement.

ASIC Instrument 15/0474

ASIC granted relief on a conditional basis to nine individual Panel Members through ASIC Instrument 15/0474, which was executed on 29 May 2015.

In granting the relief, ASIC considered the regulatory burden of requiring compliance with subparagraph 911B(1)(b)(iv) outweighed the net regulatory benefit. It is further noted that Adara Partners is only authorised to provide financial services to wholesale clients and that those clients are protected by section 917C of the Act, which governs liability where a person is providing financial services on behalf of more than one licensee. Certain safeguards were included in the ASIC Instrument 15/0474, including those relating to the management of conflicts of interest, and disclosure requirements.

2.                               Purpose of the instrument

Relief under ASIC Instrument 15/0474 was previously granted but restricted to nine specified individuals nominated by Adara Advisors, as a temporary measure to facilitate the launch date of Adara Partners. The purpose of this instrument is to extend the same relief provided in ASIC Instrument 15/0474 to any Panel Members appointed in the future. An instrument providing this relief is necessarily legislative as subsection 926A(3) provides that "[a]n exemption …  is a legislative instrument if the exemption … is expressed to apply in relation to a class of persons … (whether or not it is also expressed to apply in relation to one or more persons … otherwise than by reference to membership of a class)".

3.                               Operation of this instrument

This instrument grants an exemption to Panel Members so they can provide financial services on behalf of Adara Advisors as authorised representatives without also being an authorised representative of the Panel Member Firm as would otherwise be required under subsection 911B(1) of the Act. The exemption applies where:

(a)  Adara Advisors holds an Australian financial services licence covering the provision of the relevant financial services; and

(b)  the Panel Member is an authorised representative of Adara Advisors; and

(c)  the authorisation covers the provision of the relevant financial services by the Panel Member; and

(d) the Panel Member is an employee or director of a Panel Member Firm who carries on a financial services business; and

(e)  the Panel Member provides financial services in this jurisdiction on behalf of the Panel Member Firm; and

(f)   the Panel Member, in their capacity as authorised representative of Adara Advisors, only provides financial services to wholesale clients of Adara Partners; and

(g)  Adara Partners is an authorised representative of Adara Advisors; and

(h)  Adara Advisors has received from the Panel Member written confirmation that they have received the consent of the Panel Member Firm to the Panel Member being appointed as an authorised representative of Adara Advisors; and

(i)Adara Advisors has a written undertaking from the Panel Member:

                             (i)            to manage conflicts of interest arising from acting as an authorised representative of Adara Advisors and as an employee or director of the Panel Member Firm; and

                           (ii)            not to use confidential information obtained in the course of acting as an authorised representative of Adara Advisors when acting as an employee or director of the Panel Member Firm; and

                         (iii)            not to use confidential information obtained in the course of acting as an employee or director of the Panel Member Firm, when acting as an authorised representative of Adara Advisors; and

                         (iv)            not to receive any financial benefit as a result of providing financial services to wholesale clients of Adara Partners; and

(j)     Adara Advisors has received from the Panel Member written confirmation that the Panel Member Firm has confirmed that there is no conflict of interest for the Panel Member Firm in the Panel Member providing the relevant financial services to wholesale clients of Adara Partners; and

(k)  before providing financial services to a wholesale client of Adara Partners, the Panel Member has disclosed to that client in writing that they are:

                             (i)            an authorised representative of Adara Advisors; and

                           (ii)            an employee or director of the Panel Member Firm which holds an Australian financial services licence, which they must identify; and

                         (iii)            relying on an exemption granted by ASIC enabling them to provide financial services on behalf of Adara Advisors as its authorised representative, without also being an authorised representative of the Panel Member Firm as would otherwise be required by the Act; and

                         (iv)            providing the financial services only as an authorised representative of Adara Advisors; and

(l)     the Panel Member Firm does not receive any financial benefit as a result of the Panel Member providing the relevant financial services.

4.                               Consultation

In drafting and executing this relief, ASIC has consulted Adara Advisors and its legal representatives. ASIC believes this instrument is minor and machinery, and does not have a regulatory impact apart from the discrete class of persons to which it applies, namely, Panel Members, Panel Member Firms, and wholesale clients of Adara Partners. Relief of this kind normally would not necessitate the issue of a legislative instrument.

The Office of Best Practice Regulation has confirmed that a Regulation Impact Statement is not necessary for this legislative instrument.