Australian Regulatory Compliance Review

Corporations Regulations (SImpler Regulatory System)

The Corporations Amendment Regulations 2007 (No. 12) amend the Corporations Regulations 2001 to support the provisions in the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007.

The Regulations are in 3 parts which commence as follows:
(a) on 28 September 2007 — regulations 1 to 3 and Schedule 1 which give FSR Relief for Financial Services Guides, Product Disclosure Statements and Statements of Advice;
(b) on the commencement of items 218 and 219 of Part 3 of Schedule 1 to the Act (but no later than 28 December 2007) — Schedule 2 which deals with liability of insurance licensees for authorised representatives and gives relief from providing FSG's at public events;
(c) on 1 July 2008 — Schedule 3 which deals with requirements when a change is made to fees and charges.

ASIC consults on exemptions for rights issues

The Corporations Legislation Amendment (Simpler Regulatory System) Act 2007, allows listed entities to conduct a rights issue without a prospectus or product disclosure statement (PDS) disclosure.

ASIC has now released a consultation paper (pdf) seeking comments on its proposal to widen the disclosure exemption for rights issues to cover non-traditional features developed by issuers and their advisers to raise capital more effectively.

ASIC’s proposal would extend the disclosure exemption to rights issues that allow accelerated institutional participation and other deviations from the ‘vanilla’ rights issue format, provided there is, in substance, an equality of opportunity to participate for all holders.

The exemption is intended to benefit retail holders by encouraging listed entities to use rights issues, rather than other forms of fundraising that exclude retail participation (e.g. placements). 

For technical reasons, some rights issues would not qualify for the disclosure exemption without ASIC relief and ASIC has therefore proposed the widening of the exemption.

ASIC invites comments on the consultation paper by Wednesday 7 November 2007. 

Corporations Amendment Regulations 2007 (No. 10): FSR changes

The Corporations Amendment Regulations 2007 (No. 10) commenced on 23 August 2007. They allow for certain information to be 'incorporated by reference' in financial product Statements of Advice and Product Disclosure Statements.

Further Simpler Regulatory System changes come into force

The Governor-General has proclaimed 1 September 2007 as the day on which items 198 to 215, 221 and 222 of Part 3 of Schedule 1 of Corporations Legislation Amendment (Simpler Regulatory System) Act 2007 commence.

Simpler Regulatory System Act commences

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 and accompanying Bills were given Royal Assent on 28 June 2007.

UPDATE 5 July: Here's the Act

Most of the Simpler Regulatory System package commences on either Royal Assent or 1 July 2007.  Some parts, including particular changes to the regulation of financial advice, will not be fully effective without forthcoming supporting regulations.

UPDATE 5 July: here are the regulations

The Regulations to implement the Act are:

• Corporations Amendment Regulations 2007 (No. 2)
• Corporations Amendment Regulations 2007 (No. 3)
• Corporations Amendment Regulations 2007 (No. 4)
• Corporations Amendment Regulations 2007 (No. 5)
• Corporations Amendment Regulations 2007 (No. 6)
• Corporations Amendment Regulations 2007 (No. 7)
• Corporations Amendment Regulations 2007 (No. 8)

UPDATE 28 August: Corporations Amendment Regulations 2007 (No. 10)

You can check when the changes you are interested in commence by looking at my articles here.

The changes take effect immediately include amendments to facilitate distribution of annual reports over the internet, and to increase the monetary thresholds to define a large proprietary company as these thresholds have not been adjusted since 1995.  As these changes apply immediately, so they affect financial reports relating to the 2006-07 reporting period ending on 30 June 2007.

Simpler Regulatory System: financial services regulation changes

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 made changes to FSR requirements including:

• removing the need for a Statements of Advice to be provided in two circumstances:  where there is no recommendation in relation to a particular financial product and no remuneration (eg a free initial consultation or where a financial adviser recommends that a person continue to hold an existing product); and where the amount to which the advice relates is under the prescribed threshold;

• refining the circumstances where a Financial Services Guide is not required to be provided, particularly at seminars which are not open to the public;

• introducing changes to the retail/wholesale client distinction regarding sophisticated investors;
• refining the liability of licensees under the cross-endorsement provisions where authorised representatives act for a number of financial services licensees with their consent;

• introducing a new ‘in use’ notice for Product Disclosure Statements to determine when a Product Disclosure Statement is no longer current;

• improving the mechanism whereby the Australian Securities and Investments Commission (ASIC) takes a role in overseeing compliance with a financial market’s rules where the market operator has a conflict of interest; and

• allowing registered managed investment schemes to invest in unregistered managed investment schemes.

Statement of Advice exemption — no product recommendation and no remuneration
The requirement to provide a Statement of Advice when personal advice is provided that does not involve the recommendation of a product and no remuneration is received for, or in relation to, the advice will be removed. Instead, a Record of Advice will be required to be prepared by the adviser and provided to the client upon their request.

The measure does not alter the need for the advice to be appropriate or for the adviser to be appropriately trained to provide personal advice.

The amendments will commence on Royal Assent.

Threshold for requiring a Statement of Advice
A threshold will be introduced into the Statement of Advice requirements so that a full Statement of Advice will only be required if the advice given is in relation to an investment amount that is above a prescribed threshold. A Record of Advice would need to be given to the client for advice in relation to amounts less than this threshold.

An initial threshold of $15,000 is proposed.

A Statement of Advice will be required to be prepared and provided to a client if the amount to which the advice relates is $15,000 or more.  For advice relating to amounts less than $15,000, the adviser will be required to provide a Record of Advice to the client.

The Bill will limit the application of this relief in relation to superannuation advice where the advice relates to consolidation into, or supplementation of, a superannuation fund in which the person is an existing member.

The amendments will commence on Royal Assent.

Financial Services Guide exemption — general advice to the public
A Financial Services Guide will not need to be provided at a forum where 10 or more retail clients attend, whether or not it is open to any person to attend the forum.

The amendments commence from a day to be fixed by Proclamation.  If no date is fixed within 6 months from the date on which the Act receives Royal Assent, then the amendment will commence on the first day after that period.

Sophisticated investors
In Chapter 7 of the Corporations Act 2001 a mechanism will be adopted similar to provisions of Chapter 6D, which allows a financial services licensee to be satisfied that investors who satisfy a financial services licensee as to their experience may be treated as wholesale clients for the purpose of Chapter 7.

The amendments will commence on Royal Assent. The amendments apply to financial products and financial services provided on and after the day the amendments commence.

Cross‑endorsement of authorised representatives
The cross‑endorsement arrangements will be amended so that licensees are only jointly and severally responsible for the conduct of their authorised representatives where those representatives provide financial services in relation to the same sub‑class of financial product.

The amendments commence from a day to be fixed by Proclamation. If no date is fixed within 6 months from the date on which the Act receives Royal Assent, then the amendment will commence on the first day after that period. The amendments apply in relation to the conduct of a representative on or after the day on which the amendments commence.

Product activity and data collection
Amendments will replace the current mechanism for reporting the requirements of the in‑use notice with a new mechanism which will require the responsible person for a Product Disclosure Statement (PDS) to provide information in a standardised online report when:

• a financial product for which a PDS must be prepared is first recommended, issued or sold;
• a financial product for which a report previously had to be made ceases to be available to be recommended;
• there is a change in the fees and charges set out in the enhanced fee disclosure table; or
• changes are made in a supplementary or new PDS.

The requirement commences on 1 July 2008, when ASIC has established the on-line report and electronic lodgement mechanism. From 1 July 2008 to 1 January 2009, both hard copy and electronic lodgement will be available. From 1 January 2009, the notices will have to be lodged electronically.

Self‑listing and licensed market operators
Amendments will provide for ASIC to supervise listed entities which are related to the market licensee, and participants who are related to or in competition with the market licensee.

The new section 798C will apply not only to market licensees, but also to a body corporate related to the market licensee, a managed investment scheme whose responsible entity is a related body corporate of the market licensee and a trust whose trustee is a related body corporate of the market licensee, if they list on that market.

The amendments commence on Royal Assent.

Pooled superannuation trusts and product disclosure
The current exemption from licensing for dealing services provided by trustees of pooled superannuation trusts under the retail/wholesale client test will be extended to the product disclosure framework.

The trustees of superannuation funds, approved deposit funds, pooled superannuation trusts or public sector superannuation schemes with net assets of at least $10 million are no longer treated as retail clients for the purpose of the product disclosure and related provisions when acquiring an interest in a pooled superannuation trust.

The amendments commence on Royal Assent.

Registered managed investment schemes investing in unregistered managed investment schemes
The prohibition on investments by managed investments schemes in unregistered managed investment schemes will be removed.

The amendments commence on Royal Assent.

Non‑cash payment facilities
Disclosure requirements that apply to all non‑cash payment facilities that are not related to a basic deposit product will be streamlined by applying the same limited disclosure requirements to these facilities. The disclosure requirements that currently apply to non‑cash payment facilities related to basic deposit products will be maintained.

This change will be implemented by regulation.

Simpler Regulatory System Bill passed

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 and related legislation was passed by the Parliament on 21 June 2007.

Some parts of the package will commence on Royal Assent, others on 1 July or within 6 months.

Some parts of the package, particularly changes to streamline regulation of financial advice, require supporting regulations which will be issued in the coming weeks.  There will also be regulations to refine the financial services provisions to, among other things, allow disclosure documents to incorporate supplementary material by reference, thereby making them shorter and easier for consumers to understand.

UPDATE: Royal Assent given on 28 June 2007

Simpler Regulatory System: takeover rules changes

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 when passed will make amendments to the takeovers provisions in the Corporations Act.

Removal of telephone monitoring during takeover bids
The provisions of the Corporations Act that require the recording, storing, destroying, accessing and copying of the recordings of telephone conversations with retail shareholders during takeover bids are repealed.

The purpose of the subdivision was to ensure that security holders did not receive information from the takeover bidder or target that could be considered misleading.

The existing provisions have not increased the protection of security holders and impose significant costs on the parties involved.

The repeal of the telephone monitoring requirements will take effect on the day of Royal Assent.

85 per cent notices
The provisions of the Corporations Act that require the disclosure of an 85 per cent holding are repealed.

The provisions were enacted to provide holders of securities with an advanced warning that the majority holder is approaching the 90 per cent limit, at which the majority holder can compulsorily acquire their securities.

However, it is often the case that the minority are already aware of the majority holder’s position.  For listed entities, other mechanisms in the Corporations Act will mean that the information is already publicly disclosed.

The repeal of the 85 per cent notice requirement will take effect on the day of Royal Assent.

Simpler Regulatory System: Fundraising changes

The Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 when passed will make amendments to the fundraising provisions in the Corporations Act. There are 6 principal areas of change:

Employee unlisted share schemes disclosure
Relief will be provided from certain of the licensing and hawking restrictions of the Corporations Act for employee share schemes for unlisted companies. This relief will be subject to the condition that such employee share schemes must be accompanied by a disclosure document such as an Offer Information Statement or a prospectus. Listed entities may also take advantage of this relief if they wish, subject to the same condition.

The amendments apply to employee share schemes offered on or after the day on which the amendments commence.

Small scale offerings
The definition of sophisticated and professional investors in Chapter 6D of the Corporations Act will be amended to align with that used for wholesale investors in Chapter 7.

The maximum amount of money that may be raised using an Offer Information Statement when combined with funds previously raised will be increased to $10 million or less.

The amendments relating to small scale offerings commence on Royal Assent.

Secondary sale issues
Amendments will allow controllers to arrange sales of securities they hold without disclosure subject to the existing section 708A conditions, but subject to the requirement that the controller and the company provide a cleansing notice in order to provide up to date price sensitive information to the market.

The required period for quotation of the securities will be reduced to three months to provide such a track record and, therefore, provide some relief from the current requirement of 12 months.

The amendments relating to secondary sale issues commence on Royal Assent.

Quoted securities rights issue disclosure
Amendments will provide that rights issues for quoted securities and interests in managed investment schemes do not require the production of a prospectus or PDS. A cleansing notice will have to be provided before the rights issue offers are made, and the notice must include appropriate information on the consequences of any potential effect of the rights issue on the control of the entity.The amendments relating to rights issues commence on Royal Assent.

Prospectus and PDS advertising rules
Amendments will align the prospectus advertising provisions relating to quoted securities and advertising post lodgment of a prospectus for unquoted securities with those pertaining to financial products (other than securities).

The amendments relating to advertising rules for offers of securities requiring a disclosure document and for offers or issues of other financial products commence on proclamation or six months after Royal Assent, whichever is earlier.

ASIC’s stop‑order powers will be extended to cover advertising of quoted and unquoted securities and other financial products.

Stapled securities disclosure
The application of the provisions regarding replacement prospectuses will be extended to cover combined prospectus/PDSs prepared for offers of stapled securities comprising one or more shares and one or more units in managed investment schemes.

The amendments relating to Replacement Product Disclosure Statements for stapled securities commence on Royal Assent.   

Inquiry into the Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007

The Parliamentary Joint Committee on Corporations and Financial Services has released its Report on the Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 (pdf).

The Committee said there was general support for the Bill and recommended the Bill be passed but noted that there was concern over details of the FSR changes, especially those relating to Statements of Advice and Product Disclosure Statements.