In this Funds Update for 17 May 2024:
- Federal Court finds that authorised representatives can be issuers of financial products
- ASIC consults on changes to RG 236 for carbon market AFSL requirements
- Senate Economics Committee welcomes AFSL exemptions for FFSPs
- Minor update to RG 78
Federal Court finds that authorised representatives can be issuers of financial products
On 3 May 2024, the Federal Court held that an authorised representative of the holder of an Australian financial services licence (AFSL) could, in that capacity, be the issuer of a financial product.
This judicial view conflicts with ASIC’s views in relation to the use of the authorised representative exemption in relation to issuing financial products, as expressed in RG 36 and INFO 251.
However, the Court also held that the intermediary authorisation exemption could not apply where an authorised representative who makes the relevant ‘offer to arrange’ and the product provider are the same person, as the words ‘arrangement’ and ‘intermediary’ contemplate at least two parties. This aligns with ASIC’s views as expressed in INFO 251.
ASIC had alleged that BPS Financial (BPS) had carried on a financial services business without an AFSL and had made false and misleading representations. BPS offered a service called ‘Qoin’, which was a system for making non-cash payments using a digital currency or crypto-asset. BPS argued it was exempt from the requirement to hold an AFSL under section 911A(2) of the Corporations Act 2001 because it issued the product as a representative of an AFSL holder.
In her decision, Justice Downes disagreed with ASIC’s position that a person cannot be the issuer of the product as an authorised representative. Her Honour held that “the text of the legislation does not support the imposition of an additional rule that a person cannot act “as” an authorised representative of an AFSL holder in relation to a financial product if they are themselves the issuer of the financial products” (at [144]).
The full judgment is available here.
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ASIC consults on changes to RG 236 for carbon market AFSL requirements
On 6 May 2024, ASIC released a consultation paper on proposed changes to Regulatory Guide 236 (RG 236), which provides guidance for participants in the carbon market in relation to AFSL requirements. The consultation paper addresses the safeguard mechanism reforms, which commenced on 1 July 2023 and created a new financial product called Safeharbour Mechanism Credits (SMC), which can be issued by the Clean Energy Regulator (CER) from January 2025.
ASIC proposes the following changes to RG 236:
- including SMCs as a type of eligible international emissions units (EIEUs), noting that they are financial products and providing guidance on whether an AFSL is needed to provide financial services in relation to SMCs;
- updating examples, including where an options contract for SMCs can be a derivative and where a carbon aggregator arrangement can amount to a managed investment scheme; and
- providing further guidance on where actions will amount to financial product advice, and when trading Australian carbon credit units (ACCUs) and SMCs could result in making a market.
ASIC has asked for submissions on the proposed changes to RG 236 by 3 June 2024.
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Senate Economics Committee welcomes AFSL exemptions for FFSPs
On 10 May 2024, the Senate Economics Legislation Committee (the Committee) delivered its report on the Treasury Laws Amendment (Better Superannuation Concessions and Other Measures) Bill 2023 (Bill) and the Superannuation (Better Targeted Superannuation Concessions) Imposition Bill (the Report).
The Bill includes new exemptions for foreign financial service providers (FFSPs) from the requirement to hold an AFSL. We reported on the Committee’s inquiry into the Bill in a previous Funds Update.
In the Report, the Committee welcomed the proposed AFSL exemptions for FFSPs and recommended that the Bill be passed. For more details, please read our full article on the Report here.
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Minor update to RG 78
On 7 May 2024, ASIC updated Regulatory Guide 78 (Breach Reporting by AFS licensees and credit licensees). The following minor changes were made:
- paragraph 78.148(b) was updated to mention Chapter 7 of the Corporations Act 2001 (Cth); and
- paragraph 78.155 was amended to link to the ASIC Regulatory Portal.
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Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.