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September 18, 2013

Regulation of crowd sourced equity funding

The Corporations and Markets Advisory Committee (CAMAC) has released a discussion paper Crowd sourced equity funding.

Crowd sourced equity funding (CSEF) refers to schemes through which a business seeks to raise funding, particularly early-stage funding, through offering debt or equity interests in the business to investors online. Businesses seeking to raise capital through CSEF typically advertise online through a crowd funding platform website, which serves as an intermediary between investors and the business.

The CAMAC discussion paper notes that CSEF is already theoretically available in Australia, but subject to compliance by the issuer and the online intermediary with fundraising, licensing and other requirements under the Corporations Act. This paper examines the nature of those requirements and raises for consideration, taking into account approaches in other jurisdictions, whether the Australian provisions should be adjusted in some manner for CSEF.

ASIC issued its guidance on the issue here.

The CAMAC discussion paper contains options for reform in relation to crowd sourced equity funding (CSEF) in Australia including:

  • no regulatory change;
  • liberalising the small scale personal offers exemption in the fundraising provisions;
  • confining CSEF exemptions to sophisticated, experienced or professional investors;
  • making targeted amendments to the existing regulatory structure for CSEF open to all investors; and
  • creating a self contained statutory compliance structure for CSEF open to all investors.

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Posted 18th September 2013 by David Jacobson in Corporations Act, Financial Services, Investments, Web/Tech

July 17, 2013

Capital guaranteed investments: ASIC surveillance continues

ASIC has followed up its recent review of capital guaranteed products (see here) with an announcement that Commonwealth Bank of Australia (CBA) and HSBC Bank have changed their advertising for certain retail structured products following ASIC concerns that the materials were potentially misleading.

According to ASIC, CBA’s flyer for its ‘Protected Loan’ compared investing $100,000 directly in listed shares with using a $100,000 Protected Loan to buy the same shares. However, the comparison and accompanying claims about the relative benefits of the gearing strategy failed to subtract the interest costs of the loan, and ASIC was concerned this may not have been clear to consumers.

Further, ASIC was concerned that CBA’s ads stating Protected Loan customers could 'walk away with no loss' at maturity if share prices fell were potentially misleading as the costs of the loan and protection had not been considered. Warnings that outlined returns may be negative because of interest costs were not prominent enough according to ASIC, appearing at the end of the booklets.

ASIC was concerned that HSBC’s website materials for certain structured products were inappropriate as they created the impression the investments were low-risk and comparable to relatively safe investments such as bank deposits, when for some products this was not the case.

HSBC claimed that its structured products were suitable for 'traditional deposit investors looking for a way to enhance their returns through exposure to financial markets, but are unwilling to put their capital at risk should the market not perform as expected.'

ASIC viewed this statement as inappropriate and potentially misleading due to the risk of capital loss with certain HSBC structured products being promoted.

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Posted 17th July 2013 by admin in Financial Services, Investments, Marketing

March 22, 2013

Risk management of responsible entities

ASIC has released Consultation Paper 204 Risk management systems of responsible entities (CP 204) containing proposed regulatory guidance on risk management practices for responsible entities in the managed funds sector that are Australian financial services (AFS) licensees that are not regulated by the Australian Prudential Regulation Authority (APRA).

Subject to the passage of the Superannuation Legislation Amendment (Service Providers and other Governance Measures) Bill 2012, the proposed requirements would also apply to APRA-regulated registrable superannuation entity licensees (RSEs) that manage non-superannuation registered managed investment schemes (dual-regulated entities).

The proposals deal with:

  • ensuring risk management systems comprise processes to identify, assess and treat risks
  • ensuring these processes are suitable for individual business objectives and operations
  • ensuring that risk management systems address all material risks, including strategic, governance, operational, investment and liquidity risks, and
  • reviewing risk management systems regularly, and no less than annually, for appropriateness, effectiveness and relevance to individual businesses.

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Posted 22nd March 2013 by David Jacobson in Compliance, Corporations Act, Investments, Risk Management, Superannuation

January 15, 2013

Simple Corporate Bonds Bill

Treasury has released an exposure draft Corporations Amendment (Simple Corporate Bonds and Other Measures) Bill 2013.

Currently, the Corporations Act requires a corporation to prepare a full prospectus for the offer of corporate bonds to retail investors.

The reforms are intended to:
•introduce a streamlined two-part disclosure regime for offers of "simple corporate bonds" to retail investors;
•make changes to the civil liability provisions in respect to corporate bonds issued to retail investors; and
•clarify the application of the defences in respect to misleading and deceptive statements and omissions in disclosure documents relating to corporate bonds issued to retail investors.

To be classified as a simple corporate bond the offer must be for debt securities that satisfy specific conditions including:
• The securities must be debentures as defined in section 9 of the Corporations Act.
• The securities must be quoted on a prescribed financial market.
• The securities must be denominated in Australian currency.
• A minimum subscription amount of $50 million must be raised under the offer in respect to the securities.
• The principal investment amount and any accrued interest payable in respect of the must be repaid to the holder at the end of fixed term of the security.

The two-part prospectus will be structured in the following manner:
• Base: The base part would have a life of three years. The base prospectus would have general information about the issuer and the issue that is unlikely to change significantly over three years. Issuers would have the option of releasing a base prospectus in anticipation of making an actual offer of bonds. Issuers would not need to update the base document.
• Offer specific: For each fund raising tranche, issuers will need to release a second document outlining the key details of the offer, that being the offer specific prospectus. The offer specific prospectus would include a statement outlining that the issuer has complied with their continuous disclosure obligations. Issuers would need to disclose in the second part any matters material to a consideration of an investment in the bonds which have not already been the subject of continuous disclosure.

To ensure that the new two part prospectus regime is sufficiently streamlined, certain material (as prescribed in regulations) will be able to be incorporated by reference in both the base prospectus and the offer specific prospectus.

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Posted 15th January 2013 by David Jacobson in Corporations Act, Funds, Investments

July 2, 2012

ASIC updates policies for foreign financial service providers

ASIC has released updated policy guidance about its approach to facilitating cross-border financial regulation to assist foreign providers of financial facilities, services and products that wish to operate in Australia.

The updated guidance is covered in new versions of:

Regulatory Guide 54 Principles for cross-border financial regulation (RG 54)
Regulatory Guide 176 Foreign financial services providers (wholesale clients) (RG 176), and
Regulatory Guide 178 Foreign collective investment schemes (RG 178).

Class Order [CO 12/572] and Class Order [CO 12/573] implement the key changes to the RG 176 and RG 178 suite of class orders, respectively.

Information Sheet 157 Practical guidance for foreign financial service providers (INFO 157) has been developed to assist those wishing to apply for or rely on existing relief mechanisms under RG 176.

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Posted 2nd July 2012 by David Jacobson in Corporations Act, Financial Services, Investments

March 20, 2012

ASIC consults on regulatory approach to platforms

ASIC has released Consultation Paper 176 Review of ASIC policy on platforms: Update to RG 148 (CP 176) which proposes changes to Regulatory Guide 148 Investor Directed Portfolio Services (RG 148).

ASIC proposes additional requirements for platform operators to protect investor rights associated with investments made through platforms.

ASIC also proposes to require platform operators to disclose how they select financial products for inclusion on investment menus.

ASIC expects that the Government’s Future of Financial Advice reforms, if enacted as proposed, will have significant impacts on the platforms sector. This consultation paper does not address areas of its regulatory approach that are directly related to these reforms, a key example of which is management of conflicts of interest. ASIC will consider how these reforms may affect its final approach to providing guidance for platforms following enactment of legislation and further consultation.

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Posted 20th March 2012 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms, Investments

February 15, 2012

ASIC good practice guide on advertising financial products and advice services

ASIC has released RG 234 Advertising financial products and advice services: Good practice guidance (RG 234) setting out its views on the obligations of financial service providers to not make false or misleading statements or engage in misleading or deceptive conduct under the Corporations Act and the ASIC Act.

Who it applies to
ASIC's guidance applies to:
• promoters of financial products and financial advice services. The promoter will sometimes be the product issuer, but can also be a third party such as a financial adviser, distributor or agent; and
• publishers of promotions about financial products and financial advice services.

Promoters who hold an AFS licence must comply with the ASIC Act to meet their obligation to comply with financial services laws: s912A(1)(c).

What products it applies to
ASIC's guidance applies to all types of financial products, including:
• investment products;
• risk products;
• non-cash payment facilities; and
• credit facilities.

Although references to ‘financial products’ in this guide mean financial products as defined in the Australian Securities and Investments Commission Act 2001 (ASIC Act) and therefore include credit facilities (see s12BAA, ASIC Act) the guide focuses primarily on advertising of investment and risk products and financial advice services. Different considerations apply for advertising of credit products and services, and ASIC plans to issue additional guidance for credit providers and credit service providers under the National Consumer Credit Protection Act 2009 (National Credit Act).

The good practice guidance also applies to advertising of both general and personal financial product advice. References to ‘financial advice services’ in the guide mean the provision of financial product advice as defined in the ASIC Act: see s12BAB(5).

What the guidance covers
The guidance covers:
• the nature of the product;
• returns, benefits and risks;
• warnings, disclaimers, qualifications and fine print;
• fees and costs;
• comparisons;
• past performance and forecasts;
• use of certain terms and phrases (e.g. ‘free’, ‘secure’ and ‘guaranteed’);
• the advertisement’s target audience;
• consistency with disclosure documents;
• photographs, diagrams, images and examples; and
• the nature and scope of advice.

What media it applies to
It applies to advertising communicated through any medium in any form, including:
(a) magazines and newspapers;
(b) radio and television;
(c) outdoor advertising, including billboards, signs at public venues, and transit advertising;
(d) the internet, including webpages, banner advertisements, video streaming (e.g. YouTube), and social networking and microblogging (e.g. Twitter);
(e) social media and internet discussion sites;
(f) product brochures and promotional fact sheets;
(g) direct mail (e.g. by post, facsimile or email);
(h) telemarketing activities and audio messages for telephone callers on hold; and
(i) presentations to groups of people, seminars and advertorials.

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Posted 15th February 2012 by David Jacobson in Compliance, Corporations Act, Financial Services, Funds, Insurance, Investments, Marketing, Superannuation

November 14, 2011

ASIC’s guide to better prospectuses

ASIC’s has published Regulatory Guide 228 Prospectuses: Effective disclosure for retail investors (RG 228) to address problems ASIC has identified with prospectuses.

The guide sets out ASIC's views on how to word and present prospectuses in a ‘clear, concise and effective’ manner as required by section 715A Corporations Act. It also sets out ASIC's guidance to issuers and their advisers on how to satisfy the content requirements for prospectuses.

ASIC encourages issuers to reduce the length of prospectuses and only include photographs which are relevant.

Prospectuses must be lodged with ASIC. If it reviews a prospectus, it will consider RG228 and any other regulatory guide on disclosure that is relevant to the offer or the issuer. If ASIC has concerns with a prospectus, it may seek corrective disclosure and/or prevent the issue of securities under it.

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Posted 14th November 2011 by David Jacobson in Corporations Act, Investments

September 29, 2011

Further Future of Financial Advice Measures Bill (FOFA Tranche 2)

The Government has released the exposure draft and Explanatory Memorandum of the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 for the second and final tranche of draft legislation on the FOFA reforms for public comment. ( See details of tranche 1 here)

The second tranche of the legislation covers the provisions relating to:

  • a ban on conflicted remuneration (including product commissions), where licensees or their representatives provide financial product advice to retail clients;
  • a ban on volume-based shelf-space fees from asset managers or product issuers to platform operators; and
  • a ban on asset-based fees on geared funds.

It is due to commence on 1 July 2012.

The ban on conflicted remuneration includes a ban on both monetary and non-monetary (soft-dollar) benefits.

In relation to monetary benefits, the ban on conflicted remuneration does not apply to:
• General insurance;
• Life insurance which is not bundled with a superannuation product;
• Individual life policies which are not connected with a default superannuation fund; and
• Execution-only (non-advice) services.

In relation to non-monetary benefits, the ban on conflicted remuneration does not apply to:
• General insurance;
• Benefits under the amount prescribed in regulation (proposed to be $300), so long as those benefits are not identical or similar and provided on a frequent or regular basis;
• The benefit is for the purposes of genuine professional development or administrative IT services and meets the criteria prescribed in the regulations; and
• Execution-only (non-advice) services.

The Bill contains an anti-avoidance provision: a person must not, either alone or together with one or more other persons enter into a scheme if it would be concluded that the person entered into the scheme for the sole or dominant purpose of avoiding the application of any provision in the Bill, provided the scheme has or would achieve that purpose.

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Posted 29th September 2011 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms, Investments

August 16, 2011

Assessing Environmental, Social and Governance (ESG) investment risks

The Australian Council of Superannuation Investors (ACSI) and the Financial Services Council (FSC) have published the ESG Reporting Guide for Australian Companies.

The Guide highlights the minimum information and reasonable data requirements that they recommend be provided for investment managers (represented by the FSC) and asset-owners (represented by ACSI) to successfully price, analyse and manage Environmental, Social and Governance (ESG) investment risks.

The Guide was created to provide a reporting guide for all Australian companies, with emphasis on those in the S&P/ASX 200.

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Posted 16th August 2011 by David Jacobson in Corporate Governance, Funds, Investments, Superannuation
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