Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2019-2020-2021-2022
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (STREAMLINING AND IMPROVING
ECONOMIC OUTCOMES FOR AUSTRALIANS) BILL 2022
EXPLANATORY MEMORANDUM
(Circulated by authority of the Assistant Treasurer, Minister for Housing, Minister for
Homelessness, Social and Community Housing, the Hon. Michael Sukkar MP)
Table of Contents
Glossary................................................................................................. iii
General outline and financial impact ...................................................... 1
Licensing exemptions for foreign financial services
providers ...................................................................... 5
Financial reporting and auditing requirements for
registrable superannuation entities ............................ 51
Increased Tribunal powers for small business tax
decisions.................................................................. 117
Statement of Compatibility with Human Rights ........ 127
Attachment 1: Regulation Impact Statement .................................. 142
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation Definition
AAT Administrative Appeals Tribunal
AAT Act Administrative Appeals Tribunal Act 1975
APRA Australian Prudential Regulation Authority
ASIC Australian Securities and Investments
Commission
ASIC Act Australian Securities and Investments
Commission Act 2001
ATO Australian Taxation Office
Bill Treasury Laws Amendment (Streamlining
and Improving Economic Outcomes for
Australians) Bill 2022
Commissioner Commissioner of Taxation
Corporations Act Corporations Act 2001
Corporations Regulations Corporations Regulations 2001
Financial Services Royal Commission Royal Commission into Misconduct in the
Banking, Superannuation and Financial
Services Industry
Guide to Framing Commonwealth Offences A Guide to Framing Commonwealth
Offences, Infringement Notices and
Enforcement Powers, September 2011
edition.
RSE audit company A company that is appointed as auditor of a
registrable superannuation entity
RSE audit firm A firm that is appointed as auditor of a
registrable superannuation entity
RSE auditor An individual, company or firm that is
appointed as auditor of a registrable
superannuation entity
RSE licensee Registrable superannuation entity licence-
holder
SIS Act Superannuation Industry (Supervision)
Act 1993
TAA 1953 Taxation Administration Act 1953
Treasury Laws Amendment (Streamlining and Improving Economic Outcomes for Australians)
Bill 2022
General outline and financial impact
Schedule 1 - Licensing exemptions for foreign
financial services providers
Outline
Schedule 1 to the Bill amends the Corporations Act to provide relief for foreign
financial services providers to promote diversified investment opportunities for
Australian investors and attract investment and liquidity to Australian markets.
Date of effect
Schedule 1 commences on 1 April 2023.
Proposal announced
Schedule 1 partially implements the measure announced as part of the Global Talent
Attraction package in the 2021-22 Budget.
Financial impact
There is no financial impact.
Regulation impact statement
The Regulation Impact Statement covering the amendments in Schedule 1 is included
in Attachment 1.
Human rights implications
Schedule 1 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 4.
Compliance cost impact
Low compliance cost.
1
General outline and financial impact
Schedule 2 - Financial reporting and auditing
requirements for registrable superannuation
entities
Outline
Schedule 2 to the Bill amends the Corporations Act, the ASIC Act and the SIS Act to
extend and adapt the financial reporting and auditing requirements in Chapter 2M of
the Corporations Act to apply to registrable superannuation entities.
Date of effect
The amendments in Schedule 2 commence on 1 July 2023.
Proposal announced
The proposal was announced on 12 August 2021⸺coinciding with the public release
of the exposure draft legislation.
Financial impact
The proposal has no financial impact.
Regulation impact statement
The Financial Services Royal Commission Final Report has been certified as being
informed by a process and analysis equivalent to a Regulation Impact Statement for the
purposes of the Government decision to implement this reform. The Financial Services
Royal Commission Final Report can be accessed through the Australian Parliament
House website.1
Human rights implications
Schedule 2 does not raise any human rights issues. See Statement of Compatibility with
Human Rights -- Chapter 4.
https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22publ
ications%2Ftabledpapers%2Fbc83795c-b7fa-4b42-a93b-fa012cffffc2%22
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Compliance cost impact
Low compliance cost.
Schedule 3 - Increased Tribunal powers for
small business tax decisions
Outline
Schedule 3 to the Bill amends the TAA 1953 to enable small business entities to apply
to the Small Business Taxation Division of the AAT for an order staying, or otherwise
affecting, the operation or implementation of decisions of the Commissioner that are
being reviewed by the AAT.
Date of effect
Applications for review made on or after the day after Royal Assent.
Proposal announced
This Schedule fully implements the measure 'Increased powers for the
Administrative Appeals Tribunal in relation to small business taxation decisions'
from the 2021 - 22 Budget.
Financial impact
It is estimated that the proposal will have a small but unquantifiable cost to cash
receipts from 2021-22. There is no impact in fiscal balance terms as the proposal is not
expected to change tax liabilities.
Human rights implications
Schedule 3 does not raise any human rights issues. See Statement of Compatibility with
Human Rights -- Chapter 4.
Compliance cost impact
This measure is estimated to have a minor impact on compliance costs.
3
Licensing exemptions for
foreign financial services providers
Table of Contents:
Outline of chapter .................................................................................. 6
Context of amendments ......................................................................... 6
Current law ............................................................................................ 7
Need for an Australian financial services licence ............................ 7
Exemption for financial services provided to professional investors 7
Specified ASIC relief for foreign financial services providers .......... 8
Fit and proper person test ............................................................. 10
Summary of new law............................................................................ 11
Professional investor exemption ................................................... 11
Comparable regulator exemption .................................................. 12
Fit and proper person test exemption ............................................ 13
Minister's power to determine comparable regulators ................... 13
Comparison of key features of new law and current law ...................... 14
Detailed explanation of new law .......................................................... 16
Professional investor exemption ................................................... 17
Comparable regulator exemption .................................................. 24
Conditions - professional investor and comparable regulator
exemption...................................................................................... 28
Fit and proper person test exemption ............................................ 45
Minister's power to determine regulators - comparable regulator
exemption and fit and proper person test exemption .................... 47
Application and transitional provisions ................................................. 49
5
Licensing exemptions for foreign financial services providers
Outline of chapter
1.1 Schedule 1 provides relief for foreign financial services providers to promote
diversified investment opportunities for Australian investors and attract
investment and liquidity to Australian markets by:
• providing an exemption from the requirement to hold an Australian
financial services licence for persons that provide financial services
from outside Australia to professional investors (the professional
investor exemption);
• providing an exemption from the requirement to hold an Australian
financial services licence for persons regulated by comparable
regulators that provide financial services to wholesale clients (the
comparable regulator exemption); and
• fast-tracking the licensing process for persons seeking to establish
more permanent operations in Australia by providing an exemption
from the fit and proper person test for persons regulated by comparable
regulators when applying for an Australian financial services licence
for the provision of financial services to wholesale clients (the fit and
proper person test exemption).
Context of amendments
1.2 In the 2021-22 Budget, the Government announced that it would consult on
options to:
• restore the former regulatory relief provided for foreign financial
services providers that are licensed and regulated by regulatory
authorities in foreign jurisdictions with comparable financial services
rules and obligations; and
• create a fast-track licensing process for foreign financial services
providers that intend to establish more permanent operations in
Australia to shorten application timeframes and reduce barriers to
entering the Australian market where relief is not available.
1.3 Foreign financial services providers are overseas providers of financial
services, including (but not limited to) banking, investment funding, wealth
management, insurance, and financial advisory services. Foreign financial
services providers provide investors with access to global investment
opportunities and increase competition in the Australian market.
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Current law
Need for an Australian financial services licence
1.4 In accordance with subsection 911A(1) of the Corporations Act, a person who
carries on a financial services business in Australia must hold an Australian
financial services licence covering the provision of the financial services.
Unless exempt, the provision of a financial service in Australia without a
licence is a contravention of a civil penalty provision under
subsection 911A(5B) of the Corporations Act.
Exemption for financial services provided to
professional investors
1.5 Sub-section 911A(2) of the Corporations Act sets out a number of exemptions
in which the requirement to hold an Australian financial services licence does
not apply.
1.6 One such exemption (the existing professional investor exemption) provides
that a person is not required to hold an Australian financial services licence if
the person:
• is not in this jurisdiction;
• provides financial services to a professional investor (as defined in
section 9 of the Corporations Act); and
• deals in, advises on, or makes a market in, derivatives, foreign
exchange contracts, carbon units, Australian carbon credit units or
eligible international emission units.
1.7 The existing professional investor exemption is located in
subsection 911A(2E) of the Corporations Act (as inserted by
regulation 7.6.02AG of the Corporations Regulations). Regulation 7.6.02AG of
the Corporations Regulations is made using the regulation-making power in
paragraph 926B(1)(c) of the Corporations Act.
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Licensing exemptions for foreign financial services providers
Specified ASIC relief for foreign financial services
providers
1.8 Since 2003, ASIC has provided other types of licensing relief for foreign
financial services providers, including 'sufficient equivalence' relief and
'limited connection' relief for the provision of financial services to wholesale
clients. Both of these forms of relief allow foreign financial services providers
to carry on a financial services business in Australia without an Australian
financial services licence.
Sufficient equivalence relief
1.9 The purpose of the sufficient equivalence relief was to attract additional
investment and liquidity to Australian financial markets by addressing the
duplicated regulatory burden arising from compliance with Australia's
regulatory regime where foreign financial services providers were already
subject to equivalent regimes in their home jurisdictions.
1.10 The sufficient equivalence relief applied in the following circumstances:
• the financial services were only provided to wholesale clients;
• the financial services provided by the foreign company (which
included a body corporate incorporated outside the jurisdiction and a
partnership formed outside Australia) were regulated by an overseas
regulatory authority;
• the regulatory regime overseen by the overseas regulatory authority
was deemed by ASIC as being sufficiently equivalent to Australia's
regulatory regime;
• there was an effective cooperation arrangement in place between the
overseas regulatory authority and ASIC; and
• the foreign company met all of the relevant conditions for using the
relief.
1.11 The sufficient equivalence relief was provided via ASIC Class Orders made by
ASIC using its power under section 926A of the Corporations Act to grant
relief from the requirements in Part 7.6 of the Corporations Act. The sufficient
equivalence relief applied to foreign companies regulated by the following
overseas regulatory authorities:
• US Securities and Exchange Commission;
• US Federal Reserve and Office of the Comptroller of the Currency;
• US Commodity Futures Trading Commission;
• Monetary Authority of Singapore;
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• Hong Kong Securities and Futures Commission;
• Bundesanstalt für Finanzdienstleistungsaufsicht of Germany;
• Luxembourg Commission de Surveillance du Secteur Financier; and
• UK Financial Conduct Authority or Prudential Regulatory Authority.
1.12 On 31 March 2020, ASIC replaced the sufficient equivalence relief with a
foreign financial services licensing regime, set out in the ASIC Corporations
(Foreign Financial Services Providers--Foreign AFS Licence)
Instrument 2020/198.
1.13 Since 1 April 2020, foreign companies that were no longer able to rely on the
sufficient equivalence relief have been required to obtain an Australian
financial services licence to carry on a financial services business in Australia.
1.14 Under transitional arrangements, foreign companies that were able to rely on
the sufficient equivalence relief as at 31 March 2020 have until 31 March 2023
to obtain an Australian financial services licence, unless they are eligible for
another type of relief or exemption.
Limited connection relief
1.15 ASIC's limited connection relief was provided via a legislative instrument
made under section 926A of the Corporations Act. The limited connection
relief granted an exemption from the requirement for foreign companies to
hold an Australian financial services licence for the provision of financial
services and applied in the following circumstances:
• the person providing the financial services was not in Australia;
• the financial services were only provided to wholesale clients;
• the person was only taken to be carrying on a financial services
business because the person engaged in conduct that was:
- intended to induce people in Australia to use the financial
services the person provided; or
- was likely to have that effect.
1.16 ASIC replaced the limited connection relief with a narrower funds
management relief, which commences on 1 April 2023.
1.17 Under transitional arrangements, the limited connection relief continues to
apply until 31 March 2023. From 1 April 2023, persons that engage in conduct
that is intended to, or likely to, induce Australian consumers to use the
financial services provided by the person, need to hold an Australian financial
services licence if they are not eligible for another type of relief or exemption.
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Licensing exemptions for foreign financial services providers
Fit and proper person test
1.18 Section 913B of the Corporations Act provides that if a person applies to ASIC
for an Australian financial services licence under section 913A of the
Corporations Act, ASIC must grant the licence if (and must not grant a licence
unless):
• the application was made in accordance with the relevant
requirements;
• ASIC has no reason to believe that the applicant is likely to contravene
the general obligations that apply to a financial services licensee under
section 912A of the Corporations Act, if the licence was to be granted;
• the fit and proper person test in section 913BA of the Corporations Act
is satisfied in relation to the applicant and the licence applied for; and
• the applicant meets any other requirements prescribed by regulations.
1.19 Similarly, if a person makes an application for the imposition, variation or
revocation of conditions on an existing licence under section 914A of the
Corporations Act, ASIC may refuse the application if the fit and proper person
test in section 913BA of the Corporations Act is not satisfied in relation to the
applicant and the licence that is proposed to be varied.
1.20 In accordance with section 913BA of the Corporations Act, the fit and proper
person test requires ASIC to be satisfied that there is no reason to believe that
any of the following persons are not fit and proper to provide the financial
services covered by the licence:
• the applicant;
• if the applicant is a body corporate-- an officer of the applicant; or
• if the applicant is a partnership or the multiple trustees of a trust - the
partners, the trustees or the senior managers of the partnership or the
trust; and
• if the applicant is controlled by another person:
- the controller;
- if the controller is a body corporate--an officer of the
controller; or
- if the controller is a partnership or the multiple trustees of a
trust - the partners, the trustees or the senior managers of the
partnership or the trust.
1.21 In determining whether a person is a fit and proper person under
section 913BA of the Corporations Act, ASIC must have regard to the matters
in section 913BB of the Corporations Act. These matters include (but are not
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limited to) whether the applicant has ever had their Australian financial
services licence or Australian credit licence suspended or cancelled; whether a
banning order or a disqualification order has ever been made against the
person; whether the person has ever been a Chapter 5 body corporate or an
insolvent under administration; or has been convicted of an offence within the
last ten years.
Summary of new law
1.22 Schedule 1 implements the outcomes from the Government's announcement to
restore licensing relief for foreign financial services providers, as part of the
Global Talent Attraction package in the 2021-22 Budget. The measure has
been developed following public consultation on policy options and on
exposure draft legislation.
1.23 The objective of Schedule 1 is to allow Australian professional and wholesale
investors to diversify their investment opportunities by reducing barriers to
entry and encouraging greater engagement by foreign financial services
providers in the Australian market. This is intended to provide Australian
investors with access to global financial markets and attract additional
investment and liquidity to Australian markets.
1.24 Schedule 1 achieves this objective by amending the Corporations Act to
provide three licensing exemptions for foreign financial services providers.
Professional investor exemption
1.25 The new professional investor exemption provides an exemption from the
requirement to hold an Australian financial services licence for persons that
provide financial services from outside Australia (except during limited
marketing visits) to professional investors.
1.26 This exemption replaces the existing professional investor exemption, which is
located in subsection 911A(2E) of the Corporations Act (as inserted by
regulation 7.6.02AG of the Corporations Regulations).
1.27 The new professional investor exemption is available in the following
circumstances:
• the financial service is provided only to professional investors;
• the person provides the financial service from a place outside this
jurisdiction (except during limited marketing visits);
• the person's head office and principal place of business are located at
one or more places outside this jurisdiction; and
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Licensing exemptions for foreign financial services providers
• the person reasonably believes that providing the same or substantially
the same financial service would not contravene any law applying in
the person's principal place of business, head office or the place from
where the financial services are provided.
1.28 Schedule 1 provides for regulations to be made prescribing the particular kinds
of financial products, financial services or professional investors to which the
professional investor exemption does not apply (if any). This allows for the
exemption to be narrowed to address any future risks relating to market
integrity or investor protection.
1.29 A person who uses the professional investor exemption to provide financial
services to professional investors must comply with certain conditions. These
conditions include (but are not limited to) notifying ASIC of the person's
intention to rely on the exemption, submitting to the non-exclusive jurisdiction
of the Australian courts and complying with reasonable requests for assistance
from ASIC.
1.30 If a person fails to comply with a condition, ASIC may take any of the
following actions:
• apply to the court for a civil penalty and a pecuniary penalty order; or
• after taking reasonable steps to give the person a notice of the proposed
decision and a reasonable opportunity to appear (or be represented) at a
private hearing and make submissions, either:
- cancel a person's exemption for the provision of some or all
kinds of financial services; or
- impose additional conditions on the person's future use of an
exemption.
Comparable regulator exemption
1.31 The comparable regulator exemption, which replaces the sufficient equivalence
relief, provides an exemption from the requirement to hold an Australian
financial services licence for foreign companies and partnerships formed
outside Australia that provide financial services to wholesale clients.
1.32 The comparable regulator exemption is only available where the person is
authorised, registered or licensed (as necessary) by a comparable regulator to
legally provide the same or substantially the same financial service in a place
outside Australia (the comparable jurisdiction).
1.33 A financial service provided under the comparable regulator exemption may be
provided from within Australia or from the comparable jurisdiction.
1.34 A person that uses the comparable regulator exemption must comply with
certain conditions. In addition to the conditions applicable to the professional
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investor exemption, a person is also required to comply with the following
conditions:
• consent to information sharing between ASIC and each comparable
regulator;
• notify ASIC of any significant enforcement action, disciplinary action
or investigation undertaken against the person by any regulator,
government authority, or relevant financial market operator in any
place outside Australia;
• have an agent in Australia; and
• maintain adequate oversight over its representatives and take
reasonable steps to ensure that its representatives are adequately
trained and competent to provide the financial services.
1.35 As with the professional investor exemption, a failure to comply with one or
more of these conditions may result in ASIC applying to the court for a civil
penalty and pecuniary penalty order, cancelling the person's exemption or
imposing additional conditions on the person's future use of the exemption.
Fit and proper person test exemption
1.36 Foreign companies or partnerships formed outside Australia that are
authorised, registered or licensed (as necessary) to legally provide the same or
substantially the same financial services by a comparable regulator and that
only provide financial services to wholesale clients are exempt from the
requirement to satisfy the fit and proper test when applying for an Australian
financial services licence under section 913A of the Corporations Act.
1.37 The fit and proper person test exemption also applies when a foreign company,
or partnership formed outside Australia makes an application to impose, vary
or revoke a condition on an existing Australian financial services licence under
section 914A of the Corporations Act.
Minister's power to determine comparable regulators
1.38 Schedule 1 provides that the Minister may, by legislative instrument, determine
regulators that administer broadly comparable regulatory regimes. The
comparable regulators determined by the Minister are applicable to both the
comparable regulator exemption and the fit and proper person test exemption.
1.39 In making such a determination, the Minister must have regard to a number of
matters, including (but not limited to):
• whether the regulatory regime that the regulator administers produces
broadly comparable outcomes to Australia in regulating and improving
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Licensing exemptions for foreign financial services providers
the performance of the relevant financial services system and financial
services providers in that system;
• any relevant submissions received from an overseas regulator or from
an entity in relation to that regulator or that regulatory regime; and
• any relevant advice (or assessment) received from ASIC.
Comparison of key features of new law and
current law
Table 1.1 Comparison of new law and current law
New law Current law
Professional investor exemption
The new professional investor exemption The existing professional investor exemption
applies in the following circumstances: applies in the following circumstances:
• the financial service is provided only • the person is not in this jurisdiction;
to professional investors;
• the financial service is provided to a
• the person provides the financial professional investor; and
service from a place outside this
jurisdiction (except during limited • the financial service involves dealing in,
marketing visits); advising on, or making a market in,
derivatives, foreign exchange contracts,
• the person's head office and principal carbon units, Australian carbon credit
place of business are located at one or units or eligible international emission
more places outside this jurisdiction; units.
and
• the person reasonably believes that
providing the same or substantially the
same financial service would not
contravene any law applying in the
person's principal place of business,
head office or the place from where
the financial services are provided.
The new exemption does not limit the types
of financial products or financial services
that may be provided. However, regulations
may prescribe that the exemption does not
apply in relation to particular kinds of
financial products, financial services or
professional investors (if any).
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New law Current law
A person relying on the new professional No conditions are specified.
investor exemption must comply with
specified conditions.
A failure to comply with one or more
conditions may result in:
• the exemption being cancelled in
relation to the provision of some or all
financial services;
• additional conditions being imposed
on the person's future use of the
exemption; or
• ASIC applying to the court for a civil
penalty and a pecuniary penalty order.
Comparable regulator exemption
The comparable regulator exemption The sufficient equivalence relief provides for
applies in the following circumstances: foreign companies regulated under
sufficiently equivalent regulatory regimes to
• the financial service is provided only provide specified financial products and
to wholesale clients; services to wholesale clients.
• the person is a foreign company or is a Foreign financial services providers using
partnership formed outside this this exemption must comply with specified
jurisdiction; conditions.
• the person has and maintains any
authorisations, registrations or licences
necessary to legally provide the same
or substantially the same financial
service in a place outside this
jurisdiction;
• the regulator administering those
authorisations, registrations or licences
for the comparable jurisdiction is a
regulator determined by the Minister;
and
• the person provides the financial
service from this jurisdiction or from
the comparable jurisdiction.
As for the new professional investor
exemption, persons using this exemption
must comply with specified conditions. A
failure to comply with one or more
conditions may result in the exemption
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Licensing exemptions for foreign financial services providers
New law Current law
being cancelled, additional conditions being
imposed on the future use of the exemption,
or ASIC applying to the court for a civil
penalty.
Fit and proper person test exemption
A foreign company or partnership formed A person who makes an application for an
outside of Australia that is regulated by a Australian financial services licence (or for
comparable regulator and provides financial the imposition, variation or revocation of
services only to wholesale clients is exempt conditions on an existing licence) must
from the fit and proper person test when satisfy the fit and proper person test in
making an application for: relation to the applicant and the licence.
• an Australian financial services
licence; or
• the imposition, variation or revocation
of conditions on an existing licence.
Detailed explanation of new law
1.40 Schedule 1 provides relief for foreign financial services providers to promote
diversified investment opportunities for Australian investors and attract
investment and liquidity to Australian markets by:
• providing an exemption from the requirement to hold an Australian
financial services licence for persons that provide financial services
from outside Australia to professional investors (the professional
investor exemption);
• providing an exemption from the requirement to hold an Australian
financial services licence for persons regulated by comparable
regulators that provide financial services to wholesale clients (the
comparable regulator exemption); and
• fast-tracking the licensing process for persons seeking to establish
more permanent operations in Australia by providing an exemption
from the fit and proper person test for persons regulated by comparable
regulators when applying for an Australian financial services licence
for the provision of financial services to wholesale clients (the fit and
proper person test exemption).
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Professional investor exemption
1.41 Schedule 1 replaces the existing professional investor exemption, which is
located in subsection 911A(2E) of the Corporations Act (as inserted by
regulation 7.6.02AG of the Corporations Regulations). The existing
professional investor exemption applies in the following circumstances:
• the person is not in this jurisdiction;
• the person provides financial services to a professional investor;
• the financial service consists of any or all of the following:
- dealing in derivatives, foreign exchange contracts, carbon
units, Australian carbon credit units or eligible international
emissions units;
- providing advice on derivatives, foreign exchange contracts,
carbon units, Australian carbon credit units or eligible
international emissions units;
- making a market in derivatives, foreign exchange contracts,
carbon units, Australian carbon credit units or eligible
international emissions units.
1.42 The new professional investor exemption replaces the existing exemption and
is different to the existing exemption in the following ways:
• clarifies the requirements relating to the person's location when using
the exemption;
• allows financial services to be provided from within Australia during
limited marketing visits;
• removes the restriction on the types of financial products and services
that may be provided;
• provides for regulations to be made prescribing particular kinds of
financial services, financial products or professional investors in
relation to which the exemption does not apply;
• requires the person to reasonably believe that the provision of financial
services would not contravene the laws of any relevant place; and
• imposes conditions on the use of the exemption.
1.43 A person that uses the new professional investor exemption must comply with
specified conditions. These conditions are intended to ensure that ASIC has
access to the necessary information to monitor the use of the exemption.
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Licensing exemptions for foreign financial services providers
Who is eligible to use the professional investor exemption?
1.44 The new professional investor exemption provides that a person is exempt
from the requirement to hold an Australian financial services licence under
subsection 911A(1) of the Corporations Act, if the person satisfies all of the
following requirements:
• the financial service is provided only to professional investors;
• the person provides the financial service from a place outside this
jurisdiction (except during limited marketing visits);
• the person's head office and principal place of business are located at
one or more places outside this jurisdiction; and
• the person reasonably believes that providing the same or substantially
the same financial service would not contravene any law applying in
the person's principal place of business, head office or the place from
where the financial services are provided.
[Schedule 1, items 2 and 3, paragraph 911A(2)(eo) of the Corporations Act]
1.45 A person who relies on professional investor exemption to provide financial
services, but who does not satisfy the requirements to use this exemption,
contravenes a civil penalty provision under subsection 911A(5B) of the
Corporations Act. This civil penalty provision applies to persons who carry on
a financial services business in Australia without an Australian financial
services licence covering the provision of the financial service.
1.46 Subject to satisfying the relevant requirements, a person who uses the
professional investor exemption may also use the comparable regulator
exemption.
Professional investor
1.47 The new professional investor exemption adopts the existing definition of
'professional investor' in section 9 of the Corporations Act (as modified by
regulation 7.6.02AE of the Corporations Regulations).
[Schedule 1, item 3, sub-paragraph 911A(2)(eo)(i) of the Corporations Act]
1.48 This definition provides that a professional investor:
• is an Australian financial services licence-holder;
• is a body regulated by APRA (other a than trustee within the meaning
of the SIS Act);
- This category generally includes banks, general insurance
companies and credit unions etc.
• is a registered entity within the meaning of the Financial Sector
(Collection of Data) Act 2001;
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• is a trustee of certain superannuation trusts or schemes within the
meaning of the SIS Act that have assets of at least $10 million;
• has or controls gross assets of at least $10 million (including any assets
held by an associate or under a trust that the person manages);
• is a listed entity or a related body corporate of a listed entity;
• is an exempt public authority;
• is an investment company that is a body corporate or unincorporated
body that carries on a business of investment in financial products,
interests in land or other investments or invests funds received
following an offer or invitation to the public; or
• is a foreign entity that, if established or incorporated in Australia,
would be covered by one of these categories.
1.49 While, in accordance with subsection 761G(7) of the Corporations Act, a
professional investor is a type of wholesale client, the professional investor
exemption does not apply more broadly to wholesale clients who are not
professional investors.
Outside this jurisdiction
1.50 The professional investor exemption only applies where the person provides
the financial service from a place outside this jurisdiction (except during
limited marketing visits).
[Schedule 1, item 3, sub-paragraph 911A(2)(eo)(ii) of the Corporations Act]
1.51 'This jurisdiction' is defined in section 9 of the Corporations Act as meaning
the geographical area that consists of:
• each referring State (including its coastal sea); and
• each Territory (including its coastal sea, if any); and
• for the purposes of a provision of Chapter 7 of the Corporations Act --
any external Territory prescribed in a regulation.
1.52 In accordance with subsection 102B(2) of the Corporations Act, 'outside this
jurisdiction' includes places outside Australia.
Limited marketing visits
1.53 Schedule 1 provides an exception to the requirement that the financial service
be provided from a place outside this jurisdiction. This exception applies where
the financial service is provided during one or more marketing visits to
Australia undertaken by one or more representatives of the person.
[Schedule 1, item 4, subsection 911E(1) of the Corporations Act]
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Licensing exemptions for foreign financial services providers
1.54 In accordance with section 910A of the Corporations Act, 'representative' of a
person means:
• an employee or director of the person;
• an employee of director of a related body corporate of the person; or
• any other person acting on behalf of the person.
1.55 There is no restriction on the types of financial services that may be provided
during a marketing visit. However, if regulations are made excluding particular
kinds of financial products, financial services or professional investors from
the professional investor exemption, then financial services involving these
exempt financial products, financial services or professional investors must
also not be provided during marketing visits.
1.56 For the purposes of this exception, the total length of marketing visits that the
person may make in any financial year is no more than 28 calendar days. This
includes public holidays and weekends.
[Schedule 1, item 4, subsection 911E(2) of the Corporations Act]
1.57 'Financial year' has the same meaning as in section 323D of the
Corporations Act.
1.58 To ensure flexibility, marketing visits are not required to be undertaken in a
single visit or by a single representative of the foreign financial services
provider. Instead, marketing visits can be undertaken in one or more visits, and
by one or more representatives of the person.
1.59 The 28 day limit for marketing visits includes each full or partial day on which
the person is in Australia for a marketing visit, whether or not a financial
service is provided on that day.
[Schedule 1, item 4, subsection 911E(3) of the Corporations Act]
1.60 This allowance of 28 calendar days for marketing applies regardless of the
number of representatives of the foreign financial services provider that are in
Australia at the same time. Where two or more representatives of the person
are in Australia for a marketing visit on the same day, each day that the
representatives are in Australia still only counts as a single day.
1.61 If, during a marketing visit, the person provides financial services from within
Australia for more than 28 days in any given financial year, any financial
services provided after the 28th day of that financial year are not in compliance
with the professional investor exemption and may be in contravention of the
civil penalty provision in subsection 911A(5B) of the Corporations Act (unless
another exemption applies, or the person holds an Australian financial services
licence, which covers the provision of that financial service).
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Example 1.1 - Marketing visits - Separate marketing visits
International Finance Ltd, is a foreign financial services provider
whose head office and principal place of business are located in
Japan. International Finance Ltd provides financial services from
Tokyo.
In August 2023, Haru, the marketing manager at International
Finance Ltd , travels to Australia to meet with various Australian
superannuation funds. Haru's marketing visit is for 14 days.
In November 2023, Sarah, another representative of International
Finance Ltd. makes a follow up marketing visit to Australia.
Sarah's marketing trip is for a total of 21 days.
The combined length of marketing visits for International Finance
Ltd in the 2023/24 financial year is 35 days.
If Sarah engages in any marketing activities during the final week
of her trip (i.e. after the 28th day), International Finance Ltd may be
in contravention of the civil penalty provision in
subsection 911A(5B) of the Corporations Act for carrying on a
financial services business in this jurisdiction without an Australian
financial services licence.
Example 1.2 Marketing visits - two or more representatives
Global Investments Limited, is a foreign financial services provider
whose head office and principal place of business is located in
Malaysia. Global Investments Limited provides financial services
from Kuala Lumpur.
On 1 September 2023, Helen and Cynthia, directors of the
investments division at Global Investments Limited, arrive in
Australia for a joint marketing visit. Helen and Cynthia's marketing
visit ends on 28 September 2023.
Following Helen and Cynthia's visit, Global Investments Limited
has exhausted its permitted allowance for marketing visits for the
2023/24 financial year.
Principal place of business and head office
1.62 The professional investor exemption requires the person's head office and
principal place of business to be located at one or more places outside this
jurisdiction.
[Schedule 1, item 3, sub-paragraph 911A(2)(eo)(iii) of the Corporations Act]
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Licensing exemptions for foreign financial services providers
1.63 This requirement is intended to ensure that the professional investor exemption
is only used by persons genuinely operating from outside Australia.
1.64 If the location of the person's head office is not also the location of the
person's principal place of business, then both of these locations must be in a
place outside Australia.
Compliance with foreign laws
1.65 Finally, the person providing the financial service must reasonably believe that
providing the same or substantially the same financial service would not
contravene any law applying in any of the following places:
• the place where the person's head office is located; and
• the place where the person's principal place of business is located; and
• the place from where the person provides the financial service.
[Schedule 1, item 3, sub-paragraph 911A(2)(eo)(iv) of the Corporations Act]
1.66 This may require the person to form a reasonable belief that the provision of
the financial service would not contravene the laws of up to three different
jurisdictions.
1.67 For the purposes of this requirement, a person would be taken to contravene a
law of a relevant place if the person fails to comply with a duty imposed under
the law of a foreign jurisdiction, even if the provision imposing the duty is not
itself an offence provision or a civil penalty provision (or equivalent).
1.68 However, this requirement does not restrict the provision of financial services
that are permitted, but not otherwise regulated, in any of the relevant places.
1.69 For example, if the provision of a financial services to professional investors is
not regulated in a relevant foreign jurisdiction, the person may provide the
financial service, as long as the provision of the service is not in contravention
of any law in that (or any other relevant) jurisdiction.
1.70 The requirement for a person to 'reasonably believe' requires the existence of
facts sufficient to create such a belief in a reasonable person in the person's
position. This requires the person to rely on objective facts, rather than just
mere suspicion.
Exceptions to the professional investor exemption
1.71 Unlike the existing professional investor exemption, the new exemption does
not restrict the types of financial products or financial services that may be
provided to professional investors.
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1.72 However, to address potential market risks as and when they may emerge,
Schedule 1 provides for regulations to be made prescribing that the
professional investor exemption does not apply for:
• a particular kind of financial service;
• a particular kind of financial service in relation to a particular kind of
financial product;
• a particular kind of financial product; or
• a particular kind of professional investor.
[Schedule 1, item 4, section 911F of the Corporations Act]
1.73 This power provides for regulations to be made prescribing a particular
financial product or financial service, or a particular class of financial product
or financial service.
1.74 In regard to professional investors, the regulations may be used to exclude a
particular type or class of professional investor but may not be used to exclude
a specific professional investor.
1.75 For example, the regulations may prescribe that superannuation funds (or a
class of superannuation funds) are excluded from the exemption. However, the
regulations could not be used to exclude a specific superannuation fund. Please
note that this example is for illustrative purposes only.
1.76 Regulations prescribing exceptions to the professional investor exemption are
only intended to be made in exceptional circumstances where the application
of the professional investor exemption to a particular kind of financial product,
financial service or professional investor is considered to pose a risk to
investors, the regulatory regime, or the market.
1.77 Given that the professional investor exemption would not apply to excluded
financial products or services, the provision of these types of financial products
or services without an Australian financial services licence would be a
contravention of the existing civil penalty provision in subsection 911A(5B) of
the Corporations Act (unless the person is able to rely on another exemption
covering the provision of these services).
1.78 Similarly, if regulations are made prescribing a kind of professional investor,
the provision of financial services to this type of professional investor would
require the person to hold an Australian financial services licence.
1.79 The regulation-making power to exclude particular kinds of financial products,
financial services or professional investors from the professional investor
exemption is intended to provide the Government with the necessary flexibility
to ensure the effective operation of the professional investor exemption and to
respond to emerging risks and changes in global financial markets. In
accordance with the Legislation Act 2003, regulations made under this power
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Licensing exemptions for foreign financial services providers
would be subject to disallowance and would therefore be subject to appropriate
parliamentary scrutiny.
Comparable regulator exemption
1.80 Schedule 1 provides an exemption from the requirement to hold an Australian
financial services licence for persons that are regulated by comparable
regulators and that only provide financial services to wholesale clients.
1.81 A person that relies on the comparable regulator exemption must comply with
certain conditions.
1.82 Subject to satisfying the relevant requirements, a person who uses the
comparable regulator exemption may also use the professional investor
exemption to provide financial services.
Who is eligible to use the comparable regulator exemption?
1.83 Under the comparable regulator exemption, a person is exempt from the
requirement to hold an Australian financial services licence if the person
satisfies all of the following requirements:
• the financial service is provided only to wholesale clients;
• the person is a foreign company or is a partnership formed outside this
jurisdiction;
• the person has and maintains any authorisations, registrations or
licences (however described) necessary to legally provide the same or
substantially the same financial service in a place that is outside this
jurisdiction (the comparable jurisdiction);
• the regulator administering those authorisations, registrations or
licences for the comparable jurisdiction is a regulator determined by
the Minister (the comparable regulator); and
• the person provides the financial service from this jurisdiction or from
the comparable jurisdiction.
[Schedule 1, items 1 to 3, section 910A and paragraph 911A(2)(ep) of the
Corporations Act]
1.84 A person that relies on the comparable regulator exemption to provide
financial services, but that does not satisfy the requirements to use this
exemption, contravenes a civil penalty provision under subsection 911A(5B) of
the Corporations Act.
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Wholesale clients
1.85 The comparable regulator exemption may be used when the financial service is
provided only to wholesale clients.
[Schedule 1, item 3, sub-paragraph 911A(2)(ep)(i) of the Corporations Act]
1.86 In accordance with the existing definition of 'wholesale client' in
sections 761G and 761GA of the Corporations Act (and regulations made for
the purposes of these provisions), a person is a wholesale client if:
• the price for the provision of the financial product, or the value of the
financial product to which the financial service relates, is equal to, or
greater than, $500,000;
• the financial product or service, is provided for use in connection with
a business that is not a small business;
- A "small business" is defined as a business that has less than
20 employees, or, if it is a manufacturing business, has less
than 100 employees;
• the financial product or service is not provided for use in connection
with a business, and the person acquiring the financial product or
service provides a certificate from a qualified accountant that the
person:
- has net assets of at least $2.5 million; or
- has a gross income for each of the past two financial years of
at least $250,000;
• the investor is a "professional investor" or a "sophisticated investor; or
- 'Professional investor' is defined in section 9 of the
Corporations Act.
- 'Sophisticated investor' is described in section 761GA of the
Corporations Act.
• the person is controlled by a person who is a wholesale client.
1.87 Section 761G of the Corporations Act provides that a financial product or
service is provided to, or acquired by, a wholesale client, if it is not provided
to, or acquired by a retail client. The provision of financial products or services
to retail clients is not covered by the comparable regulator exemption. This
means that persons who provide financial services to retail clients must obtain
an Australian financial services licence covering the provision of those
financial services under section 911A of the Corporations Act. This reflects the
stronger consumer protections in place for retail clients under Part 7.6 of the
Corporations Act.
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Licensing exemptions for foreign financial services providers
Foreign company or partnership formed outside Australia
1.88 The comparable regulator exemption only applies to foreign companies or
partnerships formed outside Australia.
[Schedule 1, item 3, sub-paragraph 911A(2)(ep)(ii) of the Corporations Act]
1.89 'Foreign company' is defined in section 9 of the Corporations Act as either:
• a body corporate incorporated in an external territory, or outside
Australia and the external territories, and is not a corporation sole, or
an exempt public authority; or
• an unincorporated body that is formed in an external territory or
outside Australia and the external territories and may sue or be sued or
may hold property in the name of its secretary or of an appointed
officer of the body and does not have its head office or principal place
of business in Australia.
1.90 The application of the comparable regulator exemption to partnerships formed
outside Australia is intended to include partnerships that are not otherwise
captured within the definition of 'foreign company'. For example, this could
include a foreign partnership that may sue, or be sued, in the name of the
partnership itself (rather than in the name of its secretary or an appointed
officer of the body).
1.91 In accordance with section 761F of the Corporations Act, Chapter 7 of the
Corporations Act applies to a partnership as if the partnership were a person.
Any obligations that would be imposed on the partnership are taken to be
imposed on each partner but may be discharged by any of the partners.
Similarly, a contravention of a requirement in Chapter 7 of the Corporations
Act that would otherwise be a contravention by the partnership is taken
(whether for the purposes of criminal or civil liability) to have been a
contravention by each partner who:
• aided, abetted, counselled or procured the relevant act or omission; or
• was in any way knowingly concerned in, or party to, the relevant act or
omission (whether directly or indirectly and whether by any act or
omission of the partner).
1.92 The requirement to be a foreign company or a partnership formed outside this
jurisdiction is consistent with the application of the existing sufficient
equivalence relief.
Authorisation in the comparable jurisdiction
1.93 To be eligible to use the comparable regulator exemption, a person must have
and maintain any authorisations, registrations or licences (however described)
necessary to legally provide the same or substantially the same financial
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service in the comparable jurisdiction.
[Schedule 1, item 3, sub-paragraph 911A(2)(ep)(iii) of the Corporations Act]
1.94 The comparable jurisdiction is a place outside Australia where a regulator, that
has been determined by the Minister as a comparable regulator, administers
those authorisations, registrations or licences, as required to provide those
financial services.
1.95 The requirement to hold any authorisations, registrations or licences only
applies where there is a specific requirement to hold an authorisation,
registration or licence to provide the same or substantially the same financial
service in the comparable jurisdiction. If no such requirement applies, this
requirement is taken to have been satisfied as it would otherwise be legal to
provide that financial service in the comparable jurisdiction.
1.96 If, for example, dealings involving foreign exchange contracts are permitted
but are not subject to regulation in a comparable jurisdiction, the person is
taken to have satisfied the requirement to have and maintain any authorisation,
registration or licence necessary to provide that kind of financial service in the
comparable jurisdiction.
1.97 Where there is a requirement for a person to hold an authorisation, registration
or licence to provide a particular kind of financial service in a comparable
jurisdiction, the person must not only hold, but also maintain that relevant
authorisation, registration or licence in the comparable jurisdiction while the
provider relies on the exemption.
1.98 In this case, if the person loses (or gives up) this authorisation, the person will
no longer be able to rely on the comparable regulator exemption to provide the
financial service. In these circumstances, while notification is not required to
be given to ASIC, the person may make a voluntary notification to ASIC that
they no longer intend to rely on the comparable regulator exemption to provide
that (or any) financial service.
1.99 If the person ceases to maintain the necessary authorisation to provide a
financial service but intends to continue providing that financial service, the
person would either need to rely on another exemption (if applicable), or apply
for, and be granted, an Australian financial services licence covering the
provision of that financial service. If neither applies, the person would be in
contravention of the civil penalty provision under subsection 911A(5B) of the
Corporations Act for carrying on a financial services business in Australia
without an Australian financial services licence.
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Licensing exemptions for foreign financial services providers
Comparable regulator
1.100 The comparable regulator exemption also requires that the person's
authorisation, registration, or licence be administered by a regulator that is
determined by the Minister as a comparable regulator.
[Schedule 1, items 1 and 3, section 910A and sub-paragraph 911A(2)(ep)(iv)
of the Corporations Act]
1.101 The Minister's power to determine a regulator for the purposes of the
comparable regulator exemption is described below (see paragraphs 1.198 to
1.204).
1.102 A person using the comparable regulator exemption may be regulated by more
than one comparable regulator, in more than one comparable jurisdiction. In
any given situation, the relevant comparable regulator is to be determined in
relation to the specific financial service provided to the recipient.
Financial service to be provided from Australia or comparable jurisdiction
1.103 Finally, the person must provide the financial service from within Australia or
the comparable jurisdiction.
Schedule 1, item 3, sub-paragraph 911A(2)(ep)(v) of the Corporations Act]
1.104 For example, if a person provides a financial service for which the comparable
regulator is the UK Financial Conduct Authority, the person may only provide
that financial service from either the United Kingdom or from Australia.
Financial services provided from any other place would not satisfy the
requirements for using the comparable regulator exemption and would require
the person to hold an Australian financial services licence, or to rely on another
exemption (if applicable).
Conditions - professional investor and comparable
regulator exemption
1.105 A person that uses, or intends to use, either the professional investor exemption
or the comparable regulator exemption must comply with certain conditions.
1.106 Many (but not all) of the conditions apply to both exemptions. The application
of these conditions to the professional investor exemption and the comparable
regulator exemption are set out in the table below.
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Table 1.2 Conditions for the professional investor and comparable
regulator exemptions
Provision Condition Professional Comparable
investor regulator
exemption exemption
Subsection Notify ASIC that the person Applies Applies
911H(2) has provided, or intends to
provide, one or more kinds of
financial services in reliance
on the exemption
Subsection Give ASIC reasonable Applies Applies
911H(3) assistance in relation to the
performance and exercise of
ASIC's functions and powers
(which may include giving
ASIC a copy of the person's
books)
Subsection Notify ASIC that the person Applies Applies
911H(5) agrees:
• to legal proceedings
being brought in an
Australian court for the
provision of financial
services in reliance on an
exemption;
• that such proceedings are
to be determined in
accordance with the law
in force in Australia; and
• to comply with any order
of a court from such
proceedings, unless it
conflicts with an order
made by a court in a
specified place.
Section 911J Comply with a direction Applies Applies
given by ASIC to provide
information about the
person's provision of
financial services, or relevant
financial service business
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Licensing exemptions for foreign financial services providers
Provision Condition Professional Comparable
investor regulator
exemption exemption
Section 911K Give each recipient of a Applies Applies
financial service a notice,
which states that:
• the person is exempt
from the requirement to
hold an Australian
financial services licence
covering the provision of
that kind of financial
service; and
• identifies the exemption
that the person is relying
on to provide that
financial service.
Section 911L Notify ASIC of any changes Applies Applies
to the person's contact details
as soon as practicable after
the change happens
Subsection Notify ASIC that the person Does not apply Applies
911M(2) consents to ASIC and each
comparable regulator sharing
information about the person
Subsection Notify ASIC of any Does not apply Applies
911M(4) significant enforcement
action, disciplinary action or
investigation undertaken
against the person by a
regulator, government
authority, or relevant financial
market operator in any place
outside Australia
Subsection Have an agent in Australia Does not apply Applies
911N(2)
Subsection The person must: Does not apply Applies
911N(4)
• maintain adequate
oversight over
representatives providing
financial services in
reliance on the
exemption; and
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Provision Condition Professional Comparable
investor regulator
exemption exemption
• take reasonable steps to
ensure that their
representatives are
adequately trained and
competent to provide
those kinds of financial
services.
[Schedule 1, item 4, subsections 911G(1) and 911G(2) and sections 911H,
911J, 911K, 911L, 911M and 911N of the Corporations Act]
Notice to ASIC of reliance on exemption
1.107 A person that uses the professional investor exemption and/or the comparable
regulator exemption must notify ASIC during the notification period that the
person has provided, or intends to provide, one or more kinds of financial
service in reliance on the specified exemption.
[Schedule 1, item 4, subsections 911H(1) and (2) of the Corporations Act]
1.108 The notification period is the period:
• that begins 15 business days before the person starts to provide a
financial service for the first time under the exemption after the
commencement of this provision (on 1 April 2023); and
• that ends within 15 business days after the person starts to provide a
financial service for the first time after 1 April 2023.
[Schedule 1, item 4, subsection 911H(2) of the Corporations Act]
1.109 This notice must:
• specify which exemption the person has relied on, or intends to rely on,
to provide one or more kinds of financial services;
• include a description of each kind of financial service that the person
provides, or intends to provide, in reliance on the exemption;
- to reduce regulatory burden, a person may notify ASIC of
more than one kind of financial service in a single notice.
- however, additional notices may need to be given to ASIC if
the kinds of financial services that the person provides, or
intends to provide, changes after the initial notice is given.
• be given in writing and in a form that is approved by ASIC.
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Licensing exemptions for foreign financial services providers
- ASIC is required to approve the form for this notification
requirement. However, this is not an application form, and
ASIC is not required to approve notifications submitted by a
person.
• include the person's contact details, and any information, statements,
explanations, or other matters required, and be accompanied by any
other material specified.
- The manner in which the notice is given may be specified by
ASIC and may include submission in electronic form.
[Schedule 1, item 4, subsection 911H(2) of the Corporations Act]
1.110 To ensure ASIC has full oversight of the use of the exemptions, this notice
requirement also applies to persons who have previously, prior to the
commencement of Schedule 1, given ASIC notice of its use of an existing
relief (e.g. the sufficient equivalence relief).
Give ASIC reasonable assistance
1.111 ASIC may require a person to provide it with assistance, as reasonably
requested, in relation to the performance and exercise of its functions and
powers.
[Schedule 1, item 4, subsection 911H(3) of the Corporations Act]
1.112 Assistance may, among other things, require the person to show ASIC the
person's books, give ASIC a copy of the person's books, or give ASIC other
information relevant to the performance and exercise of ASIC's functions and
powers.
[Schedule 1, item 4, subsection 911H(4) of the Corporations Act]
Consent to the non-exclusive jurisdiction of the Australian courts
1.113 A person must give a notice to ASIC during the notification period that the
person agrees:
• to legal proceedings relating to the provision of each of the kinds of
financial service that it provides, or intends to provide, in reliance on
the exemption, being brought in a court in Australia;
• that such proceedings would be subject to the law applicable to the
provision of those kinds of financial services that is in force in
Australia; and
• to comply with any court order from such proceedings to the extent
that the order does not conflict with an order made by a court in a
specified place.
[Schedule 1, item 4, subsection 911H(5) of the Corporations Act]
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1.114 For the purpose of identifying whether a court order conflicts with an order of
a court in another place, a specified place is:
• professional investor exemption - any of the following places for the
financial service:
- the location of the person's head office;
- the location of the person's principal place of business; or
- the place from where the financial service is provided.
• comparable regulator exemption - the comparable jurisdiction for the
financial service.
[Schedule 1, item 4, subsection 911H(7) of the Corporations Act]
1.115 The notification period for this requirement is the same as for the notice to
ASIC of reliance on an exemption.
1.116 A single notice may provide consent in relation to more than one kind of
financial service. However, additional notices may be required to be given to
ASIC if the kinds of financial services that the person provides, or intends to
provide, changes after the initial notice is given.
1.117 This notice is required to be given in writing, in a form that is approved by
ASIC and include any information, statements, explanations, or other matters
required, and be accompanied by any other material specified. The manner in
which the notice is given may be specified by ASIC and may include
submission in electronic form.
[Schedule 1, item 4, subsection 911H(6) of the Corporations Act]
Comply with an ASIC direction
1.118 ASIC may, at any time, give a person a written direction to provide it with a
statement containing specified information on:
• any financial service, or kind of financial service, that the person
provides in reliance on the exemption; or
• the person's financial services business of which that financial service
is a part.
[Schedule 1, item 4, subsections 911J(1), (2) and (3) of the Corporations Act]
1.119 ASIC may also require specific information to be provided on a periodic basis,
or each time a particular event or circumstance takes place, without having to
give a separate direction on each occasion.
[Schedule 1, item 4, subsection 911J(3) of the Corporations Act]
1.120 ASIC may only use this condition to give directions that relate to the financial
service(s) provided under the exemption.
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Licensing exemptions for foreign financial services providers
1.121 A person who receives a written direction from ASIC must comply with the
direction within the time specified in the direction (if that is a reasonable time)
or otherwise within a reasonable time. If required, ASIC may also extend the
time within which the person must comply with the direction by giving the
person a written notice to this effect.
[Schedule 1, item 4, subsection 911J(4) of the Corporations Act]
1.122 In response to a written direction given by ASIC, the person must provide
ASIC with a statement in a written form that is approved by ASIC. This
response must include any information, statements, explanations, or other
matters required, and be accompanied by any other material specified. The
manner in which the notice is given may be specified by ASIC and may be in
electronic form.
[Schedule 1, item 4, subsection 911J(3) of the Corporations Act]
Notice to recipients
1.123 From 1 April 2023, before providing a financial service using either the
professional investor exemption or the comparable regulator exemption, the
person must give each recipient of a kind of financial service a written notice
including a statement that:
• the person is exempt from the requirement to hold an Australian
financial services licence covering the provision of that kind of
financial service; and
• identifies which exemption (the professional investor exemption or the
comparable regulator exemption) the person is relying on to provide
the financial service.
[Schedule 1, item 4, section 911K of the Corporations Act]
1.124 A recipient of a kind of financial service for the purposes of this obligation is
either a professional investor or a wholesale client.
1.125 If it is not practicable to give the notice before providing the financial service,
then the notice must be given to the recipient of the financial service as soon as
practicable after the financial service is provided to that recipient.
[Schedule 1, item 4, paragraph 911K(2)(b) of the Corporations Act]
1.126 Only a single notice is required to be given to each recipient for each kind of
financial service provided in reliance on the exemption. To reduce regulatory
burden, a notice may cover more than one kind of financial service that the
person has provided, or intends to provide, the recipient under that exemption.
This is intended to achieve a balance between ensuring that clients are
adequately informed and reducing regulatory burden for foreign financial
services providers.
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Notify ASIC of changes to contact details
1.127 A person relying on the professional investor exemption or the comparable
regulator exemption must also notify ASIC of any change to the person's
contact details as soon as practicable after the change.
[Schedule 1, item 4, subsection 911L(1) of the Corporations Act]
1.128 As with the other notice requirements in Schedule 1, this notice must be
provided in writing, be in the manner and form (including electronic form)
specified by ASIC and include any information, statements, explanations, other
matters or accompanying material specified by ASIC.
[Schedule 1, item 4, subsection 911L(2) of the Corporations Act[
1.129 This notice is essential to enable ASIC to perform and exercise its functions
and powers efficiently and effectively, including the requirement for ASIC to
give foreign financial services providers notice of proposed decisions prior to
an exemption being cancelled, or additional conditions being imposed.
Other conditions - comparable regulator exemption only
1.130 A person that uses the comparable regulator exemption must also comply with
the following additional conditions. These conditions do not apply to persons
that only rely on the professional investor exemption to provide financial
services.
[Schedule 1, item 4, subsections 911M(1) and 911N(1) of the
Corporations Act]
Consent to information sharing
1.131 During the notification period, a person who uses, or intends to use, the
comparable regulator exemption must notify ASIC that the person consents to
ASIC and the comparable regulator for each kind of financial service that the
person provides in reliance on the exemption sharing information about the
person.
[Schedule 1, item 4, subsection 911M(2) of the Corporations Act]
1.132 The notification period is the same as the period during which a notice of
reliance on the exemption must be given, and is the period:
• that begins 15 business days before the person starts to provide a
financial service for the first time after the commencement of this
provision (on 1 April 2023); and
• that ends within 15 business days after the person starts to provide a
financial service for the first time after 1 April 2023.
1.133 A notice is only required to be given to ASIC once for each kind of financial
service that the person provides, or intends to provide, in reliance on the
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Licensing exemptions for foreign financial services providers
exemption. To reduce regulatory burden, the notice may cover more than one
kind of financial service that the person has provided, or intends to provide,
under that exemption. However, additional notices may need to be given to
ASIC if:
• the kinds of financial services that the person provides, or intends to
provide, changes after the initial notice is given; or
• the comparable regulators for the provision of those kinds of financial
services change (e.g. the person expands their business into other
jurisdictions and is authorised by additional comparable regulators to
provide financial services).
1.134 Appropriate information sharing arrangements between ASIC and each of the
person's comparable regulators is necessary to enable timely and effective
communication between the regulators about the foreign financial services
provider.
1.135 As with the other notice requirements, this notice is required to be given in
writing, be in a manner and form (including electronic form) approved by
ASIC and include the information, explanation, statements, other matters and
accompanying material specified by ASIC.
[Schedule 1, item 4, subsection 911M(3) of the Corporations Act]
Notifying ASIC of significant enforcement actions, disciplinary actions
and investigations in other jurisdictions
1.136 A person that uses the comparable regulator exemption must notify ASIC of
any significant enforcement action, disciplinary action or investigation
undertaken against the provider by:
• any regulator in any place outside this jurisdiction;
• any government authority in any place outside this jurisdiction; or
• any operator of a financial market (that the person is a participant of)
in any place outside this jurisdiction.
[Schedule 1, item 4, subsection 911M(4) of the Corporations Act]
1.137 However, this requirement does not apply if giving such a notice would be
contrary to a law in force in another jurisdiction (such as a secrecy provision
prohibiting the sharing of this information).
[Schedule 1, item 4, subsection 911M(6) of the Corporations Act]
1.138 This condition is not limited to notification about significant enforcement
actions, disciplinary actions or investigations undertaken by a person's
comparable regulator(s). Rather, the person must notify ASIC of each
significant enforcement action, disciplinary action or investigation taken
against the person by any foreign regulator, government authority or relevant
financial market operator outside Australia.
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1.139 In determining whether an enforcement action, disciplinary action or
investigation is 'significant', the person may consider a number of factors
including (but not limited to):
• whether the action relates to the provision of the financial service
under the comparable regulator exemption;
• the extent to which the relevant conduct indicates that the foreign
company's arrangements to ensure compliance with their obligations
under the financial services laws are inadequate;
• the number and frequency of breaches;
• whether the person's actions have resulted in material loss or damage
to a client(s);
• the size (severity) of the penalty (if applicable).
1.140 If such an action has been taken against a person, the person must notify ASIC
as soon as practicable, and before 15 business days, after the day on which the
person becomes aware (or would reasonably be expected to have become
aware) of such an action.
[Schedule 1, item 4, paragraph 911M(5)(a) of the Corporations Act]
1.141 The circumstances under which a person may reasonably be expected to have
become aware of an action may vary on a case by case basis. However, one
such circumstance could include when the person is given notice of an
enforcement action, disciplinary action or investigation against them.
1.142 In the case of a significant investigation being undertaken against the person,
the person is required to notify ASIC as soon as practicable, or before
15 business days after the day the person becomes aware (or would reasonably
be expected to have become aware) of the investigation. In many cases, this
notification may need to be given before the investigation has concluded and is
required regardless of whether the investigation results in any enforcement
action being taken against the person for the matter that was under
investigation.
1.143 As with the other notice requirements in Schedule 1, this notice is required to
be given in writing, be in a manner and form (including electronic form)
approved by ASIC and include the information, explanation, statements, other
matters and accompanying material specified by ASIC.
[Schedule 1, item 4, paragraph 911M(5)(b) of the Corporations Act]
Local agent
1.144 A person must not provide financial services in reliance on the comparable
regulator exemption for a period of more than nine consecutive business days
without an agent.
[Schedule 1, item 4, subsection 911N(2) of the Corporations Act]
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Licensing exemptions for foreign financial services providers
1.145 An agent is required to be:
• a natural person or a company;
• resident in Australia; and
• authorised to accept on the foreign company or partnership's behalf
service of process and notices.
1.146 An agent must be appointed in accordance with the following requirements:
• if the person is a foreign company - Division 2 of Part 5B.2 of the
Corporations Act; or
• if the person is partnership formed outside this jurisdiction (other than
a foreign company) - regulation 7.6.03B of the
Corporations Regulations, which is made under paragraph 912A(1)(j)
of the Corporations Act.
[Schedule 1, item 4, subsection 911N(3) of the Corporations Act]
1.147 This is intended to streamline the requirements for foreign financial services
providers by relying on existing requirements under the Corporations Act,
rather than introducing new requirements.
Adequate oversight over representatives
1.148 Finally, a person who uses the comparable regulator exemption must:
• maintain adequate oversight over its representatives that provide
financial services in reliance on the exemption; and
• take reasonable steps to ensure that those representatives are
adequately trained and competent to provide those kinds of financial
services.
[Schedule 1, item 4, subsection 911N(4) of the Corporations Act]
1.149 This condition requires foreign financial services providers to put in place
appropriate systems and processes to ensure that its representatives are
adequately supervised, trained and competent to provide financial services in
reliance on the comparable regulator exemption. Financial services provided
by representatives, which are not provided in reliance on this exemption, are
not within scope of this condition.
Consequences of failing to comply with a condition
1.150 A failure to comply with a condition under the professional investor exemption
or the comparable regulator exemption does not result in automatic
cancellation of an exemption. However, it may result in ASIC taking any of the
following actions:
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• applying to the court for a declaration of contravention of a civil
penalty provision and a pecuniary penalty order; or
• after taking reasonable steps to give the person a notice of the proposed
decision and giving the person a reasonable opportunity to appear (or
be represented) at a private hearing before ASIC and to make
submissions, ASIC may:
- completely cancel a person's exemption (in relation to the
provision of any financial service under the exemption);
- partially cancel a person's exemption (in relation to one or
more specified kinds of financial service); or
- impose additional conditions on the person's future use of an
exemption in relation to some or all of the kinds of financial
services provided under the exemption.
[Schedule 1, item 4, subsection 911G(3) and sections 911Q and 911T of the
Corporations Act]
Cancelling an exemption
1.151 ASIC may cancel the exemption of a person who uses the professional investor
exemption or the comparable regulator exemption in the following
circumstances:
• the person fails to comply with one or more conditions for using the
exemption;
- A cancellation may be partial (apply to one or more specified
kinds of financial service) or complete (apply to any financial
service).
• ASIC reasonably believes that a person mentioned in section 913BA of
the Corporations Act, is not a fit and proper person to provide the
financial services.
- In all cases, this cancellation would be complete and apply to
the provision of all financial services provided under the
exemption;
- The fit and proper person test applies to the foreign financial
services provider, the controller of the provider (if applicable),
and an officer, partner, trustee or senior manager of the
provider or the controller of the provider;
- In determining whether a relevant person is a fit and proper
person, ASIC must have regard to the matters specified in
section 913BB of the Corporations Act; or
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Licensing exemptions for foreign financial services providers
• the person fails to comply with an additional condition imposed by
ASIC on the person for failing to comply with a condition.
[Schedule 1, item 4, subsections 911G(1) and 911G(2) and 911T(1) and
sections 911Q and 911R of the Corporations Act]
1.152 In the case of a contravention of a condition, ASIC may use its discretion to
decide whether the cancellation of a person's exemption should be partial or
complete. This is necessary to ensure that ASIC has an appropriate range of
enforcement tools and allows ASIC to assess the surrounding circumstances
underpinning the non-compliance to determine the appropriate action to take in
any given situation.
1.153 However, such a discretion does not apply where ASIC reasonably believes
that the person, or someone related to the person, is not a fit and proper to
provide the financial service. In each such instance, ASIC must completely
cancel the person's exemption.
1.154 Before cancelling a person's exemption (partially or completely), ASIC must
take reasonable steps to give the person a written notice of the proposed
cancellation along with the reasons for it.
[Schedule 1, item 4, sub-paragraph 911S(1)(a)(i) of the Corporations Act]
1.155 ASIC must also give the person a reasonable opportunity to appear (or be
represented) at a private hearing before ASIC and to make submissions to
ASIC on the matter.
[Schedule 1, item 4, sub-paragraph 911S(1)(a)(ii) of the Corporations Act]
1.156 If a hearing is held or submissions are made, ASIC must take into account any
information given to it at the hearing or in the submissions.
[Schedule 1, item 4, paragraph 911S(1)(b) of the Corporations Act]
1.157 To optimise flexibility, hearings are not required to be held in person, or to be
held in a single location.
1.158 To facilitate a hearing where the person is located outside Australia, hearings
may be conducted using any technology that gives each participant with a
reasonable opportunity to participate, or be represented, at the hearing.
[Schedule 1, item 4, subsections 911V(1) and (2) of the Corporations Act]
1.159 Subsection 57(2) of the ASIC Act requires ASIC to appoint a place and time
for the hearing and cause notice of that place and time to be given to the person
who is to appear at the hearing. For the purposes of a hearing under
Schedule 1, ASIC may appoint a single place and time for the hearing if the
hearing is held at more than one physical venue or using technology.
[Schedule 1, item 4, subsection 911V(3) of the Corporations Act]
1.160 For a hearing held using technology where not all participants are physically
present at the same venue, ASIC may determine that the place of the hearing
could be the venue at which ASIC uses the technology (or some other place),
and the time could be the time at that venue when the hearing is to start.
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1.161 The purpose of a hearing is to provide a person with an opportunity to provide
information or an explanation of events, which may assist ASIC to decide
whether or not to cancel the exemption, and whether the cancellation should be
partial or complete (where applicable). While a person is not required to appear
at a hearing or make a submission, having the opportunity to do so ensures that
foreign financial services providers have access to adequate procedural
safeguards.
1.162 Following a hearing or consideration of submissions, if ASIC decides to cancel
a person's exemption (partially or completely), ASIC must take reasonable
steps to provide the person with a written notice of the cancellation and its
reasons for the decision.
[Schedule 1, item 4, paragraph 911S(2)(a) of the Corporations Act]
1.163 The cancellation notice must also include the date from which the cancellation
is to take effect, which must not be before the day the notice is given to the
person.
[Schedule 1, item 4, paragraph 911S(2)(b) of the Corporations Act]
1.164 The cancellation of an exemption by ASIC is not a legislative instrument
within the meaning of a legislative instrument in section 8(1) of the
Legislation Act 2003. Cancellations are administrative in character as they do
not determine or alter the law, but rather they apply the law to specific persons.
1.165 If ASIC takes reasonable steps but is unable to notify the person of its
proposed and final decision to cancel the person's exemption, for example,
because the person has failed to keep their contact details up-to-date, ASIC's
decision to cancel the person's exemption is still valid. This requirement for
ASIC to take reasonable steps to give notices to the person is intended to
achieve a balance between the need for legislative and administrative certainty
and the need to maintain adequate procedural safeguards for the person.
1.166 A person may apply to the AAT for a merits review of ASIC's decision to
cancel a person's exemption.
1.167 If the person's exemption is cancelled by ASIC, the person may not carry on a
financial services business in Australia without an Australian financial services
licence (unless eligible to rely on another exemption or relief). The provision
of a financial service without an Australian financial services licence in these
circumstances would be a contravention of the civil penalty provision in
subsection 911A(5B) of the Corporations Act.
Additional conditions
1.168 ASIC may impose additional conditions on a person's future use of an
exemption in the following circumstances:
• as an alternative to cancelling a person's exemption if a person fails to
comply with:
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Licensing exemptions for foreign financial services providers
- a condition under either the professional investor exemption or
the comparable regulator exemption;
- an additional condition imposed on a person's use of the
exemption for a previous contravention of a condition; or
• if a person contravenes a condition for using an exemption and fails to
provide ASIC with full particulars of the contravention.
[Schedule 1, item 4, paragraphs 911G(1)(b) and 911G(2)(b) and
sections 911P and 911T of the Corporations Act]
1.169 The additional conditions may apply to:
• one or more specified kinds of financial service provided in reliance on
the exemption; or
• any kind of financial service provided in reliance on the exemption.
[Schedule 1, item 4, subsection 911T(1) of the Corporations Act]
1.170 If a person contravenes a condition for using the professional investor
exemption or the comparable regulator exemption, the person must give ASIC
a notice with full particulars of the contravention. This notice is required to be
given to ASIC as soon as practical, and before the 15th business day, after the
day on which person becomes aware, or would reasonably be expected to have
become aware of the contravention.
[Schedule 1, item 4, section 911P of the Corporations Act]
1.171 The circumstances in which a person would become aware, or reasonably be
expected to become aware, of a contravention may vary but would reflect the
actions of a reasonable person in the position of the foreign financial services
provider.
1.172 If a person fails to give ASIC details of a contravention of a condition, ASIC
may only impose additional conditions on the person's use of the exemptions
(in relation to one or more specified kinds of financial service). Unlike for
contraventions of a condition, ASIC does not have the power to cancel the
person's exemption or apply to the court for a civil penalty order.
1.173 Examples of possible additional conditions that ASIC could impose include
strengthening disclosure obligations to recipients of the financial service,
requiring the person to provide regular reports (e.g. quarterly) to ASIC on the
financial services provided under the exemption or limiting the types of
financial products or services that may be provided under the exemption. The
additional condition imposed on the person is intended to be determined on a
case by case basis at the discretion of ASIC.
1.174 Providing ASIC with the power to impose additional conditions is appropriate
to ensure that ASIC is able to take appropriate and effective action to promote
compliance with the regulatory regime, without unnecessarily disrupting the
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provision of financial products and services by cancelling a person's
exemption.
1.175 As with the procedure for cancelling a person's exemption, before ASIC can
impose one or more additional conditions, ASIC must take reasonable steps to
give the person a written notice of its proposed decision to impose additional
conditions, the reasons for this proposed decision and provide the person with
a reasonable opportunity to appear (or be represented) at a private hearing
before ASIC and to make submissions to ASIC on that matter.
[Schedule 1, item 4, paragraph 911U(2)(a) of the Corporations Act]
1.176 If a hearing is held or submissions are made, ASIC must take into account any
information given to ASIC at the hearing or in the submissions.
[Schedule 1, item 4, paragraph 911U(2)(b) of the Corporations Act]
1.177 If ASIC decides to impose additional conditions, ASIC must take reasonable
steps to notify the person in writing of the decision and the reasons for it and to
specify the date on which this decision takes effect (which must not be before
the day the notice is given to the person).
[Schedule 1, item 4, subsection 911U(3) of the Corporations Act]
1.178 ASIC's decision to impose one or more additional conditions on the person's
future use of an exemption is a reviewable decision. A person may apply to the
AAT for a merits review of this decision.
1.179 If ASIC imposes one or more additional conditions on a person, ASIC may
vary or revoke those additional conditions either on application by the person
or on its own initiative.
[Schedule 1, item 4, subsection 911T(2) of the Corporations Act]
1.180 An application to vary or revoke an additional condition must be in writing, be
in a manner and form (including electronic form) specified by ASIC and
include the information, statements, explanation, other matters and
accompanying material specified by ASIC.
[Schedule 1, item 4, subsection 911T(3) of the Corporations Act]
1.181 If ASIC proposes to make one of the following decisions, it must take
reasonable steps to give the person a notice of its proposed decision, and an
opportunity to appear (or be represented) at a hearing and make submissions:
• vary an additional condition on ASIC's own initiative; or
• refuse to grant a person's application to vary or revoke an additional
condition.
[Schedule 1, item 4, subsections 911U(1) and (2) of the Corporations Act]
1.182 If ASIC makes the proposed decision, it must take reasonable steps to provide
the person with notice of its decision, and the reasons for it, the day that the
decision is to take effect.
[Schedule 1, item 4, subsection 911U(3) of the Corporations Act]
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Licensing exemptions for foreign financial services providers
1.183 Decisions by ASIC to vary a condition on its own initiative, or to refuse an
application to vary or revoke a condition, are reviewable decisions and subject
to merits review by the AAT.
Civil penalty
1.184 If a person fails to comply with a condition for using the professional investor
exemption or the comparable regulator exemption, ASIC may apply to the
court for a declaration of contravention of a civil penalty provision.
[Schedule 1, items 4 and 9, subsection 911G(3) and Schedule 3 of the
Corporations Act]
1.185 If ASIC makes an application to the court, and the court is satisfied that the
person has contravened a civil penalty provision for failing to comply with one
or more conditions, the court must make a declaration of contravention and
may order the person to pay a financial sanction, known as a pecuniary penalty
order.
1.186 In accordance with section 1317G of the Corporations Act, the maximum
financial sanction that the court may order for a contravention of a civil penalty
provision is the greater of 5,000 penalty units and three times the benefit
derived and the detriment avoided because of the contravention if this can be
determined by the court.
1.187 The value of a penalty unit is prescribed in the Crimes Act 1914.
1.188 The process and penalty for contravening the civil penalty provision are the
same as for existing civil penalty provisions under the Corporations Act.
1.189 The civil penalty provision is considered necessary and proportionate to
promote compliance and strengthen integrity measures for the new
professional investor and comparable regulator exemptions. Further, the civil
penalty provides an alternative to cancelling a person's exemption, and thereby
provides another means by which to promote compliance without disrupting
the provision of financial services.
1.190 In accordance with subsection 5(4) of the Corporations Act, the civil penalty
provision applies in relation to acts and omissions outside this jurisdiction.
There is a general presumption against the extraterritorial application of laws.
However, in this case the extraterritorial application of the civil penalty
provision is considered appropriate given that:
• there is a sufficiently close connection between Australia and the civil
penalty provision given that a civil penalty is only triggered where a
foreign financial services provider would, but for the exemptions, have
required an Australian financial services licence;
• Australia has a legitimate interest in ensuring that persons carrying on
a financial services business in Australia are subject to appropriate
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regulation, including where the relevant conduct occurs outside this
jurisdiction; and
• the exercise of jurisdiction is balanced with other interests, including
whether the provision captures conduct already captured by laws of
other countries. In this case, the civil penalty provision does not apply
to conduct regulated by other jurisdictions, and only applies in relation
to conduct that would, but for the exemptions, have required the person
to hold an Australian financial services licence.
Fit and proper person test exemption
1.191 Schedule 1 provides an exemption from the requirement to satisfy the fit and
proper person test in section 913BA of the Corporations Act when applying to
ASIC for:
• an Australian financial services licence under section 913A of the
Corporations Act, that if granted, would be limited to the provision of
services to wholesale clients only; or
• the imposition of conditions, or additional conditions, on the licence,
or the variation of revocation of conditions imposed on the licence
under section 914A of the Corporations Act.
1.192 This exemption applies to a foreign company or partnership formed outside
Australia and that is regulated by a comparable regulator.
1.193 The purpose of the fit and proper person test exemption is to fast-track the
licensing process and reduce the administrative burden for persons that hold
any authorisation, registration, or licence (as necessary) to provide the same or
substantially the same financial service by a comparable regulator determined
by the Minister.
Exemption from the fit and proper person test
1.194 The fit and proper person test exemption for applications for an Australian
financial services licences made under section 913A of the Corporations Act
applies to applications made on or after the commencement of Schedule 1 (on
1 April 2023).
[Schedule 1, item 10, subsection 1695A(1) of the Corporations Act]
1.195 The fit and proper person test exemption for applications to impose, vary or
revoke a condition on an existing licence made under section 914A of the
Corporations Act applies to applications made on or after the commencement
of Schedule 1. The exemption applies whether the licence was granted before,
on, or after the commencement of Schedule 1.
[Schedule 1, item 10, subsection 1695A(2) of the Corporations Act]
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Licensing exemptions for foreign financial services providers
1.196 The fit and proper person test exemption only applies at the time an application
is made under sections 913A or 914A of the Corporations Act. At all other
times, ASIC may take appropriate enforcement action against an Australian
financial services licence holder, such as by suspending or cancelling the
licence, if ASIC has reason to believe that a relevant person (i.e. the licensee,
an officer, partner, trustee or senior manager of the licensee or the controller of
the licensee) is not a fit and proper person to provide the financial services
covered by the licence.
Who is eligible for the fit and proper test exemption?
1.197 The fit and proper person test exemption is only available if an applicant
(under section 913A or section 914A of the Corporations Act) meets all of the
following requirements:
• the applicant is a foreign company or a partnership formed outside
Australia;
- The requirement to be a foreign company or a partnership
formed outside Australia ensures that entities formed or
incorporated in Australia, but which are also regulated
overseas, are not exempt from the fit and proper person test to
be granted an Australian financial services licence.
• the licence, if granted, would be restricted to the provision of financial
services to wholesale clients; and
- 'Wholesale client' is defined in sections 761G and 761GA of
the Corporations Act and regulations made for the purposes of
these provisions.
• the applicant holds any authorisations, registrations, or licences
(however described) necessary to legally provide the same or
substantially the same financial service by a comparable regulator
determined by the Minister.
- The regulators determined by the Minister for the purposes of
the fit and proper person test exemption are the same as the
regulators determined for the purposes of the comparable
regulator exemption.
- If a comparable regulator permits, but does not regulate, the
provision of a kind of financial service - this is taken to have
satisfied the requirement to have any authorisation, registration
or licence.
[Schedule 1, items 5 to 8, subsections 913B(1), 913B(2A), 914B(2) and
914B(2A) of the Corporations Act]
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Minister's power to determine regulators - comparable
regulator exemption and fit and proper person test
exemption
1.198 Schedule 1 provides that the Minister may, by legislative instrument, determine
regulators for the purpose of the comparable regulator exemption and the fit
and proper person test exemption.
[Schedule 1, item 4, subsection 911W(1) of the Corporations Act]
1.199 In making such a determination, the Minister must have regard to whether the
regulatory regime that the regulator administers produces broadly comparable
outcomes to Australia's regulatory regime in regulating and improving the
performance of the relevant financial services system and the financial services
providers in that system.
[Schedule 1, item 4, paragraph 911W(2)(a) of the Corporations Act]
1.200 Specifically, the Minister must have regard to:
• whether the regulatory regime is clear, transparent, certain, and
adequately enforced;
• whether the regulatory regime is broadly consistent with the Objectives
and Principles of Securities Regulation, developed by the International
Organization of Securities Commissions, as in force from time to time;
- In assessing whether a regulatory regime is broadly consistent
with these principles, the Minister may consider whether the
regulator of that regime (or another international organisation)
has assessed the regulatory regime against the principles and
reasonably determined that the regulatory regime broadly
complies with them;
- The requirement that the regulatory regime be broadly
consistent with the principles as in force from time to time is
necessary to ensure that the requirement is flexible and
responsive to changes in international standards and
requirements;
- A copy of the latest principles (published in May 2017) is
available from:
https://www.iosco.org/library/pubdocs/pdf/IOSCOPD561.pdf;
• whether the regulator is either a signatory to the Multilateral
Memorandum of Understanding Concerning Consultation and
Cooperation and the Exchange of Information, developed by the
International Organization of Securities Commissions or is otherwise a
party to any other effective cooperation arrangement with ASIC;
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Licensing exemptions for foreign financial services providers
• any relevant submissions received from the regulator or from any
entity in relation to the regulator or that regulatory regime;
- 'Entity' is defined in section 64A of the Corporations Act as
including a natural person, a body corporate (other than an
exempt public authority), a partnership or a trust. In this case,
entity would include a foreign financial services provider;
• any relevant advice (or assessment) received from ASIC;
- ASIC may, on its own initiative or upon request from the
Minister, give the Minister advice and/or an assessment on
whether a foreign regulatory regime satisfies the requirements
to be determined as administering a comparable regulatory
regime;
• any other matters prescribed by the regulations for the purposes of this
paragraph; and
• any other matter that the Minister considers relevant.
[Schedule 1, item 4, subsections 911W(2) and (3) of the Corporations Act]
1.201 The requirement for the Minister to have regard to these factors is intended to
provide assurance that the foreign financial services providers regulated by
these foreign regulatory regimes are subject to similar regulatory oversight as
Australian financial services licensees.
1.202 Once the Minister makes a determination that a regulator is a comparable
regulator, foreign financial services providers regulated by these regulators are
eligible to use the comparable regulator exemption and/or the fit and proper
person test exemption, subject to satisfying the other requirements for each of
these exemptions.
1.203 The Minister's power to make a legislative instrument determining comparable
regulators is considered appropriate and necessary to ensure the list of
regulators can be updated over time, as and when a regulator is determined as
administering a broadly comparable regulatory regime to the regulatory regime
administered by ASIC. In accordance with the Legislation Act 2003, a
legislative instrument made by the Minister is disallowable and subject to
sunsetting and will therefore be subject to appropriate parliamentary scrutiny
and periodic review.
1.204 The regulation-making power to prescribe other matters to which the Minister
must have regard is also appropriate and necessary to be flexible and
responsive to changes in global financial systems, regulatory regimes and
international standards. The regulations are subject to disallowance and
therefore subject to appropriate parliamentary scrutiny.
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Application and transitional provisions
1.205 The professional investor exemption and the comparable regulator exemption
apply in relation to financial services provided on and after the day Schedule 1
commences.
[Schedule 1, item 10, section 1695 of the Corporations Act]
1.206 Schedule 1 commences on 1 April 2023, which aligns with the end of the
transitional arrangements for the existing ASIC relief instruments (sufficient
equivalence relief and limited connection relief).
1.207 The fit and proper person test exemption for an application for an Australian
financial services licence made under section 913A of the Corporations Act
applies to applications made on, or after, the commencement of Schedule 1.
[Schedule 1, item 10, subsection 1695A(1) of the Corporations Act]
1.208 Applications for an Australian financial services licence made prior to
commencement of Schedule 1, including applications that remain on foot
(which have yet to be decided as at commencement), remain subject to the
existing requirements and must satisfy the fit and proper person test in
accordance with the requirements in section 913BA of the Corporations Act.
1.209 The fit and proper person test exemption for an application to impose, vary or
revoke a condition on an existing licence made under section 914A of the
Corporations Act apply to applications made on or after the commencement of
Schedule 1. The exemption applies whether the licence was granted before, on,
or after the commencement of this Schedule.
[Schedule 1, item 10, subsection 1695A(2) of the Corporations Act]
1.210 Applications to impose, vary or revoke licence condition that are on foot at the
time Schedule 1 commences are subject to the requirements that were in force
at the time the application was made.
1.211 Schedule 1 provides that the Minister may, by legislative instrument, determine
regulators that administer broadly comparable regulatory regimes for the
purposes of the comparable regulator exemption and the fit and proper person
test exemption.
1.212 For administrative efficiency, regulators that have already been assessed by
ASIC as having comparable regulatory regimes by a similar process, prior to
the commencement of Schedule 1, will be taken to be comparable regulators
for the purposes of the first legislative instrument made under
subsection 911W(1) of the Corporations Act, if the Minister is satisfied that:
• the regulator can be identified from a legislative instrument made by
ASIC and in force immediately before the commencement of this
section;
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Licensing exemptions for foreign financial services providers
• the regulator is responsible for regulating the provision of financial
services by providers in a place outside this jurisdiction; and
• the legislative instrument exempted those providers from certain
provisions of Part 7.6 in relation to the provision of financial services.
[Schedule 1, item 10, section 1695B of the Corporations Act]
1.213 Subject to the Minister's decision, this may result in the following regulatory
authorities, which are specified in the ASIC Corporations (Foreign Financial
Services Providers--Foreign AFS Licensees) Instrument 2020/198, being taken
to be comparable regulators for the purposes of the first legislative instrument
to be made by the Minister:
• US Securities and Exchange Commission (US SEC);
• US Federal Reserve and Office of the Comptroller of the Currency
(OCC);
• US Commodity Futures Trading Commission (US CFTC);
• Monetary Authority of Singapore (Singapore MAS);
• Hong Kong Securities and Futures Commission (Hong Kong SFC);
• Bundesanstalt für Finanzdienstleistungsaufsicht of Germany (German
BaFin);
• Luxembourg Commission de Surveillance du Secteur Financier
(CSSF);
• UK Financial Conduct Authority or Prudential Regulatory Authority
(UK FCA or PRA);
• Danish Financial Supervisory Authority (Danish FSA);
• Finansinspektionen (Swedish FI);
• Autorité des Marches Financiers of France (French AMF);
• Autorité de contrôle prudentiel et de resolution of France (French
ACPR); and
• Ontario Securities Commission (Ontario OSC).
1.214 Subject to the Minister's decision, it is expected that these regulators will be
deemed comparable regulators at the commencement of Schedule 1 on
1 April 2023.
1.215 However, this is not intended to limit the Minister's power to determine
regulators. The Minister will be able to determine regulators that have not
previously been determined as administering comparable regulatory regimes
by ASIC following a full assessment process.
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Financial reporting and
auditing requirements for registrable
superannuation entities
Table of Contents:
Outline of chapter ................................................................................ 52
Context of amendments ....................................................................... 52
Summary of new law............................................................................ 53
Comparison of key features of new law and current law ...................... 55
Detailed explanation of new law .......................................................... 56
Key definitions ............................................................................... 57
Registrable superannuation entities .............................................. 64
Record-keeping requirements for registrable superannuation entities
...................................................................................................... 66
Financial reporting requirements for registrable superannuation
entities ........................................................................................... 69
Auditing requirements for registrable superannuation entities....... 79
Relief from the requirements in Chapter 2M of the Corporations Act
.................................................................................................... 112
Disclosure of information ............................................................. 113
Application and transitional provisions ............................................... 114
Commencement and application provisions ................................ 114
Transitional provisions................................................................. 115
51
Financial reporting and auditing requirements for registrable superannuation entities
Outline of chapter
2.1 Schedule 2 to the Bill amends the Corporations Act, the ASIC Act and
the SIS Act to extend and adapt the financial reporting and auditing
requirements in Chapter 2M of the Corporations Act to apply to registrable
superannuation entities.
2.2 The financial reporting requirements require the RSE licensee for a registrable
superannuation entity to:
• prepare and lodge financial reports for each financial year with ASIC;
• make the financial report, directors' report and auditor's report for
each financial year publicly available on the entity's website;
• include details on how to access the financial report, directors' report
and auditor's report for a financial year with the notice of the annual
members' meeting; and
• provide the entity's financial reports for a specified financial year to a
member upon request.
2.3 The auditing requirements require the RSE licensee for a registrable
superannuation entity to appoint an individual auditor, audit firm or audit
company to conduct an audit of the entity and for the auditor to:
• prepare an auditor's report for an audit of an entity's financial report;
• report specified matters to the relevant Regulator;
• meet auditor independence and rotation requirements; and
• prepare, lodge and publish auditor transparency reports, if required.
2.4 The purpose of these amendments is to impose financial reporting obligations
on registrable superannuation entities that are consistent with those that
currently apply to public companies and registered schemes. This builds on
other measures in recent years, including the Government's Your Future, Your
Super package, to improve the compliance and transparency of the
superannuation sector.
Context of amendments
2.5 Prior to the amendments in Schedule 2, superannuation funds were subject to
different financial reporting obligations than public companies and registered
schemes. In particular there was no requirement for registrable superannuation
entities to lodge financial reports with ASIC or make them publicly available
to members. While superannuation funds were required to provide financial
information and data to APRA, this information was not subject to monitoring
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and enforcement action by ASIC to ensure compliance with the relevant
accounting and auditing standards.
2.6 Superannuation is important to the Australian economy and to ensure that
Australians have sufficient financial resources in their retirement. As at
30 September 2021, superannuation funds with more than four members had a
combined value of $2.3 trillion, almost the same value as all listed companies
in Australia ($2.5 trillion). Superannuation funds with more than four members
also collectively own around 20 per cent or $509.5 billion of all shares in the
Australian Stock Exchange. Given the importance of superannuation and the
need for trust and transparency in the sector, Schedule 2 requires these entities
to prepare financial reports in accordance with Australian Accounting
Standards and for these reports to be lodged on the public record with ASIC.
2.7 Requiring registrable superannuation entities to lodge financial reports with
ASIC will increase the transparency of financial information and enable
stronger enforcement action to be taken to promote compliance with the
financial reporting requirements.
2.8 Schedule 2 complements and leverages the recent changes to ASIC and
APRA's roles in the regulation of superannuation made by the
Financial Sector Reform (Hayne Royal Commission Response) Act 2020,
which came into force on 1 January 2021, by providing for:
• ASIC to perform the role of 'conduct regulator' by extending and
adapting the financial reporting and auditing requirements of
Chapter 2M of the Corporations Act to apply to registrable
superannuation entities; and
• APRA to continue to perform the role of 'prudential regulator' by
being responsible for the establishment and enforcement of prudential
standards and practices required to ensure a stable, efficient and
competitive financial system.
2.9 These amendments also ensure consistency of auditing requirements across
the Corporations Act and SIS Act, by providing for audit firms and audit
companies to also be able to be appointed as the auditor of a registrable
superannuation entity.
Summary of new law
2.10 Schedule 2 amends the Corporations Act, the ASIC Act and the SIS Act to
extend and adapt the financial reporting and auditing requirements in Chapter
2M of the Corporations Act to apply to registrable superannuation entities.
2.11 The financial reporting requirements require RSE licensees for registrable
superannuation entities to do all of the following:
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Financial reporting and auditing requirements for registrable superannuation entities
• keep relevant records for the preparation of correct financial reports;
• prepare a financial report and a directors' report for each financial
year;
• have these financial reports audited and obtain a copy of the auditor's
report;
• lodge the financial report, directors' report and auditor's report for
each financial year with ASIC;
• make the financial report, directors' report and auditor's report
publicly available on the entity's website;
• include details of how to access the entity's financial report, directors'
report and auditor's report with the notice of the annual members'
meeting; and
• provide a copy of the financial report, directors' report and auditor's
report for a specified financial year to a member upon request.
2.12 An RSE licensee is required to appoint an individual auditor, audit firm or
audit company to conduct an audit of the entity's financial reports within one
month of the entity being registered as a registrable superannuation entity.
Transitional provisions apply for entities already registered prior to the date
these requirements commence.
2.13 The auditor of the entity must:
• meet the eligibility requirements to be appointed as the auditor of a
registrable superannuation entity;
• prepare an auditor's report for an audit of a financial report for a
financial year that complies with the auditing standards and provides a
true and fair view of the entity's financial position and performance;
• report suspected contraventions and attempts to interfere with the
proper conduct of an audit;
• comply with auditor independence requirements to identify, resolve
and disclose conflict of interest situations;
• comply with auditor rotation requirements; and
• prepare, lodge and publish auditor transparency reports, if the auditor
conducts ten or more audits of certain types of entities during a
transparency reporting period.
2.14 Where an audit firm or company is appointed as the auditor of a registrable
superannuation entity, the lead auditor for the audit is also subject to certain
obligations, including compliance with the eligibility and fit and proper person
requirements and reporting specified matters to the relevant Regulator.
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Comparison of key features of new law and
current law
Table 2.1 Comparison of new law and current law
New law Current law
Record-keeping
For a year of income beginning on or after Trustees of a registrable superannuation
1 July 2023, the RSE licensee for a entity are required to keep accounting
registrable superannuation entity must keep records for five years.
financial and accounting records for seven
years.
Financial reporting
The RSE licensee for a registrable Registrable superannuation entities are
superannuation entity must lodge a financial required to provide APRA specified
report, a directors' report and an auditor's information on the entity's business
report for each financial year with ASIC. operations for each year of income and each
Financial reports comprise of financial quarter, in accordance with superannuation
statements, notes and a directors' reporting standards made under the
declaration. Financial Sector (Collection of Data) Act
2001.
Appointment of auditors
An RSE licensee must appoint an individual An RSE licensee must only appoint an
auditor, audit firm or audit company to individual to conduct an audit of a registrable
conduct an audit of a registrable superannuation entity under the SIS Act.
superannuation entity. The auditor must
comply with duties and obligations under
both the Corporations Act and SIS Act.
Auditor reporting obligations
An individual auditor, an audit company, RSE auditors have an obligation to report
members of an audit firm, or the lead suspected contraventions of the SIS Act, the
auditor (for an audit conducted by an audit SIS Regulations, prudential standards and the
firm or company) must report: Financial Sector (Collection of Data)
Act 2001 to APRA.
• suspected contraventions of the
Corporations Act to ASIC; and
• suspected contraventions of the
SIS Act to APRA.
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Financial reporting and auditing requirements for registrable superannuation entities
New law Current law
Auditor independence requirements
Individual auditors, audit companies, The auditor of a registrable superannuation
members of an audit firm and directors of entity is subject to auditor independence
an audit company are subject to auditor requirements in the prudential standards,
independence requirements under the which are substantially consistent with the
Corporations Act. auditor independence requirements in the
Corporations Act.
Auditor rotation requirements
An individual must not play a significant The prudential standards provide that the
role in the audit of a registrable individual auditor of registrable
superannuation entity for more than five superannuation entity must not play a
successive years. significant role in the audit of a registrable
The directors of a registrable superannuation entity for more than five
superannuation entity or ASIC may grant an successive years unless an exemption is
approval to extend this period for up to an granted by APRA.
additional two successive years. Before
ASIC may grant an approval, it must
consult with APRA. If approved,
notification of this approval (by directors or
ASIC) must be provided to APRA and be
included in the directors' report for the
registrable superannuation entity.
Auditor transparency reporting
The auditor of a registrable superannuation No equivalent.
entity is required to prepare, lodge and
publish an auditor transparency report if the
auditor conducts ten or more audits of
specified types of entities, including
registrable superannuation entities, during
the transparency reporting year.
Detailed explanation of new law
2.15 Schedule 2 amends the Corporations Act, the ASIC Act and the SIS Act to
extend and adapt the financial reporting and auditing requirements in
Chapter 2M of the Corporations Act to apply to registrable superannuation
entities.
2.16 The purpose of these amendments is to:
• improve the quality and transparency of financial reports prepared for
registrable superannuation entities;
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• improve public access to, and facilitate industry analysis and scrutiny
of, financial reports prepared for registrable superannuation entities;
• increase the accountability of RSE licensees in the preparation of
financial reports;
• ensure registrable superannuation entities are subject to financial
reporting and auditing requirements that are consistent with the
requirements that currently apply to companies and registered
schemes; and
• strengthen enforcement and monitoring of an entity's compliance with
their duties and obligations in relation to financial reporting.
Key definitions
2.17 Schedule 2 amends or inserts new definitions for the following terms in the
Corporations Act:
Table 2.2 Definitions in the Corporations Act
Definition Meaning
Audit company A company that consents to be appointed, or
is appointed, as auditor of a company,
registered scheme or registrable
superannuation entity.
Audit-critical employee In relation to a company, or the responsible
entity for a registered scheme, or a
registrable superannuation entity, that is the
audited body for an audit, means a person
who:
• is an employee of the company, of the
responsible entity for the registered
scheme, or of the RSE licensee for the
registrable superannuation entity; and
• is able, because of the position in which
the person is employed, to exercise
significant influence over:
- a material aspect of the contents
of the financial report being
audited; or
- the conduct or efficacy of the
audit.
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Financial reporting and auditing requirements for registrable superannuation entities
Definition Meaning
Audited body In relation to an audit of a company,
registered scheme or registrable
superannuation entity, means the company,
registered scheme or registrable
superannuation entity in relation to which
the audit is, or is to be, conducted.
Audit firm A firm that consents to be appointed, or is
appointed, as auditor of a company,
registered scheme or registrable
superannuation entity.
Auditor for the purposes of the RSE licensee An auditor appointed in fulfilment of a
law requirement imposed by a provision of the
RSE licensee law.
Consolidated entity A company, registered scheme, registrable
superannuation entity or disclosing entity
together with all the entities it is required by
the accounting standards to include in
consolidated financial statements.
Director For the purposes of Chapter 2M of the
Corporations Act, director of a registrable
superannuation entity means:
• if the RSE licensee for the entity is a
constitutional corporation or a body
corporate--a director of the
constitutional corporation or body
corporate; or
• if the RSE licensee for the entity is a
group of individual trustees--each of
those trustees.
Constitutional corporation is defined as a
body corporate that is:
• a trading corporation formed within the
limits of the Commonwealth (within
the meaning of paragraph 51(xx) of the
Constitution); or
• a financial corporation formed within
the limits of the Commonwealth
(within the meaning of paragraph
51(xx) of the Constitution).
Financial year The financial year for a registrable
superannuation entity is the entity's year of
income (within the meaning of the SIS Act).
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Definition Meaning
Individual auditor An individual who consents to be appointed,
or is appointed, as auditor of a company,
registered scheme or registrable
superannuation entity.
Lead auditor If an audit firm or audit company conducts
an audit of a company, registered scheme or
registrable superannuation entity, the lead
auditor for the audit is the registered
company auditor who is primarily
responsible to the audit firm or the audit
company for the conduct of the audit.
Officer of a registrable superannuation For the purposes of Chapter 2M of the
entity Corporations Act, officer of a registrable
superannuation entity means:
• if the RSE licensee for the entity is a
constitutional corporation or a body
corporate--an officer of the
constitutional corporation or body
corporate; or
• if the RSE licensee for the entity is a
group of individual trustees:
- each of those trustees; or
- a person who makes, or
participates in making, decisions
that affect the whole, or a
substantial part, of the business of
the entity; or
- a person who has the capacity to
affect significantly the entity's
financial standing.
Play a significant role A person plays a significant role in the audit
of a company, a registered scheme or a
registrable superannuation entity for a
financial year if:
• the person is appointed as an individual
auditor of the company, scheme or
entity for that financial year and:
- acts as an auditor for the
company, scheme or entity for
that financial year; or
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Financial reporting and auditing requirements for registrable superannuation entities
Definition Meaning
- prepares an audit report for the
company, scheme or entity in
relation to a financial report of the
company, scheme or entity for
that financial year or for a
half-year falling within that
financial year; or
• a firm or company is appointed as an
auditor of the company, scheme or
entity for that financial year and the
person:
- is a registered company auditor;
and
- acts, on behalf of the firm or
company, as a lead auditor, or
review auditor, in relation to an
audit of the company, scheme or
entity for that financial year or for
a half-year falling within that
financial year.
Professional members of the audit team If an individual auditor, audit firm or audit
company conducts an audit of a company,
registered scheme or registrable
superannuation entity, the professional
members of the audit team are:
• any registered company auditor who
participates in the conduct of the audit;
• any other person who participates in the
conduct of the audit and, in the course
of doing so, exercises professional
judgment in relation to the application
of or compliance with:
- accounting standards; or
- auditing standards; or
- the provisions of the Corporations
Act dealing with financial
reporting and the conduct of
audits; and
• any other person who is in a position to
directly influence the outcome of the
audit because of the role they play in
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Definition Meaning
the design, planning, management,
supervision or oversight of the audit;
• any person who recommends or decides
what the lead auditor is to be paid in
connection with the performance of the
audit; and
• any person who provides, or takes part
in providing, quality control for the
audit.
Registrable superannuation entity • When used in a provision outside
Chapter 2M of the Corporations Act or
an associated definition--has the same
meaning as in the SIS Act; and
• When used in Chapter 2M of the
Corporations Act or an associated
definition--means a registrable
superannuation entity (within the
meaning of the SIS Act), but does not
include the following:
- an exempt public sector
superannuation scheme (within
the meaning of the SIS Act);
- an excluded approved deposit
fund (within the meaning of the
SIS Act); or
- a small APRA fund (within the
meaning of section 1017BB of the
Corporations Act).
Section 10 of the SIS Act defines registrable
superannuation entity as:
• a regulated superannuation fund; or
• an approved deposit fund; or
• a pooled superannuation trust;
but does not include a self managed
superannuation fund.
For the purposes of this definition, each of
the following is an associated definition:
• the definition of audit company;
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Financial reporting and auditing requirements for registrable superannuation entities
Definition Meaning
• the definition of audit critical
employee;
• the definition of audited body;
• the definition of audit firm;
• the definition of consolidated entity;
• the definition of director;
• the definition of financial year;
• the definition of individual auditor;
• the definition of officer of a registrable
superannuation entity;
• the definition of play a significant role;
and
• the definition of RSE remuneration
report.
Review auditor If an individual auditor, audit firm or audit
company conducts an audit of a company,
registered scheme or registrable
superannuation entity, the review auditor for
the audit is the registered company auditor
(if any) who is primarily responsible to the
individual auditor, the audit firm or the audit
company for reviewing the conduct of the
audit.
RSE licensee law Has the same meaning as in the SIS Act.
RSE licensee law is defined in section 10 of
the SIS Act as:
• the SIS Act and the SIS Regulations;
• the prudential standards;
• the Financial Sector (Collection of
Data) Act 2001;
• the Financial Institutions Supervisory
Levies Collection Act 1998;
• the provisions of the Corporations Act
listed in a subparagraph of paragraph
(b) of the definition of regulatory
provision in section 38A of the SIS Act
or specified in the SIS Regulations; and
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Definition Meaning
• any other provisions of any other law of
the Commonwealth specified in
regulations made for the purposes of
this paragraph.
RSE Renumeration report The section of the directors' report for a
financial year for a registrable
superannuation entity that is included under
subsection 300C(1) of the Corporations Act.
[Schedule 2, items 1 to 18, 77, 87, 88 and 174, sections 9, 323DAAA, 324AE, 324AF,
345AAC and 345AAD of the Corporations Act]
2.18 Schedule 2 also amends or inserts new definitions for the following terms in
the SIS Act:
Table 2.3 Definitions in the SIS Act
Definition Meaning
Individual RSE auditor An individual who is appointed as auditor of
a registrable superannuation entity.
Lead auditor If an RSE audit firm or RSE audit company
conducts an audit of a registrable
superannuation entity, the lead auditor for
the audit is the registered company auditor
who is primarily responsible to the RSE
audit firm or the RSE audit company for the
conduct of the audit.
Registered company auditor Has the same meaning as in the
Corporations Act.
Registered company auditor is defined in
section 9 of the Corporations Act as:
• a person registered as an auditor under
Part 9.2; and
• in relation to a body corporate that is
not a company--includes a person
qualified to act as the body's auditor
under the law of the body's
incorporation.
RSE audit company A company that is appointed as auditor of a
registrable superannuation entity.
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Financial reporting and auditing requirements for registrable superannuation entities
RSE audit firm A firm that is appointed as auditor of a
registrable superannuation entity.
RSE auditor RSE auditor means:
• an individual RSE auditor;
• an RSE audit firm; or
• an RSE audit company.
[Schedule 2, items 196 to 198, sections 10 and 11F of the SIS Act]
Registrable superannuation entities
2.19 For the purposes of Chapter 2M of the Corporations Act, a registrable
superannuation entity includes regulated superannuation funds, approved
deposit funds and pooled superannuation trusts, but does not include self-
managed superannuation funds, exempt public sector superannuation schemes,
excluded approved deposit funds or small APRA funds.
2.20 Exempt public sector superannuation schemes are explicitly excluded from the
Chapter 2M definition of 'registrable superannuation entity', to avoid any
ambiguity or uncertainty.
2.21 The definition of 'registrable superannuation entity' for the purposes of
Chapter 2M of the Corporations Act is narrower than the definition of
'registrable superannuation entity' in the SIS Act. This means that some
entities currently regulated under the SIS Act may not be required to comply
with the financial reporting and auditing obligations in Chapter 2M of the
Corporations Act.
2.22 For the purposes of Chapter 2M of the Corporations Act, an obligation
imposed on a registrable superannuation entity is required to be discharged by
the RSE licensee for the entity.
[Schedule 2, items 26 and 174, subsection 285(3A) and section 345AAA of
the Corporations Act]
2.23 Similarly, if a notice, direction or other document is given to an RSE licensee
for a registrable superannuation entity under Chapter 2M of the
Corporations Act, that notice, direction or document is taken to have been
given to the registrable superannuation entity.
[Schedule 2, item 174, section 345AAB of the Corporations Act]
2.24 'RSE licensee' is defined in section 10 of the SIS Act as a constitutional
corporation, body corporate, or group of individual trustees, that holds a
registrable superannuation entity licence granted under section 29D of the
SIS Act.
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2.25 Schedule 2 amends the requirements for a registrable superannuation entity
licence by requiring RSE licensees to comply with the requirements of the RSE
licensee law and Chapter 2M of the Corporations Act. In granting a licence:
• APRA must have no reason to believe that the body corporate or group
of individual trustees would fail to comply with the RSE licensee law
or Chapter 2M of the Corporations Act if the licence were granted;
• RSE licensees are required to comply with the RSE licensee law and
Chapter 2M of the Corporations Act, as a condition imposed on all
registrable superannuation entity licences granted by APRA; and
- If the RSE licensee is a group of individual trustees, this
obligation is imposed on each of those trustees;
- If an RSE licensee breaches a licence condition, APRA may
give the RSE licensee a direction under section 131D of the
SIS Act;
• an RSE licensee must notify APRA if the licensee becomes aware that
it has breached, or will breach, a condition imposed on its licence and
the breach is, or will be, significant;
- In determining whether a breach is significant, the RSE
licensee must have regard to the extent to which the breach
indicates that the RSE licensee's arrangements to ensure
compliance with the RSE licensee law and Chapter 2M of the
Corporations Act are inadequate.
[Schedule 2, items 199 to 201, sections 29D, 29E and 29JA of the SIS Act]
2.26 A director of a registrable superannuation entity commits an offence if he or
she fails to take all reasonable steps to comply with, or secure compliance
with, all of the following requirements:
• Part 2M.2 of the Corporations Act (record-keeping);
• Part 2M.3 of the Corporations Act (financial reporting); and
• sections 324DAA, 324DAB and 324DAC of the Corporations Act
(approval to extend auditor rotation requirements).
[Schedule 2, item 173, section 344 of the Corporations Act]
2.27 Schedule 2 provides that the existing penalty provision in section 344 of the
Corporations Act applies to a director of a registrable superannuation entity. If
a director of a registrable superannuation entity fails to comply with these
obligations and that contravention is dishonest, the penalty for this offence is
15 years imprisonment.
2.28 'Dishonest' is defined in section 9 of the Corporations Act to mean dishonest
according to the standards of ordinary people.
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Financial reporting and auditing requirements for registrable superannuation entities
2.29 As with directors of companies and registered schemes, a director of a
registrable superannuation entity does not commit an offence under section 344
of the Corporations Act if he or she fails to comply with the requirement to
allow auditors access to the entity's books or give information, explanation or
assistance under section 312 of the Corporations Act.
Record-keeping requirements for registrable
superannuation entities
Corporations Act requirements
2.30 Schedule 2 requires financial records to be kept for all registrable
superannuation entities.
2.31 'Financial records' are defined in section 9 of the Corporations Act as
including:
• invoices, receipts, orders for the payment of money, bills of exchange,
cheques, promissory notes and vouchers;
• documents of prime entry; and
• working papers and other documents needed to explain the methods by
which financial statements are made up and adjustments to be made in
preparing financial statements.
2.32 The RSE licensee for a registrable superannuation entity must keep written
financial records that correctly record and explain the entity's transactions,
financial position and performance and would enable true and fair financial
statements to be prepared and audited.
[Schedule 2, items 20 and 27, sections 285 and 286 of the Corporations Act]
2.33 In accordance with the existing penalty provision in the Corporations Act, a
failure to comply with the record-keeping requirement is an offence. The
penalty for this offence is:
• two years imprisonment for a fault-based offence; or
• 60 penalty units for an offence of strict liability.
2.34 Schedule 2 does not create a new offence provision, instead, it extends the
application of the existing penalty provision for failing to comply with the
record-keeping requirements in section 286 of the Corporations Act to include
registrable superannuation entities.
2.35 An RSE licensee must retain the financial records for a registrable
superannuation entity for seven years after the transactions covered by the
records are completed. A failure to comply with this requirement is an offence.
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The penalty is two years imprisonment for a fault-based offence, or 60 penalty
units for an offence of strict liability.
2.36 Schedule 2 does not create a new offence provision, instead, it extends the
application of the existing penalty provision for failing to retain financial
records in section 286 of the Corporations Act to include registrable
superannuation entities.
2.37 In accordance with the existing requirements in Part 2M.2 of the
Corporations Act, financial records for a registrable superannuation entity may:
• be kept in any language -- but if the records are kept in a language
other than English, an English translation of the financial records must
be made available to inspect within a reasonable time to a person who
is entitled to inspect the records and asks for the English translation;
- This is an offence of strict liability - 60 penalty units;
• be kept in electronic form -- but if so, the records must be convertible
into hard copy and be made available within a reasonable time to a
person who is entitled to inspect the records; and
- This is an offence of strict liability - 60 penalty units;
• be kept in a location outside Australia -- but if so, sufficient written
information must be kept in Australia to enable the preparation of true
and fair financial statements and ASIC must be given written notice, in
the prescribed form, of the place where the information is kept;
- This is an offence of strict liability - 60 penalty units.
[Schedule 2, items 28 and 29, section 289 of the Corporations Act]
2.38 Consistent with the primary objective of the reform, to extend and adapt the
financial reporting and auditing requirements in Chapter 2M of the
Corporations Act to apply to registrable superannuation entities, Schedule 2
does not create new offence provisions. Instead, it extends the application of
the existing penalty provisions for failing to comply with the record-keeping
requirements in sections 287, 288 and 289 of the Corporations Act to include
registrable superannuation entities.
2.39 If financial records are kept outside Australia, ASIC may direct a registrable
superannuation entity to produce specified financial records. This direction
must specify where and when the records are to be produced. An entity must
be given at least 14 days after the direction is given to produce the specified
records.
[Schedule 2, item 30, section 289 of the Corporations Act]
2.40 A director of a registrable superannuation entity (or a person on behalf of the
director who has been authorised by the court) has a right to access the
financial records of the entity at all reasonable times.
[Schedule 2, item 31, section 290 of the Corporations Act]
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Financial reporting and auditing requirements for registrable superannuation entities
SIS Act requirements
2.41 To ensure that the record-keeping requirements for registrable superannuation
entities are consistent across the Corporations Act and the SIS Act, Schedule 2
makes the following consequential amendments to the record-keeping
requirements in the SIS Act:
• increasing the length of time that accounting records must be retained,
from five years after the end of the year of income to which the
transactions relate, to seven years;
- transitional provisions ensure that this amendment only applies
to records required to be kept for a year of income beginning
on or after 1 July 2023;
• removing the fault element for the following offence provisions (i.e.
these offence provisions will become exclusively strict liability
offences):
- to seek written approval from APRA to keep records outside
Australia;
- to keep records in English, or in a form that is readily
accessible and convertible into English;
- to notify APRA of the address where accounting records are
kept; and
- if the records are moved to a new location, to notify APRA of
the new address within the specified timeframe;
• increasing the penalty for strict liability offences from 50 penalty units
to 60 penalty units; and
• modifying the penalty for the remaining fault-based offences (to retain
specified accounting records and to keep accounting records for seven
years) from 100 penalty units to two years imprisonment.
[Schedule 2, items 212 to 216 and 272, section 35A of the SIS Act]
2.42 These consequential amendments to the existing penalty provisions for failing
to comply with record-keeping requirements in the SIS Act are intended to
ensure alignment with the equivalent offence provisions in the
Corporations Act.
2.43 The increased penalty (from 50 penalty units to 60 penalty units) for strict
liability offences under the SIS Act ensures consistency with the penalties
under the Corporations Act and remains within the maximum penalty amount
recommended by the Guide to Framing Commonwealth Offences (60 penalty
units for a natural person or 300 penalty units for a body corporate).
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2.44 To further ensure alignment between the Corporations Act and the SIS Act, the
accounting records kept by the RSE licensee must comply with the
requirements under both the RSE licensee law and Chapter 2M of the
Corporations Act by being kept in a way that enables:
• the preparation of reporting documents referred to in section 13 of the
Financial Sector (Collection of Data) Act 2001, as well as any other
documents required to be audited under the RSE licensee law or
Chapter 2M of the Corporations Act; and
• those documents to be conveniently and properly audited in
accordance with the RSE licensee law and Chapter 2M of the
Corporations Act.
[Schedule 2, items 210 and 211, section 35A of the SIS Act]
Financial reporting requirements for registrable
superannuation entities
2.45 Schedule 2 amends the financial reporting requirements for registrable
superannuation entities by requiring the RSE licensee for a registrable
superannuation entity to:
• prepare a financial report and a directors' report for each financial
year;
• obtain an auditor's report for the audit of the entity's financial report
for each financial year;
• lodge the financial report, directors' report and auditor's report for
each financial year with ASIC;
• make a copy of the financial report, directors' report and auditor's
report for a financial year publicly available on the entity's website;
• include details of how to access the entity's financial report, directors'
report and auditor's report on the entity's website with the notice of the
annual members' meeting; and
• provide a copy of the financial report, directors' report and auditor's
report for a specified financial year to a member upon request.
[Schedule 2, items 19, 21 to 25 and 175, section 285 and
subsection 1017C(3AA) of the Corporations Act]
Financial report - content, preparation and lodgement
2.46 Schedule 2 requires an RSE licensee for a registrable superannuation entity to
prepare and lodge (with ASIC) a financial report for each financial year.
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2.47 These financial reporting requirements are in addition to existing financial
reporting obligations, which require the trustees of a registrable superannuation
entity to prepare and lodge (with APRA) financial information in accordance
with the Financial Sector (Collection of Data) Act 2001 and the
superannuation reporting standards, which are made under section 13 of
that Act.
2.48 The RSE licensee for a registrable superannuation entity must prepare a
financial report and a directors' report for each financial year.
[Schedule 2, item 32, section 292 of the Corporations Act]
2.49 The financial report for a financial year must consist of:
• the financial statements required by the accounting standards;
• the notes to the financial statements required by the regulations and
accounting standards; and
• a declaration by the directors (directors' declaration) about the
financial statement and notes.
[Schedule 2, items 34 and 35, section 295 of the Corporations Act]
2.50 A registrable superannuation entity's financial report for a financial year must
comply with the accounting standards and give a true and fair view of the
financial position and performance of the entity.
[Schedule 2, item 36, section 297 of the Corporations Act]
2.51 The accounting standards are made under section 334 of the Corporations Act,
which provides that the Australian Accounting Standards Board may make
accounting standards, by legislative instrument, for the purposes of the
Corporations Act. An accounting standard applies to:
• periods ending after the commencement of the standard,
• periods ending after, or starting, on or after a later date specified in the
standard; or
• an earlier period, unless the standard says otherwise, in accordance
with an election made in writing by the directors of a registrable
superannuation entity.
[Schedule 2, item 162, section 334 of the Corporations Act]
2.52 The RSE licensee for a registrable superannuation entity is also required to
prepare a directors' report for each financial year. The directors' report must be
made in accordance with a resolution of the directors and include:
• the general information required by section 299 of the
Corporations Act, which includes information about the operations and
activities of the entity;
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• a copy of the auditor's independence declaration required under
section 307C of the Corporations Act;
• the date on which the report was made and the signature of a director
of the entity;
• details of the remuneration of each member of the key management
personnel for the registrable superannuation entity and any other
matters relating to remuneration prescribed in the
Corporations Regulations - this information is required to be included
in the directors' report under the heading 'Remuneration report';
• details of any payments made to the auditor for non-audit services
provided by the auditor, by another person or firm on the auditor's
behalf - this information is required to be included in the directors'
report under the heading 'Non-audit services'. This section of the
report must include:
- the name of the auditor of the entity and the dollar amount paid
by the registrable superannuation entity or the RSE licensee for
the entity for each of those non-audit services; and
- a statement as to whether the directors are satisfied, and their
reasons for this view, that the provision of non-audit services
was compatible with the general standard of auditor
independence. This statement must be made in accordance
with advice provided by the entity's audit committee; and
• if approval has been granted by the directors of the registrable
superannuation entity or a declaration has been made by ASIC for an
extension of the auditor rotation requirements in Division 5 of
Part 2M.4 of the Corporations Act - the details of the approval or
declaration.
[Schedule 2, items 37 to 41 and 41, sections 298, 299, 300 and 300C of the
Corporations Act]
2.53 For the purposes of the RSE remuneration report, which is required to be
included in the directors' report, 'key management personnel' is defined in
accordance with the existing definition in the accounting standards (Australian
Accounting Standard 124 - Related Party Disclosures). The standard defines
'key management personnel' as those persons that have authority and
responsibility for planning, directing and controlling the activities of the entity,
directly or indirectly, including any director (whether executive or otherwise)
of that entity.
• Australian Accounting Standard 124 was made by the Australian
Accounting Standards Board under section 334 of the
Corporations Act.
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2.54 Schedule 2 provides for regulations to be made setting out other matters
relating to remuneration that must be included in the directors' report. Without
limiting the matters that the regulations may provide for, the regulations may
prescribe:
• the way in which the value of an element of remuneration is to be
determined; and
• the details of remuneration that must relate to the financial year to
which the directors' report relates and earlier financial years specified
in regulations.
[Schedule 2, item 44, section 300C of the Corporations Act]
2.55 This regulation-making power is necessary and appropriate to ensure that the
types of information required to be included in the directors' report are able to
be updated as required to support the policy objectives of ensuring that
financial reports for registrable superannuation entities are transparent and
accountable. In accordance with the Legislation Act 2003, regulations are
subject to disallowance and therefore subject to appropriate parliamentary
scrutiny.
2.56 Schedule 2 also provides for regulations to be made prescribing the
requirements for:
• a financial report and directors' report prepared for a registrable
superannuation entity; and
• lodgement of a financial report or a director's report prepared for a
registrable superannuation entity.
[Schedule 2, items 33 and 69, sections 292 and 319 of the Corporations Act]
2.57 These regulation-making powers are necessary to enable regulations to be
made prescribing alternative requirements for the form and lodgement of
financial reports to ensure the long-term flexibility of the financial reporting
requirements by keeping up with future technological changes. In accordance
with the Legislation Act 2003, regulations are subject to disallowance and
therefore subject to appropriate parliamentary scrutiny.
2.58 An RSE licensee must have the financial report for a financial year audited and
obtain a copy of the auditor's report.
[Schedule 2, item 45, section 301 of the Corporations Act]
2.59 An RSE licensee for a registrable superannuation entity must lodge the
financial report for a financial year with ASIC within three months after the
end of the financial year for the registrable superannuation entity.
[Schedule 2, items 66 and 68, section 319 of the Corporations Act]
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2.60 The financial year for a registrable superannuation entity is the same as the
entity's 'year of income', within the meaning of the SIS Act. In most cases, the
entity's year of income is the 12-month period commencing on 1 July of any
given year, except in the case of companies and taxpayers with substituted
accounting periods. This means that if an entity's year of income is other than
the 12-month period beginning on 1 July, the entity's year of income will be
taken to be the financial year for that entity for the purposes of the financial
reporting requirements in Chapter 2M of the Corporations Act.
[Schedule 2, items 10 and 77, section 9 and subsection 323DAAA(1) of the
Corporations Act]
2.61 For example, if a registrable superannuation entity's year of income
commences on 1 April each year, the RSE licensee for that entity is required to
prepare and lodge a financial report for a financial year for the period from
1 April to 31 March of the following year.
2.62 The timing for lodgement of financial reports is intended to align with the
requirement to lodge financial information with APRA for a year of income
under the reporting standards (Reporting Standard SRS 320.0 - Statement of
Financial Position), which is made under paragraph 13(1)(a) of the
Financial Sector (Collection of Data) Act 2001.
2.63 A failure by an RSE licensee to lodge a financial report for a financial year
with ASIC within three months after the end of the entity's financial year is an
offence of strict liability. The penalty for this offence is 120 penalty units.
Schedule 2 does not create a new strict liability offence provision, instead, it
extends the application of the existing penalty provision for failing to lodge a
financial report in section 319 of the Corporations Act to include registrable
superannuation entities.
2.64 ASIC also has the power to give an RSE licensee for a registrable
superannuation entity a direction to lodge with ASIC a copy of the financial
report, directors' report and auditor's report for a financial year.
[Schedule 2, item 70, section 321 of the Corporations Act]
2.65 A failure to comply with a direction given by ASIC is an offence of strict
liability. The penalty for this offence is 30 penalty units. Again, Schedule 2
does not create a new offence provision, instead, it extends the application of
the existing penalty provision for failing to comply with an ASIC direction
under section 321 of the Corporations Act to include registrable
superannuation entities.
2.66 If a financial report or directors' report for a financial year is amended after
being lodged with ASIC, the RSE licensee for the registrable superannuation
entity must:
• lodge the amended report with ASIC within 14 days after the
amendment is made; and
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Financial reporting and auditing requirements for registrable superannuation entities
• make a copy of the amended report and a description of the
amendment publicly available on the entity's website on and after the
day the amended report is lodged with ASIC.
[Schedule 2, item 71, section 322 of the Corporations Act]
2.67 A failure to re-lodge and publish an amended financial report or directors'
report is an offence of strict liability. The penalty is 30 penalty units.
[Schedule 2, items 72 and 181, section 322 and Schedule 3 of the
Corporations Act]
2.68 Schedule 2 creates a new strict liability offence provision. In this case, a new
strict liability offence is necessary to deter non-compliance and promote the
integrity of the regulatory regime administered by ASIC. The penalty for this
offence is less than the maximum penalty amount for strict liability offences
recommended in the Guide to Framing Commonwealth Offences. This strict
liability offence is also required to ensure legislative consistency by imposing
the same penalty for equivalent offences committed by all entities regulated
under Chapter 2M of the Corporations Act.
Financial report - reporting to members
2.69 Schedule 2 streamlines the public reporting requirements for registrable
superannuation entities in the Corporations Act and the SIS Act.
2.70 An RSE licensee for a registrable superannuation entity must report to
members for a financial year by making the following documents publicly
available on the entity's website on and after the day the reports are lodged
with ASIC (i.e. within three months after the end of the financial year):
• the financial report for the financial year;
• the directors' report for the financial year; and
• the auditor's report on the financial report for the financial year.
[Schedule 2, items 64 and 65, section 314AA and subsection 315(3AA) of the
Corporations Act]
2.71 A failure to comply with this public reporting requirement is an offence of
strict liability, the penalty is 30 penalty units.
[Schedule 2, items 64 and 180, section 314AA and Schedule 3 of the
Corporations Act]
2.72 Schedule 2 creates a new strict liability offence. A strict liability offence is
necessary to strongly deter misconduct that can have serious detriment for
members of registrable superannuation entities. It is important that financial
reports are publicly available within a timely manner, to ensure members can
make informed decisions based on accurate reporting of the financial position
and performance of their superannuation fund. This offence provision is
intended to reduce non-compliance and improve the integrity of the regulatory
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regime enforced by ASIC and strengthen public confidence in the
superannuation system. The penalty for this offence is less than the maximum
penalty amount for strict liability offences recommended in the Guide to
Framing Commonwealth Offences and ensures legislative consistency by
imposing the same penalty for an equivalent offence for all of the entities
regulated under Chapter 2M of the Corporations Act.
2.73 Unlike the public reporting requirements that apply to companies and
registered schemes under section 314 of the Corporations Act, the RSE
licensee for a registrable superannuation entity is not required to do any of the
following:
• provide copies of the reports directly to members (electronically or in
hard copy);
• notify members that the reports are available;
• give members a choice as to how they receive reports; or
• provide concise reports in lieu of full financial reports.
[Schedule 2, item 67, section 319 of the Corporations Act]
2.74 The new reporting requirements for registrable superannuation entities are
adapted from the existing public reporting requirements in section 29QB of the
SIS Act and are intended to achieve a balance between ensuring that members
are adequately informed and reducing regulatory burden for RSE licensees.
2.75 To avoid duplication, Schedule 2 repeals the public reporting requirement in
section 29QB of the SIS Act, which requires certain information such as
remuneration information of executive officers or individual trustees of an RSE
licensee, to be made publicly available on the entity's website.
[Schedule 2, item 209, section 29QB of the SIS Act]
2.76 To ensure a smooth transition and limit the changes for RSE licensees, it is
intended that the existing requirements in regulations made under
section 29QB of the SIS Act will be re-made in the Corporations Regulations.
2.77 An RSE licensee for a registrable superannuation entity is also required to
provide a copy of the entity's financial report, directors' report and auditor's
report for a specified financial year on request by a concerned person.
[Schedule 2, item 175, subsection 1017C(3AA) of the Corporations Act]
2.78 In accordance with the existing requirements for giving documents to
concerned persons, the RSE licensee must comply with a request to give a
copy of a document, as soon as practicable, or in any event, make reasonable
efforts to comply with the request within one month of receiving the request.
2.79 A 'concerned person' in relation to a superannuation product is defined in
subsection 1017C(9) of the Corporations Act as a person who is, or was, within
the preceding 12 months, a member of the registrable superannuation entity, or
is a beneficiary of the entity.
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Financial reporting and auditing requirements for registrable superannuation entities
2.80 A failure by an RSE licensee to comply with a request under section 1017C of
the Corporations Act is an offence. The penalty is two years imprisonment.
[Schedule 2, items 175 and 185, subsection 1017C(3AA) and Schedule 3 of
the Corporations Act]
2.81 Schedule 2 creates a new offence provision. This offence provision is
necessary as it is considered important that members, who may not be able to
access documents from the entity's website, are able to access the entity's
financial reports in a timely manner, to ensure members can make informed
decisions based on accurate reporting of the financial position and performance
of their superannuation fund. This offence provision is intended to reduce non-
compliance and strengthen public confidence in the superannuation system. It
also ensures legislative consistency by imposing the same penalty as the
existing offence provision for the failure by an RSE licensee to provide other
documents to members upon request. In accordance with the Guide to Framing
Commonwealth Offences, strict liability is not available for an offence
punishable by imprisonment.
Annual members' meeting
2.82 In accordance with section 29P of the SIS Act, the RSE licensee for a
registrable superannuation entity must hold an annual members' meeting for
each year of income of the entity.
2.83 The annual members' meeting must be held within three months after the
notice of the meeting is given.
2.84 A notice of the meeting is required to be given no later than six months after
the end of the year of income of the entity. A notice of the annual members'
meeting is required to be given to:
• any individual, company or firm that has been an RSE auditor of the
registrable superannuation entity for the year of income of the entity;
and
• if that individual, company or firm is no longer the RSE auditor of the
registrable superannuation entity - the individual, company or firm that
is the current RSE auditor.
[Schedule 2, item 202, subsection 29P(2) of the SIS Act]
2.85 This ensures that all of the relevant persons in relation to an audit of a
registrable superannuation entity are given notice of the annual members'
meeting, in the event that the individual auditor, lead auditor or member of an
audit team may be required to attend the meeting.
2.86 The notice of the annual members' meeting must include details of how to
access each of the following documents on the entity's website:
• the financial report for the financial year of the entity;
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• the directors' report; and
• the auditor's report on the financial report.
[Schedule 2, item 203, paragraph 29P(3)(aa) of the SIS Act]
2.87 Allowing RSE licensees to provide details of how these reports can be
accessed, rather than being required to provide a copy of these documents with
the notice of an annual members' meeting, is intended to ensure that RSE
licensees have appropriate flexibility in providing information to members in a
timely, efficient, user-friendly and cost-effective manner.
2.88 The following persons, in relation to an audit of a registrable superannuation
entity, subject to being given a notice of the meeting, may be required to attend
an annual members' meeting:
• where an individual auditor has been the RSE auditor for the year of
income of the entity - the individual auditor must attend the meeting;
- If the individual RSE auditor is no longer practicing as an
auditor (i.e. has left the profession), the individual RSE auditor
(or the lead auditor for an audit that is being conducted by an
audit firm or company) that is the current RSE auditor must
attend the meeting;
• where an audit firm or company has been the RSE auditor for the year
of income of the entity - the person who was the lead auditor for the
audit must attend the meeting;
- If the lead auditor is no longer practicing as an auditor -
another member of the audit team involved in the conduct of
that audit must attend the meeting. If there is more than one
other member of the audit team who would be required to
attend the meeting, only one member is required to attend; and
- If the firm or company no longer conducts audits - the
individual auditor (or the lead auditor for an audit that is being
conducted by an audit firm or company) that is the current
RSE auditor must attend the meeting.
[Schedule 2, item 204, sections 29PA of the SIS Act]
2.89 To streamline requirements, the new requirements provide that only one person
is required to attend an annual members' meeting for an audit of a registrable
superannuation entity. The requirements are also intended to be flexible to take
into account the relevant circumstances, such as where an individual ceases to
practice as an auditor.
2.90 A failure by an individual auditor, a lead auditor or a member of an audit
team to attend an annual members' meeting is an offence. The penalty is
50 penalty units.
[Schedule 2, item 204, section 29PA of the SIS Act]
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Financial reporting and auditing requirements for registrable superannuation entities
2.91 Schedule 2 creates a new offence provision for a failure to attend an annual
members' meeting. The penalty for this contravention is the same as the
previous penalty that applied to individual auditors under the SIS Act. This
new offence provision is necessary to ensure continuity and consistency, and
takes into account the new auditing requirements, which allow audit firms and
audit companies to be appointed as auditor of a registrable superannuation
entity.
2.92 The requirement to attend an annual members' meeting does not apply to a
person if the person has a reasonable excuse for not attending.
[Schedule 2, item 205, subsection 29PA(5) of the SIS Act]
2.93 If a member of the entity asks a question at the annual members' meeting, the
person (an individual auditor, lead auditor or member of an audit team) who is
required to attend the annual members' meeting is required to answer the
question.
[Schedule 2, item 206, subsection 29PD(1) of the SIS Act]
2.94 The individual auditor, lead auditor or member of an audit team (as applicable)
must answer the question at the meeting, or if it not reasonably practicable to
do so, within one month after the meeting.
[Schedule 2, item 207, subsection 29PD(2) of the SIS Act]
2.95 The obligation to answer questions at the annual members' meeting does not
apply if the question is not relevant to:
• the RSE licensee for the entity;
• the registrable superannuation entity;
• an audit conducted by the individual, firm or company; or
• a matter that might reasonably be expected to be apparent to the
auditor of the entity in relation to the entity.
[Schedule 2, item 208, subsection 29PD(3) of the SIS Act]
2.96 A failure by a person to answer questions at, or after, the annual members'
meeting is an offence. The penalty is 50 penalty units.
[Schedule 2, item 207, subsection 29PD(2) of the SIS Act]
2.97 Schedule 2 does not create a new offence provision, instead, it extends the
application of the existing penalty provision in section 29PD of the SIS Act to
include lead auditors and members of an audit team (as applicable).
2.98 To avoid duplication of requirements, unlike for companies and registered
schemes, the requirements relating to annual general meetings (AGMs) in
section 317 of the Corporations Act do not apply to registrable superannuation
entities.
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Consolidated financial statements
2.99 Schedule 2 amends various provisions in the Corporations Act relating to the
preparation of consolidated financial statements to include references to
registrable superannuation entities. These provisions only apply where a
consolidated financial statement is required to be prepared.
2.100 Consolidated financial statements are not currently required to be prepared for
registrable superannuation entities because of the exemption in the Australian
accounting standard AASB 10 - Consolidated Financial Statements.
2.101 There are no plans to amend this accounting standard to require registrable
superannuation entities to prepare consolidated financial statements.
Consequently, these amendments are not intended to require registrable
superannuation entities to prepare consolidated financial statements.
[Schedule 2, items 40, 42, 43, 73 to 77 and 182, sections 299, 300, 323, 323A,
323B, 323C, 323DAAA and Schedule 3 to the Corporations Act]
2.102 The purpose of these amendments is to future proof the legislation, to
accommodate future events, such as AASB 10 - Consolidated Financial
Statements being amended to require registrable superannuation entities to
prepare consolidated financial statements.
Auditing requirements for registrable superannuation
entities
2.103 Schedule 2 amends the auditing requirements for registrable superannuation
entities. Under the new arrangements, the RSE licensee for a registrable
superannuation entity must appoint an individual auditor, audit firm or audit
company to conduct an audit of the entity.
2.104 The auditor of a registrable superannuation entity is required to:
• comply with eligible requirements to be the auditor of a registrable
superannuation entity;
• prepare an auditor's report for an audit of an entity's financial report
for a financial year;
• report certain matters (such as suspected contraventions) to the
relevant Regulator (ASIC or APRA);
• meet auditor independence and rotation requirements; and
• prepare, lodge and publish auditor transparency reports, if required.
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Financial reporting and auditing requirements for registrable superannuation entities
Appointing an auditor for a registrable superannuation entity
2.105 Schedule 2 sets out the requirements for the eligibility, appointment, removal
and fees for an auditor of a registrable superannuation entity.
2.106 An individual auditor, audit firm or audit company may be appointed as the
auditor of a registrable superannuation entity.
[Schedule 2, items 78 to 80 and 218, Division 1 of Part 2M.4, section 324AA
of the Corporations Act and subsection 35AC(1A) of the SIS Act]
2.107 However, unlike a company or registered scheme, a registrable superannuation
entity may only have one auditor at any given time. This ensures that the
requirement for a single individual to be responsible for an audit of a
registrable superannuation entity continues, despite the changes that permit the
appointment of an individual auditor, an audit firm or audit company. Where
an audit firm or audit company is appointed as an RSE auditor, the individual
responsibility, as set out in the prudential standard, will fall to the lead auditor
of the audit firm or audit company.
[Schedule 2, items 80 and 218, subsection 324AA(2) of the Corporations Act
and subsection 35AC(1A) of the SIS Act]
2.108 An auditor of a registrable superannuation entity has obligations under both
Chapter 2M of the Corporations Act and the RSE licensee law. The RSE
licensee for a registrable superannuation entity must ensure that the auditor of
the entity for the purposes of the RSE licensee law is also the individual, firm
or company that is the auditor of the entity for the purposes of Chapter 2M of
the Corporations Act (and vice versa).
[Schedule 2, items 80, 218, 223, 224 and 228, section 324AA of the
Corporations Act and section 35AC of the SIS Act]
2.109 An RSE licensee for a registrable superannuation entity is responsible for
appointing the auditor of the entity.
2.110 In regard to the initial appointment of an auditor for a registrable
superannuation entity:
• if the registrable superannuation entity becomes registered under
section 29M of the SIS Act, on or after 1 July 2023 - the RSE licensee
must appoint an auditor within one month after the day the entity is
registered by APRA; or
• if the registrable superannuation entity is registered under section 29M
of the SIS Act immediately before 1 July 2023 and the RSE licensee
for the entity has already appointed an auditor of the entity under the
SIS Act, then the existing auditor is taken to have been appointed as
auditor of the entity for the purposes of the Corporations Act from
1 July 2023.
[Schedule 2, item 160, section 331AF of the Corporations Act]
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2.111 From 1 July 2023, these requirements relating to the timing for the
appointment of an auditor of a registrable superannuation entity override the
requirement in the prudential standards (Prudential Standard SPS 310 - Audit
and Related Matters), which provide that an RSE licensee for an entity must
appoint an auditor no later than the last day of each year of income to which
the appointment relates.
2.112 If an RSE licensee fails to appoint an auditor of the registrable superannuation
entity in accordance with these requirements, the RSE licensee commits an
offence. If a director of a registrable superannuation entity fails to take all
reasonable steps to secure compliance with this requirement, the director also
commits an offence. The penalty for each of these offences is six months
imprisonment.
[Schedule 2, items 160 and 184, section 331AF and Schedule 3 of the
Corporations Act]
2.113 Schedule 2 creates new offence provisions for failing to comply with the
requirements for appointing an auditor of a registrable superannuation entity.
These offence provisions are necessary to strongly deter non-compliance of a
key obligation and strengthen the regulatory regime administered by ASIC.
The penalty for these offences is considered appropriate to ensure legislative
consistency by imposing the same penalty for an equivalent offence for all
entities regulated under Chapter 2M of the Corporations Act. In accordance
with the Guide to Framing Commonwealth Offences, strict liability does not
apply to an offence punishable by imprisonment.
2.114 The auditor of a registrable superannuation entity holds office until the auditor:
• dies;
• is removed or resigns from office;
• ceases to be capable of acting as auditor as a result of not being able to
meet any of the following requirements:
- Division 2 of Part 2M.4 of the Corporations Act (registration
requirements);
- Division 2A of Part 2M.4 of the Corporations Act (eligibility
requirements); or
- Division 5 of Part 2M.4 of the Corporations Act (auditor
rotation requirements);
• ceases to be the auditor for the purposes of the RSE licensee law; or
• does not remedy a conflict of interest situation and fails to notify ASIC
that the conflict of interest situation has been resolved within the
specified period (21 days, or further period approved by ASIC).
[Schedule 2, item 160, section 331AH of the Corporations Act]
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2.115 The requirements relating to the duration of an auditor's appointment override
the requirement in the prudential standards (Prudential Standard SPS 310
Audit and Related Matters), which provide that an RSE licensee for a
registrable superannuation entity must appoint an RSE auditor annually.
2.116 If there is a vacancy in the office of the auditor of a registrable superannuation
entity, the RSE licensee must, within one month after the vacancy occurs,
appoint an auditor to fill the vacancy.
[Schedule 2, item 160, section 331AG of the Corporations Act]
2.117 An RSE licensee that fails to comply with this obligation commits an offence.
If a director of a registrable superannuation entity fails to take all reasonable
steps to secure compliance with this requirement, the director also commits an
offence. The penalty for each of these offences is six months imprisonment.
[Schedule 2, items 160 and 184, section 331AG and Schedule 3 of the
Corporations Act]
2.118 Schedule 2 creates new offence provisions for failing to fill a vacancy in the
office of auditor of a registrable superannuation entity. These offence
provisions are considered necessary to strongly deter non-compliance and
strengthen the regulatory regime administered by ASIC. The penalty for these
offences is considered appropriate to ensure legislative consistency by
imposing the same penalty for an equivalent offence for all entities regulated
under Chapter 2M of the Corporations Act. In accordance with the Guide to
Framing Commonwealth Offences, strict liability does not apply to an offence
punishable by imprisonment.
2.119 If the RSE licensee for a registrable superannuation entity does not appoint an
auditor in compliance with the licensee's obligations, or upon application by a
member of the entity, ASIC may appoint an individual, firm or company as
auditor of the entity. ASIC may only do this if the individual, firm or company
consents to be appointed. If ASIC exercises this power to appoint an auditor of
the entity, ASIC must notify APRA of the appointment as soon as practicable
after making the appointment.
[Schedule 2, item 160, section 331AJ of the Corporations Act]
2.120 The reasonable fees and expenses incurred by the auditor of a registrable
superannuation entity are payable by the RSE licensee for the entity.
[Schedule 2, item 160, section 331AL of the Corporations Act]
Appointment of an individual auditor
2.121 An individual commits an offence if the person consents to be appointed as
auditor, acts as auditor, or prepares a report required to be prepared by an
auditor of a registrable superannuation entity and the person is not a registered
company auditor. The penalty is six months imprisonment.
[Schedule 2, item 89, section 324BA of the Corporations Act]
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2.122 Schedule 2 does not create a new offence provision, instead, it extends the
application of the existing penalty provision in section 324BA of the
Corporations Act to include registrable superannuation entities.
2.123 An individual also commits an offence if the individual consents to be
appointed as, acts as, or prepares a report required to be prepared by, an auditor
of a registrable superannuation entity, if the individual:
• does not meet the eligibility criteria to be the auditor of a registrable
superannuation entity set out in the prudential standards, made under
the SIS Act;
• has been disqualified from being, or acting as, the auditor of a
registrable superannuation entity under section 130D of the SIS Act; or
• is a member or employee of a firm that is disqualified under
section 130EA of the SIS Act; or
• is a director or employee of a company that is disqualified under
section 130EA of the SIS Act.
[Schedule 2, items 95 and 219 to 221, subsection 324BF(1) of the
Corporations Act and subsection 35AC(2) of the SIS Act]
2.124 The eligibility criteria for being, or performing the functions of, the auditor of
a registrable superannuation entity are designed to ensure that an individual is
able to comply with the requirements under both the Corporations Act and the
SIS Act. An individual who fails to comply with the eligible requirements for
being an auditor of a registrable superannuation entity commits an offence. The
penalty is six months imprisonment.
[Schedule 2, items 95 and 183, subsection 324BF(1) and Schedule 3 to the
Corporations Act]
2.125 Schedule 2 creates a new offence provision for failing to satisfy the eligibility
criteria for being an auditor of a registrable superannuation entity. This new
offence provision is necessary to ensure the integrity of the audit and is
consistent with the equivalent penalty for failing to comply with the eligibility
requirements to be appointed as auditor of a registered scheme under the
Corporations Act. In accordance with the Guide to Framing Commonwealth
Offences, strict liability is not applicable for offences punishable by
imprisonment.
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Appointment of an audit firm
2.126 The appointment of an audit firm as the auditor of a registrable superannuation
entity is taken to be an appointment of all persons, who at the time of the
appointment, are members of the audit firm and are registered company
auditors. This is not affected by the dissolution of the firm.
[Schedule 2, items 81 and 82, subsections 324AB(1) and (2) of the
Corporations Act]
2.127 If an audit firm appointed as the auditor of a registrable superannuation entity
is reconstituted as a result of the death, retirement, withdrawal of a member or
members, or the admission of a new member(s):
• a new member who is a registered company auditor is taken to have
been appointed as the auditor of a registrable superannuation entity
from the day of the person's admission to the firm; and
• the reconstitution of the firm does not affect the appointment of
continuing members of the firm who are registered company auditors
as the auditors of the registrable superannuation entity.
[Schedule 2, items 84 and 85, section 324AC of the Corporations Act]
2.128 For the purposes of criminal proceedings under the Corporations Act, an act or
omission by a member, employee or agent of the audit firm acting within the
actual or apparent scope of the person's employment, or apparent authority, is
also to be attributed to the audit firm.
2.129 However, in the case of criminal proceedings, a member of a firm does not
commit an offence, if the person:
• does not know of the circumstances that constitute the contravention;
or
• knows of those circumstances but takes all reasonable steps to correct
the contravention as soon as possible after becoming aware of those
circumstances.
[Schedule 2, items 59, 233, 235, 241, 243, 264, 265 and 267,
subsection 311(2G) of the Corporations Act and subsections 129A(3),
130AA(3), 130BAA(3), 130CA(3), 131B(2A), 131BA(1) and 131CC(3) of the
SIS Act]
2.130 These offence-specific defences reverse the evidential burden of proof as the
evidence needed to prove the defence is peculiarly within the knowledge of the
defendant (i.e. the member of an audit firm), who is in the best position to have
specific knowledge to raise evidence regarding their knowledge of the
circumstances, or what steps they took (if any) to correct the contravention. It
would be significantly more difficult and costly for the prosecution to disprove
this, than for the defendant to establish the matter.
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2.131 In accordance with subsection 13.3(3) of the Criminal Code Act 1995, a
defendant who wishes to rely on these defences, bears an evidential burden in
relation to that matter. Once the defendant discharges this evidential burden,
the onus is on the prosecution to disprove the matters beyond reasonable doubt.
2.132 Reversing the evidential burden of proof in these circumstances is considered
appropriate, because:
• this burden is limited to the codified exceptions and does not require
the defendant to positively prove their innocence of the offence; and
• it is consistent with the existing defence available to members of an
audit firm that applies in relation to offences that would otherwise by
committed by the audit firm under section 332G of the
Corporations Act.
2.133 A member of an audit firm commits an offence if, at the time a firm consents
to be, or performs the functions of, an auditor of a registrable superannuation
entity:
• strict liability offence - the firm does not satisfy the following
requirements:
- at least one member of the firm must be a registered company
auditor ordinarily resident in Australia;
- the firm's business name is registered; or
- a form has been lodged showing the full name and address of
each member of the firm.
• fault-based offence - a member of the firm is aware that the firm does
not satisfy the relevant requirements to be, or perform the functions of,
the auditor of a registrable superannuation entity.
[Schedule 2, items 90 and 91, section 324BB of the Corporations Act]
2.134 However, a member of an audit firm does not commit an offence in these
circumstances if the member either:
• does not know of the circumstances that constitute the contravention;
or
• does know of the circumstances but takes all reasonable steps to
correct the contravention as soon as possible after becoming aware of
those circumstances.
2.135 The penalty for a fault-based offence is six months imprisonment. The penalty
for a strict liability offence is 30 penalty units. Schedule 2 does not create
these new offence provisions, instead, it extends the application of the existing
penalty provisions in section 324BB of the Corporations Act to include
registrable superannuation entities.
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2.136 An audit firm commits an offence if the firm consents to be appointed as, acts
as, or prepares a report required to be prepared by, an auditor of a registrable
superannuation entity if:
• the firm is disqualified under section 130EA of the SIS Act; or
• the lead auditor for an audit of a registrable superannuation entity
conducted by the firm:
- does not meet the eligibility criteria in the prudential standards
made under the SIS Act; or
- has been disqualified from being, or acting as, an auditor (or
lead auditor) of a registrable superannuation entity under
section 130D of the SIS Act.
[Schedule 2, items 95 and 222, subsections 324BF(3) and (5) of the
Corporations Act and subsection 35AC(2A) of the SIS Act]
2.137 The eligibility criteria for being, or performing the functions of, the auditor of
a registrable superannuation entity are specifically designed to enable a firm to
be able to perform the functions and duties of an auditor under both the
Corporations Act and the SIS Act.
2.138 A member of an audit firm that fails to comply with the eligibility
requirements for being the auditor of a registrable superannuation entity
commits an offence. The penalty is six months imprisonment. Schedule 2
creates new offence provisions, which are necessary to ensure the integrity of
the audit and impose the same penalty as applicable to the members of an audit
firm appointed as an auditor of a registered scheme under the
Corporations Act. In accordance with the Guide to Framing Commonwealth
Offences, strict liability is not applicable for offences punishable by
imprisonment.
[Schedule 2, items 95 and 183, subsections 324BF(3) and (5) and Schedule 3
to the Corporations Act]
2.139 A report or notice is not taken to have been made by a firm appointed as the
auditor of a registrable superannuation entity unless the report or notice is
signed by a member of the firm who is a registered company auditor, both in
the firm's name and in their own name. A notice is taken to have been given to
the firm by giving the notice to a member of the firm.
[Schedule 2, item 83, subsection 324AB(3) of the Corporations Act]
Appointment of an audit company
2.140 For the purposes of criminal proceedings under the Corporations Act against a
director of an audit company, an act or omission by an officer, employee or
agent of the audit company acting within the actual or apparent scope of the
person's employment, or apparent authority, is also to be attributed to the audit
company.
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2.141 A company commits an offence if, at the time the company is or acts as the
auditor, or performs the functions of, the auditor of a registrable
superannuation entity, the company is not an authorised audit company.
2.142 Section 9 of the Corporations Act defines 'authorised audit company' as a
company registered under Part 9.2A of the Corporations Act.
2.143 The penalty for this offence is six months imprisonment. Schedule 2 does not
create a new offence provision, instead, it extends the application of the
existing penalty provision in section 324BC of the Corporations Act to include
registrable superannuation entities.
[Schedule 2, items 92, subsection 324BC(1) of the Corporations Act]
2.144 Similarly, a director of an audit company commits an offence if the company is
the auditor, or performs the functions of the auditor, of a registrable
superannuation entity if:
• at the time, the company is not an authorised audit company (strict
liability offence); or
• at the time, the person is aware that the company is not an authorised
audit company (fault-based offence).
[Schedule 2, items 93 and 94, subsections 324BC(2) and (3) of the
Corporations Act]
2.145 However, a director of an audit company does not commit an offence if the
director either:
• does not know of the circumstances that constitute the contravention;
or
• knows of the circumstances but takes all reasonable steps to correct the
contravention as soon as possible after becoming aware of those
circumstances.
2.146 The penalty for a fault-based offence is six months imprisonment. The penalty
for a strict liability offence is 30 penalty units. Schedule 2 does not create new
offence provisions, instead, it extends the application of the existing penalty
provisions in section 324BC of the Corporations Act to include registrable
superannuation entities.
2.147 As for an audit firm, a company commits an offence if the company consents
to be appointed as the auditor, acts as the auditor, or prepares a report required
to be prepared by an auditor of a registrable superannuation entity if:
• the company is disqualified under section 130EA of the SIS Act; or
• the lead auditor for an audit of a registrable superannuation entity
conducted by the company:
- does not meet the eligibility criteria in the prudential standards
made under the SIS Act; or
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- has been disqualified from being, or acting as, an auditor (or
lead auditor) of a registrable superannuation entity under
section 130D of the SIS Act.
[Schedule 2, items 995 and 222, subsections 324BF(2) and (4) of the
Corporations Act and subsection 35AC(2A) of the SIS Act]
2.148 In each case, the penalty applicable to an audit company for failing to comply
with these requirements is 300 penalty units. This penalty amount is calculated
as follows:
• the 'individual fine formula' in section 1311B of the Corporations Act
provides that the term of imprisonment (in months) is to be multiplied
by ten; and
• the 'multiplier rule' in the Guide to Framing Commonwealth Offences
provides that the penalty for a body corporate is five times higher than
for a natural person.
[Schedule 2, items 95 and 183, section 324BF and Schedule 3 of the
Corporations Act]
2.149 Schedule 2 creates these new offence provisions to ensure the integrity of the
audit and to impose the same penalty as is applicable to an audit company
appointed as an auditor of a registered scheme under the Corporations Act. The
method for determining the penalty for audit companies is consistent with the
Corporations Act and the Guide to Framing Commonwealth Offences.
2.150 A report or notice that is taken to have been made by an audit company
appointed as auditor of a registrable superannuation entity must be signed by a
director of the audit company (or the lead auditor or review auditor for the
audit) both in the audit company's name and in the person's own name.
[Schedule 2, item 86, section 324AD of the Corporations Act]
Ending the appointment of an auditor of a registrable
superannuation entity
2.151 In accordance with the existing requirements for ending the appointment of an
auditor of a company or registered scheme under the Corporations Act, the
auditor of a registrable superannuation entity may be removed from office in
the following ways:
• the RSE licensee may, with ASIC's consent, remove the auditor from
office; or
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• the auditor may, by written notice given to the RSE licensee, resign as
auditor if ASIC consents - the resignation takes effect on the day
specified in the notice of resignation, the day ASIC consents, or on
another day fixed by ASIC.
[Schedule 2, item 160, subsections 331AK(1), (2), (3) and (5) of the
Corporations Act]
2.152 A statement made by an auditor in an application to ASIC or in response to an
inquiry by ASIC relating to the reasons for the application is not admissible in
evidence in any civil or criminal proceedings against the auditor and must not
be made the ground of a prosecution, action or suit against the auditor.
However, a certificate by ASIC that the statement was made in the application,
or in answer to the inquiry by ASIC, is prima facie evidence that the statement
was so made.
[Schedule 2, item 160, subsection 331AK(4) of the Corporations Act]
2.153 Evidentiary certificates are generally only used to settle formal or technical
matters of fact that would be difficult to prove by adducing admissible
evidence. In this case, the use of evidentiary certificates are primarily intended
to settle formal matters of fact (i.e. as evidence that a statement was made,
rather than proof of the content of the statement). Where ASIC makes an
evidentiary certificate, to ensure procedural fairness, an auditor has the
opportunity to adduce evidence of contrary matters, as required.
2.154 If, on the retirement or withdrawal of a member of an audit firm, the firm is no
longer capable of acting as the auditor of a registrable superannuation entity
because the firm no longer meets the registration requirements in
section 324BB of the Corporations Act, the member is (if not disqualified from
acting as auditor of the entity) taken to be the auditor of the entity until the
member obtains the consent of ASIC to the member's retirement or
withdrawal.
[Schedule 2, item 160, subsection 331AK(6) of the Corporations Act]
2.155 Within 14 days after the RSE licensee removes an auditor from office, or
receives a notice of resignation from the auditor, the RSE licensee must lodge a
notice with ASIC of the removal or resignation in the prescribed form.
[Schedule 2, item 160, subsection 331AK(7) of the Corporations Act]
2.156 If ASIC consents to the resignation or removal of the auditor of a registrable
superannuation entity, ASIC must notify APRA as soon as practicable after
giving consent.
[Schedule 2, item 160, subsection 331AK(8) of the Corporations Act]
2.157 Under the SIS Act, an RSE licensee must end the appointment of the auditor of
a registrable superannuation entity if the licensee becomes aware that:
• the individual auditor:
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- no longer meets the eligibility criteria for an auditor of a
registrable superannuation entity set out in the prudential
standards made under the SIS Act;
- has been disqualified from being the auditor, or acting as the
auditor of a registrable superannuation entity under
section 130D of the SIS Act; or
- is a member or employee or director of an audit firm or audit
company that is disqualified by the court under section 130EA
of the SIS Act;
• the audit firm or audit company:
- has been disqualified from being an auditor, or acting as an
auditor of a registrable superannuation entity under
section 130EA of the SIS Act; or
- the lead auditor for an audit conducted by the firm or company
no longer meets the eligibility criteria to be a lead auditor
under the prudential standards, or has been disqualified from
being, or acting as an auditor (or lead auditor) of a registrable
superannuation entity under section 130D of the SIS Act.
[Schedule 2, items 225 to 228, subsections 35AC(6) and (7) of the SIS Act]
2.158 APRA may give a written direction to end the appointment of an auditor of a
registrable superannuation entity if the:
• individual auditor:
- has been disqualified from being an auditor, or acting as an
auditor of a registrable superannuation entity under
section 130D of the SIS Act;
- is not a fit and proper person to hold the appointment;
- has been, or acted as, the auditor of the entity, knowing that he
or she did not meet the relevant eligibility criteria set out in the
prudential standards; or
- has failed to perform adequately and properly the duties or
functions of the appointment under the SIS Act, the SIS
Regulations, the prudential standards or the Financial Sector
(Collection of Data) Act 2001;
• firm or company:
- has been disqualified from being an auditor, or acting as an
auditor of a registrable superannuation entity under
section 130EA of the SIS Act; or
- the lead auditor for an audit conducted by the firm or company
has been disqualified under section 130D of the SIS Act, does
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not meet the eligibility criteria in the prudential standards or is
not a fit and proper person to be a lead auditor.
[Schedule 2, items 253 to 256 and 258, subsections 131AA(1), (2) and (11) of
the SIS Act]
2.159 If APRA makes a direction to end the appointment of an auditor of a
registrable superannuation entity, APRA must notify ASIC as soon as
practicable after giving the direction.
[Schedule 2, item 257, subsection 131AA(6A) of the SIS Act]
2.160 In accordance with the existing offence provision in subsection 131AA(9) of
the SIS Act, a trustee of a registrable superannuation entity that fails to comply
with a direction given by APRA commits an offence of strict liability. The
penalty for this existing offence provision is 60 penalty units. Schedule 2 does
not create a new offence provision.
2.161 APRA also has the power to make directions for contraventions of Chapter 2M
of the Corporations Act by an RSE licensee. This power is generally intended
to be used to address repeated or systemic contraventions of the requirements
in Chapter 2M of the Corporations Act. In these situations, APRA may give
the RSE licensee a direction, which could include (but is not limited to),
removing a responsible officer of the RSE licensee from office, ordering an
audit of a registrable superannuation entity or removing an auditor of a
registrable superannuation entity from office etc.
[Schedule 2, item 268, subsection 131D(1) of the SIS Act]
2.162 If APRA makes a direction to remove an auditor of a registrable
superannuation entity and appoint another auditor, APRA must notify ASIC as
soon as practicable after making the direction.
[Schedule 2, item 269, subsection 131D(6) of the SIS Act]
2.163 The appointment of an RSE auditor under the SIS Act is also taken to have
ceased if the registrable superannuation entity is regulated under Chapter 2M
of the Corporations Act and the individual, company or firm ceases to be the
auditor of the entity for the purposes of Chapter 2M of the Corporations Act.
[Schedule 2, item 228, subsection 35AC(9) of the SIS Act]
2.164 APRA may refer matters to the professional association of an individual or
lead auditor if APRA forms the opinion that the person:
• has failed, whether within or outside Australia, to carry out or perform
adequately and properly:
- the duties of an auditor (or lead auditor) under the SIS Act, the
SIS Regulations, the prudential standards or Chapter 2M of the
Corporations Act; or
- any duties required by a law of the Commonwealth, a State or
a Territory to be carried out or performed by an auditor; or
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- any functions that an auditor is entitled to perform in relation
to the SIS Act, the SIS Regulations, the prudential standards or
the Financial Sector (Collection of Data) Act 2001; or
• has been, or has acted as, the individual auditor or lead auditor for the
audit of a registrable superannuation entity, knowing that he or she did
not meet the relevant eligibility criteria set out in the prudential
standards; or
• is otherwise not a fit and proper person to be the individual auditor or
lead auditor for an audit of a registrable superannuation entity.
[Schedule 2, items 259 to 263, section 131A of the SIS Act]
Disqualifying an auditor of a registrable superannuation entity
2.165 The court may, upon application by APRA or ASIC, make an order
disqualifying an individual from being, or acting as, an auditor (or lead auditor)
of a registrable superannuation entity. Such an order may be made against an
individual auditor or the lead auditor (for an audit conducted by an audit firm
or company).
[Schedule 2, items 194, 195 and 244 to 246, sections 6 and 130D of the
SIS Act]
2.166 The court may make an order disqualifying a person from being, or acting as,
the auditor (or the lead auditor) of a particular entity or a specified class of
entities.
[Schedule 2, item 247, subsection 130D(3) of the SIS Act]
2.167 A court may disqualify a person if it is satisfied that:
• the person has failed to carry out or perform adequately and properly:
- the duties of an auditor (or lead auditor) under the SIS Act, the
SIS Regulations, the prudential standards or Chapter 2M of the
Corporations Act; or
- any duties required by a law of the Commonwealth, a State or
a Territory to be carried out or performed by an auditor; or
- any functions that an auditor is entitled to perform under the
SIS Act, the SIS Regulations, the prudential standards or the
Financial Sector (Collection of Data) Act 2001; or
• the person has been, or acted as, the auditor (or lead auditor) for the
audit of a registrable superannuation entity, knowing that he or she did
not meet the relevant eligibility criteria set out in the prudential
standards; or
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• the person is otherwise not a fit and proper person to be the auditor (or
lead auditor) of a registrable superannuation entity.
[Schedule 2, items 248 to 250, section 130D of the SIS Act]
2.168 APRA, ASIC or the disqualified person may apply to the Federal Court of
Australia to vary or revoke a disqualification order.
[Schedule 2, item 251, section 130E of the SIS Act]
2.169 The court may also, upon application by ASIC, make an order disqualifying a
firm or company from being or acting as the auditor of a registrable
superannuation entity if the court is satisfied that the firm or company has:
• failed to put in place appropriate processes and systems to enable it to
carry out or perform adequately and properly:
- its duties as an RSE auditor, RSE audit firm or RSE audit
company under the SIS Act, the SIS Regulations, or
Chapter 2M of the Corporations Act; or
- any duties required by a law of the Commonwealth, a State or
a Territory to be carried out, or performed, by an RSE audit
firm or RSE audit company; or
- any functions that an RSE audit firm or RSE audit company is
entitled to perform in relation to the SIS Act, the
SIS Regulations, the prudential standards or the
Financial Sector (Collection of Data) Act 2001; or
• failed to take reasonable steps to ensure that the lead auditor for an
audit of a registrable superannuation entity conducted by the firm or
company meets the relevant eligibility criteria set out in the prudential
standards or is a fit and proper person to be a lead auditor.
[Schedule 2, item 252, section 130EA of the SIS Act]
2.170 ASIC or the disqualified firm or company may apply to the Federal Court of
Australia to vary or revoke the disqualification order.
[Schedule 2, item 252, subsection 130EB(1) of the SIS Act]
2.171 At least 21 days before commencing proceedings, the applicant (either ASIC or
the disqualified firm or company) must give written notice of the proceedings
to the other party.
[Schedule 2, item 252, subsection 130EB(2) of SIS Act]
2.172 If the court disqualifies a firm or company, that firm or company is not eligible
to be appointed as auditor of a registrable superannuation entity. However, it
also means that the members, employees or directors of that firm or company
are also no longer eligible to be appointed as the auditor of a registrable
superannuation entity.
[Schedule 2, items 221 and 222, subsections 35AC(2) and (2A) of the
SIS Act]
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2.173 The following offences apply to disqualified individuals, firms and companies:
• a disqualified firm or company commits an offence if the firm or
company makes a representation that a member, employee or director
of the firm or company is eligible to be an RSE auditor;
- This is an offence of strict liability;
- The penalty for a member of a firm is 50 penalty units;
- The penalty for a company is 250 penalty units. This is in
accordance with the multiplier rule in the Guide to Framing
Commonwealth Offences;
• a disqualified firm or company commits an offence if it is, or acts as,
the auditor of an entity and a member of the firm or the company
knows that the firm or company is disqualified;
- The penalty for a member of a firm is imprisonment for two
years;
- The penalty for a company is 600 penalty units. This is in
accordance with the fine/imprisonment ratio and the
multiplier rule in the Guide to Framing Commonwealth
Offences;
- The imprisonment/fine ratio requires the imprisonment term
(in months) to be multiplied by five;
- The multiplier rule provides that the penalty for a body
corporate may be five times higher than for a natural person;
• a disqualified firm or company commits an offence if despite being
disqualified, the firm or company is, or acts as, the auditor of an entity
(no knowledge requirement);
- This is an offence of strict liability;
- The penalty for a member of a firm is 60 penalty units;
- The penalty for a company is 300 penalty units. This is in
accordance with the multiplier rule in the Guide to Framing
Commonwealth Offences;
• a person commits an offence if they act as the individual RSE auditor
of an entity knowing that they are a member, employee or director of a
disqualified firm or company;
- The penalty for a member or employee of a firm is
imprisonment for two years;
- The penalty for a director or employee of a company is
imprisonment for two years;
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• a person commits an offence if they act as the individual RSE auditor
of an entity and they are a member, employee or director of a
disqualified firm or company (no knowledge requirement);
- This is an offence of strict liability;
- The penalty for a member or employee of a firm is 60 penalty
units; and
- The penalty for a director or employee of a company is
60 penalty units.
[Schedule 2, items 265 and 266, sections 131BA, 131CA and 131CB of the
SIS Act]
2.174 The purpose of these offence provisions is to extend and adapt the existing
penalty framework in the SIS Act to provide for take into account the role of
audit firms and audit companies in an audit of a registrable superannuation
entity. Each of the new offence provisions impose the same penalty as the
equivalent existing offence in the SIS Act. These new offence provisions are
required to ensure that the obligations and penalties for disqualified persons,
firms and companies are consistent across the SIS Act.
2.175 The new strict liability offences created by Schedule 2 are necessary in these
circumstances to deter misleading conduct, reduce non-compliance and bolster
the integrity of, and confidence in, the regulatory regime for auditors of
registrable superannuation entities. These new strict liability offences are
within the maximum limit recommended by the Guide to Framing
Commonwealth Offences and ensure that the obligations and penalties for
disqualified persons, firms and companies are consistent across the SIS Act.
2.176 The following offences committed by a firm apply as if the firm is a person
and are taken to have been committed by each member of the firm:
• representing that a member of a disqualified firm is eligible to be an
auditor of a registrable superannuation entity; or
• holding itself out as an RSE auditor if it is not eligible to be an RSE
auditor.
[Schedule 2, item 267, subsections 131CC(1) and (2) of the SIS Act]
2.177 However, a member of a firm does not commit an offence in these
circumstances, if the person:
• does not know of the circumstances that constitute the contravention;
or
• knows of those circumstances but takes all reasonable steps to correct
the contravention as soon as possible after becoming aware of those
circumstances.
[Schedule 2, item 267, subsection 131CC(3) of the SIS Act]
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2.178 As previously mentioned (see paragraphs 2.130 to 2.132), reversing the
evidential burden of proof in this case is considered appropriate, because:
• this burden is limited to the codified exception and does not require the
defendant to positively prove their innocence of the offence; and
• it is consistent with the existing defence available to members of an
audit firm that applies to offences that would otherwise be committed
by the audit firm under section 332G of the Corporations Act.
2.179 Also, for the purposes of criminal proceedings under these circumstances, an
act or omission by an individual who is a member, employee or agent of the
firm, or an officer, employee or agent of the company, who is acting within the
actual or apparent scope of the individual's employment or authority, is also to
be attributed to the firm or company.
[Schedule 2, item 267, section 131CD of the SIS Act]
2.180 An individual is not excused from complying with an auditor reporting
requirement on the ground that doing so would tend to incriminate the
individual or make the individual liable to a penalty. However, this information
is not admissible in evidence against the individual in a criminal proceeding or
a proceeding for the imposition of a penalty, other than a proceeding in respect
of the falsity of the information, if:
• before giving the information, the individual claims that giving the
information may incriminate them or make them liable to a penalty;
and
• giving the information may in fact tend to incriminate the individual or
make the individual liable to a penalty.
[Schedule 2, items 238, 270 and 271, sections 130B and 336F of the SIS Act]
2.181 A person is also not entitled to refuse or fail to comply with a requirement to
answer a question, give information, produce books or do any other act on the
ground that this may make the person liable to a penalty by way of a
disqualification under section 130D or 130EA of the SIS Act.
[Schedule 2, items 229 to 231, section 126L of the SIS Act]
Auditor's report
2.182 Schedule 2 requires the auditor of a registrable superannuation entity to
comply with the requirements for audits and auditor's reports in Chapter 2M of
the Corporations Act.
2.183 The auditor of a registrable superannuation entity who conducts an audit of a
financial report must form an opinion about whether:
• the financial report is in accordance with the Corporations Act,
including whether it complies with the accounting standards and gives
a true and fair view of the entity's financial position and performance;
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• the auditor has been given all information, explanation and assistance
necessary for the conduct of the audit;
• the RSE licensee for the entity has kept financial records sufficient to
enable a financial report to be prepared and audited; and
• the RSE licensee has kept other records and registers, as required by
the Corporations Act.
[Schedule 2, item 47, section 307 of the Corporations Act]
2.184 The auditor's report for the audit of a registrable superannuation entity must
include:
• the matters about which the auditor is required to form an opinion
under section 307 of the Corporations Act;
• if the auditor is of the opinion that the financial report does not comply
with the accounting standards, the auditor's report must quantify the
effect of the non-compliance, if it is practical to do so;
• any defect or irregularity in the financial report; and
• if the directors' report for the financial year includes an RSE
remuneration report - the auditor's opinion on whether the RSE
remuneration report complies with the requirements under the
Corporations Act, and if not, why.
[Schedule 2, item 51, section 308 of the Corporations Act]
2.185 An auditor commits an offence of strict liability if the auditor's report for an
audit of a registrable superannuation entity does not comply with these
requirements. The penalty is 50 penalty units.
[Schedule 2, items 52 and 177, section 308 and Schedule 3 of the
Corporations Act]
2.186 The new strict liability offence requires the auditor's report for the audit of a
registrable superannuation entity to include the auditor's opinion about
whether the RSE remuneration report complies with the requirements in
section 300C of the Corporations Act. Extending the existing strict liability
offence provision to include this requirement is appropriate to deter
misconduct that could affect the transparency and accountability of RSE
licensees. The penalty amount is less than the maximum penalty amount
recommended by the Guide to Framing Commonwealth Offences and ensures
consistency by imposing the same penalty as for other breaches of the existing
auditor's report requirements in section 308 of the Corporations Act.
2.187 The auditor of a registrable superannuation entity must also comply with the
requirements for conducting an audit under the prudential standards
(Prudential Standard SPS 310 - Audit and Related Matters).
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2.188 To ensure flexibility, the auditor of a registrable superannuation entity may
comply with their obligations under Chapter 2M of the Corporations Act and
the RSE licensee law by preparing a single report for the audit of a registrable
superannuation entity.
[Schedule 2, item 46, section 301 of the Corporations Act]
2.189 In accordance with existing requirements in section 307A of the
Corporations Act, an audit of a registrable superannuation entity must be
conducted in accordance with the auditing standards.
• Section 336 of the Corporations Act provides that the Auditing and
Assurance Standards Board may, by legislative instrument, make
auditing standards for the purposes of the Corporations Act.
2.190 The individual or lead auditor of a registrable superannuation entity must also
give the directors of the registrable superannuation entity a written declaration
(auditor independence declaration), which states that to the best of their
knowledge and belief:
• there have been no contraventions of the auditor independence
requirements, as prescribed in the Corporations Act or applicable code
of professional conduct; or
• the only contraventions of the auditor independence requirements are
those contraventions detailed in the declaration - this does not need to
include a declaration about a conflicted relationship if the relationship
does not constitute an offence.
[Schedule 2, items 48 and 50, subsections 307C(1), (3) and (5A) of the
Corporations Act]
2.191 The auditor independence declaration must be signed by the person making the
declaration (i.e. the individual auditor or lead auditor for the audit).
[Schedule 2, item 49, subsection 307C(5) of the Corporations Act]
2.192 An individual auditor or lead auditor who fails to comply with the
requirements of the auditor independence declaration commits an offence of
strict liability. The penalty is 20 penalty units.
2.193 Schedule 2 does not create a new offence provision, instead it extends the
application of the existing penalty provision for failing to provide an auditor
independence declaration in section 307C of the Corporations Act to include
registrable superannuation entities.
2.194 The requirements relating to the retention of audit working papers in
section 307B of the Corporations Act also apply to auditors of registrable
superannuation entities.
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Auditor access to documents
2.195 Schedule 2 requires relevant personnel connected with the registrable
superannuation entity to provide reasonable support for the conduct of an audit
of a registrable superannuation entity by providing auditors and relevant audit
personnel with access to information, books, explanation and assistance.
2.196 At all reasonable times, the auditor of a registrable superannuation entity has a
right to access the books of the entity.
[Schedule 2, items 53 to 55, section 310 of the Corporations Act]
2.197 The auditor of a registrable superannuation entity may also, by written notice,
require an officer of a registrable superannuation entity to give the auditor
information, explanation or other assistance for the purposes of the audit within
14 days after the notice is given. An officer of a registrable superannuation
entity is only required to comply with such a notice if it is reasonable.
[Schedule 2, item 55, subsection 310(2) of the Corporations Act]
2.198 An officer of a registrable superannuation entity must allow the auditor access
to the books of the entity and give the auditor any information, explanation or
assistance required to be given. A failure to comply is an offence of strict
liability. The penalty for this offence is 60 penalty units.
[Schedule 2, items 62, 63 and 179, section 312 and Schedule 3 of the
Corporations Act]
2.199 Schedule 2 creates a new strict liability offence for failing to provide an auditor
access to the entity's books or information. This new strict liability offence is
required for the proper performance of an auditor's function. This new strict
liability offence is within the maximum penalty amount recommended in the
Guide to Framing Commonwealth Offences and ensures legislative consistency
by imposing the same penalty for an equivalent offence under section 312 of
the Corporations Act.
2.200 Under the SIS Act, the existing requirements continue to apply, which provide
that, if the auditor of a registrable superannuation entity requests a document
relevant to the conduct of the audit, each trustee of the entity is under an
obligation to ensure that the document is given to the auditor within 14 days of
the request being made. A failure to comply with this requirement is an
offence. The penalty is two years imprisonment for a fault-based offence and
60 penalty units for a strict liability offence.
2.201 Schedule 2 does not create new offence provisions in the SIS Act. However, it
increases the penalty for a strict liability offence from 50 penalty units to
60 penalty units to ensure consistency with the penalty for the equivalent
offence provision under section 312 of the Corporations Act.
[Schedule 2, item 217, section 35AB of the SIS Act]
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2.202 This increase is justified on the basis that it does not exceed the recommended
penalty amount for strict liability offences in the Guide to Framing
Commonwealth Offences and ensures legislative consistency.
Auditor reporting requirements
2.203 Schedule 2 imposes obligations on an individual auditor, a lead auditor (for an
audit conducted by an audit firm or company), an audit company or a member
of an audit firm to report matters identified during the course of performing
audit functions to ASIC or APRA.
2.204 Under the Corporations Act, an individual auditor, an audit company, a
member of an audit firm or the lead auditor (for an audit conducted by an audit
firm or audit company) of a registrable superannuation entity commits an
offence if the individual auditor or lead auditor suspects on reasonable grounds
that there are circumstances that amount to a contravention of the
Corporations Act and the person does not notify ASIC in writing of those
circumstances as soon as practicable (or before 28 days) after forming that
suspicion.
2.205 A failure to comply with this reporting obligation is an offence. The penalty for
this offence is as follows:
• Fault-based offence:
- Individual auditor, member of an audit firm or lead auditor -
50 penalty units;
- Audit company - 250 penalty units in accordance with the
multiplier rule in the Guide to Framing Commonwealth
Offences.
• Strict liability offence:
- Individual auditor, member of an audit firm or lead auditor -
25 penalty units; or
- Audit company - 125 penalty units in accordance with the
multiplier rule in the Guide to Framing Commonwealth
Offences.
[Schedule 2, items 56 to 61 and 178, section 311 and Schedule 3 of the
Corporations Act]
2.206 Schedule 2 creates new fault-based and strict liability offence provisions for
failing to report suspected contraventions of the Corporations Act.
2.207 Strict liability offences are appropriate in these circumstances to improve
compliance with the financial reporting requirements and strengthen the
integrity of the regulatory regime and promote public confidence in the system.
The new offence provisions extend and adapt the existing penalty provisions in
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section 311 of the Corporations Act to apply to the auditor of a registrable
superannuation entity. These new penalties are below the recommended
maximum penalty amount in the Guide to Framing Commonwealth Offences
and ensure legislative consistency, not only within Chapter 2M of the
Corporations Act, but also with the equivalent offence provisions in sections
129 and 129A of the SIS Act.
2.208 Under the SIS Act, an individual auditor, an audit company, a member of an
audit of firm or the lead auditor (for an audit conducted by an audit firm or
company) commit an offence if:
• the individual auditor or lead auditor forms the opinion in the course
of, or in connection with, the performance of their audit functions that
a contravention of any of the following may have occurred, may be
occurring, or may occur in relation to the entity - the SIS Act, the
SIS Regulations, the prudential standards, the Financial Sector
(Collection of Data) Act 2001 or a 'regulatory provision' of the
Corporations Act;
- The penalty for an individual auditor, member of an audit firm
or lead auditor is 50 penalty units for a fault-based offence, or
25 penalty units for a strict liability offence;
- The penalty for an audit company is 250 penalty units for a
fault-based offence, or 125 penalty units for a strict liability
offence in accordance with the multiplier rule in the Guide to
Framing Commonwealth Offences;
• the individual auditor or lead auditor forms the opinion that the
financial position of the entity is, or may be about to become,
unsatisfactory;
- The penalty for an individual auditor, member of an audit firm
or lead auditor is 50 penalty units for a fault-based offence, or
25 penalty units for a strict liability offence;
- The penalty for an audit company is 250 penalty units for a
fault-based offence, or 125 penalty units for a strict liability
offence in accordance with the multiplier rule in the Guide to
Framing Commonwealth Offences;
• the individual auditor or lead auditor becomes aware of circumstances
that amount to an attempt, in relation to an audit of the superannuation
entity, by any person to unduly influence, coerce, manipulate or
mislead the auditor or a member of the audit team or otherwise
interfere with the proper conduct of the audit; or
- The penalty for an individual auditor, member of an audit firm
or lead auditor is 12 months imprisonment, 50 penalty units, or
both;
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- The penalty for an audit company is 300 penalty units in
accordance with the fine/imprisonment ratio and multiplier
rule in the Guide to Framing Commonwealth Offences;
• the individual auditor or lead auditor forms the opinion, in or in
connection with, the performance of audit functions that there has been
a failure to implement an actuarial recommendation that the registrable
superannuation entity was required to implement;
- The penalty for an individual auditor, member of an audit firm
or a lead auditor is 50 penalty units for a fault-based offence,
or 25 penalty units for an offence of strict liability;
- The penalty for an audit company is 250 penalty units for a
fault-based offence or 125 penalty units for a strict liability
offence in accordance with the multiplier rule in the Guide to
Framing Commonwealth Offences.
[Schedule 2, items 232 to 235, 239 and 241 to 243, sections 129, 129A, 130,
130AA, 130BA, 130BAA, 130C, 130CA of the SIS Act]
2.209 Where an auditor notifies APRA of attempts to unduly influence, coerce,
manipulate or mislead the conduct of an audit, APRA must notify ASIC as
soon as practicable after receiving the notification if the notification relates
partly or entirely to an audit conducted for the purposes of Chapter 2M of the
Corporations Act. This amendment is not intended to apply to an auditor of a
self managed superannuation fund.
[Schedule 2, items 240 and 241, sections 130BA and 130BAA of the SIS Act]
2.210 This is intended to reduce regulatory burden for auditors by providing that the
auditor is only required to report the matter once (to APRA). It is then APRA's
responsibility to notify ASIC of matters relevant to the conduct of an audit for
the purposes of Chapter 2M of the Corporations Act.
2.211 The new offence provisions in Schedule 2 of the Bill are required to promote
compliance with the new financial reporting and auditing requirements and
strengthen public confidence in the regulatory regime. The new offence
provisions ensure that the penalties for contraventions in respect of audits
conducted by audit firms and companies are equivalent to the penalties that
currently apply to individual auditors under the SIS Act. In accordance with
the Guide to Framing Commonwealth Offences, any offences punishable by
imprisonment are not subject to strict liability.
2.212 In the case of the new strict liability offences created by Schedule 2, these are
appropriate to deter misconduct and reduce non-compliance. The penalties for
the new strict liability offences are less than the maximum penalty amount
recommended in the Guide to Framing Commonwealth Offences and ensure
legislative consistency by imposing the same penalty as for equivalent offences
applicable to audits conducted by individual auditors under the SIS Act.
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2.213 In addition to these mandatory reporting obligations, an individual auditor,
audit firm or audit company may give APRA information about the RSE
licensee or the registrable superannuation entity obtained in the course of, or in
connection with, the performance of their audit functions, if the person, firm or
company considers that giving this information will assist the Regulator in
performing its functions under the SIS Act, the SIS Regulations, the prudential
standards or the Financial Sector (Collection of Data) Act 2001.
[Schedule 2, items 236 and 237, section 130A of the SIS Act]
Auditor independence requirements
2.214 Schedule 2 extends the existing general and specific auditor independence
requirements in Division 3 of Part 2M.4 of the Corporations Act to apply to the
auditor of a registrable superannuation entity. The auditor independence
requirements require individual auditors, audit companies, members of an audit
firm or directors of an audit company to identify, resolve and disclose conflicts
of interest situations.
2.215 Auditor independence is a fundamental aspect of the financial reporting laws
under the Corporations Act, and requires an auditor to be, and be seen to be,
independent of the audited body.
2.216 The auditor independence requirements include the requirement for an auditor
to give a written declaration of independence to the directors of the registrable
superannuation entity under section 307C of the Corporations Act.
2.217 It is noted that auditor independence requirements already apply to an
individual auditor of a registrable superannuation entity under the prudential
standards made under the SIS Act (Prudential Standard SPS 510 -
Governance).
2.218 Schedule 2 amends the Corporations Act to provide that the general auditor
independence requirements in sections 324CA, 324CB and 324CC of the
Corporations Act apply to:
• if an individual auditor is appointed as the auditor of a registrable
superannuation entity - the individual auditor;
• if an audit firm is appointed as the auditor of a registrable
superannuation entity - the members of the audit firm;
• if an audit company is appointed as the auditor of a registrable
superannuation entity - the audit company and the directors of an audit
company.
[Schedule 2, items 96 to 101, sections 324CA, 324CB and 324CC of the
Corporations Act]
2.219 In accordance with the existing requirements in sections 324CA, 324CB and
324CB of the Corporations Act, the general auditor independence requirements
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provide that an individual auditor, audit company, member of an audit firm or
director of an audit company commit an offence if:
• the person engages in audit activity for a registrable superannuation
entity and fails to take all reasonable steps as soon as possible to cease
the conflict of interest situation after becoming aware that a conflict of
interest situation exists;
- The penalty for an individual auditor, member of an audit firm
or director of an audit company is six months imprisonment;
- The penalty for an audit company is 600 penalty units in
accordance the calculation methods in sections 1311B and
1311C of the Corporations Act;
• the person is the auditor of a registrable superannuation entity and fails
to inform ASIC within seven days in writing that the conflict of
interest situation exists;
- The penalty for an individual auditor, member of an audit firm
or director of an audit company is 30 penalty units;
- The penalty for an audit company is 300 penalty units in
accordance with the calculation method in section 1311C of
the Corporations Act;
• the person engages in audit activity in relation to the registrable
superannuation entity and would have been aware that the conflict
exists had a quality control system been in place - strict liability
offence;
- The penalty for an individual auditor, member of an audit firm
or director of an audit company is 30 penalty units;
- The penalty for an audit company is 300 penalty units in
accordance with the calculation method in section 1311C of
the Corporations Act.
2.220 Consistent with the primary objective of the reform to extend and adapt the
auditing requirements in Chapter 2M of the Corporations Act to apply to
registrable superannuation entities, Schedule 2 does not create new offence
provisions. Instead, it extends the application of the existing penalty provisions
for failing to comply with general auditor independence requirements in
sections 324CA, 324CB and 324CC of the Corporations Act to include
registrable superannuation entities.
2.221 A conflict of interest situation exists at a particular time if, because of
circumstances that exist at that time:
• the auditor, or a professional member of the audit team, is not capable
of exercising objective and impartial judgment in relation to the
conduct of the audit of the entity; or
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• a reasonable person, with full knowledge of all relevant facts and
circumstances, would conclude that the auditor, or a professional
member of the audit team, is not capable of exercising objective and
impartial judgment in relation to the conduct of the audit of the entity.
2.222 In determining whether a conflict of interest situation exists, regard must be
had to circumstances arising from any relationship that exists, has existed or is
likely to exist between the following parties:
• the individual auditor, audit firm (any current or former member of the
firm) or the audit company (any current or former director of the
company or any person currently or formerly involved in the
management of the company); and
• the audited body (the registrable superannuation entity) - which could
include:
- the RSE licensee for the registrable superannuation entity (if
the RSE licensee is a body corporate or a constitutional
corporation);
- a current or former director of the registrable superannuation
entity;
- a person currently or formerly involved in the management of
the entity;
- a person currently or formerly involved in the management of
the RSE licensee for the entity; or
- a connected entity of the RSE licensee (as defined in
section 10 of the SIS Act).
[Schedule 2, item 102, section 324CD of the Corporations Act]
2.223 Schedule 2 also amends the Corporations Act to provide that the specific
auditor independence requirements in sections 324CE, 324CF and 324CG of
the Corporations Act apply to:
• if an individual auditor is appointed as the auditor of a registrable
superannuation entity - the individual auditor;
• if an audit firm is appointed as the auditor of a registrable
superannuation entity - the members of the audit firm;
• if an audit company is appointed as the auditor of a registrable
superannuation entity - the audit company and the directors of the
audit company.
[Schedule 2, items 103, 104, 106, 107 and 109 to 112, sections 324CE, 324CF
and 324CG of the Corporations Act]
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2.224 The specific auditor independence requirements in the Corporations Act
impose restrictions on specific relationships between the auditor and the
audited body. These specific restrictions are considered "core" circumstances
which, if they exist, necessarily mean that the auditor is not independent. The
relationships in subsection 324CH(1) of the Corporations Act can be
categorised in two discrete types of relationships:
• employment relationships (items 1-9); and
• financial relationships (items 10-19).
2.225 If an audited body is a registrable superannuation entity:
• the references to the audited body in items 1 to 9, and
items 15 and 19 in subsection 324CH(1) of the Corporations Act were
references to the RSE licensee for the entity;
• the references to an interest in the audited body in items 10 and 12 in
subsection 324CH(1) of the Corporations Act were references to an
interest in either the entity or the RSE licensee for the entity; and
• the references to an investment in an entity that has a controlling
interest in the audited body in items 13 and 14 in subsection 324CH(1)
of the Corporations Act were references to an investment in an entity
that has a controlling interest in the RSE licensee for the entity.
[Schedule 2, item 114, section 324CH of the Corporations Act]
2.226 In accordance with the existing requirements in sections 324CE, 324CF and
324CG of the Corporations Act, the specific auditor independence
requirements provide that an individual auditor, audit company, member of an
audit firm or director of an audit company commits an offence if:
• the person engages in audit activity in relation to a registrable
superannuation entity and fails to take all reasonable steps to cease the
conflict as soon as possible after becoming aware that a conflicted
relationship exists;
- the penalty for an individual auditor, member of an audit firm
or director of an audit company is six months imprisonment;
- The penalty for an audit company is 600 penalty units in
accordance with the calculation methods in sections 1311B and
1311C of the Corporations Act;
• the person is the auditor of a registrable superannuation entity and fails
to inform ASIC within seven days in writing that a conflicted
relationship exists; or
- The penalty for an individual auditor, member of an audit firm
or director of an audit company is 30 penalty units;
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- The penalty for an audit company is 300 penalty units in
accordance with the calculation method in section 1311C of
the Corporations Act;
• the person engages in audit activity in relation to a registrable
superannuation entity at a time when a conflicted relationship exists -
strict liability offence;
- The penalty for an individual auditor, member of an audit firm
or director of an audit company is 30 penalty units;
- The penalty for an audit company is 300 penalty units in
accordance with the calculation method in section 1311C of
the Corporations Act.
2.227 Schedule 2 does not create new offence provisions, instead, it extends the
application of the existing penalty provisions for failing to comply with
specific auditor independence requirements in sections 324CE, 324CF and
324CG of the Corporations Act to include registrable superannuation entities.
2.228 However, Schedule 2 makes one change to the specific auditor independence
requirements in sections 324CE, 324CF and 324CG of the Corporations Act
for auditors of a registrable superannuation entity. The maximum hours test for
the provision of non-audit services (set out in subsections 324CE(6), 324CF(6)
and 324CG(10) of the Corporations Act) does not apply in relation to the audit
of a registrable superannuation entity if the services are required or permitted
to be provided under the prudential standards made under the SIS Act.
[Schedule 2, items 105, 108 and 113, subsections 324CE(6A), 324CF(6A)
and 324CG(10A) of the Corporations Act]
2.229 This means that there is no limit on the number of hours of non-audit services
provided, where those non-audit services are required or permitted under the
prudential standards. Examples of non-audit services required or permitted
under the prudential standards include, but are not limited to, comprehensive
reviews of prudential frameworks, the internal audit function or ad hoc
engagements on specific topics (e.g. unit pricing or merger due diligence).
However, the change to the maximum hours test does not apply in relation to
audits of entities (such as companies or registered schemes) other than
registrable superannuation entities.
2.230 The independence rules in sections 324CI, 324CJ and 324CK of the
Corporations Act apply to registrable superannuation entities. In accordance
with existing requirements, these rules apply to:
• retiring partners of audit firms;
• retiring directors of authorised audit companies;
• retiring professional members of audit companies;
• former partners of audit firms; and
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• former directors of audit companies.
2.231 Schedule 2 also amends the Corporations Act to apply the provisions relating
to deliberately disqualifying an auditor in section 324CM of the
Corporations Act to auditors of registrable superannuation entities.
2.232 In accordance with the existing requirements for an auditor of a company or
registered scheme under section 324CM of the Corporations Act, the following
persons commit an offence if they bring about a state of affairs, which if it
continued, would prevent the individual auditor, audit firm or audit company
from continuing to be the auditor of the registrable superannuation entity
without contravening the registration or auditor independence requirements in
Divisions 2 or 3 of Part 2M.4 of the Corporations Act:
• an individual auditor;
• a member of an audit firm; and
• a member, director or lead auditor of an audit company.
[Schedule 2, items 116 to 121, section 324CM of the Corporations Act]
2.233 Schedule 2 does not create new offence provisions, instead, it extends the
application of the existing penalty provisions for failing to comply with the
requirements in section 324CM of the Corporations Act to include registrable
superannuation entities.
2.234 For the purposes of the auditor independence requirements in the
Corporations Act, the definition of an 'officer' of a registrable superannuation
entity in section 345AAD of the Corporations Act is extended to include the
following people, unless ASIC makes a direction otherwise:
• a person who is an officer of a related body corporate of the RSE
licensee or an entity controlled by the RSE licensee; or
• a person who has at any time within the previous 12 months been an
officer or promoter of a related body corporate of the RSE licensee or
an entity controlled by the RSE licensee.
[Schedule 2, item 115, section 324CLA of the Corporations Act]
Auditor rotation requirements
2.235 Schedule 2 amends the Corporations Act to provide that the auditor rotation
requirements in Division 5 of Part 2M.4 of the Corporations Act apply to
auditors of registrable superannuation entities.
2.236 Auditor rotation builds on the auditor independence requirements to safeguard
the quality of audits. The limitation on the number of years that an individual
can play a significant role in the audit of a registrable superannuation entity is
intended to ensure the impartiality of auditors, and thus the quality of audits,
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which otherwise may be compromised as a result of excessive familiarity and
close relations between an auditor and the audited entity.
2.237 An individual is not eligible to play a significant role in the audit of a
registrable superannuation entity for a financial year if this would result in the
individual playing a significant role in the audit of the entity for more than five
successive years unless ASIC makes a declaration otherwise, or the directors of
the entity grant an approval to do so.
[Schedule 2, items 122 to 128, section 324DA of the Corporations Act]
2.238 In accordance with the existing requirements in section 324A of the
Corporations Act, ASIC may make a declaration permitting an individual to
play a significant role in the audit of a registrable superannuation entity for
more than five successive years if ASIC receives an application from the
registered company auditor, or a firm or company on whose behalf the
registered company auditor acts, or would act, in relation to the audit.
2.239 To avoid the need for separate applications to be made to both ASIC and
APRA, before making such a declaration, ASIC must consult with APRA in
deciding whether to make such a declaration. This is intended to reduce
regulatory burden for auditors by creating a single application process.
[Schedule 2, item 168, subsection 342A(5A) of the Corporations Act]
2.240 If ASIC makes a declaration granting an extension of the auditor rotation
requirements,
• ASIC must notify APRA of the declaration as soon as practicable after
making the declaration; and
• the auditor must, as soon as practical after the declaration is made, give
notice of the declaration by ASIC to the registrable superannuation
entity.
[Schedule 2, items 169 to 172, sections 342A and 342B of the
Corporations Act]
2.241 The directors of a registrable superannuation entity may, by resolution, grant
approval for an individual to play a significant role in the audit of a registrable
superannuation entity for up to an additional two years. Before the end of the
permitted five successive years, the directors of the entity may:
• grant approval for one additional successive year, and may, by the end
of that year, grant an approval for an additional successive year; or
• grant an approval for two successive years.
[Schedule 2, items 129 to 132, section 324DAA of the Corporations Act]
2.242 The directors of a registrable superannuation entity must not grant approval to
extend the auditor rotation requirements unless the approval is in accordance
with a recommendation endorsed by the Board Audit Committee and the
individual to whom the approval relates agrees, in writing, to the approval
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being granted.
[Schedule 2, items 133 to 137, section 324DAB of the Corporations Act]
2.243 If the directors of a registrable superannuation entity grant approval, the
directors must, within 14 days of granting approval give a copy of the approval
to:
• ASIC and APRA;
• if the individual to whom the approval relates does not act on behalf of
a firm or company - the individual; and
• if the individual to whom the approval relates acts on behalf of a firm
or company - the firm or company.
[Schedule 2, items 138 and 139, section 324DAC of the Corporations Act]
2.244 Details of an approval granted by the directors of a registrable superannuation
entity must be included in the directors' report for that financial year.
[Schedule 2, items 44 and 140, sections 300C and 324DAC of the
Corporations Act]
2.245 In accordance with sections 324DB, 324DC and 324DD of the
Corporations Act, an individual auditor, the members of an audit firm, an audit
company or the directors of an audit company commit an offence if they play a
significant role in the audit of a registrable superannuation entity in
contravention of the auditor rotation requirements in Division 5 of Part 2M.4
of the Corporations Act.
[Schedule 2, items 141 to 159, sections 324DB, 324DC and 324DD of the
Corporations Act]
2.246 The penalty for each fault-based offence is six months imprisonment. The
penalty for each strict liability offence is 30 penalty units. Schedule 2 does not
create new offence provisions, instead, it extends the application of the existing
penalty provisions in sections 324DB, 324DC and 324DD of the
Corporations Act to include auditors of registrable superannuation entities.
2.247 Currently, APRA also has the power, under the prudential standards, to grant
an exemption from the auditor rotation requirements. However, an approval
granted by APRA to extend the auditor rotation requirements in accordance
with the prudential standards is not sufficient to satisfy the requirements under
the Corporations Act and would require the person to also obtain a declaration
from ASIC or an approval from the directors of the entity. For this reason, a
separate application to APRA for an extension to the auditor rotation
requirements is not required.
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Auditor transparency reporting
2.248 Schedule 2 amends the Corporations Act to apply the auditor transparency
reporting requirements in Part 2M.4A of the Corporations Act to auditors of
registrable superannuation entities.
2.249 In accordance with existing requirements, individual auditors, audit firms and
audit companies must prepare and publish an audit transparency report for a
transparency reporting period (the 12-month period starting on 1 July of each
year) if during that transparency reporting period, the person, firm or company
conducted audits of ten or more bodies of the kind listed in subsection 332A(1)
of the Corporations Act.
2.250 The list of bodies in subsection 332A(1) of the Corporations Act is amended to
include registrable superannuation entities. This list sets out the types of
entities that count for the purposes of determining whether an audit
transparency report is required.
[Schedule 2, item 161, section 332A of the Corporations Act]
2.251 The content of the annual transparency report is required to be in accordance
with the requirements in Schedule 7A of the Corporations Regulations, which
is made under section 332B of the Corporations Act.
2.252 In accordance with the existing requirements, if an individual, firm or company
is required to prepare an audit transparency report, the report must be
published on the auditor's website within four months after the end of the
transparency reporting year, or in accordance with an order made by ASIC.
2.253 Subsection 332A(4) of the Corporations Act specifies that a failure to publish a
transparency report on the auditor's website within four months after the end of
the year, or to lodge a copy of the report with ASIC before it is published on
the auditor's website, are offences of strict liability.
2.254 In accordance with section 332G of the Corporations Act, an offence that
would be committed by a firm is taken to have been committed by each
member of the firm. However, a member of an audit firm is not taken to have
committed an offence if the member:
• does not know of the circumstances that constitute the offence; or
• knows of those circumstances but takes all reasonable steps to correct
the contravention as soon as possible after becoming aware of those
circumstances.
2.255 The requirements for obtaining an exemption from the requirement to prepare
and publish a transparency report or an extension of the period within which a
transparency report must be published are in accordance with the existing
requirements in sections 332C, 332D, 332E and 332F of the Corporations Act.
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Relief from the requirements in Chapter 2M of the
Corporations Act
2.256 Schedule 2 amends the Corporations Act to apply ASIC's existing powers to
grant exemptions from the requirements in Part 2M.6 of the Corporations Act
to registrable superannuation entities.
2.257 ASIC may take one of the following actions, in respect of:
• a registrable superannuation entity - make an order to grant relief to
the directors, the entity or the auditor from any or all of the
requirements in Part 2M.2, 2M.3 and 2M.4 of the Corporations Act,
other than Division 4 of Part 2M.4 of the Corporations Act
(deliberately disqualifying auditor);
• a specified class of registrable superannuation entities - make a
legislative instrument granting relief to the directors, the entity or the
auditors of the entity from any or all the requirements in Part 2M.2,
2M.3 and 2M.4 of the Corporations Act, other than Division 4 of
Part 2M.4 of the Corporations Act (deliberately disqualifying auditor);
• non-auditor members of an audit firm, former members of an audit
firm, or former directors or professional employees of an audit
company - make an order granting relief from any or all the auditor
independence requirements in Division 3 of Part 2M.4 of the
Corporations Act; or
• a specified class of non-auditor members of audit firms or former
members, directors or professional employees of audit firms or
companies - make a legislative instrument granting relief from any or
all the auditor independence requirements in Division 3 of Part 2M.4
of the Corporations Act.
[Schedule 2, items 163 to 167, sections 340, 341 and 342 of the
Corporations Act]
2.258 In accordance with the existing requirements in Part 2M.6 of the
Corporations Act:
• ASIC may make an order or legislative instrument subject to
conditions;
• an order or legislative instrument may apply indefinitely or for a
specified period of time; and
• ASIC may make an order or legislative instrument only if ASIC is
satisfied that compliance with the specified requirements in
Parts 2M.2, 2M.3 and 2M.4 of the Corporations Act would make the
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financial or other reports misleading, be inappropriate in the
circumstances or would impose an unreasonable burden.
2.259 The limited expansion of ASIC's existing exemption and modification powers
in Part 2M.6 of the Corporations Act is intended to allow ASIC to provide
limited administrative relief in circumstances where the strict operation of
Chapter 2M of the Corporations Act is inappropriate or unreasonable. These
changes ensure legislative consistency, by applying ASIC's powers equally to
all of the entities regulated under Chapter 2M of the Corporations Act.
2.260 The power for ASIC to make orders or instruments granting relief is
appropriate as the issues to be addressed by such orders are too individual and
specific to justify addressing them in the Corporations Act.
• ASIC orders are subject to administrative review by the AAT, judicial
review and consideration in appropriate circumstances by the
Commonwealth Ombudsman.
• In accordance with sections 9 and 11 of the Legislation (Exemptions
and Other Matters) Regulation 2015, legislative instruments (other
than regulations) relating to superannuation are not subject to
disallowance or sunsetting under the Legislation Act 2003.
Disclosure of information
2.261 Schedule 2 amends the ASIC Act to provide that information obtained by
ASIC under Chapter 2M of the Corporations Act about the audit of a
registrable superannuation entity conducted by an Australian auditor is an
authorised use and disclosure of information if it is disclosed:
• by a person authorised by the Chair of ASIC; and
• to the directors, audit committee or senior manager of an RSE licensee
for a registrable superannuation entity in order to assist the RSE
licensee to properly manage its affairs.
[Schedule 2, items 188 to 193, section 127 of the ASIC Act]
2.262 The person authorised by the ASIC Chair must not disclose this information
unless the authorised person notifies the relevant auditor at least seven days
before of the proposed disclosure.
2.263 If the disclosure is made only to a senior manager of an RSE licensee, the
authorised person must as soon as possible after making the disclosure, also
provide a copy of the disclosure to the directors and audit committee of the
RSE licensee for the entity.
2.264 For the purposes of the ASIC Act, 'registrable superannuation entity' is
defined to have the same meaning as in the Corporations Act, while 'RSE
licensee' is defined to have the same meaning as in the SIS Act.
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Application and transitional provisions
Commencement and application provisions
2.265 The amendments to the Corporations Act made by Division 1 of Part 1 of
Schedule 2 commence on 1 July 2023.
[Schedule 2, item 176, section 1684 of the Corporations Act]
2.266 The amendments apply in relation to the report or audit of a registrable
superannuation entity for the financial year beginning on, or after, 1 July 2023.
The new financial reporting and auditing obligations and requirements do not
apply before 1 July 2023.
2.267 For example, if a registrable superannuation entity's year of income
commences on 1 April 2023, the new requirements apply in relation to the first
year of income commencing on or after 1 July 2023 (i.e. the year of income
commencing on 1 April 2024).
2.268 The timing of the amendments is intended to ensure that RSE licensees and
auditors have adequate time to put in place systems and processes to
implement the new requirements before the commencement of the reporting
period to which the new requirements apply.
2.269 The amendments made in Division 2 of Part 1 of Schedule 2 commence on the
later of:
• immediately after the commencement of the provisions covered in
Division 1 of Part 1 of Schedule 2 - 1 July 2023; and
• the commencement of item 609 of Schedule 1 to the Treasury Laws
Amendment (Registries Modernisation and Other Measures) Act 2020.
2.270 The amendments in Division 2 of Part 1 of Schedule 2 provide for the
commencement of the Treasury Laws Amendment (Registries Modernisation
and Other Measures) Act 2020, which amends the Corporations Act to transfer
specified registry functions from ASIC to a Registrar.
2.271 Once the relevant amendments of the Treasury Laws Amendment (Registries
Modernisation and Other Measures) Act 2020 commence, the following
documents are required to be lodged with the Registrar, rather than ASIC:
• an amended financial report or directors' report for a financial year;
and
• a notice of the removal or resignation of an auditor from office.
[Schedule 2, items 186 and 187, sections 322 and 331AK of the
Corporations Act]
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2.272 To ensure alignment with the changes to the Corporations Act, the
amendments to the SIS Act and the ASIC Act made by Part 2 of Schedule 2
also commence on 1 July 2023.
Transitional provisions
2.273 Schedule 2 amends the SIS Act to require an RSE licensee for a registrable
superannuation entity to retain accounting records for a period of seven years,
rather than five years. This amendment is not intended to have retrospective
effect, and therefore first applies to accounting records relating to a year of
income beginning on, or after, 1 July 2023.
[Schedule 2, item 272, SIS Act]
2.274 This means that the former requirement to retain accounting records for a
period of five years in subsection 35A(2) of the SIS Act, which is repealed by
Schedule 2, continues to apply in relation to accounting records that are
required to be kept for a year of income beginning before 1 July 2023.
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for small business tax decisions
Table of Contents:
Outline of chapter .............................................................................. 117
Context of amendments ..................................................................... 117
Summary of new law.......................................................................... 119
Preserving the integrity of the taxation system ............................ 120
Comparison of key features of new law and current law .................... 121
Detailed explanation of new law ........................................................ 121
Definition of small business taxation assessment decision ......... 121
Enabling the AAT to make an order under section 41 of the AAT Act
in relation to certain taxation decisions........................................ 121
Modification of section 41 of the AAT Act .................................... 122
Enabling an order under section 41 of the AAT Act to affect
implementation of taxation decisions........................................... 125
Application, and transitional provisions .............................................. 125
Outline of chapter
3.1 Schedule 3 to the Bill amends the TAA 1953 to enable small business entities
to apply to the Small Business Taxation Division of the AAT for an order
staying, or otherwise affecting, the operation or implementation of certain
specified decisions of the Commissioner that are being reviewed by the AAT.
Context of amendments
3.2 Section 41 of the AAT Act empowers the AAT to make an order to stay, or
otherwise affect, the operation or implementation of a decision under review
on request from a party to the proceeding. However, current section 14ZZB of
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the TAA 1953 relevantly provides that section 41 of the AAT Act does not
apply to reviewable objection decisions (within the meaning of section 14ZY
of the TAA 1953).
3.3 The current section 14ZZM of the TAA 1953 provides that a pending review
of a taxation decision does not affect the decision and any tax may be
recovered as if no review were pending.
3.4 The effect of these provisions is that the Commissioner can commence debt
recovery action even if the taxpayer is seeking a review of the liability for, or
quantum of, the tax debt. Small businesses seeking a review of a relevant
decision are not presently able to request the AAT make orders relating to the
operation or implementation of the decisions while they are under review (such
as making an order preventing the Commissioner from using one or more of
the Commissioner's powers to collect the disputed debt).
3.5 While the taxpayer can seek a court order to stay the operation or
implementation of the decision, judicial review proceedings are expensive and
the consequences for affected taxpayers may be severe, including business
wind-up.
3.6 The Commissioner's approach to debt recovery, including factors that are
considered in determining what debt recovery actions are taken and when, is
outlined in a series of Law Administration Practice Statements that are
published by the Commissioner on the ATO's website.
3.7 The Commissioner's published policy (i.e. the Law Administration Practice
Statements) with respect to the collection and recovery of disputed debts
outlines the various administrative options available to the Commissioner in
relation to disputed debts and the factors that are considered when choosing
between them. In particular, guidance on high-risk cases states that action may
be taken to recover disputed amounts (without limiting other circumstances)
where there are reasonable grounds to believe revenue is at risk (for example,
funds or assets are being dissipated), or where the objection is considered to be
frivolous or without merit. In practice, there are very few cases in which the
Commissioner pursues recovery action in relation to a disputed debt.2
3.8 These amendments are not seeking to displace the existing principles
underlying the Commissioner's published practice statements, but instead give
taxpayers a means by which they can seek merits review of the
Commissioner's decisions (including where there is an unreasonable departure
from published guidance or there is a disagreement as to the facts). It is for this
reason that the provisions restore section 41 in a modified form, with the AAT
needing to consider further matters before making an order. This protects the
Commonwealth's interests in high-risk cases and prevents the new power
being misused as a mechanism to avoid the due payment of genuine tax debts.
2
In the 2018-19 financial year there were under 30 instances where the Commissioner pursued
debt recovery action while the debt was under dispute.
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Summary of new law
3.9 These amendments will enable the Small Business Taxation Division of the
AAT to make an order (including varying or revoking an order that is already
in force) under section 41 of the AAT Act in relation to a reviewable objection
decision that relates to a small business taxation assessment decision.
3.10 A reviewable objection decision may relate to an aspect, or aspects of a small
business taxation decision. The applicant will need to specify the part or parts
of the decision in relation to which they seek the order, which must be
confined to that part of the decision that falls within scope of a review being
undertaken by the AAT.
3.11 If made, such orders could limit or modify actions of the Commissioner, under
the Commissioner's discretionary powers, to recover a tax debt, in whole or in
part, while the orders are in force. The amendments are not intended to permit
orders that will permanently alter the rights and obligations as between the
Commissioner and the taxpayer (e.g., orders should not require the
Commissioner to defer the time at which a tax debt is or becomes due and
payable or to remit general interest charge). The amendments do not affect or
alter the powers of the courts in any way. The amendments also do not affect
any action the Commissioner is required to take under an Australian law
(including a taxation law) or in response to an order by the AAT or a court.
3.12 The amendments also do not affect a taxpayer's existing rights to appeal to the
courts and obtain a court order if they are successful. The powers of the courts
in restraining the Commissioner's ability to recover an outstanding debt are not
affected by these amendments.
3.13 The purpose of the amendments is to provide small business entities with a
cheaper, faster and simpler way to pause the effects of a decision to recover a
tax debt during merits review of the decision as compared to applying to a
court. However, this is balanced by the need to ensure that the tax law applies
fairly to all and that taxpayers who do not have a genuine disagreement with
their tax debts cannot simply lodge a request for review in order to seek interim
relief and avoid the prompt payment of those debts as and when they fall due.
Such an approach will unfairly prejudice those small businesses who try to do
the right thing and pay their taxes on time.
3.14 In making orders under section 41 of the AAT Act, the AAT will consider the
circumstances and progress of the application for review to which the orders
will relate. In doing so the circumstances and competing objectives of
facilitating the Commissioner's impartial administration of the tax system, and
ensuring that undue hardships are not imposed on small businesses until
decisions relating to them are final, will likely need to be balanced.
3.15 Importantly, these amendments enable the AAT to prevent the Commissioner
from exercising powers to give effect to the decision, such as debt recovery
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Increased Tribunal powers for small business tax decisions
and revenue protection powers, only until the AAT concludes its review of
(and amends or remakes if necessary) the reviewable objection decision that
relates to a small business taxation assessment decision. They do not affect the
AAT's ability to review or remake the reviewable objection decision.
3.16 The AAT's approach to remaking any of the Commissioner's decisions in the
case of genuine disputes remains unchanged. The AAT will be able to consider
the same risk factors and circumstances as the Commissioner and can consider
the principles underlying the Law Administration Practice Statements. The
amendments do not affect the AAT's powers or scope of possible orders in
relation to the Commissioner's decisions it reviews. They only enable the AAT
to make orders staying or otherwise affecting the operation or implementation
of the decision under review.
3.17 This means that while the reviewable objection decision that relates to a small
business taxation assessment decision is under review the AAT will be able to
make orders requiring the Commissioner to exercise his or her discretion in
relation to debt recovery and revenue protection powers (including for
example, directing the Commissioner not to pursue debt recovery of a disputed
liability if the taxpayer agrees to pay a specified portion of the liability
immediately or agreeing to payment by instalments) in a particular way if the
necessary criteria are met.
Preserving the integrity of the taxation system
3.18 The amendments provide factors for the AAT to consider before making such
orders unless the orders are sought by the Commissioner. These considerations
are additional to the considerations already required by section 41 of the AAT
Act (such as the interests of any entities who may be affected by the review
and whether the Tribunal considers it appropriate for the purpose of securing
the effectiveness of the hearing and determination of the application for
review).
3.19 These additional considerations are intended to maintain the integrity of the tax
system by mitigating the risk of applicants using an application for a stay order
to frustrate the prompt recovery of genuine tax debts. These considerations are
explicitly set out in the legislation to ensure that applicants requesting a stay
order understand the additional requirements that must be met before the AAT
can make such an order.
3.20 The AAT must consider these matters in the context of both the particular
circumstances of the taxpayer whose decision is under review and on the
overall taxation system.
3.21 The applicant will need to satisfy the AAT that these additional considerations
are satisfied. This requirement is consistent with the general approach of
placing burden of proof in taxation matters on applicants seeking relief and
placing of the burden on applicants seeking interim relief on the applicant in
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matters before the AAT. The evidence that the applicant will be expected to
produce is information within their knowledge or possession, for example,
information about the basis of their dispute with the Commissioner, the history
of their business, their compliance history, their creditworthiness, as well as
their financial position and the impacts of debt recovery on that financial
position, such as being deprived of meaningful review rights if the decision
goes into effect. The applicant will be given time to prepare the required
information.
Comparison of key features of new law and
current law
Table 3.1 Comparison of new law and current law
New law Current law
Schedule 3 to the Bill amends the TAA The AAT cannot make an order staying or
1953 to enable small business entities to otherwise affecting the operation or
apply to the AAT for an order staying, or implementation of a reviewable objection
otherwise affecting, the operation or decision.
implementation of a decision of the
Commissioner that is being reviewed by the
AAT.
Detailed explanation of new law
Definition of small business taxation assessment
decision
3.22 Item 1 of Schedule 3 inserts 'small business taxation assessment decision' as a
new definition in section 14ZQ of the TAA 1953. This new term is used in the
amendments in this Schedule to describe the decisions in relation to which the
AAT can make orders under section 41 of the AAT Act.
[Schedule 3, item 1, section 14ZQ of TAA 1953]
Enabling the AAT to make an order under section 41
of the AAT Act in relation to certain taxation decisions
3.23 Currently, section 14ZZB of the TAA 1953 provides that section 41 of the
AAT Act does not apply in relation to any reviewable objection decisions.
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3.24 The Bill amends section 14ZZB of the TAA 1953 to apply section 41 of the
AAT Act but only in relation to those reviewable objection decisions that relate
to small business taxation assessment decisions. However, this application is
subject to the modifications to section 41 of the AAT Act.
[Schedule 3, item 2, section 14ZZB of TAA 1953]
Modification of section 41 of the AAT Act
3.25 Item 3 of Schedule 3 modifies the application of section 41 of the AAT Act in
relation to reviewable objection decisions that relate to small business taxation
assessment decisions. The amendments require the AAT to only make an order
under section 41 of the AAT Act if:
• the proceeding is in the Small Business Taxation Division of the AAT; and
• where the party seeking the order is not the Commissioner of Taxation, the
AAT is satisfied that, when considered in the context of both the particular
circumstances of the decision under review and the overall taxation
system, the application for review and the request for making the order is
not frivolous, vexatious, misconceived, lacking in substance or otherwise
intended to unduly impede, prejudice or restrict the proper administration
or operation of a taxation law.
[Schedule 3, item 3, section 14ZZH of TAA 1953]
3.26 When deciding whether to make an order under section 41 of the AAT Act, the
conventional considerations set out in Scott and Australian Securities and
Investment Commission [2009] AATA 798 (13 October 2009) will continue to
apply. They include:
• the prospects of success of the underlying application for review;
• the consequence for the applicant of the refusal of a stay (which
includes, most obviously, the financial consequences and the impact on
business, employees, family, customers, etc);
• the public interest;
• the consequences for the Respondent in carrying out its functions
depending upon whether a stay is granted or not;
• whether the application for review will be rendered nugatory if a stay
were not granted; and
• other mattes the AAT considers relevant.
3.27 The public interest consideration encapsulates the interests of creditors as well
as the systemic concerns about the orderly operation of government. In cases
where the stay has revenue implications - for example, where the AAT is
asked to stay a decision to cease paying a benefit - the AAT will consider the
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prospects of recovery in the event the applicant is unsuccessful at the final
review; e.g., Re Repatriation Commission and Delkou (1985) 8 ALD 454.
3.28 The additional considerations set out in the TAA 1953 are intended to mitigate
the real risks that aggressive taxpayers, such as phoenixing operators,
promoters of tax avoidance and evasion schemes, and others without a genuine
dispute about an assessed quantum of tax, could use applications to the AAT to
frustrate the prompt recovery of genuine tax debts, make such debts practically
irrecoverable by delaying recovery action, make the Commissioner a source of
relatively cheap financing giving them an unfair advantage over their
competitors, or continue trading while insolvent adversely affecting the
Commonwealth and other creditors by accruing further debts. The additional
considerations balance the objective of allowing small businesses to seek a
review of the Commissioner's decisions before being subject to debt recovery
actions with potentially severe impacts against the broader objective of
ensuring that objections and applications for review are not misused to delay or
avoid the payment of taxes as and when they fall due.
3.29 Using the powers given to it by these amendments, the AAT will be able to
make orders staying, or otherwise affecting, the operation or implementation of
the reviewable objection decisions (or parts of those decisions) that relate to
small business taxation assessment decisions for the purpose of securing the
effectiveness of the hearings and determination of the application for review.
[Section 41 of the AAT Act]
3.30 The notes under section 14ZZH provide examples of the kind of orders that
can, and cannot, be made by the AAT. The kind of orders that can be made by
the AAT include an order directing the Commissioner to offer payment
instalment arrangements, an order directing the Commissioner not to sue in a
court to recover a specified amount relating to the reviewable objection
decision, and an order directing the Commissioner not to issue one or more
written notices to specified third parties who owe or may later owe money to
the applicant as a means of recovering liability relating to the reviewable
objection decision.
3.31 An order which will materially and permanently alter the underlying decision
for review will not be an order staying or otherwise affecting the operation or
implementation of such a decision for the purpose of securing the effectiveness
of the hearing and determination of the application for review, as required
under section 41 of the AAT Act. This is because a material or permanent
alteration of the decision for review could materially affect the application for
review or render it futile.
3.32 The amendments are not intended to allow the AAT to require the
Commissioner to take an action which will permanently or materially change
the decision for review, such as to directing the Commissioner to remit general
interest charge on unpaid liabilities or to defer the time at which a tax liability
is or becomes due and payable.
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[Schedule 3, item 3, notes 1 and 2 under subsection 14ZZH(3A)]
3.33 The AAT will not be able to affect the automatic operation of Commonwealth
laws, such as the accrual of the general interest charge, or affect the operation
of any judicial remedies obtained by the Commissioner (such as warrants or
freezing orders). However, the AAT will be able to prevent the Commissioner
from taking discretionary actions (both curial and non-curial) such as
commencing winding up proceedings, or the issuing of garnishee notices.
3.34 The AAT will not be able to make orders requiring the Commissioner to take
actions that are not relevant to securing the effectiveness of the hearing and
determination of the application for review (for example requiring the
Commissioner to pause the issuing of automatically generated statements of
accounts or the usual administrative communications with the taxpayer about
general interest charge that is accruing in relation to the disputed debt while it
remains unpaid).
[Subsection 41(2) of the AAT Act]
3.35 The AAT will not be able to make an order requiring the Commissioner to alter
the calculation mechanism or the accrual of general interest charge on debts
that are payable (because such actions by the Commissioner will be
inconsistent with the law). However, the AAT can direct the Commissioner not
to pursue specified debt recovery actions if the taxpayer agrees to pay a
specified portion of the liabilities immediately or agrees to provide appropriate
security for the payment of those debts.
3.36 Permanently altering the rights and obligations as between the taxpayer and the
Commissioner may also have the effect of pre-judging the outcome of the
AAT's review of the reviewable objection decision. Requiring the
Commissioner to remit general interest charge or to defer a debt's due date will
be inconsistent with the intention of both preserving the Commissioner's debt
recovery options and averting the business risk to the taxpayer (because if the
Commissioner collects the debt, in cases where ultimately the amount is found
to not be payable, the taxpayer is effectively unwillingly lending the
Commonwealth the disputed amount).
3.37 The amendments do not affect the powers and operation of the courts
themselves or access to them. They only allow the AAT to make orders
limiting the Commissioner's discretionary actions to seek orders from them in
some circumstances.
3.38 In making orders enabled by these amendments, the AAT is expected to
specify the particular provisions of the taxation law that enable the
Commissioner to exercise discretion in the manner ordered by the AAT.
3.39 The AAT is also expected to refrain from making orders under section 41
where a taxation law provides an alternate remedy in relation to the review of a
decision of the Commissioner of Taxation, such as in relation to the issue of
departure prohibition order. The tax law establishes standalone mechanisms for
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review of those decisions, and it is intended those mechanisms remain the
means by which dissatisfied taxpayers seek review of those decisions.
Enabling an order under section 41 of the AAT Act to
affect implementation of taxation decisions
3.40 Currently, section 14ZZM provides that a pending review in relation to a
taxation decision does not affect the implementation of the decision and any
tax may be recovered as if no review were pending.
3.41 Item 5 of Schedule 3 provides that in relation to reviewable objection decisions
that relate to small business taxation assessment decisions, the operation of
section 14ZZM will be subject to orders made under section 41 of the AAT
Act (as modified by section 14ZZH of the TAA 1953) in relation to that
decision if any such orders are made. This amendment ensures that
amendments to section 14ZZB and 14ZZH of the TAA 1953 made by other
items operate as intended.
[Schedule 3, items 4 and 5, section 14ZZM of TAA 1953]
Application, and transitional provisions
3.42 The amendments made by Schedule 3 will apply in relation to applications for
review made on or after the commencement of the Schedule.
[Schedule 3, item 6]
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with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Treasury Laws Amendment (Streamlining and Improving Economic
Outcomes for Australians) Bill 2022
Table of Contents:
Schedule 1 - Licensing exemptions for foreign financial services
providers ............................................................................................ 128
Overview ..................................................................................... 128
Human rights implications ........................................................... 128
Conclusion .................................................................................. 133
Schedule 2 - Financial reporting and auditing requirements for
registrable superannuation entities .................................................... 133
Overview ..................................................................................... 133
Human rights implications ........................................................... 134
Conclusion .................................................................................. 140
Schedule 3 - Increased Tribunal powers for small business tax decisions
........................................................................................................... 140
Overview ..................................................................................... 140
Human rights implications ........................................................... 141
Conclusion .................................................................................. 141
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Statement of Compatibility with Human Rights
Schedule 1 - Licensing exemptions for foreign
financial services providers
Overview
4.1 Schedule 1 to the Bill 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.
4.2 Schedule 1 provides relief for foreign financial services providers to promote
diversified investment opportunities for Australian investors and attract
investment and liquidity to Australian markets by:
• providing an exemption from the requirement to hold an Australian
financial services licence for persons that provide financial services
from outside Australia to professional investors (the professional
investor exemption);
• providing an exemption from the requirement to hold an Australian
financial services licence for persons regulated by comparable
regulators that provide financial services to wholesale clients (the
comparable regulator exemption); and
• fast-tracking the licensing process for persons seeking to establish
more permanent operations in Australia by providing an exemption
from the fit and proper person test for persons regulated by comparable
regulators when applying for an Australian financial services licence
for the provision of financial services to wholesale clients (the fit and
proper person test exemption).
Human rights implications
4.3 Schedule 1 engages the following rights:
• Article 14 of the International Covenant on Civil and Political Rights
(ICCPR) - right to a fair hearing;
• Article 17 of the ICCPR - right to protection from arbitrary or unlawful
interference with privacy; and
• Article 6 of the International Convention on Economic, Social and
Cultural Rights (ICESR) - right to work.
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Right to a fair hearing - civil penalty provision
4.4 Schedule 1 introduces a new civil penalty provision, which may engage the
right to fair trial as well as the presumption of innocence under Articles 14 and
15 of the ICCPR. Article 14(2) of the ICCPR recognises that all persons have
the right to be presumed innocent until proven guilty under the law.
4.5 A person who uses the professional investor exemption and/or the comparable
regulator exemption to provide one or more kinds of financial services must
comply with certain conditions. A failure to comply with these conditions may
result in ASIC applying to the court for a declaration of contravention of a civil
penalty provision.
4.6 If ASIC makes an application to the court, and the court is satisfied that the
person has contravened a civil penalty provision for failing to comply with one
or more conditions, the court must make a declaration of contravention and
may order the person to pay a financial sanction, known as a pecuniary penalty
order.
4.7 As for other existing civil penalty provisions under the Corporations Act, the
maximum financial sanction that the court may order for a contravention of a
civil penalty provision is the greater of 5,000 penalty units, or if the court can
determine the benefit derived and the detriment avoided because of the
contravention - three times that amount. As with the existing civil penalty
regime under the Corporations Act, it is expected that the maximum penalty
would only be applied in the most serious cases, as determined by the court.
4.8 The civil penalty provision is regulatory and protective in nature. The purpose
of this provision is to promote compliance and strengthen integrity measures
for the use of the new exemptions without unnecessarily disrupting the
provision of financial services by cancelling a person's exemption.
4.9 These civil penalty provisions are not 'criminal' for the purposes of human
rights law. While a criminal penalty is deterrent or punitive, these provisions
are regulatory and disciplinary in nature, as they operate to impose a pecuniary
penalty at a civil level for contravening the law. Further, these provisions do
not apply to the general public, but to a class of foreign financial services
providers that would, but for the exemptions, be required to hold an Australian
financial services licence and would be expected to reasonably be aware of
their obligations under the Corporations Act.
4.10 The civil penalty provision applies prospectively to conduct (an act or an
omission) that occurs on and after the commencement of Schedule 1. This is
consistent with Article 15 of the ICCPR, which prohibits the use of
retrospective sanctions for any act or omission that did not constitute a
contravention at the time it took place.
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Right to privacy
4.11 Article 17 of the ICCPR contains the right to protection from arbitrary or
unlawful interference with privacy. The UN Human Rights Committee has not
defined 'privacy' but it is generally understood to comprise of a freedom from
unwanted and unreasonable intrusions into activities that society recognises as
falling within the sphere of individual autonomy. The collection and sharing of
information (public or otherwise) may be considered to engage and offend the
right to privacy.
4.12 A number of provisions in Schedule 1 may engage the right to privacy. This
right may be engaged where:
• a person using either the professional investor exemption or the
comparable regulator exemption must notify ASIC of their contact
details, or any change to their contact details (subsection 911H(2) and
section 911L of the Corporations Act);
• a person using either the professional investor exemption or the
comparable regulator exemption must give reasonable assistance to
ASIC in relation to performance of ASIC's function or the exercise of
ASIC's powers, which may involve showing ASIC the person's books,
or giving ASIC a copy of those books (subsections 911H(3) and (4) of
the Corporations Act);
• a person using either the professional investor exemption or the
comparable regulator exemption must comply with a direction given
by ASIC to provide information about the financial service(s) provided
under the exemption or the person's financial service business
(section 911J of the Corporations Act);
• a person using the comparable regulator exemption must notify ASIC
that it consents to ASIC and each of the person's comparable
regulators sharing information about the person (subsection 911M(2)
of the Corporations Act); and
• a person using the comparable regulator exemption must notify ASIC
of any significant enforcement action, disciplinary action or
investigation undertaken against them by a regulator, government
authority or relevant financial market operator in any jurisdiction
outside Australia (subsection 911M(4) of the Corporations Act).
4.13 The right in Article 17 may be subject to permissible limitations, where these
limitations are authorised by law and are not arbitrary. In order for an
interference with the right to privacy to be permissible, the interference must
be authorised by law, be for reason consistent with the ICCPR, and be
reasonable in the particular circumstances. The United Nations Human Rights
Committee has interpreted the requirements of 'reasonableness' to imply that
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any interference with privacy must be proportional to the end sought and be
necessary in the circumstances of any given situation.
4.14 The requirement for a person to notify ASIC of the person's contact details, or
of any changes to these details, is required for administrative efficiency to
ensure that ASIC is able to perform its functions and exercise its functions and
powers efficiently and effectively. Where a person does not maintain their
contact details, it can prevent ASIC from being able to request information or
give a notice of proposed decision. As Australia's financial services regulator,
this can prevent ASIC from having appropriate oversight of financial services
activities being carried on in Australia.
4.15 The requirement for a person to give assistance to ASIC as it reasonably
requests in relation to performance and exercise of ASIC's functions and
powers is important to monitor compliance with relevant conditions of an
exemption.
4.16 The requirement for a person to comply with a direction given by ASIC to
provide information about the financial service, or the kinds of financial
services, provided or the person's financial service business (of which those
financial services are part) is consistent with the obligation on Australian
financial service licence-holders. The purpose of this requirement is to ensure
that ASIC has visibility over the kinds of financial services that are being
offered in Australia.
4.17 These requirements may engage the right to privacy, to the extent they may
involve providing personal information about the person relying on an
exemption. However, the sharing of this information is important and
necessary to assist with ASIC's oversight and compliance functions in relation
to the regulation of financial services in Australia. It also provides a
mechanism by which ASIC may receive early warning of potential issues and
enable ASIC to take timely and appropriate action to prevent market
misconduct or harm to investors.
4.18 The sharing of information between ASIC and each of the person's comparable
regulators for the financial services provided under the comparable regulator
exemption is necessary to enable timely and effective communication between
the regulators about the person.
4.19 Finally, the requirement to notify ASIC about any significant enforcement
action, disciplinary action or investigation undertaken against the person by a
regulator, government authority or relevant financial market operator in
another jurisdiction is important for ASIC's risk assessment processes. This
information will enable ASIC to more effectively monitor a person's
compliance with the relevant requirements.
4.20 Where information is shared with ASIC and that information contains personal
information about an individual, ASIC must comply with disclosure and
retention principles contained in the Privacy Act 1988. This information is also
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received as 'protected information' under section 127 of the ASIC Act, which
prohibits disclosure and unauthorised use unless in specified circumstances.
4.21 Based on the above factors, the potential for interference with privacy is
permissible as it is considered to be reasonable, proportionate, and necessary to
achieve the legitimate objective of maintaining confidence in the in the
financial services industry. Therefore, to the extent that Schedule 1 engages the
right to privacy, it is consistent with Article 17 of the ICCPR as any limitations
on that right are authorised by law and are not arbitrary.
Right to work
4.22 Schedule 1 engages the right to work under Article 6 of the ICESR. The right
to work provides that everyone must be able to freely accept or choose their
work and includes a right not to be unfairly deprived of work. The right to
work also requires that state parties provide a system of protection
guaranteeing access to employment. This right must be made available in a
non-discriminatory manner pursuant to article 2(1) of the ICESR.
4.23 Schedule 1 provides that ASIC may cancel the exemption of a person that uses
the professional investor exemption or the comparable regulator exemption if
ASIC reasonably believes that the person (or in the case of a foreign company
or partnership - relevant persons in that foreign company or partnership) is not
a fit and proper person to provide the financial services.
4.24 This is appropriate as it ensures that persons who carry on a financial services
business in Australia are trustworthy and have the required integrity. Ensuring
that ASIC has the power to cancel a person's exemption is intended to allow
action to be taken to ensure the integrity of financial services being delivered
to investors is not compromised.
4.25 Furthermore, the power for ASIC to cancel an exemption may only be
exercised after ASIC takes reasonable steps to give the person a written notice
of the proposed cancellation, the reasons for it, and a reasonable opportunity to
appear (or be represented) at a private hearing before ASIC and to make
submissions to ASIC. Furthermore, a decision by ASIC to cancel a person's
exemption is also subject to merits review by the AAT and ensures that the
person has access to necessary procedural safeguards.
4.26 Participation in Australia's financial services sector is not a right; participation
is only possible if relevant standards are met and is only granted by the
Commonwealth to suitable persons. A person seeking the benefit of
participation in this industry will do so in the knowledge that the existence of
certain circumstances may result in their exemption being cancelled by ASIC.
This is appropriate as it remains necessary to protect investors and the integrity
of Australia's financial services sector against misconduct.
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Conclusion
4.27 Accordingly, to the extent that Schedule 1 engages with the rights under
Articles 14 and 17 of the International Covenant on Civil and Political Rights
and Article 6 of the International Convention on Economic, Social and Cultural
Rights, it is compatible with human rights and freedoms recognised or declared
in the international instruments listed in section 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 as the limitations are appropriate,
proportionate and achieve a legitimate objective.
Schedule 2 - Financial reporting and auditing
requirements for registrable superannuation
entities
Overview
4.28 Schedule 2 to the Bill amends the Corporations Act, the ASIC Act and
the SIS Act to extend and adapt the financial reporting and auditing
requirements in Chapter 2M of the Corporations Act to apply to registrable
superannuation entities.
4.29 The financial reporting requirements require the RSE licensee for a registrable
superannuation entity to:
• prepare and lodge financial reports for each financial year with ASIC;
• make the financial report, directors' report and auditor's report for
each financial year publicly available on the entity's website;
• include details on how to access the financial report, directors' report
and auditor's report for a financial year with the notice of the annual
members' meeting; and
• provide the entity's financial reports for a specified financial year to a
member upon request.
4.30 The auditing requirements require the RSE licensee for a registrable
superannuation entity to appoint an individual auditor, audit firm or audit
company to conduct an audit of the entity and for the auditor to:
• prepare an auditor's report for an audit of an entity's financial report;
• report specified matters to the relevant Regulator;
• meet auditor independence and rotation requirements; and
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• prepare, lodge and publish auditor transparency reports, if required.
4.31 The purpose of these amendments is to impose financial reporting obligations
on registrable superannuation entities that are consistent with those that
currently apply to public companies and registered schemes. This builds on
other measures in recent years, including the Government's Your Future, Your
Super package, to improve the compliance and transparency of the
superannuation sector.
Human rights implications
4.32 Schedule 2 engages the following rights:
• Article 14 of the International Covenant on Civil and Political Rights
(ICCPR) - right to a fair trial and presumption of innocence;
• Article 17 of the ICCPR - right to privacy; and
• Article 6 of the International Convention on Economic, Social and
Cultural Rights (ICESR) - right to work.
Strict liability offences
4.33 The strict liability offences in Schedule 2 may engage the right to a fair trial, as
well as the presumption of innocence in Article 14 of the ICCPR. Article 14 of
the ICCPR provides that everyone shall be entitled to a fair and public hearing
by a competent, independent and impartial tribunal established by law.
4.34 Schedule 2 amends the Corporation Act to introduce the following new strict
liability offences for individuals:
• failure to include in the auditor's report whether the remuneration
report complies with section 300C of the Corporations Act -
30 penalty units (subsection 308(3D) of the Corporations Act);
• a failure by an individual auditor, member of an audit firm or a lead
auditor to report a suspected contravention of the Corporations Act -
25 penalty units (subsections 311(1C), 311(2F) and 311(3C) of the
Corporations Act); and
• a failure by an officer of a registrable superannuation entity to allow
the auditor access to the entity's books or to give information,
explanation or assistance - 60 penalty units (subsection 312(3) of the
Corporations Act).
4.35 Schedule 2 amends the SIS Act to introduce the following new strict liability
offences:
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• a failure by a member of an audit firm or a lead auditor to report a
suspected contravention of the SIS Act and associated legislation -
25 penalty units (subsection 129A(11) of the SIS Act);
• a failure by a member of an audit firm or a lead auditor to report the
unsatisfactory financial position of a registrable superannuation entity
- 25 penalty units (subsection 130AA(10) of the SIS Act);
• a failure by a member of an audit firm or a lead auditor to report an
entity's failure to implement actuarial recommendations -
25 penalty units (subsection 130CA(10) of the SIS Act);
• for a member of a disqualified firm to be, or act as, the auditor of a
registrable superannuation entity - 60 penalty units
(subsection 131CA(3) of the SIS Act).
4.36 Schedule 2 also introduces strict liability offences that are applicable to RSE
licensees for registrable superannuation entities and to RSE audit companies.
In each case, the penalties for a body corporate are calculated in accordance
with the requirements in the Guide to Framing Commonwealth Offences or
sections 1311B and 1311C of the Corporations Act.
4.37 Schedule 2 also provides for a number of existing strict liability offences in
Chapter 2M of the Corporations Act, which currently apply to companies and
registered schemes, to also apply to registrable superannuation entities. It does
this by extending the application of existing obligations under the
Corporations Act to include registrable superannuation entities. This is
consistent with the key objective of Schedule 2 of the Bill to extend and adapt
the financial reporting and auditing requirements in Chapter 2M of the
Corporations Act to apply to registrable superannuation entities.
4.38 Strict liability offences engage with this right as they involve the imposition of
criminal liability without a mental fault element. However, strict liability
offences are compatible with the presumption of innocence if they are
reasonable, necessary and proportionate in pursuit of a legitimate objective.
4.39 Strict liability offences are appropriate in these circumstances, as they are
necessary to strongly deter misconduct that can result in financial detriment for
members of superannuation funds resulting from non-compliance with the
reporting and auditing requirements for registrable superannuation entities and
reduce non-compliance by ensuring that the Regulator can efficiently and
expeditiously deal with low-level offending. This in turn bolsters the integrity
of the regulatory regime for registrable superannuation entities and helps to
maintain and strengthen public confidence in the regime.
4.40 All of the new strict liability offences in the Corporations Act are created for
the purpose of extending and adapting the application of the existing
obligations and penalties in the Corporations Act to include registrable
superannuation entities.
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4.41 All of the new strict liability offences in the SIS Act are created for two key
reasons:
• to ensure consistency with the obligations and penalties in Chapter 2M
of the Corporations Act; and
• to take into account the new financial reporting and auditing
requirements, notably that audit companies and audit firms are able to
be appointed as auditor of a registrable superannuation entity.
4.42 All of the new strict liability offences created in the Corporations Act and the
SIS Act are consistent with the Guide to Framing Commonwealth Offences,
which provides that:
• fines for strict liability offences should not exceed 60 penalty units for
individuals or 300 penalty units for a body corporate; and
• strict liability should not apply to offences punishable by
imprisonment.
4.43 The application of strict liability preserves the defence of honest and
reasonable mistake of fact to be proved by the accused on the balance of
probabilities. This defence maintains adequate checks and balances for persons
who may be accused of such offences.
4.44 All of the new strict liability offences apply prospectively, therefore upholding
article 15 of the ICCPR. The new strict liability offences only apply in relation
to conduct (an act or omission) that occurs on or after 1 July 2023. This is
consistent with Article 15 of the ICCPR, which provides that no one shall be
held guilty of any criminal offence for any act or omission which did not
constitute a criminal offence at the time when it was committed.
4.45 Given the need to deter misconduct, and the potential harm that could arise
from non-compliance with these obligations, these new strict liability offences
are considered a reasonable and proportionate means of achieving the
legitimate objective of strengthening the regulation of the superannuation
sector.
Reversing the evidential burden of proof
4.46 Article 14(2) of the ICCPR protects the right to be presumed innocent until
proven guilty according to law. Generally, consistency with the presumption of
innocence requires the prosecution to prove each element of a criminal offence
beyond reasonable doubt.
4.47 An offence provision which requires the defendant to carry an evidential or
legal burden of proof, commonly referred to as 'a reverse burden', with regard
to the existence of some fact engages and limits the presumption of innocence.
This is because a defendant's failure to discharge the burden of proof may
permit their conviction despite reasonable doubt as to their guilt. Where a
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statutory exception, defence or excuse to an offence is provided in proposed
legislation, these defences or exceptions must be considered as part of a
contextual and substantive assessment of potential limitations on the right to be
presumed innocent in the context of an offence provision.
4.48 Reverse burden offences are considered to be compatible with the presumption
of innocence where they are shown by legislation proponents to be reasonable,
necessary and proportionate in pursuit of a legitimate objective.
4.49 Schedule 2 introduces a number of new provisions, for which an
offence-specific defence applies that provides that the defendant (a member of
an audit firm) bears an evidential burden of proof that the person:
• does not know of the circumstances that constitute the contravention;
or
• knows of those circumstances but takes all reasonable steps to correct
the contravention as soon as possible after becoming aware of those
circumstances.
4.50 The provisions to which such an offence-specific defence is applicable are:
• the requirement to report any of the following matters:
- a suspected contravention of the Corporations Act
(subsection 311(2G) of the Corporations Act);
- a suspected contravention of the SIS Act, SIS Regulations, the
prudential standards, or the Financial Sector (Collection of
Data) Act 2001 (subsection 129A(3) of the SIS Act);
- the unsatisfactory financial position of a registrable
superannuation entity (subsection 130AA(3) of the SIS Act);
- an attempt to unduly influence, coerce, manipulate or mislead
the lead auditor or a member of the audit team or otherwise
interfere with the proper conduct of the audit
(subsection 130BAA(3) of the SIS Act);
- a failure to implement an actuarial recommendation
(subsection 130CA(3) of the SIS Act); and
• where a disqualified firm represents that a member or employee of the
firm is eligible to be an RSE auditor (subsection 131BA(1) of the
SIS Act); and
• where a firm holds itself out as an RSE auditor but is not an RSE
auditor (subsection 131B(2A) of the SIS Act).
4.51 These offence-specific defences reverse the evidential burden of proof as the
evidence needed to prove the defence is peculiarly within the knowledge of the
defendant (i.e. the member of an audit firm), who is in the best position to have
specific knowledge to raise evidence regarding their knowledge of the
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circumstances, or what steps they took (if any) to correct the contravention. It
would be significantly more difficult and costly for the prosecution to disprove
this, than for the defendant to establish the matter.
4.52 In accordance with subsection 13.3(3) of the Criminal Code Act 1995, a
defendant who wishes to rely on these defences, bears an evidential burden in
relation to that matter. Once the defendant discharges this evidential burden,
the onus is on the prosecution to disprove the matters beyond reasonable doubt.
4.53 Reversing the evidential burden of proof in these circumstances is considered
appropriate, because:
• this burden is limited to the codified exceptions and does not require
the defendant to positively prove their innocence of the offence; and
• it is consistent with the existing defence available to members of an
audit firm that applies in relation to offences that would otherwise by
committed by the audit firm under section 332G of the
Corporations Act.
Right to privacy
4.54 Schedule 2 engages the right to protection from unlawful or arbitrary
interference with privacy under Article 17 of the ICCPR because it requires an
RSE licensee for a registrable superannuation entity to prepare a directors'
report for each financial year, which must include details of the remuneration
paid to key management personnel. The directors' report is required to be
published on the registrable superannuation entity's website.
4.55 The right in Article 17 may be subject to permissible limitations, where these
limitations are authorised by law, be for a reason consistent with the ICCPR
and be reasonable in the particular circumstances.
4.56 The requirement to publish information on the remuneration of key personnel
for a registrable superannuation entity is not a new requirement. Instead,
Schedule 2 does this by transferring the existing obligation in section 29QB of
the SIS Act to Chapter 2M of the Corporations Act to streamline the grouping
of obligations for registrable superannuation entities.
4.57 In addition to being consistent with existing requirements, the requirement to
publish remuneration details of key personnel is considered necessary and
proportionate to achieve a legitimate objective by:
• strengthening the transparency and accountability of registrable
superannuation entities and RSE licensees;
• ensuring that RSE licensees are subject to adequate oversight and
scrutiny by ASIC and members of superannuation funds; and
• helping to strengthen the integrity of, and public confidence in, the
superannuation sector.
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Right to work
4.58 Schedule 2 may engage the right to freely choose and accept work under
Article 6(1) of the ICESR, which provides that everyone must be able to freely
accept or choose their work and not to be unfairly deprived of work. The right
to work also requires that state parties provide a system of protection
guaranteeing access to employment. This right must be made available in a
non-discriminatory manner pursuant to article 2(1) of the ICESR.
4.59 Schedule 2 provides that:
• an individual may not consent to be appointed, act as, or prepare a
report required to be prepared by an auditor of a registrable
superannuation entity if the individual:
- does not meet the eligibility criteria set out in the prudential
standards;
- has been disqualified from being, or acting as, an auditor of a
registrable superannuation entity; or
- is an employee, member or director of a disqualified firm or
company;
• an individual may be removed from the office of auditor of a
registrable superannuation entity if the person:
- ceases to be eligible to auditor of a registrable superannuation
entity;
- fails to comply with auditor independence requirements in
Division 3 of Part 2M.4 of the Corporations Act;
- fails to comply with the auditor rotation requirements in
Division 5 of Part 2M.4 of the Corporations Act; or
- is disqualified (or is an employee, member or director of a
disqualified firm or company) from being or acting as the
auditor of a registrable superannuation entity.
4.60 In this way, Schedule 2 restricts the ability of individuals to work as auditors of
a registrable superannuation entity unless the person satisfies these
requirements. The restrictions are however justified as they create minimum
requirements for the auditing of registrable superannuation entities. The
purpose of these amendments is to integrate the existing requirements for
appointment of the auditor of a registrable superannuation entity into
Chapter 2M of the Corporations Act. These requirements are also consistent
with the existing eligibility requirements for being, or acting as, the auditor of
a registered scheme.
4.61 To be engaged as an auditor of a registrable superannuation entity, an
individual or lead auditor is required to satisfy a fit and proper person test,
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Statement of Compatibility with Human Rights
which is prescribed by the prudential standards, made under the SIS Act. The
use of a fit and proper person test in these circumstances is appropriate as it
ensures that persons who audit the final reports of registrable superannuation
entities in Australia are persons who are trustworthy and have the required
integrity. Ensuring that only individuals who meet fitness and propriety
requirements can be auditors of registrable superannuation entities is necessary
to protect members of superannuation funds given the importance of
superannuation to the economy and in ensuring that Australians have sufficient
financial resources in their retirement.
4.62 Being an auditor of a registrable superannuation entity is not a right;
participation is only possible if relevant standards are met and is only granted
to suitable persons. A person seeking the benefit of participation in this
industry will do so in the knowledge that the existence of certain circumstances
may result in their not being deemed eligible to be the auditor of a registrable
superannuation entity, or administrative action taken against them for failing to
comply with the relevant requirements. This is appropriate as it remains
necessary to protect consumers and the integrity of Australia's superannuation
industry against misconduct.
Conclusion
4.63 Accordingly, to the extent that Schedule 2 engages rights under Articles 14 and
17 of the ICCPR and Article 6 of the ICESR, it is compatible with human
rights and freedoms recognised or declared in the international instruments
listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 as
the limitations are appropriate, proportionate and achieve a legitimate
objective.
Schedule 3 - Increased Tribunal powers for
small business tax decisions
Overview
4.64 Schedule 3 to the Bill 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.
4.65 This Schedule amends the TAA 1953 to enable small business entities to apply
to the Small Business Taxation Division of the AAT for an order staying, or
otherwise affecting, the operation or implementation of decisions of the
Commissioner that are being reviewed by the AAT. This will enable the AAT
to restrain the Commissioner from taking certain discretionary actions to
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collect disputed debts from small businesses while the relevant reviewable
objection decisions in relation to small business taxation assessment decisions
are under review.
Human rights implications
4.1 This Schedule does not engage any of the applicable rights or freedoms,
including the right to a fair trial and fair hearing rights.
4.2 The amendments enable the AAT to stay, or otherwise affect, the operation or
implementation of a small business taxation decision under review if certain
criteria are met. They do not affect the rights of small businesses to seek merits
or judicial review of a reviewable objection decision, or any of their existing
rights under law.
4.3 In addition, the review applicants will be business entities and not individuals
because the amendments affect small business taxation assessment decisions
only. As human rights do not apply to business entities, this amendment has no
human rights implications.
Conclusion
4.4 This Schedule is compatible with human rights as it does not raise any human
rights issues.
141
Attachment 1: Regulation Impact
Statement
Table of Contents:
Executive Summary ........................................................................... 143
Key Terms ......................................................................................... 144
Background........................................................................................ 145
What is an Australian Financial Services Licence (AFSL)? ......... 145
What is a Foreign Financial Service Provider (FFSP)? ............... 145
What is the fit-and-proper person assessment? .......................... 146
What is the problem you are trying to solve? ..................................... 150
Why is Government action needed? .................................................. 152
Licensing relief ............................................................................ 152
Fast-tracking the licensing process ............................................. 152
Options considered ............................................................................ 153
Option 1 - Maintain ASIC's new relief ......................................... 153
Option 2 - Restore ASIC's previous relief ................................... 154
Option 3 - Legislate new relief including fast-tracking of licensing
.................................................................................................... 155
Summary of options considered ........................................................ 160
Comparison of conditions imposed by the options ...................... 163
What is the likely net benefit of each option? ..................................... 167
Option 1 - Maintain ASIC's new relief ......................................... 167
Option 2 - Restore previous relief ............................................... 171
Option 3 - Legislate new relief .................................................... 172
Breach reporting under the options ............................................. 173
Consultation ....................................................................................... 174
Treasury policy options consultation paper ................................. 174
Summary of feedback received ................................................... 175
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Exposure draft legislation ............................................................ 176
The best option .................................................................................. 176
Implementation and evaluation of options.......................................... 177
RIS status at each major decision point ...................................... 178
Appendix A: Definitions .............................................................. 178
Appendix B: Prescribed regimes and financial services - Foreign
AFSL ........................................................................................... 181
Appendix C: Financial service activities permitted under sufficient
equivalence relief ........................................................................ 186
Appendix D: Consultation paper policy options .......................... 190
Appendix E: ................................................................................. 191
Regulatory Burden Measure ....................................................... 191
Executive Summary
A person who carries on a financial services business in Australia must hold an
Australian Financial Services Licence (AFSL) unless an exemption applies.3 Since 2003,
licensing relief has been provided to Foreign Financial Service Providers (FFSPs)
servicing wholesale clients, to minimise regulatory burdens where the FFSP is already
regulated by a sufficiently equivalent regulatory regime or has only a limited connection
to Australia.4 This long-standing relief has facilitated cross-border financial services,
provided Australians with access to more competitive pricing and increased the diversity
of investments available.5
With effect from 31 March 2020, the Australian Securities and Investments Commission
(ASIC) repealed and replaced this relief with two new forms of relief: the 'foreign AFSL
regime' and 'funds management relief.' ASIC's primary concern was that the repealed
relief did not provide sufficient regulatory oversight.6
In the 2021-22 Budget, the Government announced it would consult on options to
restore the
well-established relief and to fast-track licensing processes for FFSPs establishing
3
Corporations Act 2001, s 911A(1).
4
ASIC Class Order (CO) 03/824; CO 03/1099; CO 03/1100; CO 03/1101; CO 03/1102; CO 03/1103; CO 04/829; CO
04/1313.
5
Australian Financial Markets Association, submission to Treasury's consultation paper, 30 July 2021, pg 4.
6
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020.
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Regulation Impact Statement
more permanent operations in Australia. On 9 July 2021, Treasury released a public
consultation paper on these options.7 Following stakeholder feedback, these options
were further refined into the options considered in this paper.
Option 1 maintains ASIC's new relief, which does not address industry concerns that it
could lead to significant disruption for FFSPs as transitional arrangements end. Option
2 restores the repealed relief, however, would not address concerns of ASIC regarding
the lack of sufficient regulatory oversight. The preferred option, option 3, legislates new
forms of relief that seek to better balance these concerns - minimising the regulatory
burden on FFSPs while ensuring sufficient regulatory oversight to maintain confidence
in the Australian financial system.
This option will introduce:
• the comparable regulator exemption, which exempts FFSPs authorised
to provide financial services in a comparable regime from the
requirement to be licensed in Australia when dealing with wholesale
clients;
• the professional investor exemption, which exempts FFSPs that
provide financial services from outside Australia to professional
investors from the requirement to be licensed in Australia; and
• an exemption from the fit-and-proper person assessment to fast-track
the licensing process for FFSPs authorised to provide financial services
in a comparable regulatory regime when applying for an AFSL to deal
with wholesale clients.
Option 3 is the culmination of considering stakeholder responses to the initial
consultation paper and responses to the exposure draft legislation. The success of this
reform will be measured by the engagement of FFSPs in the Australian market, which
is expected to grow, and the continued confidence in the Australian financial system.
This is expected to be the first tranche of reform to implement the Government's
budget announcement, with further measures expected to be progressed in due course.
Key Terms
AFSL Australian Financial Services Licence
ASIC Australian Securities and Investments
Commission
AFMA Australian Financial Markets Association
CO Class Order
7
Treasury, Relief to Foreign Financial Service Providers consultation paper, 9 July 2021.
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FFSP Foreign Financial Service Provider
IOSCO International Organization of Securities
Commissions
OBPR Office of Best Practice Regulation
RIS Regulation Impact Statement
All sections, divisions and parts are in reference to the Corporations Act 2001 unless
otherwise specified.
Background
What is an Australian Financial Services Licence
(AFSL)?
Financial services businesses that carry on their business in Australia must hold an
Australian Financial Services Licence (AFSL) unless relief is granted by ASIC or an
exemption in the law applies. The AFSL regime is designed to regulate financial services
being provided within Australia and into Australia from overseas.
AFSL holders have legal obligations under the Corporations Act 2001 (the Act)8 and
their applicable AFSL conditions.9 These obligations apply to the provision of financial
services to retail clients, wholesale clients, and professional investors.10
What is a Foreign Financial Service Provider (FFSP)?
FFSPs are financial service providers based in a foreign jurisdiction. FFSPs that carry
on a financial services business in the Australian jurisdiction must have an AFSL, unless
ASIC licensing relief or a legal exemption applies.
Australia has taken a broad approach to its licensing jurisdiction in respect of FFSPs.
FFSPs are taken to be carrying on a financial services business in this jurisdiction if they
engage in conduct that is intended to 'induce' people in Australia to use the financial
8
Corporations Act 2001, ss 912A-912F
9
See ASIC Pro Forma 209 Australian financial services licence conditions
10
Industry refers to professional investors as institutional investors.
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Regulation Impact Statement
services or products it provides.11 Conduct that amounts to inducing could include mass
marketing campaigns.12
Many FFSPs already comply with similar regulatory obligations to the AFSL regime in
their home jurisdiction. For these FFSPs, AFSL obligations would impose duplicate
regulatory obligations. This can increase barriers to entry for FFSPs seeking to do
business in Australia.
What is the fit-and-proper person assessment?
Currently, to obtain an AFSL, there is a requirement that ASIC must be satisfied that
an applicant is a fit and proper person to provide the financial services covered by the
licence. 13 This requirement is satisfied if ASIC has no reason to believe that any
matters set out in the legislation in relation to the requirement, apply to the applicant. 14
This requirement imposes significant documentation demands on applicants as a range
of background documents and criminal records are required for all relevant persons.
Relevant persons include any officers of a body corporate applicant, any partners or
senior managers of a partnership applicant, any trustees or senior managers of a trust
applicant, any controllers of the applicant - and if the controllers are corporations or
partnerships, any senior managers, or partners of those controllers. 15
In determining whether a person is fit-and-proper, ASIC must have regard to matters
including relevant persons 10-year criminal history, bankruptcy, and any
disqualification orders. 16 To decide on these types of matters, ASIC requires applicants
to provide relevant proof documents from all relevant persons. FFSPs may face
additional difficulty collecting these proof documents due to the vagaries of their home
regulatory systems, for example, some jurisdictions do not provide individuals with
criminal record checks on application.
Previous ASIC relief
Since 2003, ASIC has provided two key forms of licensing relief to FFSPs. 'Sufficient
equivalence' relief to avoid duplicative regulation of FFSPs providing services to
wholesale clients and 'limited connection' relief where an FFSP was deemed to be
carrying on a financial services business within Australian jurisdiction only because it
was engaging in conduct intended to induce Australian wholesale clients.
11
Corporations Act 2001, s 911D.
12
See ASIC Regulatory Guide 121 Doing financial services business in Australia, RG 121.52.
13
Corporations Act s 913B.
14
Corporations Act s 913BA.
15
Corporations Act s 913BA.
16
Corporations Act s 913BB.
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Table 1: Summary of previous ASIC relief
Sufficient • Exempts FFSPs from the requirement to hold an AFSL
Equivalence
• Available to FFSPs regulated in a jurisdiction with a
regulatory regime deemed by ASIC to be 'sufficiently
equivalent' to Australia's regime
• Applies where FFSP regulated by certain regulators in
the United Kingdom, the United States, Singapore,
Hong Kong, Germany, and Luxembourg
• Allows certain financial services and products
(depending on jurisdiction) to be offered to wholesale
clients in Australia (see Appendix C)
• Requires compliance with conditions including
assisting ASIC with information requests
• Self-assessment of eligibility with ASIC notification
required
Limited Connection • Exempts FFSPs from the requirement to hold an AFSL
• Available to FFSPs from any jurisdiction deemed to be
'carrying on a financial services business' in Australia
only because the FFSP engages in conduct intended to
induce Australian wholesale clients to use its financial
services17
• Self-assessment of eligibility, no notification or
compliance obligation requirements
AFSL application • No relief from fit-and-proper person assessments
process
Repeal of ASIC relief
From 31 March 2020, ASIC repealed the long-standing sufficient equivalence and
limited connection relief, citing its concerns regarding insufficient supervisory and
enforcement powers, improper relief use and unfair competition advantages for FFSPs.
As ASIC explained in their regulation impact statement (RIS), in making this decision
it considered the existing relief no longer struck the appropriate balance between
access to the competitive global market and minimising regulatory burdens while
maintaining confidence in the Australian financial system.18
ASIC was concerned that while some FFSPs notified ASIC of their misconduct and
compliance issues, there may be others that were not notifying ASIC. ASIC's ability to
17
Corporations Act s 911D.
18
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, para 2.
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Regulation Impact Statement
monitor and take appropriate enforcement action was limited when it came to
addressing any misconduct with respect to FFSPs. By removing the relief and requiring
FFSPs to hold an AFSL or use the narrower new relief, ASIC believed they would
have better access to information to identify misconduct and have the enforcement
tools needed to address any compliance concerns.19
ASIC considered that some FFSPs with a substantive presence in Australia may not
exit the market, if required to hold an AFSL, however also asserted the cost of holding
an AFSL was not a determinative factor in their decision to continue to operate in
Australia. Further, ASIC considered to the extent some would leave, others were likely
to step into the gap and provide the financial services those exiting FFSPs were
providing the Australian market, including domestic financial service providers.20
ASIC also submitted that the previous relief offered to FFSPs was more generous than
the relief offered to Australian financial service providers operating in comparable
overseas jurisdictions, and requiring FFSPs to hold an AFSL would better align
Australia to other jurisdictions. ASIC was concerned the repealed relief provided
FFSPs with a competitive advantage.21
ASIC's new relief
To replace the repealed relief, ASIC introduced a 'foreign AFSL regime' and the
'funds management relief.' The foreign AFSL regime is a type of relief that allows
FFSPs regulated by sufficiently equivalent regimes to apply for a modified form of a
standard AFSL to provide its services to Australian wholesale clients. This provides
more limited exemption, subjecting FFSPs to most of the licensing obligations of
AFSL holders.22 The prescribed regimes and the financial services which may be
exempt under a foreign AFSL for each regime are outlined in Appendix B.
Limited connection relief was replaced by the new funds' management relief, which
narrows the relief in two key ways: Firstly, narrowing the activities covered by the
scope of the relief to funds management services. The rationale for narrowing the
scope was to address ASIC's concerns that some FFSPs were taking a broad
interpretation of the activities within scope of the relief. Secondly, funds management
relief was narrowed to eligible Australian users (certain professional investors) and
would no longer apply to a broader set of wholesale investors. In addition, the funds
management relief adds new conditions to ensure ASIC has regulatory oversight. For
example, notification from FFSPs is a condition to using the relief and allows ASIC to
be aware of who is relying on the relief.23
19
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, paras 67-69.
20
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, paras 74-75.
21
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, para 78.
22
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, paras 39, 104.
23
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, para 127.
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Table 2: Summary of new forms of ASIC relief
Foreign AFSL regime • Requires an AFS licence for FFSPs, subjecting
them to most AFSL obligations
• Available to FFSPs regulated in a jurisdiction with
a regulatory regime deemed by ASIC to be
'sufficiently equivalent' to Australia's regime
• Certain regulators in the United Kingdom, the
United States, Singapore, Hong Kong, Germany,
Luxembourg, France, Denmark, Sweden and
Ontario, Canada are recognised under the
exemption
• Allows certain financial services and products
(depending on jurisdiction) to be offered to
wholesale clients in Australia (see Appendix B)
• Must apply to ASIC for relief
Funds management relief • Exempts FFSPs from the requirement to hold an
AFSL
• Restricted to 'inducing conduct' in relation to
providing funds management financial services
• Available to FFSPs regulated by an IOSCO board
member deemed to be 'carrying on a financial
services business' in Australia only because it is
engaging in conduct that was intended to induce
certain Australian professional investors
• FFSPs must agree to comply with conditions to
rely on the relief
• ASIC notification required
AFSL application • No relief for fit-and-proper person assessments
process
Industry reaction and Government announcement to restore
relief
In the wake of ASIC's decision to repeal the previous relief, industry voiced strong
concerns that the new regulatory settings would place significantly higher levels of
regulatory burden on FFSPs. The requirement to apply for relief and extensive
reporting obligations (such as breach reporting) were seen as particularly burdensome.
These groups, which included peak bodies representing FFSPs, law firms and global
investment banks, warned that the increased regulatory burden of operating in
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Regulation Impact Statement
Australia may deter FFSPs from entering Australian markets, or risk current FFSP
entrants exiting altogether. This may decrease competition and lower the diversity of
asset classes and services available to Australian investors.
Responding to industry concerns, as part of the 2021-22 Budget, the Government
announced a Global Talent Attraction package that included a commitment to consult
on options to: restore the previously well-established regulatory relief limited to
dealing with wholesale clients or professional investors for FFSPs who are licensed
and regulated in jurisdictions with comparable financial services regimes; and create a
fast-tracked licensing process for FFSPs who wish to establish more permanent
operations in Australia.
Transitional arrangements
Currently, ASIC has transitional arrangements in place for the sufficient equivalence
and limited connection relief. These transitional arrangements allow FFSPs that
currently rely on those forms of relief to continue relying on it until 31 March 2023. At
the end of the transitional arrangements, the current law would require FFSPs to apply
for either a foreign AFSL, a standard AFSL, or rely on the funds management relief, or
another type of relief, if available.
What is the problem you are trying to solve?
Since 2003, Australia has provided licensing relief to FFSPs. This relief has facilitated
cross-border financial services, increased market competition, lowered costs, and
improved access to a greater diversity of investments and sources of financing for
Australian businesses.24
During this time, the Australian financial services market has grown to be valued at
approximately $10.9 trillion as at June 2021.25 Australia has also accumulated the
fourth largest pool of retirement savings in the world, with total assets of $3.4 trillion
as at the end of the September 2021 quarter.26
With effect from 31 March 2020, ASIC repealed the long-standing relief with intention
to replace it (after a transitional period) with new relief. This new relief increases
regulatory burdens and may see FFSPs exiting the Australian market.27 ASIC estimated
the impact of repealing existing relief would be minor. However, industry warn of
more significant impacts, noting Australia is not a major financial market and that
many FFSPs will exit the market.28
24
Australian Private Equity & Venture Capital Association Limited, Submission to consultation paper 301, 3 August
2018, pg 2.
25
Roy Morgan, Australian market for financial services grows 13.2% to nearly $10.9 trillion during 2020/21 financial
year, 17 August 2021.
26
The Association of Superannuation Funds of Australia Limited, Superannuation Statistics, accessed 12/01//2022.
27
As an example, the breach reporting requirements.
28
Australian Financial Markets Association, Submission to consultation paper 301, 3 August 2018, page 2
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FFSPs provide access to niche markets, specialised advice, and greater investment
diversity, which increases investor choice. Quantification of these benefits is not
possible as it would require an assessment of which investment strategies are likely to
be the best in the future for a wide set of different wholesale and professional investors.
However, Australian businesses and investors are best placed to decide whether an
FFSP's services will benefit them. Given the $10.6 trillion size of the Australian
financial services market, even exceedingly small reductions in financial performance
would have a significant cost.29
ASIC repealed the previous licensing relief and replaced it with the foreign AFSL and
funds management relief primarily due to concerns there was insufficient regulatory
oversight. The previous limited connection relief did not require any notification to
ASIC and was being interpreted more broadly than ASIC had intended. The previous
sufficient equivalence relief provided ASIC with insufficient tools, such as the power
to require those relying on relief to give ASIC reasonable assistance.
While there is a case for a form of licensing relief that equips ASIC with a more
expansive enforcement toolkit, there is little evidence to suggest a need for regulation
to the level that has been introduced. Alternative options could provide for greater
regulatory oversight while minimising regulatory burdens to minimise FFSPs exiting
Australia. 30
Some FFSPs are already complying with regulatory requirements that are comparable
to the AFSL regime in their home jurisdiction. For these FFSPs, the obligations of the
new ASIC relief are considered overly burdensome and duplicative. Removing
duplicative regulation through deference to regulators with comparable regulatory
standards is recognised internationally as good practice.31
In addition to restoring and improving licencing relief for FFSPs, there is also a need to
consider ways to speed up the AFSL application process for those FFSPs that wish to
hold an AFSL. Stakeholders report the average wait time to obtain an AFSL as nine
months, with no guarantee that an AFSL can be obtained within 12 months.32 Included
in that time cost is the time associated with obtaining criminal history and bankruptcy
checks, which are not readily available in some jurisdictions as they are in Australia.
For example, one stakeholder reports that in the United States, the individual must
have its fingerprints read to have access to some of these required documents.33
Further, for FFSPs, the fit and proper person test extends to a significant number of
persons within global structures. Relevant persons for FFSPs may have lived in many
jurisdictions increasing the burden for obtaining the proof documents in each.34
29
Global Business and Talent Acquisition Taskforce, Financial Services, accessed 26/03/2021.
30
Based on statements made in the submissions to Treasury by: New Zealand Financial Markets Association, 28 July
2021; Australian Financial Markets Association, 30 July 2021; Minter Ellison, 30 July 2021; Piper Alderman, 30 July
2021; Herbert Smith Freehills, Law Council of Australia, 3 August 2021.
31
International Organisation of Securities Commissions, Good Practices on Processes for Deference, June 2020.
32
Based on statements made in the submissions to Treasury by: Ashurst, 29 July 2021; Australian Financial Markets
Association, 30 July 2021.
33
The Alternative Investment Management Association, 29 July 2021.
34
The Alternative Investment Management Association, 29 July 2021.
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Regulation Impact Statement
Speeding up the AFSL application process for FFSPs will further reduce barriers for
new entrants to Australia and help attract foreign talent that work with or are employed
by FFSPs.
Why is Government action needed?
Licensing relief
There is a compelling case for Government intervention on this issue to achieve a better
balance between minimising regulatory burdens on FFSPs and ensuring sufficient
regulatory oversight. These regulatory settings have the capacity to affect the diversity
of investments available, the competitiveness of pricing for financial services, the
performance of superannuation funds and foreign investment into Australia.35
Government intervention will allow for relief that provides for greater regulatory
oversight than the repealed ASIC relief, while also ensuring the relief is not so restrictive
that it reduces the diversity of investments available, the competitiveness of pricing for
financial services, and FFSP activity in Australia more generally.
Industry advises the increased burden of operating in Australia under ASIC's new relief
has already discouraged significant FFSPs from continuing operations in the Australian
market, including global investment banks, foreign market makers and other foreign
deposit-taking institutions.36
Government non-action would mean allowing a regulatory regime with far greater
obligations than has been in-place in Australia since 2003 to become the regulatory
environment for FFSPs seeking to do business in Australia, following the end of the
transitional arrangements. This would reduce FFSP offerings in Australia and access to
FFSP services by Australian businesses and investors. The Government is well-placed
to not only restore the accessibility of Australia's financial services market to the globe,
but also implement reforms that enhance accessibility while maintaining adequate
regulatory oversight.
Fast-tracking the licensing process
The licensing process is largely dictated by the requirements of the Act. This includes
the prescriptive statutory requirements for ASIC to conduct fit-and-proper person
assessments. These assessments are onerous and seek to establish whether managers
and controllers of the applicant for the AFSL are fit-and-proper, requiring
35
Minter Ellison, Submission on ASIC consultation paper 301, 31 July 2018, sub-para 2(a).
36
Based on statements made in the submissions to Treasury by: New Zealand Financial Markets Association, 28 July
2021; Australian Financial Markets Association, 30 July 2021; Minter Ellison, 30 July 2021; Piper Alderman, 30 July
2021; Herbert Smith Freehills; Law Council of Australia, 3 August 2021
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documentation regarding criminal records for the previous 10 years and backgrounds
of all the relevant persons.
Without Government intervention to relieve regulated FFSPs from the requirement to
undergo fit and proper testing, ASIC will continue to make assessments as required
under law even where the FFSP is regulated by a comparable regulatory regime and the
services are being provided to wholesale clients. Providing the relevant documentation
to satisfy ASIC can be a time intensive process and particularly difficult for FFSPs
from jurisdictions which do not have perfectly analogous systems for processes such as
criminal background checks.
It is important for these barriers to be reduced, particularly in circumstances where
comparable regulators have assessed an FFSP to a similar fit and proper standard, so
that FFSP permanency in Australia is encouraged.
Options considered
Option 1 - Maintain ASIC's new relief
Under Option 1, ASIC's new relief would be maintained. This option would leave the
current arrangements in place, meaning FFSPs currently relying on sufficient
equivalence and limited connection relief would need to apply for either a foreign
AFSL, standard AFSL or rely on funds management relief from 1 April 2023 (the end
of transitional arrangements).
Table 3: Summary of new forms of ASIC relief
Foreign AFSL regime • Issues an AFS licence for FFSPs, subjecting them
to most AFSL obligations
• Available to FFSPs regulated in a jurisdiction with
a regulatory regime deemed by ASIC to be
'sufficiently equivalent' to Australia's regime
• Certain regulators in the United Kingdom, the
United States, Singapore, Hong Kong, Germany,
Luxembourg, France, Denmark, Sweden and
Ontario, Canada are recognised under the regime
• Allows certain financial services and products
(depending on jurisdiction) to be offered to
wholesale clients in Australia (see Appendix C)
• Must apply to ASIC for relief
Funds management relief • Exempts FFSPs from the requirement to hold an
AFSL
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• Restricted to 'inducing conduct' in relation to
providing funds management financial services
• Available to FFSPs regulated by an IOSCO board
member deemed to be 'carrying on a financial
services business' in Australia only because it is
engaging in conduct that was intended to induce
certain Australian professional investors
• FFSPs must agree to comply with conditions to
rely on the relief
• ASIC notification required
AFSL application • No relief for fit-and-proper person assessments
process
Fast-tracking the licence process
The licence process would not be altered under this option. All FFSPs applying for a
standard AFSL would need to apply the existing law and have fit-and-proper person
assessments conducted by ASIC.
Option 2 - Restore ASIC's previous relief
Under Option 2, the new ASIC relief would be repealed, and the previous sufficient
equivalence and limited connection reliefs would be introduced into the primary law
and replicate the relevant ASIC instruments.
Table 4: Summary of repealed forms of ASIC relief
Sufficient • Exempts FFSPs from the requirement to hold an AFSL
Equivalence
• Available to FFSPs regulated in a jurisdiction with a
regulatory regime deemed by ASIC to be 'sufficiently
equivalent' to Australia's regime
• Applies where regulated by certain regulators in the
United Kingdom, the United States, Singapore, Hong
Kong, Germany, and Luxembourg
• Allows certain financial services and products
(depending on jurisdiction) to be offered to wholesale
clients in Australia (see Appendix C)
• Requires compliance with conditions including
assisting ASIC with information requests
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• Self-assessment of eligibility, with ASIC notification
required
Limited Connection • Exempts FFSPs from the requirement to hold an AFSL
• Available to FFSPs from any jurisdiction deemed to be
'carrying on a financial services business' in Australia
only because the FFSP engages in conduct intended to
induce Australian wholesale clients to use its financial
services37
• Self-assessment of eligibility, no notification or
compliance obligation requirements
AFSL application • No relief from fit-and-proper person assessments
process
Fast-tracking the licence process
The licence process would not be altered under this option. All FFSPs applying for a
standard AFSL would need to apply the existing law and have fit-and-proper person
assessments conducted by ASIC.
Option 3 - Legislate new relief including fast-tracking
of licensing
Option 3 would amend the Act, regulations and create other legislative instruments to
introduce:
• The comparable regulator exemption;
• The professional investor exemption; and
• The fit-and-proper person assessment exemption.
37
Corporations Act s 911D.
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Regulation Impact Statement
Table 5: Summary of relief under option 3
Comparable regulator • Exempts FFSPs from the requirement to hold
exemption an AFSL
• Allows FFSPs to offer all financial services
they are authorised to offer in their home
jurisdiction to wholesale clients in Australia
• Available to FFSPs regulated by a regulator of
a comparable regulator regime. Initially this
will include certain regulators in the United
Kingdom, the United States, Singapore, Hong
Kong, Germany, Luxembourg, France,
Denmark, Sweden and Ontario, Canada
• Requires the FFSP to comply with conditions
• Includes powers for ASIC to oversee and
enforce compliance with the relief, including
civil penalties for breaching conditions, the
power to cancel reliance on the exemption or,
alternatively, impose new conditions
• Self-assessment of eligibility, with ASIC
notification required
Professional investor • Exempts FFSPs from the requirement to hold
exemption an AFSL
• Allows FFSPs, located in any jurisdiction, to
offer all financial services from outside of
Australia to professional investors
• Requires the FFSP to reasonably believe that
by providing the financial services they are not
contravening any laws that apply in the
jurisdiction of the FFSP's home office,
principal place of business or where they are
providing the services from
• Requires the FFSP to comply with conditions
• Includes powers for ASIC to oversee and
enforce compliance with the relief, including
civil penalties for breaching conditions, the
power to cancel reliance on the exemption or,
alternatively, impose new conditions
• Self-assessment of eligibility, with ASIC
notification required
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Fit-and-proper person • Exempts FFSPs from fit-and-proper
assessment exemption assessments when applying for an AFSL to
provide services to wholesale clients
• Available to FFSPs regulated by regulators of
comparable regulatory regimes, same as the
comparable regulator exemption
• Part of an AFSL application process
Comparable regulator exemption
The comparable regulator exemption is intended to provide licensing relief like the
repealed sufficient equivalence relief. The relief applies to FFSPs that are authorised to
provide financial services in a comparable regime when dealing with Australian
wholesale clients.
The comparable regulator exemption differs from previous sufficient equivalence relief
in the following ways:
• The relief will be situated in the primary law, rather than in
subordinate instruments;
• The power to decide which regulators are comparable will be vested in
the Minister, rather than ASIC, with the Minister required to consider:
- whether the regulatory regime produces comparable regulatory
outcomes;
- whether the regulatory regime is clear, transparent, certain and
adequately enforced;
- whether the regulatory regime is broadly consistent with the
Objectives and Principles of Securities Regulation developed
by IOSCO;
- whether the regulatory regime is adequately enforced;
- whether the regulatory regime is a signatory to the consultation
and cooperation standards developed by IOSCO, or
alternatively if it has an effective cooperation agreement with
ASIC;
- any relevant advice (including any assessment) received from
ASIC in relation to the regulatory regime;
- any relevant submissions from any entity in relation to that
regulatory regime.
• The Minister will be empowered to first consider those already
assessed by ASIC as sufficient equivalent under its Foreign AFSL
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Regulation Impact Statement
regime as comparable regulators. For a list of these regulators, see
Appendix B.
• FFSPs will be able to provide the same financial services they are
authorised to provide in their home jurisdiction to Australian wholesale
clients rather than having to limit their offering to particular financial
services prescribed by ASIC depending on jurisdiction
• Nearly all the conditions imposed under sufficient equivalent relief
have been carried through to the comparable regulator exemption.
Further, to improve on sufficient equivalence, a new condition
requiring the FFSP to give reasonable assistance to ASIC has been
added to the comparable regulator exemption.
• ASIC's enforcement powers will be strengthened in proportion to the
relief through the inclusion of civil penalties for breaching conditions,
the power to cancel reliance on the exemption or alternatively the
imposition of new conditions.
- ASIC will be able to use these powers where breaches of
relevant obligations occur
- Civil penalties can be imposed against the FFSP entity
- Condition to notify ASIC of relevant investigations by the
comparable regulator.
This exemption was formulated with the benefit of consultation with both ASIC and
industry following the release of Treasury's consultation paper in July 2021. It is
intended to strike an appropriate balance between minimising regulatory burdens to
encourage FFSP entry into the Australian market while ensuring sufficient regulatory
oversight to maintain the integrity of Australia's financial system.
Professional Investor exemption
The professional investor exemption is intended to provide broad relief for FFSPs
providing services to professional investors, from outside of Australia. The exemption
recognises that Australian professional investors are equipped to protect their own
commercial interests, regardless of whether these FFSPs are regulated or licensed
overseas.
This exemption builds on the existing professional investor exemption, which provides
relief to FFSPs providing certain financial services to professional investor clients.38
During consultation, stakeholders raised the option of broadening this relief to allow
FFSPs to provide all financial services and products to professional investors without
the requirement to hold an AFSL.
38
see reg 7.6.02AG, notional section 911A(2E) of the Corporations Regulations 2001.
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Broadly, it would allow FFSPs from any jurisdiction (comparably regulated or not) to
provide financial services to professional investors where:
• the FFSP provides the service from a place outside Australia;
• the FFSP's head office and principal place of business is located at one
or more places outside Australia; and
• the FFSP, in providing the financial services in Australia, does not
reasonably believe it is contravening any laws that apply in the FFSP's
home office, principal place of business or where they are providing
the services from.
ASIC may exclude an FFSP from the relief or enforce civil penalties if the following
conditions are not complied with:
• the FFSP must notify ASIC within 15 days of its first time using the
relief that it is relying on the relief;
• the FFSP must assist ASIC with reasonable information requests and
comply with its directions;
• the FFSP must agree to submit to the non-exclusive jurisdiction of
Australian courts and comply with relevant court orders;
• the FFSP must disclose to its Australian professional investor clients
that it is relying on the exemption to provide the financial services.
The exemption will allow for a regulation making power to exclude certain financial
services or financial products from being available under this exemption, as well as
particular kinds of professional investors.
Fit-and-proper person assessment exemption
Option 3 will exempt FFSPs when applying for an AFSL (or modifying an existing
AFSL) from the fit-and-proper person test, if they are already licensed or otherwise
authorised in a comparable regulatory regime, and if the AFSL is approved, it is
restricted to providing financial services to wholesale investors.39 The intention is to
reduce the information FFSPs must provide when applying for an AFSL and encourage
FFSPs to establish permanency in Australia.
39
The list of comparable regulators is the same as under the comparable regulator exemption.
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Regulation Impact Statement
Summary of options considered
Option 1 Option 2 Option 3
Foreign AFSL regime Sufficient equivalence Comparable regulator
relief exemption
• Requires an AFS
licence for FFSPs, • Exempts FFSPs • Exempts FFSPs
subjecting them to from the from the
most AFSL requirement to hold requirement to hold
obligations an AFSL an AFSL
• Available to • Available to FFSPs • Allows FFSPs to
FFSPs regulated regulated in a offer all financial
in a jurisdiction jurisdiction with a services they are
with a regulatory regulatory regime authorised to offer
regime deemed by deemed by ASIC to in their home
ASIC to be be 'sufficiently jurisdiction to
'sufficiently equivalent' to wholesale clients
equivalent' to Australia's regime
Australia's regime • Available to FFSPs
• Applies where regulated by a
• Certain regulators regulated by certain regulator of a
in the United regulators in the comparable
Kingdom, the United Kingdom, regulator regime.
United States, the United States, Initially this will
Singapore, Hong Singapore, Hong include certain
Kong, Germany, Kong, Germany, regulators in the
Luxembourg, and Luxembourg United Kingdom,
France, Denmark, the United States,
Sweden and • Allows certain Singapore, Hong
Ontario, Canada financial services Kong, Germany,
are recognised and products Luxembourg,
under the regime (depending on France, Denmark,
jurisdiction) to be Sweden and
• Allows certain offered to Ontario, Canada
financial services wholesale clients in
and products Australia (see • Requires the FFSP
(depending on Appendix B) to comply with
jurisdiction) to be conditions
offered to • Requires
wholesale clients compliance with • Bolstered powers
in Australia (see conditions for ASIC to
Appendix C) including assisting encourage
ASIC with compliance,
• Must apply to information including civil
ASIC for relief requests penalties for
breaching
• Self-assessment
conditions, the
with ASIC
power to cancel
reliance on the
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Option 1 Option 2 Option 3
notification exemption or
required alternative impose
new conditions
• Self-assessment
with ASIC
notification
required
Funds management Limited connection Professional investor
relief relief exemption
• Exempts FFSPs • Exempts FFSPs • Exempts FFSPs
from the from the from the
requirement to requirement to hold requirement to hold
hold an AFSL an AFSL an AFSL
• Restricted to • Available to FFSPs • Allows FFSPs,
'inducing conduct' from any located in any
in relation to jurisdiction who jurisdiction, to
providing funds were deemed to be offer all financial
management 'carrying on a services from
financial services financial services outside of Australia
business' in to professional
• Available to Australia only investors
FFSPs regulated because the FFSP
by an IOSCO was engaging in • Requires the FFSP
board member conduct that was to reasonably
deemed to be intended to induce believe that by
'carrying on a Australian providing the
financial services wholesale clients to financial services
business' in use its financial they are not
Australia only services contravening any
because it is laws that apply in
engaging in • Self-assessment, no the FFSP's home
conduct that was notification or office, principal
intended to induce compliance place of business or
certain Australian obligation where they are
professional requirements providing the
investors services from
• FFSPs must agree • Requires the FFSP
to comply with to comply with
conditions
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Regulation Impact Statement
Option 1 Option 2 Option 3
conditions to rely • Bolstered powers
on the relief for ASIC to
encourage
• ASIC notification
compliance,
required
including civil
penalties for
breaching
conditions, the
power to cancel
reliance on the
exemption or
alternative impose
new conditions
• Self-assessment
with ASIC
notification
required
AFSL application AFSL application Fit-and-proper person
process process assessment exemption
• Fit-and-proper • Fit-and-proper • Exempts FFSPs
person assessment person assessment from fit-and-proper
required. required. assessments when
applying for an
AFSL
• Available to FFSPs
regulated by
regulators of
comparable
regulatory regimes,
same as the
comparable
regulator
exemption
• Part of AFSL
application process
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Comparison of conditions imposed by the options
Option 1 Option 2 Option 3
Management
equivalence42
Connection43
Comparable
Professional
Regulator44
Sufficient
investor45
Domestic
Limited
Foreign
AFSL40
Funds
AFSL
41
Do all things necessary to ensure that
the financial services covered by the
licence are provided efficiently,
X X
honestly and fairly (s912A(1)(a))
Have adequate arrangements in place
for managing conflicts of interest X X
(s912A(1)(aa))
Comply with the conditions on the
licence (s912A(1)(b)) X X46
Comply with the financial services laws
(s912A(1)(c)) X X
Take reasonable steps to ensure that
representatives comply with the X X
financial services laws (s912A(1)(ca))
Comply with the ASIC Reference
checking and information sharing
protocol (ASIC protocol) in relation to
prospective representatives who will
X
act as financial advisers or mortgage
brokers (s912A(1)(cc))
Have adequate financial, technological
and human resources to provide the X
financial services covered by the
40
ASIC Regulatory Guide 176 Foreign financial services providers and ASIC Corporations (Foreign Financial Services
Providers-Foreign AFS Licensees) Instrument 2020/198
41
ASIC Regulatory Guide 176 Foreign financial services providers and ASIC Corporations (Foreign Financial Services
Providers-Funds Management Financial Services) Instrument 2020/199
42
Contained in a number of ASIC class orders. See paragraph RG176.108 of ASIC's Regulatory Guide 176. For the
purposes of comparison, class order [CO 03/1099] UK regulated financial services providers has been used.
43
No conditions were applied to the Limited Connection policy
44
As per exposure draft legislation: Relief for Foreign Financial Service Providers published for consultation
45
As per exposure draft legislation: Relief for Foreign Financial Service Providers published for consultation
46
To the extent it requires compliance with reg 7.6.04(1)(a) and (d))
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Regulation Impact Statement
Option 1 Option 2 Option 3
Management
equivalence42
Connection43
Comparable
Professional
Regulator44
Sufficient
investor45
Domestic
Limited
Foreign
AFSL40
Funds
AFSL
41
licence and to carry out supervisory
arrangements (s912A(1)(d))
Maintain the competence to provide
the financial services covered by the X
licence (s912A(1)(e));
Ensure that representatives are
adequately trained and competent to
provide those financial services
X X47
(s912A(1)(f));
Establish and maintain adequate risk
management systems (s912A(1)(h)). X X
Meet minimum standards for custodial
or depository service providers X
(s912AAC)48
Have agreements with sub-custodians
to hold custodial property (s912AAD)49 X
Have adequate financial resources for
custodial or depository service X
providers (s912AC)50
ASIC has power to direct a licensee to
provide a written statement (s912C)51 X X X X X X
Breach reporting requirements
(s912D) X X X52 X53
47
The condition is similar to s912A by requiring the FFSP to maintain sufficient oversight of its representatives who
provide the financial services; and ensure that its representatives who provide the financial services are adequately
trained, and are competent, to provide the financial services.
48
As notionally inserted by ASIC Class Order [CO 13/1410]
49
As notionally inserted by ASIC Class Order [CO 13/1410]
50
As notionally inserted by ASIC Class Order [CO 13/761)
51
Or a condition that is similar to the requirements of this provision
52
The condition is similar to s912D in that FFSPs will be required to provide full details to ASIC of a contravention of
a condition for an exemption.
53
The condition is similar to s912D in that FFSPs will be required to provide full details to ASIC of a contravention of
a condition for an exemption.
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Option 1 Option 2 Option 3
Management
equivalence42
Connection43
Comparable
Professional
Regulator44
Sufficient
investor45
Domestic
Limited
Foreign
AFSL40
Funds
AFSL
41
Requirement to give ASIC reasonable
assistance during surveillance checks X X X X X
(s912E)54
Obligations about handling client
money and client property (subdivis A
X 55
and B, Div 2 of Pt 7.8 and Div 3 of Pt
7.8)
Obligation for certain financial Possible
reporting and record-keeping records X exempti
(s988A) on56
Obligations of licensees in relation to
X 57
dealings with non-licensees (s991E)
Dealings involving employees of
X 58
licensees (s991F)
Obligations about dealing with money
received for a financial product X 59
(s1017E)
Notifying ASIC when the FFSP is relying
on the relief X X X X
54
Or a condition that is similar to the requirements of this provision
55
When the sufficiently equivalent protections in the overseas regulatory regime apply to client money paid to, and
client property held by, the foreign AFS licensee from a wholesale client in Australia relating to the exempt financial
service
56 ASIC RG 176 noted that FFSPs may also have the benefit of relief from certain financial reporting and record-keeping
obligations under ASIC Corporations (Financial Licensees and ADIs) Instrument 2016/186. If an FFSP holds an AFSL
they are exempted from lodging to ASIC audited financial statements. The FFSP will still have to lodge a certified copy
of a balance sheet, cash flow statement and profit and loss statement (collectively the documents). The documents
can be in a format acceptable by the home regulator. An auditor will need to review the documents and provide a
certified statement that sets out the auditor's views of the documents. Require confirmation from the auditor that
he/she reasonably believes the documents were audited in accordance with the requirements of the home
jurisdiction
57
To the extent the financial product transaction is entered into or arranged outside Australia
58
If the foreign AFS licensee is only carrying on a financial services business in Australia because it carries on the
business of providing eligible financial services under the instrument in Australia
59
Before the product is issued when sufficiently equivalent protections in the overseas regulatory regime apply to the
money received from wholesale clients in Australia relating to the exempt financial service
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Regulation Impact Statement
Option 1 Option 2 Option 3
Management
equivalence42
Connection43
Comparable
Professional
Regulator44
Sufficient
investor45
Domestic
Limited
Foreign
AFSL40
Funds
AFSL
41
Notifying ASIC of changes to the FFSP's
details X60 X X
Submitting to the non-exclusive
jurisdiction of Australian courts;
complying with any order of a Court
X X X
from such proceedings
Notifying clients when the FFSP is
relying on the relief X X61 X62
Consenting to information sharing
between ASIC and the FFSP's home X X X
jurisdiction regulator
Notifying ASIC of investigations etc. in
other jurisdictions X63 X64 X
Appointing a local agent for the FFSP X65 X X X
Notifying ASIC of any changes to the
name and address of its agent X
Notifying ASIC that the FFSP no longer
wishes to rely on the instrument X
Notifying ASIC of a change to the FFSP
relevant to the financial services X66 X
provided or intended to provide
Notifying ASIC of significant particular X X
exemption or other relief which the
FFSP may obtain from the home
regulator relevant to the financial
services provided or intended to be
provided in Australia
60
Condition requires notice if the FFSP's home jurisdiction changes
61
Disclosure is required once only
62
Disclosure is required once only
63
Each significant investigation, significant enforcement action and significant disciplinary action
64
Each significant investigation, significant enforcement action and significant disciplinary action
65
Unless the eligible body is a company
66
Condition requires notification to ASIC that the FFSP is ceasing to be a foreign financial service provider
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Option 1 Option 2 Option 3
Management
equivalence42
Connection43
Comparable
Professional
Regulator44
Sufficient
investor45
Domestic
Limited
Foreign
AFSL40
Funds
AFSL
41
Notifying ASIC of any significant X
change to the FFSP's authorisation
relevant to the financial services
provided or intended to be provided in
Australia
What is the likely net benefit of each option?
Option 1 - Maintain ASIC's new relief
Table 6: Average annual regulator cost/(saving) estimate
Option 1 - Maintain ASIC's new relief $0 - baseline
Option 2 - Restore previous relief ($22.5 million)
Option 3 - Legislate new relief ($19.2 million)
See Appendix F for further details
The key advantage of option 1 include:
• Increased regulatory supervisory and enforcement powers for ASIC
ensures greater Australian investor protection
• Increasing ASIC's ability to monitor any market integrity concerns
The key disadvantages of option 1 include:
• Highest regulatory obligations, which may reduce access to FFSPs for
Australian investors
The primary benefit of option 1 is that ASIC's supervisory and enforcement powers
will be enhanced to allow for stronger regulation of FFSP activity in Australia. ASIC
has indicated this will mitigate the risk of FFSPs circumventing supervision and taking
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Regulation Impact Statement
advantage of Australian wholesale investors, which could have flow on effects for
retail clients.67
ASIC's RIS noted that this new regime will also create a more level playing field
domestically, where FFSPs operating in Australia will be treated substantively the
same as domestic providers and in a non-discriminatory manner based on the level of
financial services business carried out in Australia.68 However, domestic financial
service providers have some natural advantages, including close relationships within
Australia with Australian investors. In consultation, industry warned the impact
estimates provided in the ASIC RIS likely understate the true costs of ASIC's new
relief. Industry expects there will be a more significant withdrawal by FFSPs from the
Australian market.69
The cost that is of most concern is not the regulatory burden on FFSPs, but the
opportunity costs imposed on Australian investors. FFSPs provide access to niche
markets, specialised advice, and greater investment diversity, which increases investor
choice. Quantification of these benefits is not possible as it would require an
assessment of which investment strategies are likely to be the best in the future for a
wide set of different investors. However, wholesale and professional investors are best
placed to decide whether an FFSP's services will benefit them.
The repealed relief was in place for 18 years and while there is some evidence to
support an increase in ASICs supervisory and enforcement powers, industry is
concerned that no affected stakeholder or ASIC (as relevant regulator) have provided
any evidence of systemic issues of FFSP misconduct affecting the Australian market to
warrant the measures imposed under option 1.
ASIC's RIS cite two examples of enforcement action taken against FFSPs misusing the
sufficient equivalence relief. These examples provide support for additional regulatory
obligations on FFSPs accessing relief compared with the prior relief. However, the two
examples are not evidence of systemic investor harm caused by FFSPs and on balance
the risk to industry from ASIC's proposed new relief such as possible negative growth
resulting from limited access to alternative financial products should take precedence.70
This paper has not conducted a comprehensive comparison of regulatory regimes to
test ASIC's claim that the repealed regulatory regime is more generous than that
offered by peer jurisdictions. However, industry note that Australia is not a major
financial market but our need to access larger international markets to support
significant asset pools such as superannuation, is vital for Australia's sustained
growth.71
67
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, para 42.
68
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, para 72.
69
Based on statements made in the submissions to Treasury by: New Zealand Financial Markets Association, 28 July
2021; Australian Financial Markets Association, 30 July 2021; Minter Ellison, 30 July 2021; Piper Alderman, 30 July
2021; Herbert Smith Freehills, 30 July 2021, Law Council of Australia, 3 August 2021
70
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, paras 54-65.
71
Australian Financial Markets Association, submission to CP 301, 3 August 2018, pg 2.
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Foreign AFSL
The Foreign AFSL regime may be particularly burdensome for FFSPs due to the
application process, the need to comply with legal obligations, and extensive reporting
obligations.
While the previous relief was self-assessment based, under the Foreign AFSL FFSPs
are required to complete an application including 'proof' documents. Further, the
foreign AFSL obliges FFSPs do all things necessary to ensure that the financial
services covered by their licence are provided efficiently, honestly and fairly.72
Industry expressed concerns that this would be duplicative as many sufficiently
equivalent regimes impose a similar requirement.73 This principles-based obligation
can create difficulties and inconsistencies in legal interpretation of this standard in
different jurisdictions. Complying with this obligation would impose a requirement for
FFSPs to seek specialist legal services to understand how this obligation has been
interpreted in the Australian context.
In late 2021 a new breach reporting regime came into effect which deemed a wider
range of breaches to be reportable then the previous reporting regime. The new breach
reporting regime was the Government's response to address serious compliance issues
involving AFSL holders identified by the Financial Services Royal Commission. The
foreign AFSL obliges FFSPs to comply with the same breach reporting regime that
currently applies to all AFSL holders.
Under the new regime, an FFSP would be required to report to ASIC a range of
conduct that meets the standard of 'reportable situations.'74 A breach report must be
filed with ASIC within 30 days after the FFSP first know, or are reckless with respect
to whether, there are reasonable grounds to believe a reportable situation has arisen.75
This is an objective standard requiring a submission to ASIC in a prescribed form
describing the nature of the breach. There are civil and criminal penalties for failing to
report to ASIC a reportable situation.
Industry advised that the breach reporting obligation imposes a significant regulatory
burden for FFSPs.76 Industry identified issues of whether the breach reporting would
72
This obligation is consistent with an AFS licensee who must comply with s 912A(1)(a)
73
Based on statements made in the submissions to Treasury by: Ashurst, 29 July 2021; Australian Financial Markets
Association, 30 July 2021; Allens, 30 July 2021; Australian Investment Council, 30 July 2021; King & Wood
Mallesons, 30 July 2021; Minter Ellison, 30 July 2021; Piper Alderman, 30 July 2021; Portfolio Management
Association of Canada, 30 July 2021; Herbert Smith Freehills, 30 July 2021; Financial Services Council, 3 August
2021; Law Council of Australia, 3 August 2021
74
Reportable situations include: significant breaches or likely significant breaches of 'core obligations'; investigations
into whether there is a significant breach or likely breach of a 'core obligation' if the investigation continues for more
than 30 days; the outcome of such an investigation if it discloses there is no significant breach or likely breach of a core
obligation; conduct that constitutes gross negligence or series fraud; conduct of financial advisers and mortgage brokers
who are representatives of other licences in certain prescribed circumstances. See ASIC Regulatory Guide 78
75
See ASIC Regulatory Guide 78 for interpretation
76
Based on statements made in the submissions to Treasury by: Ashurst, 29 July 2021; Australian Financial Markets
Association, 30 July 2021; Alternative Investment Management Association, 29 July 2021; Allens, 30 July 2021;
Association of the Luxembourg fund industry, 30 July 2021; Minter Ellison, 30 July 2021; Piper Alderman, 30 July
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apply to an FFSP's global activities or be limited to an Australian connection. FFSPs
noted differences between breach reporting requirements in their home jurisdiction and
under the Foreign AFSL regime where a breach report is required under the Foreign
AFSL regime, but is not required under the home jurisdiction regime, or vice-versa.
Industry has indicated that FFSPs will incur costs to evaluate, design and implement
compliance systems, policies, procedures and frameworks to support the foreign AFSL
regime, which will deter FFSP entrants from doing business in Australia and
potentially push current FFSPs out of the market.77 ASIC estimated an exit of 10-15%
of FFSPs that currently use sufficient equivalence relief,78 but industry have indicated
that this figure will likely be more.79
FFSPs exiting the market may hinder competition and diversity in the Australian
market, reduce opportunities for Australian clients and may affect significant industries
like the superannuation industry.80 FFSPs provide Australian investors and businesses
with access to global financial advice which can include advice on niche matters not
commonly advised on by domestic industry. Further, FFSPs may provide access to
financial products from other jurisdictions that are not commonly serviced by
Australian financial service providers. For example, an Australian investor may want
to consider an investment in Singaporean securities, advice for which would be best
provided by a Singaporean financial adviser, as opposed to an Australian financial
adviser.
Funds management relief
While the intent and application of the funds management relief is clearer than its
predecessor, industry is concerned that its narrow nature will force FFSPs from the
Australian market.81 Additionally, only certain professional investors would qualify.
Investors who do not quality as an 'eligible Australian user' (a subset of professional
investors) will no longer be able to access any fund investment opportunities outside
sufficiently equivalent jurisdictions. Those affected include persons, such as:
• Large corporates
• Listed investment companies
• Family offices
• High net worth individuals
2021; Herbert Smith Freehills, 30 July 2021; Financial Services Council, 3 August 2021; Law Council of Australia, 3
August 2021
77
Law Council of Australia, submission to Treasury Consultation on Relief to Foreign Financial Service Providers, 3
August 2021
78
ASIC, RIS - Regulatory framework for foreign financial service providers, 19 March 2020, para 131.
79
For example, Minter Ellison, Submission on ASIC consultation paper 301, 31 July 2018, para 1.
80
ASIC, Response to submissions on CP 301 and CP 315 on foreign financial service providers, 10 March 2020, para
11.
81
Based on statements made in the submissions to Treasury by: Alternative Investment Management Association, 29
July 2021
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ASIC estimated that 200 (50%) of FFSPs using limited connection relief will stop
providing services to Australian clients when transitional relief ends. However, as the
limited connection relief was self-assessed and had no notification requirement, ASIC
have no way of reliably estimating the reliance on limited connection relief.
Option 2 - Restore previous relief
Table 8: Average annual regulator cost/(saving) estimate
Option 1 - Maintain ASIC's new relief $0 - baseline
Option 2 - Restore previous relief ($22.5 million)
Option 3 - Legislate new relief ($19.2 million)
See Appendix F for further details
Option 2 would restore the previous relief, reversing the regulatory burdens introduced
under option 1 and maintaining the same number of FFSP participants in Australia.
Pursuing option 2 would avoid all the costs imposed by option 1 and is familiar to
industry.
The key advantages of option 2 include:
• Familiar to stakeholders, no adoption costs to ASIC or Industry
• Available to FFSPs on a self-assessment basis, reducing time and cost
for access
• Light-touch compliance conditions reduce regulatory barriers for FFSP
access to Australian investors
The key disadvantages of option 2 include:
• Insufficient regulatory oversight and enforcement powers to address
regulator concerns
• Application of limited connection relief uncertain, leading to a broad
interpretation by industry not intended by ASIC
Sufficient equivalence relief
This option does not address the regulatory oversight and enforcement issues raised by
ASIC. Under the sufficient equivalence relief, ASIC had no powers to require an
FFSP's response to its information requests. ASIC cited this as a hindrance to its
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ability to proactively monitor FFSP activity in Australia.82 ASIC's only enforcement
tool under this relief was to cancel an FFSPs reliance on the relief.
This lack of intermediary enforcement tools meant there was no 'standard of
behaviour' that could be enforced under the sufficient equivalence relief.
Limited connection
There are differences of opinion between ASIC and industry about the scope of limited
connection relief. Industry views the limited connection relief drafting as unclear and
uncertain. Some stakeholders have taken a broad view to its application, facilitating
Australian investors to access FFSPs from all over the globe. However, ASIC see
limited connection as a form of limited relief that is not intended to have such broad
application. Therefore, restoring the limited connection relief is likely to perpetuate
this uncertainty.
Option 3 - Legislate new relief
Table 9: Average annual regulator cost/(saving) estimate
Option 1 - Maintain ASIC's new relief $0 - baseline
Option 2 - Restore previous relief ($22.5 million)
Option 3 - Legislate new relief ($19.2 million)
See Appendix F for further details
Option 3 was developed in response to the submissions from the consultation paper
that highlighted ASIC and industry concerns about options 1 and 2. It aims to balance
these competing concerns - minimising the regulatory burden on FFSPs while ensuring
there is sufficient regulatory oversight to maintain market integrity and investor
protection.
The key advantages of option 3 include:
• introduces conditions that assist ASIC to conduct regulatory oversight
of FFSPs and address non-compliance with appropriate regulatory
enforcement tools
• legislates a ministerial power for recognising jurisdictions under the
comparable regulator exemption
• modelled off previous forms of relief, retaining familiarity and ease of
application
82
ASIC, RIS - Regulatory framework for foreign financial service providers, 19/03/2020, para 67.
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• operates on a self-assessment basis, reducing cost burdens on industry
and preventing time-delays
• recognises the need for the law to cater for professional investors
• better ensures FFSPs remain in the Australian market, offering a
greater diversity of financial products and services
The key disadvantages of option 3 include:
• does not require the same level of regulatory compliance as under
option 1
• places a higher regulatory burden on FFSPs, through increased
regulatory oversight, than under option 2
The conditions mandated under both exemptions will require more regulatory
engagement from FFSPs than under option 2. However, the conditions were consulted
with ASIC and industry stakeholders, to strike the appropriate balance between the
need to enhance regulatory oversight while not burdening FFSPs with overregulation
or duplicate regulation.
Option 3 is also effective in advancing the Government's objective to fast-track
licensing requirements for FFSPs that are establishing more permanent operations in
Australia. While the fit-and-proper person assessment is a relatively small burden
compared with the totality of AFSL requirements, removing the requirement is
intended to increase the speed of applications and provide the groundwork for further
tranches of reform in this area.
All stakeholders that Treasury engaged with after the close of the consultation period
indicated that a fast-tracking process of licensing would be less important to industry if
licensing relief were broadly available. However, to the extent licensing relief is not
available to an FFSP, exempting FFSPs from the fit-and-proper person assessment will
provide some relief and encourage FFSPs to establish a permanent presence in
Australia. This is intended to provide that even where an FFSP may not be covered by
a licensing exemption they will have a lower burden to obtain an AFSL to continue
operating in Australia, which will improve investor access to the services provided by
FFSPs.
The professional investor exemption recognises that professional investor clients can
protect their own commercial interests. Option 3 addresses the problems identified with
options 1 and 2 and fast-tracks the AFSL application process for FFSPs.
Breach reporting under the options
The Foreign AFSL, like the domestic AFSL regime, imposed financial services law
breach reporting requirements which were not applied under the former relief. In
stakeholder feedback, FFSPs considered this one of the most demanding regulatory
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Regulation Impact Statement
obligations under the new relief regime, particularly where the FFSP is already
required to comply with a similar reporting regime in their home jurisdiction.
On 1 October 2021, strengthened breach reporting requirements came into effect in
Australia, following the implementation of the recommendations of the Financial
Services Royal Commission. The requirements expanded the kinds of situations that
need to be reported and require licensees to lodge breach reports within 30 days.
Specifically, the breach reporting regime requires mandatory reporting to ASIC for
breaches of core obligations, as well as the requirement to report investigations into
whether a significant breach has occurred or will occur if the investigation continues
for more than 30 days.
Compliance with the Australian breach reporting obligations would therefore require
FFSPs to implement significant systems changes and processes to ensure they are able
to meet the requirements imposed under Australian law for reporting to ASIC, while
potentially being also required to meet similar obligations under comparable home
jurisdictions. FFSPs will be required to implement these systems and processes
regardless of whether any breaches occur or are likely to occur. Industry suggest that
these duplicative regulations are likely to decrease access to FFSP offerings in
Australia.
Option 3 provides ASIC with regulatory tools to deliver appropriate regulatory
oversight outcomes, while minimising regulatory obligations to ensure continued
access to FFSPs for Australians. Three relevant tools include:
• the requirement to notify ASIC if the FFSP contravenes a condition of
the exemption (allows ASIC to monitor for non-compliance);
• the power to cancel reliance on the exemption; and
• the requirement to notify ASIC of investigations, enforcement action
or disciplinary action taken against the FFSP by any regulator or
government authority in any place outside of Australia (allows ASIC
to identify and respond to any emerging threats, harms and trends).
Consultation
Treasury policy options consultation paper
On 9 July 2021, Treasury released a public consultation paper seeking feedback on
three options to restore regulatory relief for FFSPs and three options to fast-track the
standard licencing process for FFSPs. Consultation closed on 30 July 2021. The
options consulted on are described in Appendix D.
Stakeholders were also advised that feedback on additional options would be
considered by Treasury when formulating the relief's final design. Treasury received
30 submissions from FFSPs, peak bodies representing FFSPs, financial associations,
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law firms, legal and taxation representative bodies, consultants, global investment
banks, market makers, securities exchanges, and ASIC. Submissions were also
received from associations representing interests in the US, Canada, New Zealand, the
Netherlands, Luxembourg, Hong Kong, and Asia (generally).
Following formal submissions, Treasury engaged in bi-lateral consultation with key
stakeholders, including ASIC, the Australian Office of Financial Management
(AOFM), peak bodies representing FFSPs and law firms representing FFSPs to further
address a range of issues that arose during the consultation.
Summary of feedback received
Stakeholder feedback indicated strong consensus for restoration of previous relief, but
views diverged on how the relief should be restored. The consultation feedback also
brought to light the uncertainty and differing interpretations on how the limited
connection relief applied in practice.
Only one submission was received that was opposed to the reform, from a smaller
domestic financial services provider. While this highlights that some domestic
financial service providers may have concerns about competition, for the majority there
does not appear to be a concern. This may suggest that foreign financial service
providers and domestic financial service providers rarely directly compete - and
instead have complementary roles.
A substantial portion of stakeholder feedback indicated support for restoring the
repealed relief. Stakeholders said the relief worked well, particularly its availability on
a self-assessment basis, that the minimal conditions encouraged FFSP activity, and that
restoring previous relief would be familiar for industry. However, all stakeholders in
favour of this option also indicated a strong preference for additional jurisdictions to be
added to the list of countries recognised as sufficiently equivalent.
Those not in favour of a straight restoration of relief cited ambiguity in interpretation,
the need for certainty by legislating the relief and a lack of flexibility in the mechanism
adding jurisdictions to the list recognised as sufficiently equivalent. There was no
support to retain ASIC's fund management relief given its restrictive application.
Most stakeholders were broadly keen to have the conditions for any relief reduced, as
they were of the view that many of the conditions posed significant burdens and would
be difficult to apply. Application processes for relief and extensive reporting
obligations (such as breach reporting) were seen as particularly burdensome.
Stakeholders said restoring a form of limited connection relief was imperative due to
the 'extraterritorial' reach of the Act, particularly for professional investors. However,
stakeholders simultaneously called for a clearer, bright-line test to determine access to
the limited connection relief, as the current method was confusing and difficult to
advise on.
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Regulation Impact Statement
Only a handful of stakeholders provided feedback on the options to fast-track the
licensing process. All those submissions indicated a preference for amending the
fit-and-proper person assessment. However, those same submissions noted that the
long application turnaround times were owing to a lack of resourcing in ASIC, rather
than the contents of the applications required to be collated by applicants.
All stakeholders that Treasury engaged with after the close of the consultation period
indicated that a fast-tracking process of licensing would be less important to industry if
licensing relief were broadly available.
Exposure draft legislation
On 20 December 2021, Treasury released exposure draft legislation seeking feedback
on draft legislation to implement option 3. Consultation closed on 12 January 2022
with 18 submissions received.
Submissions from FFSPs and their advisors were highly supportive, with some
suggestions for technical changes to improve clarity and expressions of a desire for the
list of comparable regulators to be expanded to several jurisdictions including New
Zealand and other Canadian regulators.
The best option
In summary, the three options considered have been:
Option 1: Maintain ASIC's new relief
Option 2: Restore the previous relief
Option 3: Legislate new relief including fast-tracking of licensing (the
preferred option)
The best option will be that which, to the best extent possible, balances the competing
interests between minimising the regulatory burden on FFSPs while ensuring there is
sufficient regulatory oversight to maintain market integrity and investor protection.
Option 1 tips the scales mostly in favour of regulatory oversight and would add the
most significant regulatory burden on FFSPs, seeing many exit the Australian market.
Ultimately, ASIC's new relief is untested and risks significant impacts to Australian
investors and businesses. Estimates of the potential impact vary with ASIC estimating
10 to 15 percent of FFSPs leaving the Australian market, while industry estimate a far
greater impact.
Increased regulation to the extent envisioned by option 1 may be justifiable if there was
significant and unequivocal evidence of systemic market integrity issues. However,
despite 18 years of relief such evidence is not available. Regulatory oversight of relief
could be improved without adding burdens that are likely to see FFSPs exit the market.
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Option 2, unlike option 1, would see minimal regulatory impact on FFSPs and
disruption to service offerings provided to Australian investors. However, option 2
would not address the regulatory concerns raised by ASIC in adopting the new relief
provided under option 1.
Option 3 is the preferred option, as it balances the concerns of ASIC and industry,
minimising the regulatory burden on FFSPs in comparison with option 1, while
improving regulatory oversight compared with option 2. Following stakeholder
feedback, it is also clear that option 3 would be supported by industry as the preferred
option.
Implementation and evaluation of options
Changes to the Act, regulations and other legislative instruments are required to
implement this proposal. Once the Government has made a final decision on how relief
is to be provided, Treasury will progress the legislative changes for introduction into
Parliament. Once the legislation passes, ASIC would be responsible for administering
the new relief for FFSPs. ASIC may also need to introduce new regulatory guidance
and amend existing regulatory guidance as part of this measure, to ensure there is no
unnecessary overlap or inconsistency between their guidance and the new relief.
The success of the new FFSP relief will be assessed by continued levels of engagement
of FFSPs in the Australian market. Another success indicator will be if regulatory
oversight of FFSPs is increased compared with the previous relief and confidence in
the Australian financial system is maintained.
ASIC will monitor the implementation of the new relief regime. Treasury will consider
feedback from stakeholders to ensure the relief is continuing to meet its objectives. As
the Government intends for this to be tranche one of licensing relief reform, there will
also be opportunities in the future to consider further improvements building on the
foundation of these initial reforms.
Treasury will continue to work with ASIC to identify any market integrity risks with
the preferred option. Where these risks can be managed by ASIC, that will generally be
the preferred method. However, Treasury will also seek to progress amendments where
necessary to ensure the policy intent of these reforms is maintained.
ASIC and Treasury will both have a role in providing advice to the Minister regarding
the regulators of comparable regulatory regimes, which provides access to both the
comparable regulator exemption and the exemption from the fit-and-proper person
assessment. Industry feedback regarding other comparable regimes will be considered
as part of this process.
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Regulation Impact Statement
RIS status at each major decision point
A draft RIS was prepared to inform the Government's decisions in the context of the
2021-22 Budget measure. A final RIS has been prepared to inform the Government's
decisions as to the final policy detail of the measure.
Appendix A:
Definitions
Term or phrase Definition
Financial service A financial service is provided by a person if they:
• Provide financial product advice;
• Deal in a financial product;
• Make a market for a financial product;
• Operate a registered scheme;
• Provide a custodial or depository service;
• Provide a crowd-funding service;
• Provide a claims handling and settling service;
• Provide a superannuation trustee service; or
• Engage in conduct described in the regulations.
Financial product A financial product is a facility through which, or through the
acquisition of which, a person makes a financial investment, manages
financial risk or makes non-cash payments. Specific inclusions to the
financial products definition include:
• a security;
• interest in a registered scheme, managed investment scheme or a
foreign passport fund; or a right or interest in such an interest; or
an option to buy such;
• a derivative;
• an insurance contract (with exclusions);
• a life policy or sinking fund policy (with exclusions);
• a superannuation interest;
• a retirement savings account;
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Term or phrase Definition
• any deposit-taking facility made available by an ADI
• a debenture, stock or bond issued or proposed to be issued by a
government;
• a foreign exchange contract (with exclusions);
• an Australian carbon credit unit;
• an eligible international emissions unit;
• a margin lending facility; or
• anything included in the regulations.
Wholesale client a person is a wholesale client if:
• the price for the provision of the financial product, or the value of
the financial product to which the financial service relates, is
equal to, or greater than, $500,000;
• the financial product or service, is provided for use in connection
with a business that is not a small business; - A "small business"
is defined as a business that has less than 20 employees, or, if it is
a manufacturing business, has less than 100 employees;
• the financial product or service is not provided for use in
connection with a business, and the person acquiring the financial
product or service provides a certificate from a qualified
accountant that the person: - has net assets of at least $2.5
million; or - has a gross income for each of the past two financial
years of at least $250,000;
• the investor is a "professional investor" or a "sophisticated
investor; or - 'Professional investor' is defined in section 9 of the
Corporations Act. - 'Sophisticated investor' is described in
section 761GA of the Corporations Act;
• the person is controlled by a person who is a wholesale client.
Professional a professional investor:
investor
• is an Australian financial services licence-holder;
• is a body regulated by the Australian Prudential Regulatory
Authority (other a than trustee within the meaning of the
Superannuation Industry (Supervision) Act 1993); - This
category generally includes banks, general insurance companies
and credit unions etc.
• is a registered entity within the meaning of the Financial Sector
(Collection of Data) Act 2001;
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Regulation Impact Statement
Term or phrase Definition
• is a trustee of certain superannuation trusts or schemes within the
meaning of the Superannuation Industry (Supervision) Act 1993
that have assets of at least $10 million;
• has or controls gross assets of at least $10 million (including any
assets held by an associate or under a trust that the person
manages);
• is a listed entity or a related body corporate of a listed entity;
• is an exempt public authority.
• is an investment company that is a body corporate or
unincorporated body that carries on a business of investment in
financial products, interests in land or other investments or
invests funds received following an offer or invitation to the
public; or
• is a foreign entity that, if established or incorporated in Australia,
would be covered by one of these categories.
'Eligible An 'eligible Australian user' is a subset of professional investors,
Australian User' including APRA regulated entities, responsible entities of a registered
(specific term for scheme, super trustees, wholesale trustees and exempt public
Funds authorities (except local councils).
Management
relief)
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Appendix B:
Prescribed regimes and financial services - Foreign
AFSL
Sufficiently equivalent Financial services and/or products for which
overseas regulatory foreign AFS licensee relief is available
regime
Denmark--if regulated by The relief applies to providing financial advice, dealing,
the Danish Financial making a market or providing a custodial or depository
Supervisory Authority service, in respect of the following financial products:
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stock or bonds issued by or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
France--if regulated by the The relief applies to providing financial advice and dealing
Autorité des marchés in respect of the following financial products:
financiers of France
• securities;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
France--if regulated by the The relief applies to providing financial advice, dealing,
Autorité de contrôle making a market or providing a custodial or depository
prudentiel et de resolution of service, in respect of the following financial products:
France
• eligible deposit products;
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
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Sufficiently equivalent Financial services and/or products for which
overseas regulatory foreign AFS licensee relief is available
regime
• interests in a managed investment scheme that is not
required to be registered under Ch 5C; or
• facilities through which a person makes non-cash
payments.
Germany--if regulated by The relief applies to providing financial advice, making a
the Bundesanstalt für market or providing a custodial or depository service, in
Finanzdienstleistungsaufsicht respect of the following financial products:
(BaFin)
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C;
• deposit-taking facilities that are not deposit products--
if the FFSP holds a German Banking Licence; or
• facilities through which a person makes non-cash
payments--if the FFSP holds a German Banking
Licence.
Hong Kong--if regulated by The relief applies to providing financial advice, dealing or
the Securities and Futures making a market in respect of the following financial
Commission products:
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
Luxembourg--if regulated The relief applies to providing financial advice, dealing,
by the Commission de making a market or providing a custodial or depository
Surveillance du Secteur service, in respect of the following financial products:
Financier
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Sufficiently equivalent Financial services and/or products for which
overseas regulatory foreign AFS licensee relief is available
regime
• eligible deposit products;
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C; or
• facilities through which a person makes non-cash
payments--if the FFSP is a credit institution.
Ontario, Canada--if The relief applies to providing financial advice and dealing
regulated by the Ontario in respect of the following financial products:
Securities Commission
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued by or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
Singapore--if regulated by The relief applies to providing financial advice, dealing,
the Monetary Authority of making a market or providing a custodial or depository
Singapore service, in respect of the following financial products:
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
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Sufficiently equivalent Financial services and/or products for which
overseas regulatory foreign AFS licensee relief is available
regime
Sweden--if regulated by the The relief applies to providing financial advice, dealing,
Finansinspektionen making a market or providing a custodial or depository
service, in respect of the following financial products:
• eligible deposit products;
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued by or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
United Kingdom--if The relief applies to providing financial advice, dealing,
regulated by the Financial making a market or providing a custodial or depository
Conduct Authority service, in respect of the following financial products:
• eligible deposit products;
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
United States--if regulated The relief applies to providing financial advice, making a
by the Commodity Futures market or providing a custodial or depository service, in
Trading Commission respect of the following financial products:
• derivatives;
• foreign exchange contracts;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
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Sufficiently equivalent Financial services and/or products for which
overseas regulatory foreign AFS licensee relief is available
regime
United States--if regulated The relief applies to providing financial advice, dealing,
by: making a market or providing a custodial or depository
the Federal Reserve; and service, in respect of the following financial products:
the Office of the Comptroller • any deposit-taking facility, including a deposit product;
of the Currency
• derivatives;
• foreign exchange contracts;
• securities;
• facilities for making non-cash payments;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C.
United States--if regulated The relief applies to providing financial advice, dealing,
by the US Securities and making a market or providing a custodial or depository
Exchange Commission service, in respect of the following financial products:
• derivatives;
• foreign exchange contracts;
• securities;
• debentures, stocks or bonds issued or proposed to be
issued by a government;
• managed investment products;
• interests in a managed investment scheme that is not
required to be registered under Ch 5C
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Appendix C:
Financial service activities permitted under sufficient
equivalence relief
Sufficiently equivalent ASIC Financial service and/or
jurisdiction instrument product for which relief is
relief or available
individual
relief
Germany--where regulated Class Order [CO The relief applies to providing financial
by the Bundesansatalt für 04/1313] German product advice, dealing in a financial
Finanzdienstleistungsaufsicht BaFin regulated product, making a market for a
(BaFin) financial service financial product or providing a
providers (relief custodial or depository service in
temporarily respect of the following financial
extended by ASIC products:
Corporations
(Repeal and • derivatives;
Transitional) • foreign exchange contracts;
Instrument
2016/396) • securities;
• debentures, stocks or bonds issued
by a government;
• managed investment products;
• interests in a managed investment
scheme that is not required to be
registered under Ch 5C of the
Corporations Act;
• deposit-taking facilities that are
not deposit products; or
• facilities through which a person
makes non-cash payments.
Hong Kong--where Class Order [CO The relief applies to providing financial
regulated by the Securities 03/1103] Hong product advice, dealing in a financial
and Futures Commission Kong SFC product or making a market for a
regulated financial product in respect of the
financial service following financial products:
providers (relief
temporarily • derivatives;
extended by ASIC • foreign exchange contracts;
Corporations
(Repeal and • securities;
Transitional)
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Sufficiently equivalent ASIC Financial service and/or
jurisdiction instrument product for which relief is
relief or available
individual
relief
Instrument • debentures, stocks or bonds issued
2016/396) by a government;
• managed investment products; or
• interests in a managed investment
scheme that is not required to be
registered under Ch 5C of the
Corporations Act.
Luxembourg--where For The relief applies to providing financial
regulated by the Commission Luxembourg-- product advice, dealing in a financial
de Surveillance du Secteur ASIC product, making a market for a
Financier Corporations financial product or providing a
United Kingdom--where (CSSF-Regulated custodial or depository service in
regulated by the Financial Financial Services respect of the following financial
Conduct Authority Providers) products:
Instrument
2016/1109 • eligible deposit products;
For the United • derivatives;
Kingdom--Class
Order [CO • foreign exchange contracts;
03/1099] UK • securities;
regulated
financial service • debentures, stocks or bonds issued
providers (relief by a government;
temporarily • managed investment products; or
extended by ASIC
Corporations • interests in a managed investment
(Repeal and scheme that is not required to be
Transitional) registered under Ch 5C of the
Instrument Corporations Act.
2016/396)
Singapore--where regulated For Singapore-- The relief applies to providing financial
by the Monetary Authority of Class Order [CO product advice, dealing in a financial
Singapore 03/1102] product, making a market for a
United States--where Singapore MAS financial product or providing a
regulated by the Securities regulated custodial or depository service in
Exchange Commission financial service respect of the following financial
providers (relief products:
temporarily
extended by ASIC • derivatives;
Corporations • foreign exchange contracts;
(Repeal and
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Sufficiently equivalent ASIC Financial service and/or
jurisdiction instrument product for which relief is
relief or available
individual
relief
Transitional) • securities;
Instrument
2016/396) • debentures, stocks or bonds issued
by a government;
For the United
States--Class • managed investment products; or
Order [CO
03/1100] US SEC • interests in a managed investment
regulated scheme that is not required to be
financial service registered under Ch 5C of the
providers (relief Corporations Act.
temporarily
extended by ASIC
Corporations
(Repeal and
Transitional)
Instrument
2016/396)
United States--where Class Order [CO The relief applies to providing financial
regulated by: 03/1101] US product advice, dealing in a financial
the Federal Reserve; and Federal Reserve product, making a market for a
the Office of the Comptroller and OCC financial product or providing a
of Currency regulated custodial or depository service in
financial service respect of the following financial
providers (relief products:
temporarily
extended by ASIC • eligible deposit products;
Corporations • derivatives;
(Repeal and
Transitional) • foreign exchange contracts;
Instrument • securities;
2016/396)
• facilities for making non-cash
payments;
• debentures, stocks or bonds issued
by a government;
• managed investment products; or
• interests in a managed investment
scheme that is not required to be
registered under Ch 5C of the
Corporations Act.
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Sufficiently equivalent ASIC Financial service and/or
jurisdiction instrument product for which relief is
relief or available
individual
relief
United States--where Class Order [CO The relief applies to providing financial
regulated by the Commodity 04/829] US CFTC product advice, dealing in a financial
Futures Trading Commission regulated product, making a market for a
financial services financial product or providing a
providers (relief custodial or depository service in
temporarily respect of the following financial
extended by ASIC products:
Corporations
(Repeal and • derivatives;
Transitional) • foreign exchange contracts;
Instrument
2016/396) • managed investment products; or
• interests in a managed investment
scheme that is not required to be
registered under Ch 5C of the
Corporations Act.
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Regulation Impact Statement
Appendix D:
Consultation paper policy options
Option Description
Licensing relief
Option 1A Restore the sufficient equivalence relief and limited connection relief as
it applied before its repeal on 31 March 2020. 83
Option 1B Restore the sufficient equivalence relief as it applied before it was
repealed on 31 March 2020 and continue the funds management relief
in place of the limited connection relief for eligible FFSPs.
Option 2 Provide FFSP relief for a broader set of countries but limit the types of
financial services that can be provided to wholesale clients. Conditions
to the relief would be added to give ASIC better visibility of FFSPs
relying on the relief.84
Option 3 Similar to option 2 but relief would apply to all financial services and
products.
Fast-tracking licensing process
Option 1 Amend the law to provide ASIC with the discretion to determine
whether a fit and proper person test is required for every relevant person
listed in section 913BA of the Corporations Act. Allow ASIC to rely on
similar assessments by other regulators.
Option 2 A modified licensing regime would apply to FFSPs that:
are regulated by an overseas regulatory authority that is a signatory to
the International Organisation of Securities Commission (IOSCO)
Multilateral Memorandum of Understanding; and
provide financial services to wholesale clients in Australia
This option would exempt FFSPs from certain obligations under
Chapter 7 of the Corporations Act.
Option 3 Grant an AFSL to FFSPs that provide appropriate evidence to
demonstrate that the FFSP:
is regulated by an IOSCO board member;
holds an existing licence and is specifically authorised to provide the
financial services intended to be provided in Australia; and
will only provide financial service to wholesale clients in Australia.
The FFSP would be subject to all conditions applying to a domestic
AFSL holder.
83
Option 2 in this RIS.
84
Option 3 in this RIS.
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Appendix E:
Regulatory Burden Measure
Data received by Treasury
In its consultation paper released in July 2021, Treasury requested feedback from
industry on the compliance cost impacts for the following policy options:
• Complying with all standard AFSL obligations;
• Restoring ASIC's previous relief; and
• Legislating a modified form of ASIC's previous relief with some
conditions.
Treasury received 30 submissions from stakeholders, with five providing information
regarding the costs of compliance with the different policy options. During subsequent
bi-lateral consultation, Treasury received further cost estimates from a peak body
representing FFSPs, informed by feedback from 11 of its members.
The variation in these estimates was significant, representing the wide variety in both
size and complexity of FFSP activities in Australia. For example, one submission
estimated an annual cost of an FFSP complying with the standard AFSL regime at
$100,000 while another submission estimated $1.2 million.
ASIC's RIS estimates
ASIC's RIS was informed by the estimates it received through consultation and
assumptions made by it relating to external professional advisory costs, internal
compliance and monitoring costs and costs associated with development and
maintenance of systems to aid in compliance.
During its consultation, ASIC requested feedback from industry on the compliance cost
impacts for the following policy options:
• Introducing the foreign AFSL regime;
• Requiring FFSPs to obtain a standard AFSL; and
• Implementing systems and processes to monitor compliance with
conditions of the funds management relief.
To determine the number of entities relying on the former limited connection relief,
ASIC relied on an internal register which found there were 800. In addition, as there
was no notification requirement, ASIC made a qualitative assessment to find that
400 FFSPs were relying on the former limited connection relief - for a total population
of 1,200 FFSPs.
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Methodology
While industry suggest ASIC's RIS underestimated the regulatory cost impacts of
ASIC's new relief, Treasury analysis accepts these estimates as being within a
reasonable range of reliability for the purpose of undertaking the regulatory impact
assessment for options 1 and 2 of this paper. However, the baseline has been adjusted
to reflect that ASIC's new relief is the status quo.
For option 3, Treasury examined the qualitative differences between options 1, 2 and 3
based on the compliance and delay cost factors below. Treasury estimated based on
these differences that option 3 represents a saving equal to 85 per cent the saving of
option 2. Factors considered and cost estimates are provided in the table below.
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