I have had a number of enquiries from entities which provide financial services or issue financial products about whether or not they are obligated to comply with the corporate finance, financial services and managed investment provisions.

1.1 Assumptions Regarding the Need for a PDS or Prospectus

Some of these entities seem to be acutely aware of the disclosure obligations implemented pursuant to the Commonwealth Corporations Act 2001 (the “Corporations Act”) and the Corporations Regulations 2001 (the “Regulations”) as amended and interpreted by all applicable Australian Securities and Investment Commission (“ASIC”), forms, class orders, practice notes, regulatory guides and media releases.

However they sometimes erroneously assume that because they are providing a financial service that they must instruct a lawyer to draft a Product Disclosure Statement or Prospectus or conduct a compliance review of the same.

In other instances, the entity spends hours attempting to draft the Disclosure Document themselves or allows one of their staff members to draft it and then spends many more hours researching what is a reasonable legal fee for legal compliance services.
Their lawyer is left to advise them when finally instructed at a late stage, that the PDS or Prospectus they have spent six months preparing is not required at this stage because there is some exemption from the Disclosure Obligations that applies to the intended activity.

1.2 Assumptions Regarding the Need for an AFSL

Similarly, too some entities which have never performed any financial services activity before, and which have no experience, assume that if they are undertaking any activity that is arguable financial in nature that they must instruct a lawyer to make an AFSL application for an Australian Financial Services Licence (“AFSL”) on their behalf.

I advise that ASIC will be unlikely to grant an AFSL to a person who has never performed financial services activities who has no prior experience. Whilst it may be a surprise to those gaining experience by undertaking activity that is exempt from the AFSL requirements or acting in conjunction with an experienced AFS Licensee may be the most appropriate method for gaining the necessary experience.

1.3 Seek Legal Advice Regarding These Assumptions

My advice is that if you believe you are required to issue a PDS or Prospectus or to make an application for an AFSL, seek a legal opinion from an adviser regarding whether or not this assumption is correct. Seeking advice in the early stages may save you or your staff from wasting valuable time and energy if ultimately, your assumptions are wrong.

1.4 ASIC May Grant Relief From the Financial Services Obligations

In some instances, ASIC may grant relief from the corporate finance, financial services and managed investment provisions of the Corporations Act and Regulations.
ASIC recently issued a report that provides an overview of situations between January to May of 2007 where ASIC has exercised, or refused to exercise its power to grant an exemption from the financial reporting, managed investment, fundraising and financial services provisions.

The report also details cases where the ASIC made a determination to adopt a no action position in relation to activity that I would deem to be non-compliance with the provisions, and features an appendix detailing the relief instruments it executed. For ease of reference, the appendix contains cross-references linking the instruments to the relevant paragraph(s) of the report. The appendix now also contains hyperlinks to the relevant ASIC Gazette where those instruments have been published.

1.4.1 ASIC’S POWERS

The ASIC holds extensive powers to grant an exemption or modification from the Financial Services Provisions (including from compliance with Chapter 5C (managed investment schemes), Chapter 6D (fundraising) and Chapter 7 (financial services)).
The ASIC exercises its discretion to modify or exclude particular obligations where it has formed the view that the responsibility of complying with the Financial Services Law significantly detracts from the objectives and purpose underlying the legislative provisions.

The ASIC releases copies of most exemption and/or modifications it has granted in the ASIC Gazette, which is available from the ASIC website.

If you wish to make an application for relief, your application must be in writing and should address the requirements set out in the ASIC’s Regulatory Guide [RG 51]. I am more than happy to assist you in making an application should you desire.