ASIC consults on further measuers to facilitate innovation in financial services

ASIC has released, for consultation, its proposals to implement a ‘regulatory sandbox’ licensing waiver for limited financial services provided to a small number of retail clients, and other proposals to facilitate innovation in the financial services industry.

ASIC has released Consultation Paper 260 Further measures to facilitate innovation in financial services (CP 260).  CP 260 outlines ASIC’s proposed reforms to address some barriers which it has identified as being faced by new financial technology businesses seeking to enter the financial services market, namely speed to market, organisational competence requirements and access to capital (which ASIC considers exacerbates the other 2 barriers).

ASIC’s proposals are to:

  • provide additional guidance on how ASIC assesses submissions about a responsible manager’s knowledge and skills under Option 5 of Regulatory Guide 105 (ie whether licence applicants meet organisational competence requirements);
  • modify its policy on organisational competence to allow some limited-in-scale, heavily automated businesses to rely, in part, on compliance sign-off from a professional third party to meet their competence requirements; and
  • implement a limited industry-wide licensing waiver to allow start-ups to test certain financial services for 6 months (the 'regulatory sandbox exemption’), subject to a number of limitations including:

-  the waiver would apply to advice and dealing services only;

-  the financial service must be limited to 100 retail clients (with a maximum investment of $10,000 per client); 

-  no restrictions on wholesale clients, subject to a total investment cap of $5 million;  

-  the testing business must not be an existing licensee;  

-  the testing business must comply with a modified set of conduct and disclosure obligations, be a member of an external dispute resolution scheme and have adequate compensation requirements; and  

-  the testing business must have an ASIC-recognised sponsor (‘sandbox sponsor’) which may be a not-for-profit industry association or other Government-recognised entity.

Submissions are due by 22 July 2016, and new regulatory guidance and/or a licensing exemption are expected to be finalised by December 2016.

See media release dated 8 June 2016.

See also Financial technology:  Innovations to drive policy and reform dated June 2016 by Peter Reeves.

ASIC issues relief to assist with the transition to the new tax system for Attribution MITs

New ASIC relief will allow a responsible entity of a registered managed investment scheme to make constitutional amendments to allow the scheme to implement the new Attribution Managed Investment Trust tax system without the expense of a holding a members’ meeting, provided certain conditions are met.

ASIC has published ASIC Corporations (Attribution Managed Investment Trusts) Instrument 2016-489 which provides relief to assist responsible entities of registered managed investment schemes to make changes to their constitutions which are necessary or incidental to them being able to be operated under the new Attribution Managed Investment Trust tax system (Attribution MIT Tax System) (which came into effect last month), by reducing uncertainty and costs associated with the requirements that apply under the Corporations Act 2001 (Cth).

In order to rely on the relief, a responsible entity of a registered scheme will need to post a prominent notice, worded and presented in a clear, concise and effective manner, on its website for a period of not less than 7 days (publication period) which states that:  

• it intends to amend the constitution and summarises the reasons for, and the effect of, the amendments; and  

• the amendments will be made unless it receives a request to call and hold a meeting to consider and vote on the amendments from members with at least 5% of the votes that could be cast on the resolution before the end of the publication period; and  

• the meeting request may be made in writing and sent to a specified email address.  

If members with 5% or more of the votes that could be cast on the resolution to amend the constitution request a meeting, a members’ meeting will be required to approve the amendments. If no members' meeting is requested, the responsible entity may make the amendments without member approval.

Responsible entities of registered schemes in which all members acquired their interests as wholesale clients can choose to follow the website notice process or make amendments after they have taken ‘reasonable steps’ to consult with each member before amending the constitution (where reasonable steps can include speaking with the members or emailing them and inviting them to seek further information, discuss the changes or raise any concerns). 

Where an amendment is made, a copy will need to be lodged with ASIC before the amendment  can take effect, and the responsible entity will also need to give each member a further notice summarising the reasons for the changes and their effect the next time its sends a communication to all members.

ASIC also encourages responsible entities to include, in any member communications prior to the amendments being made, a statement about their intentions to make amendments to the constitution in reliance on the relief and that, where applicable, information about the amendments will be posted on their website.

ASIC has also granted relief from the duty to treat members who hold interests of the same class equally where a responsible entity attributes part of a determined trust component to a member under the Attribution MIT tax system.

See also media release dated 21 June 2016.

ASIC proposes to repeal managed investment scheme registration class order relief

ASIC is proposing to repeal the existing class order relief from registration requirements for managed investment schemes from which all retail members have withdrawn, on the basis that it no longer serves a regulatory purpose. 

 ASIC has released Consultation Paper 259 outlining its proposal to repeal Class Order [CO 02/226] Managed investment schemes:  No issue required disclosure (CO 02/226) on the basis that it is no longer necessary in light of other provisions of the Corporations Act 2001 (Cth) (Act).

The purpose of CO 02/226 is to address the unintended consequence of a managed investment scheme being required to be registered where it contains only members which do not require regulated disclosure (ie members who are wholesale clients), and is consistent with the intention in section 601ED(2) of the Act.

ASIC is proposing to repeal CO 02/226 on the basis that:

  • it has limited operation because, in most cases, by the time all retail members withdraw from a scheme, the scheme is probably already registered and so the relief is unnecessary; and
  • there is little scope for its operation in light of section 601PA(2)(b) of the Act which permits the responsible entity of a registered scheme to apply to ASIC to deregister the scheme if it is not required to be registered under section 601ED(2), and all the members agree that it should be deregistered; and
  • any residual need for the relief provided by CO 02/226 is more appropriately given on a case-by-case basis on application.

Submissions were due by 28 June 2016.

See also media release dated 30 May 2016.

If you would like further information please contact:

Peter Reeves

Special Counsel

+61 2 9263 4290



Changes to ASX Settlement non-business days

ASX Settlement will cease to observe a number of local public holidays in New South Wales and Victoria as non-business days from 1 January 2017.

ASX has released a Market Response to its March 2016 Consultation Paper – >ASX Settlement Non-Business Days Policy Review.

From 1 January 2017, ASX Settlement will cease to observe the following local public holidays in New South Wales and Victoria as ASX Settlement ‘Non-Business Days’:

  • Labour Day (Vic);
  • Bank Holiday (NSW);
  • Labour Day (NSW); and
  • Melbourne Cup Day (Vic).

ASX Settlement will continue to observe days when the ASX is closed for business (ie weekends and the following public holidays where they are observed in New South Wales and Victoria:  New Year’s Day, Australia Day, Good Friday, Easter Monday, ANZAC Day, Queen’s Birthday, Christmas Day and Boxing Day.

KPMG reports on adoption of third edition of corporate governance recommendations

Listed entities should familiarise themselves with 2 recent reports by KPMG on the adoption of the recommendations in the third edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations as they come to prepare their corporate governance disclosures in their 2016 Financial Year annual reports.

The ASX Education & Research Program recently commissioned KPMG to produce 2 reports on the adoption by ASX listed entities of the recommendations in the third edition of the ASX Corporate Governance Council's Corporate Governance Principles and Recommendations (Recommendations).

The first report addresses the modified diversity recommendations in the third edition, while the second report addresses the 9 other new or modified recommendations in third edition.

The reports provide valuable insights into how ASX listed entities are meeting their "if not why not" reporting obligations under the third edition of the Recommendations and enable listed entities to benchmark their governance disclosures against their peers.  They also identify areas where corporate governance disclosures can be improved.

See ASX Compliance Update dated 15 June 2016 for a summary of the findings.


Legislation to implement stamp duty measures announced as part of the 2016/2017 NSW State Budget passed 

Legislation to effect the long awaited abolition of 3 key heads of stamp duty and measures imposing new surcharges in respect of residential land held or acquired by foreign persons is passed by the New South Wales Parliament and receives assent.

The State Revenue Legislation Amendment (Budget Measures) Act 2016 (NSW) effecting new stamp duty measures announced as part of the New South Wales 2016-2017 State Budget (Budget) was passed by the New South Wales parliament on 23 June 2016 and received assent on 28 June 2016.

Of note, the key state tax measures affecting businesses are as follows:

(A)   Abolition of 3 heads of stamp duty 

Significantly, the long awaited abolition of certain duties in New South Wales was confirmed by the Budget such that the following heads of stamp duty will be abolished effective from 1 July 2016:

  • mortgage duty on business mortgages;
  • marketable security transfer duty (at the approximate rate of 0.6%) on dealings in unlisted marketable securities, such as share transfers, agreements to transfer and declarations of trust(noting that landholder duty at rates up to 5.5% may still apply for certain dealings in unlisted marketable securities); and
  • transfer duty (at rates up to 5.5%) on non-land business assets transfers, such as transfers of intellectual property and goodwill.

The abolition of these heads of stamp duty has already been legislated into the Duties Act 1997 (NSW).

(B)   New revenue measures for residential land held or acquired by foreign persons

The following surcharges will be introduced:

  • with effect from 21 June 2016, a new flat transfer duty surcharge of 4% will apply to all acquisitions of New South Wales “residential-related property” (which, in addition to residential land in New South Wales, includes any interests in such land, for example partnership interests and options) by “foreign persons”.  “Foreign persons” includes non-Australian citizens, foreign corporations and foreign trusts, as well as corporations and trusts in which any of the aforementioned entities holds a 20% or more interest.  This will be in addition to the existing applicable stamp duty payments which remain unchanged; and
  • commencing from the 2017 land tax year, a land tax surcharge of 0.75% per cent will apply to holdings of New South Wales residential land by “foreign persons” (as defined above).  This will be in addition to the existing applicable land tax payments which remain unchanged.  There will also be no tax-free threshold and no principal place of residence exemption for the tax surcharge. 


Section 203D is not an exhaustive codification of the mechanism for removal of directors of public companies:  State Street Australia Ltd (in its capacity as custodian for Retail Employees Superannuation Pty Ltd as trustee of Retail Employees Superannuation Trust) v Retirement Villages Group Management Pty Ltd [2016] FCA 675.

In this case, it was found that although the director removal power in section 203D(1) is mandatory in the sense that it overrides a company’s constitution to the extent of any inconsistency, it does not provide an exhaustive codification of the mechanism for removal of directors. 

The trustees of the Retail Employees Superannuation Trust (REST) were the only remaining external investors in the Retirement Villages Group (RVG).  RVG consisted of 3 stapled entities, one of which was Retirement Villages Australia Ltd (RVAL).  Retirement Villages Group Management Pty Ltd (RVGM) was a majority securityholder of stapled securities in RVG.

RVGM issued notice of a general meeting of the RVAL securityholders in which it proposed resolutions for the removal of two independent directors of RVAL.  The notice sought to have the resolutions put only under the provisions for removal of directors in the RVAL Constitution, and not under section 203D of the Corporations Act 2001 (Cth).

The key issue before Beach J in the Federal Court of Australia was whether the provisions of section 203D(1) provide an exhaustive codification to remove a director, or merely provide an additional optional method to that available under the RVAL Constitution.

Beach J found that although section 203D(1) is mandatory in the sense that it overrides a company’s constitution to the extent of any inconsistency, it does not provide an exhaustive codification of the mechanism for removal.

In so finding, Beach J looked at the language and context of section 203D(1) and noted that:

  • the use of the words “[a] public company may…” rather than “may only…” in section 203D(1) suggests that the section provides a mechanism, rather than the mechanism;
  • the words “despite anything in….the company’s constitution” clearly indicate that section 203D(1) operates to override a mechanism in a company’s constitution that might operate inconsistently, but only to the extent of any inconsistency;
  • nothing turns on the fact that section 203D is not a replaceable rule; and
  • there was nothing in the explanatory memorandum relating to the replacement by section 203D of its predecessor section which indicated an intention to impose a mandatory and exclusive method of removal.

Beach J refused to follow the decision of Bryson JA in Scottish & Colonial Ltd v Australian Power & Gas Co Ltd (2007) 65 ACSR 313 in which Bryson J’s decision was founded on his conclusion that the change of the wording from “notwithstanding” in a previous iteration of section 203D to “despite” was determinative.  Rather Beach J noted, without finding that the “outlier” Scottish & Colonial case was plainly wrong, Australian courts have reached the conclusion that:

  • the statutory removal power does not abrogate shareholders’ ability to remove a director by ordinary resolution in accordance with the company’s constitution, provided that the constitution does not otherwise contravene any other applicable law; and
  • a transition from “notwithstanding” to “despite” does not change the meaning.

Many thanks to Clare Harris (Graduate) for her assistance in preparing this summary.

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