In May the Australian Securities & Investments Commission (ASIC) announced that it would be undertaking eight projects to refine the operations of the financial services legislation, introduced under the Financial Services Reform Act 2001. On 31 August ASIC issued class order 05/835 as part of the first output of the refinement projects. The class order is somewhat curious and raises a question about whether the refinement projects will achieve the aim of “refining” the current messy financial services regulation, or whether they will merely add another layer of complexity.
Class order 05/835 provides relief in relation to the advertising of financial products on billboards, on posters or in the media. As a general rule, advertising a financial product will amount to providing general financial product advice under the Corporations Act 2001. As a consequence, if the advertising is done in the course of carrying on a financial service business, the advertiser will need to hold an Australian financial services licence authorising it to provide general financial product advice. In addition, because the advertising in question is usually accessible by retail investors, that is, investors who don’t qualify as “sophisticated” investors under the Corporations Act 2001, the advertiser will be required to provide a Financial Services Guide in accordance with the requirements of the Corporations Act 2001.
The information required to be included in a Financial Services Guide is prescriptive, but it is impractical to provide a Financial Services Guide with advertisements on billboards, posters or in the media. The only alternative, until the issue of class order 05/835 was to include the information in the advertisement itself. This was an unsatisfactory arrangement and class order 05/835 therefore provides welcome relief from the impractical technical requirement to provide Financial Services Guides in relation to advertisements of financial products.
The second part of class order 05/835 is not so straightforward. The class order exempts product issuers from the requirement to hold an Australian financial services licence authorising the financial product advice in the advertisement. This is a curious exemption. Issuers of financial products (including shares and options) will only need to be licensed if the issuing of financial products is done in the course of carrying on a financial services business. Companies issuing shares for the purpose of raising capital do not generally require licensing. Therefore the exemption in class order 05/835 will be of use only to product issuers already conducting a financial services business. Such product issuers will almost certainly already hold a financial services licence and most will already be licensed to give general financial product advice. Consequently the exemption appears to be useful to a limited number of people.
Most product issuers are authorised to provide general product advice at the very least in relation to their own products. There are a few operators of tax-effective managed investment schemes licensed to issue products but not to provide advice in relation to them. The exemption in class order 05/835 may also be useful where a product issuer offers its financial products via a licensed intermediary and does not hold its own Australian financial services licence. Other than these examples, there are only a small number of situations where the exemption may be useful.
Even in the limited range of situations where the licensing exemption in the class order will apply, there is a question mark over whether it goes far enough. Product issuers who are not licensed to provide general financial product advice, and who could use the exemption in class order 05/835, will still need to exercise care when communicating with holders of their financial products to ensure that they do not inadvertently provide financial product advice. This includes when wording cover letters enclosing copies of prospectuses or product disclosure statements, and in any other communication that may be reasonably interpreted as something more than merely factual information about the financial product. It is curious that ASIC has provided a licensing exemption relating only to advertising when other laws provide ample consumer protection in this area and ASIC could have provided a licensing exemption based on the commercial reality that product issuers are competent to provide general advice about their own products.
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