Financial Services

The decision was made late last year to alter the current framework for charitable investment fundraisers regarding Australian Financial Services Licences (ASFLs). This change marks a growing trend towards tightening regulation by ASIC, in an attempt to increase investor protection.

The announcement was made that charitable investment fundraisers will not continue to fall within the exemptions for AFSL requirements where those fundraisers issue investments to retail investors unconnected with the charity. This will replace the existing Class Order 02/184 with the ASIC Corporations Instrument 2016/813 and the Regulatory Guide 87. The Regulatory Guide 87 describes a ‘charitable investment fundraiser’ as ‘a charity that raises funds to support its purposes by issuing:

a) debentures (other than by way of certain limited offers); and/or

b) interests in a managed investment scheme.’

Debentures, that is secured loans, as well as interests in managed investment schemes form what are known as ‘financial products’. Charities are defined by the Charities Act 2013 (Cth) as not-for-profit entities that operate for charitable purposes for the public benefit. According to the Charities Act 2013 (Cth) section 12 these purposes can include, but are not limited to, health, religion, culture, welfare, education and community purposes. Further, as per section 5 of the Act, entities in this context do not include individuals, political parties or government entities.

The particular part of the Regulatory Guide 87 which introduces the need for licensing is RG 87.9. RG 87.79 refers to sections 911A(1) and 912A of the Corporations Act 2001 (Cth) in stating that a charity may be required to seek and obtain an AFSL where the charity engages in issuing financial products. The Guide does, however, detail that exemptions may still apply. Exemptions include where the charitable investment fundraiser is considered a ‘wholesale charitable investment fundraiser’ (i.e. targets wholesale clients) as opposed to a ‘retail charitable investment fundraiser’, or where the fundraiser uses an intermediary who possesses a AFSL with the relevant authorisations in the issuing of financial products.

A key point to take from the Act and the Guide is that this law is both complex and onerous, and should be carefully considered if you are operating as a charity and engaging in these kinds of transactions. The changes that have been brought in are significant and will alter the position of these not-for-profit entities. There is time to prepare for this change, which only come in to effect from the 1st of January 2018.  It is highly recommended that these entities seek legal advice in order to better understand their obligations.

ASIC is changing the way charitable investment fundraisers conduct transactions involving financial products. This comes as a consequence of the increasing commercial activity engaged in by charities to fund their charitable purposes, and the need for further protection in the interests of investors.

To find out more about financial services law check out our Resources Centre. If any of the issues in this article are relevant to you please get in touch today.

This article was authorised by Warwick Heeson.

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