The Corporations Act will start to apply to eligible international emissions units, Australian carbon credit units (ACCUs) and carbon units (together, “Units”) on 1 July 2012. If you will have anything to do with Units you should now consider what you need to do to comply with the Act from 1 July 2012. You should also consider whether you will require an Australian financial services (AFS) licence.
Actions between now and 1 January 2013
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The Corporations Amendment Regulation 2012 defers the application of the Corporations Act to Units until 1 July 2012 and defer the need to hold an AFS licence in relation to Units until 31 December 2012 at the latest. As the Corporations Regulations do not defer the application of any other financial services law, participants carrying out activities in relation to eligible international emissions units should already be complying with:
- the Anti-Money Laundering and Counter-Terrorism Financing Act, including reporting obligations to AUSTRAC and the requirement to have an AML/CTF Program; and
- conduct and disclosure requirements under the ASIC Act.
What will the Corporations Act require on 1 July 2012?
The extent to which the Corporations Act will apply from 1 July 2012 if a person does anything in relation to Units depends on a number of factors. The factors include:
- whether you deal only with wholesale clients or retail clients as well;
- whether you will require an AFS licence to engage in activities in relation to Units (see below); and
- whether you already hold an AFS licence (eg in relation to financial services you already provide in relation to other financial products).
For example, from 1 July 2012:
- market misconduct (eg insider trading) and advertising rules will apply to all participants;
- if you register under the transitional AFS licensing registration regime, you must comply with the conditions of that regime (eg be a member of an approved external dispute resolution scheme and ensure they have requisite compensation arrangements in place);
- a participant that sells or provides a recommendation in respect of Units to a retail client may need to refer the client to the relevant statements on the Clean Energy Regulator’s website;
- AFS licensees must comply with client moneys and property obligations in respect of units; and
- if an AFS licensee gives personal financial product advice in relation to Units they must provide a statement of advice.
The above obligations will apply even before the AFS licence is granted or varied to cover Units. Accordingly, participants must have adequate arrangements to comply with these obligations. A number of other obligations may apply from 1 July 2012. Participants should carefully consider how the obligations will apply to their business before 1 July so that they are ready to comply on that date, or if later, when they first do anything with Units. This might include effecting insurance that is acceptable to ASIC.
Will you need an AFS licence?
Examples of entities that are likely to have to consider whether they need an AFS licence to cover its activity in the carbon market include traders (such as banks), custodians and project operators. Liable entities may not be required to hold an AFS licence in respect of activity it (or a related body corporate or associate of the liable entity) carries on in order to meet its obligations under the Clean Energy Act. The scope of the relevant exemptions is described further below.
Snapshot of the new AFS licensing exemptions for the carbon market
If a participant can rely on an AFS licensing exemption in respect of its financial services business in the carbon market, it will not need to seek registration during the transitional period nor apply for an AFS licence. There are existing exemptions that may apply in the Corporations Act, Corporations Regulations and under Class Orders and individual instruments of relief granted by ASIC. The Regulations now contain additional exemptions that apply in respect of activity in the carbon market.
Our 20 February 2012 alert commented previously on the proposed additional exemptions proposed in the draft regulations. The final Regulations have widened the scope of some of those licensing exemptions. The table below sets out a summary of the licensing exemptions provided under the Regulations and some comments on them:
Click here to view table.
Will you need to lodge an application for registration by 30 June 2012?
The Corporation Regulations provide for a transitional AFS licensing registration regime. This is welcome news. Under the registration regime, entities that have not obtained the AFS licence they need to carry on a financial services business in relation to Units can carry on these activities after 30 June 2012 if:
- the participant is registered by ASIC to provide that financial service by 30 June 2012; and
- the participant applies for the requisite AFS licence (or AFS licence variation) by 31 October 2012.
The registration may be provided subject to certain conditions. Registered entities must also comply with certain obligations, such as avoiding conflicts of interest and providing the financial service in an efficient, honest and fair manner.
The transitional AFS licensing registration regime ceases on 31 December 2012. Participants must hold an appropriate AFS licence (or be able to rely on an exemption, some of which are discussed above) by this date in order to continue providing these financial services after this date.
The transitional AFS licensing registration regime does not apply to financial services in relation to derivatives over Units or foreign exchange contracts for Units.
Participants need to start taking action now in order to be ready for 1 July 2012. We would be happy to assist participants in this preparation process.