Irish investment funds may be sold in Australia by way of public offering or private placement. Public offerings are regulated under the Corporations Act, 2001 (Cth) (the "Corporations Act") which is administered by the Australian Securities and Investments Commission ("ASIC").
An Irish fund that is offered to Australian 'wholesale' clients (i.e. institutional clients) only is not required to be registered with ASIC.
As detailed below the prospectus of any Irish domiciled fund being sold in Australia may be required to comply with certain Australian requirements. It should be noted from the outset that where any PDS (as defined below) is prepared such document will need to be submitted to the Central Bank in advance to ensure that there are no inconsistencies with the Irish prospectus. If any supplement or addendum to the Irish prospectus, specific to Australian domiciled investors, is also prepared this document will also need to be submitted in advance to the Central Bank.
The public offering of interests in a fund in Australia is regulated under the Corporations Act which is administered by ASIC.
Under the Corporations Act, a collective investment scheme is termed a 'managed investment scheme' ("MIS"). Prior to interests in an MIS being offered in Australia, the MIS must be registered with ASIC.
For an MIS to be registered with ASIC, a public company that holds an Australian financial services ("AFS") licence with the requisite authorisations must be appointed to manage and operate the MIS. Under the Corporations Act, that company is termed the 'responsible entity' ("RE").
As such, there are three primary factors that must be dealt with when considering the offering of an Irish domiciled fund in Australia, which are as follows: whether the fund should be registered as an MIS;
- whether the management company should apply for an AFS licence to operate as the RE of the fund; and
- whether the offering document complies with the requirements of the Corporations Act.
Registration of an MIS
Requirement to Register as an MIS
Registration of an MIS with ASIC is dependant upon whether the MIS will be offered to Australian 'retail' or 'wholesale' (i.e. institutional) clients, regardless of whether the offering will be a public offer or by way of private placement. If a fund is to be offered to 'retail' clients then it must be registered as an MIS with ASIC. If a fund is to be offered to 'wholesale' (i.e. institutional) clients only then it is not required to be registered as an MIS with ASIC.
The requirement to register as an MIS is not triggered if the fund is structured as a body corporate. This is because a body corporate does not fall within the definition of a 'managed investment scheme' under the Corporations Act. As such, it is not possible to register an Irish fund structured as a corporate vehicle as an MIS in Australia (i.e. it is not feasible to offer an Irish fund structured as a corporate vehicle to 'retail' clients in Australia because of the disclosure requirements that apply to body corporates).
An application must be made to ASIC to register an MIS consisting of the following documents:
- an ASIC form 5100;
- a copy of the MIS's constitutional documentation;
- a copy of the MIS's compliance plan; and
- a statement signed by the directors of the proposed RE that the MIS's constitutional document and compliance plan comply with the requirements under the Corporations Act.
A fee of AUD 2,137 is payable upon lodging the application with ASIC.
Under the Corporations Act, ASIC has 14 days to register an MIS from the date the application is lodged unless it appears to ASIC that the application, RE or MIS constitutional document or compliance plan do not meet the specific requirements of the Corporations Act.
Under the Corporations Act, an MIS constitutional document must (including but not limited to):
- make adequate provision for:
- the consideration that is to be paid to acquire an interest in the MIS;
- the powers the RE has in relation to making investments;
- the method by which complaints made by members in relation to the MIS are to be dealt with; and
- the winding up the MIS; and
- specify any:
- rights the RE has to be paid fees out of MIS property or to be indemnified out of MIS property for liabilities or expenses incurred in relation to the performance of its duties;
- powers the RE has to borrow or raise money for the purposes of the MIS; and
- rights members have to withdraw from the MIS.
In practice, it would be very difficult for an Irish fund to meet these constitutional requirements and be acceptable to ASIC. Accordingly, it is rare for an Irish fund to be offered in Australia to retail clients.
In addition, under the Corporations Act, an MIS compliance plan must set out adequate measures that the RE is to apply in operating the MIS to ensure compliance with the Corporations Act and the MIS's constitution. For example, the compliance plan must include arrangements for ensuring that all MIS property is clearly identified as MIS property and held separately from property of the RE and property of any other MIS.
Under the Corporations Act, a product disclosure statement ("PDS") (similar in concepts to a prospectus) must be given to a 'retail' client when an offer is made for the issue of a unit or other interest in the financial product. As such, any offer to a 'retail' client in Australia of a fund must be accompanied by a PDS.
The Corporations Act stipulates formal content requirements that must be contained in a PDS. However, securities in a fund would generally be able to be offered without an Australian compliant regulated PDS where the issuer of the securities:
- does not give a client 'personal advice', i.e. financial product advice where the issuer has considered one or more of the client's objectives, financial situations or needs or could reasonably be expected to have considered one or more of those matters; and
- advises the client that it is not licensed to provide financial product advice and that no cooling off period applies for the product; and
- where the securities are offered to 'wholesale' clients.
As such, if funds will only be marketed to 'wholesale' clients (i.e. where a formal PDS is not required), then there are no formal requirements in relation to content of an offer document. However, such a document would need to comply with the general regulatory content requirements (e.g. it must not contain any misleading or deceptive information and it must not contain any false statements or representations), and common law principles (e.g. it must include all significant terms and conditions that will govern the relationship between the investor and the fund). This is the position whether the fund is structured as a unit trust, body corporate or any other structure.
A fund which is offered to Australian 'wholesale' clients (i.e. institutional clients) only is not required to be registered with ASIC. However, the entity that promotes or markets the fund in Australia would need to have (or apply for) an AFS licence unless it falls within an exemption. The fund could engage an Australian AFS licensed company to perform various activities for it (e.g. marketing) in Australia in respect of an offer of securities.
There are several tests under the Corporations Act regarding when a client may be treated as a 'wholesale' client. Briefly, a client will be a 'wholesale' client where (including but not limited to):
- the price or value of the securities being acquired is AUD 500,000 or more; or
- the financial product is not provided for use in connection with a business and the investor provides a copy of a certificate given within the preceding 2 years by a qualified accountant that states that the person has:
- net assets of at least AUD 2.5 million; or
- gross income for each of the last 2 financial years of at least AUD 250,000; or
- it is a 'professional investor' (for example, it is the holder of an AFS licence).
Requirement to Hold an AFS Licence
Under the Corporations Act, any person who is in the business of providing financial services in Australia is required to hold an AFS licence covering the provision of such services, unless an exemption applies.
A 'financial service' includes:
- providing financial product advice in relation to a 'financial product'; and
- dealing (including arranging for dealing to occur) in a financial product, Broadly speaking:
- 'financial product advice' is a recommendation or statement of opinion that is intended to influence a person's decision in relation to financial products; and
- 'dealing' is acquiring, issuing, varying or disposing of financial products.
A 'financial product' is defined extremely broadly and includes MIS securities.
As such, a company that acts as an RE of an MIS is required to hold an AFS licence with an authorisation that permits it to operate the MIS as it will be advising and dealing in respect of the MIS securities.
ASIC has provided specific exemptions from the AFS licensing requirement under various class orders for certain foreign financial service providers that are registered with the UK FSA, Singaporean MAS, US SEC, Hong Kong SFC and German BaFin. The class orders allow financial services to be provided by an exempted entity (and its employees and other representatives) in Australia provided such services are only provided to 'wholesale' clients. Under these class orders, a foreign financial service provider may engage in advising and dealing without the requirement to hold an AFS licence. There is no exemption for financial service providers regulated by the Central Bank of Ireland.
Depending on the degree and extent of the activities an exempted entity proposes to undertake in Australia by relying on a class order, it may need to register as a foreign company in Australia.
Obtaining an AFS Licence
The process for applying for an AFS licence is lengthy and expensive. In reviewing an application for an AFS licence, ASIC assesses whether the applicant:
- is competent to carry on the kind of financial services business it is applying for;
- has sufficient financial resources to carry on the business it is proposing; and
- can meet the obligations under the Corporations Act and ASIC policy as a licensee if granted an AFS licence.
To apply for an AFS licence, an ASIC form FS01 must be completed and accompanied by core and additional proofs in support of the application. The amount of time that ASIC may take to decide on the outcome of an application for an AFS licence varies, depending on ASIC's analysis of the business and the market the applicant proposes to operate in.
There is also a fee payable to ASIC upon lodgement of an application for an AFS licence. The fee is AUD 287 if the application is prepared and lodged electronically. However, the fee is AUD 575 if a paper application is made.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.