Australia: Part IV: Notifying ASIC of changes in control - How long have I got?

Late last year, we provided two blogs ( Part I and Part II) on the obligation of AFSL holders to notify ASIC of a change in control to their entity. (Click here to read Part III of our series on the obligations of ACL holders to notify ASIC of a change in control to their entity.)

This blog is an update to that series, and examines the new obligation to update ASIC about changes in control resulting from the reforms to create the new Financial Adviser Register.

Recap: Notifying ASIC of a change in control in the licensee

Our first two blogs explained that:

  1. all companies have an obligation to notify ASIC of changes to its details. This includes changes to its members, changes to share structure, changes to directors and secretaries, and if there is a change to the ultimate holding company of a proprietary company. Such changes are generally made to ASIC using a Form 484, and need to be made within 28 days of the change; and
  2. all AFSL holders have (as a condition of their licence) an obligation to notify ASIC within 10 business days of becoming aware of a change in control in the licensee.

New obligation: Change in control for certain AFSL holders

In addition to the above requirements, you may be surprised to know that certain AFSL holders have additional obligations when it comes to notifying ASIC of a change in control.

In February 2015, the Government introduced reforms to create the Financial Adviser Register (FAR). The FAR was a recommendation of the 2014 Senate Economic References Committee Report into ASIC's performance.

While the main aim of the register was to create a register of natural persons who provide personal advice on more complex products to retails clients, it also created a new obligation for licensees of advisers that provide personal advice on these more complex products to notify ASIC where there is a change in control of the licensee.

This was done by introducing new sections 922J and 922K to notify ASIC about a person who starts to (or ceases to) control a body corporate licensee.

The rationale for this new obligation was to make advice more transparent so that clients (or prospective clients) are aware when the financial advice firm is controlled by a product issuer.

Who does the new obligation apply to?

This new obligation only applies to AFSL holders that are body corporate licensees. These are body corporates that are authorised to provide personal advice to retail clients in relation to financial products other than basic banking products, general insurance products, consumer credit insurance, or any combination of these.

This will cover most financial planning practices that hold an AFSL.

The interesting aspect of this obligation is that the AFSL holder has 30 business days to notify ASIC of the change in control.

This poses the question: does an AFSL holder that is authorised to provide personal advice on more complex financial products have 10 business days or 30 business days to notify ASIC of a change of control?

10 business days or 30 business days to notify ASIC?

The answer is not so simple.

Because there is no provision turning off the 10 business day notification requirement that applies to all licensees when a change in control occurs to a body corporate licensee, it would appear that both obligations apply to body corporate licensees.

To some degree, ASIC has addressed this by prescribing the same form (Form FS 20) for notifying changes in control. This means that by submitting the form, the body corporate licensee will be complying with both its obligations.

However, this still does not answer the question about which timeframe applies.

What does ASIC say?

ASIC's website on change of control clearly states that body corporate licensees have 30 business days to notify ASIC:

When does ASIC need to be notified?

An AFS licensee must notify us of the particulars of the change in control not later than:

  • 10 business days for changes to controlling entity details for licensees other than body corporate licensees as defined by s922C of the Corporations Act 2001.
  • 30 business days for changes to controlling entity details for licensees who are body corporate licensees as defined by s922C of the Corporations Act 2001.

ASIC's interpretation may result from the inconsistency in timing created by the two obligations as they apply to body corporate licensees.

Because the 30 business day requirement is found in the Corporations Act 2001, compared to the 10 business day rule which is found in the Corporations Regulation 2001, the general rule of interpretation is that the requirement in the Act trumps the requirement in regulation when an inconsistency exists.

However, we do not think it is ideal to have to rely on rules of legal interpretation to understand when an AFSL holder is required to notify ASIC about changes in control.

Given that the licence condition requiring all AFSL holders to notify ASIC within 10 business days of becoming aware of a change of control was not changed when the Government introduced the new obligation for body corporate licensees, we believe that it is prudent for all AFSL holders (including those who provide personal advice to retail clients on more complex products) to continue to comply with this requirement and notify ASIC within 10 business days of becoming aware of such a change.

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.

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Jesse Vermiglio
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