ASIC monitors the activities of IDSs closely and is empowered to take enforcement action against Australian IDSs who do not comply with their obligations.
Internet discussion sites (IDSs) are becoming increasingly popular for a variety of reasons, including that sites with large memberships can be used to generate revenue in a variety of ways. One relatively novel way in which IDSs are being used to generate revenue is to provide a forum for listed companies to make contact with sophisticated investors for the purposes of raising capital.
In ASIC's view, a strict reading of the Corporations Act 2001 (Cth) may lead to the conclusion that an IDS needs to operate under an Australian Financial Services Licence (AFSL).
However, ASIC accepts that there are at least two classes of IDS:
- sites that are used as another means of making professional securities advice more accessible to people; and
- those which are not directed to providing such advice, but to providing a forum for persons not engaged in the provision of financial services to discuss their experiences as investors in particular companies.
ASIC has stressed that the first class of IDS would need to be operated under an AFSL. As to the second class, ASIC appreciates that to require the operator of such an IDS to hold an AFSL would create an unnecessary burden and may result in the benefits of IDSs not being "fully realised". Accordingly, ASIC has published guidance, in the form of ASIC Regulatory Guide 162 (RG162), as to the circumstances in which it will allow an IDS to operate without an AFSL.
What is an IDS for the purposes of RG162?
An IDS is a website that provides a forum for people to communicate. This may include, for example, chat rooms, blogs and web-based bulletin boards.
An IDS must comply with RG162 even where access to the forum is restricted to members of the IDS. That being said, RG162 is not intended to regulate private communications between smaller groups of individuals (eg. communications through emails or real-time chat sessions).
When can the operator of an IDS avoid holding an AFSL?
ASIC has determined that an IDS relating to financial products is not required to hold an AFSL if the activities of the IDS only extend to allowing people who are not securities industry professionals to discuss their experiences as investors. This may naturally involve users exchanging opinions and advice about securities. However, the IDS must comply with RG162.
The conditions imposed by RG162 are directed to ensuring the protection of consumers and market integrity and require (amongst other things):
- disclosures and warnings to people who view posts on the IDS in relation to matters such as the authenticity, accuracy and reliability of posts;
- disclosures and warnings to people who post on the IDS in relation to responsibility for posts made;
- the keeping of records of persons making posts;
- moderation of the content posted;
- the provision to ASIC of free access to archived member information and postings together with search facilities; and
- that ASIC be notified of certain matters including that the IDS is intended to be operated within the guidelines and of certain complaints that may be received.
When must an IDS hold an AFSL?
If the activities of an IDS involve giving professional securities advice to consumers (or other licensed activities such as dealing in securities), the operator must hold an AFSL.
ASIC has also determined that any IDS operated by an entity that already holds an AFSL carries on that IDS as a licenced activity, such that the operation of the IDS automatically attracts the obligations that would apply to a holder of an AFSL.
The rationale for this policy outcome is that IDSs operated by AFSL holders will, in ASIC's view, pose a higher risk to users because of the likelihood that consumers will consider that the information contained on such an IDS will have greater authority than the information contained on other types of non-licensed IDSs.
Of course, the use of IDSs as a means to contact sophisticated investors to promote capital raising would be an activity that would require the operator of the IDS to hold an AFSL.
Regulatory requirements in other countries
Operators should be careful to ensure that their IDS does not unintentionally breach regulatory requirements in other jurisdictions. This could occur if users outside of Australia participate in discussions on the IDS or if users discuss securities traded in overseas jurisdictions on the IDS. If the IDS is not intended to reach overseas users, operators may wish to have a statement on the site specifying that the IDS is not intended for users outside of Australia. Further, IDSs should carefully moderate any posts regarding securities traded in overseas jurisdictions to ensure that the IDS does not inadvertently become subject to regulatory requirements in those jurisdictions.
What this means for you
ASIC monitors the activities of IDSs closely and is empowered to take enforcement action against Australian IDSs who do not comply with their obligations. This may include banning or shutting down the IDS. To ensure compliance with your obligations, Australian IDS operators should consider:
- whether the site publishes user-generated content or advice given by professionals;
- whether the site is intended to reach users from countries other than Australia;
- whether the postings discuss securities that are offered or traded in countries other than Australia;
- whether the site contains appropriate terms and conditions that users are required to accept before interacting on the platform; and
- whether the IDS collects and maintains sufficient information regarding the identity of users and posts.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.