The approach which ASIC is developing is in line with those of securities regulators overseas. They are acting in cooperation and have been working through the International Organisation of Securities Commissions (IOSCO) to develop a consistent approach for using the internet for securities offering. The approaches and precautions now being required by ASIC for internet material of foreign offerors accessible in Australia, are much the same as those set by the SEC for material accessible in the US and the Financial Services Authority for material accessible in the UK.
The policies of the regulators need to deal with the fact that internet advertisements, offers and other material emanating from overseas, which does not comply with Australian regulatory requirements, may be seen by Australian residents.
Conversely, Australians may place material on the internet which will be seen overseas and which does not comply with foreign regulatory requirements. Australian internet advertisers can draw some comfort from the likelihood that many foreign jurisdictions are also unlikely to take enforcement action regarding material on the internet, which is technically in breach of their regulations, provided that jurisdictional disclaimers and other precautions of the type explained by ASIC are followed.
ASIC's policy is not to regulate offers, invitations and advertisements of securities accessible in Australia on the internet if:
- the offer, invitation or advertisement is not targeted at persons in Australia;
- the offer or invitation contains a "meaningful jurisdictional disclaimer";
- the offer, invitation or advertisement has little or no impact on Australian investors; and
- there is no misconduct.
In order to provide a legal basis for that policy, ASIC has issued a Class Order (CO99/43) which gives relief along the lines just mentioned to issuers of internet offers and advertisements.
The Class Order, when read with the Policy Statement, makes it important that foreign clients appreciate the need to incorporate a number of safeguards into their internet website in order not to breach Australian law and not to attract enforcement attention from ASIC.
Conversely, Australian clients, whose internet material is accessible overseas, need to incorporate comparable safeguards to avoid attracting enforcement attention from foreign securities regulators.
Meaningful jurisdictional disclaimers
In that respect ASIC says that the offer or offering securities on the internet must use the following safeguards.
- There must be precautions in foreign material designed to exclude subscriptions being accepted from persons resident in Australia. The effectiveness of the precautions must be checked by monitoring the number of applications made, if any, by persons resident in Australia, and applications from persons whose telephone numbers, postal or telephone addresses or other particulars indicate that they are resident in Australia must not be accepted. ASIC insists that the offeror must actually check that the precautions are effective. It says that it is not enough simply to ask an applicant whether they are an Australia resident.
- Foreign offering material or advertisements must not be published, distributed or made available in ways or locations which are calculated to draw it to the attention of Australian residents, such as by sending electronic mail to addresses which indicate that the notice will be read in Australia.
- Foreign offering material or advertisements must not contain material which is specifically relevant to Australian residents or investors, such as by including details of Australian tax treatment or rates or information presented in Australian dollars.
- An offer or invitation in foreign offering material or advertisements on the internet must not be made or issued, unless the Class Order mentioned above applies. It contains conditions similar to that being described here. A "meaningful jurisdictional disclaimer" is an important part of the precautions which Internet advertisers or offerors are expected to utilise.
The requirements of the Class Order for "meaningful jurisdictional disclaimers are as follows.
- The foreign offering material must contain a statement that the offer or invitation to which it relates is not available to Australian residents. A statement that the offer is not being made in any jurisdiction in which the offer would or could be illegal does not satisfy that requirement. The offering material must state the jurisdictions in which the securities are made available, that is those jurisdictions where the Internet statement does comply with local laws.
- The disclaimer must be prominently displayed with the offering material. It is not enough if a potential investor does not see the disclaimer until after they may have already seen sufficient material to decide whether or not to invest.
In addition, ASIC says it will be concerned if an internet offer, invitation or advertisement has a significant effect on consumers or markets in Australia. That will depend upon factors including the number of enquiries that an issuer receives from Australian investors about investing insecurities being offered, the number of Australian investors to whom securities are issued and the complaints which ASIC receives from Australian investors. In the event that ASIC believes that an internet offer, invitation or advertisement has had a significant effect on consumers or markets in Australia it will consider taking regulatory action on the basis that the offeror may not have complied with the requirements of the Class Order.
Further, if those responsible for the internet offer, invitation or advertisement of securities, or those involved in its publication, appear to have been involved in any misconduct, ASIC will consider the means available to regulate that conduct. Misconduct may involve significant non-compliance with Australian or overseas laws, such as fraudulent, misleading or deceptive conduct, or failure to abide by other regulatory requirements, such as inadequately disclosing the jurisdiction in which the offer is intended to be made.
Fundraising activities overseas by Australian issuers
ASIC notes in the Policy Statement that it will continue to monitor the conduct of Australian issuers engaging in fundraising activities overseas. It is concerned if their conduct affects the level of confidence in, and the integrity of, the Australian securities market. The powers that ASIC may use include revoking an issuer's licence, or obtaining an injunction to restrain an unlicensed person from dealing in securities. In other words, an Australian issuer which advertises material on the internet which is accessible in a foreign jurisdiction and does not comply with the precautions stated by ASIC, may result in ASIC inquiring, for example, into whether an Australian licence should be revoked because of a breach by the Australian licensee of foreign laws. This is part of the cooperative arrangements being developed by the regulators internationally.
Internet offers of other products
The Policy Statement, and prior work of ASIC, has largely focused on offers, invitations and advertisements of securities. Of course, many clients in the financial services industry are advertising their services on internet websites. ASIC notes that it is developing its approach to regulating offers of other financial products over the internet including insurance and savings products under the expanded jurisdiction of the Commission as reconstituted recently.
Clients often ask for advice on their advertisements on the internet. Many of those are not specifically offers, invitations or advertisements with respect to securities, but it is likely that ASIC will adopt similar policies in relation to other types of material placed on the internet, such as advertisements for securities dealing services.
At present, however, there is no Class Order to make the activities technically legal provided they comply with certain conditions. Internet advertisers, other than those offering securities, currently do not have the same level of conformity as those able to take advantage of Class Order 99/43.
ASIC notes that it will continue to work with other regulators to coordinate regulatory approaches and develop effective enforcement strategies. IOSCO is particularly active in the field of electronic commerce through its Internet Task Force, of which ASIC is an active member.
It is comforting to note that the regulators are working towards a common policy designed to face the reality that people in the financial industry will advertise on the internet and that material will be accessible possibly throughout the world.
However clients, whether Australian or foreign, should be aware of the precautions which ASIC and other regulators are requiring, and conform to the detail of what is required, for example, by including meaningful jurisdictional disclaimers. In that respect, as noted, a general statement that the offer is not being made in any jurisdiction in which the offer could or would be illegal, does not satisfy the requirements of the regulators.
This article provides a summary only of the subject matter covered, without the assumption of a duty of care by Freehill Hollingdale & Page. The summary is not intended to be nor should be relied on as a substitute for legal or other professional advice.
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