Michael Hansel, Partner
Kate Williams, Solicitor
The Australian Securities and Investments Commission (ASIC) recently released a Consultation Paper on the regulation of internet discussion sites which contain commentary about financial products and services. ASIC is seeking submissions from stakeholders such as internet discussion site operators and users, advisers, licensees and consumers to assist in developing its policy on internet discussion site regulation. This is the first time ASIC has reviewed its policy since 2000 when it released Interim Policy Statement 162 Internet discussion sites (IPS 162)—now referred to as Regulatory Guide 162 (RG 162).
Meaning of internet discussion site
Internet discussion sites (IDS) are internet websites such as web-based bulletin boards, 'blogs', or chat rooms, that provide a forum for people who are not financial services professionals to share information, recommendations and opinions about financial products.
In order to 'post' material on an IDS that can be viewed by others, people have to register their details with the IDS. Each IDS has an IDS operator who has varying degrees of involvement in the content posted on the IDS. For example, some IDS operators have very little involvement in the IDS while others have the ability to monitor, edit, control or even make their own postings.
Under the Corporations Act 2001 (Cth), the activities of IDS operators and users may constitute the provision of financial services, for which an Australian Financial Services Licence (AFSL) is required.
A person providing financial product advice will be providing a financial service, and a person who operates a business of providing financial services requires an AFSL. A recommendation or statement of opinion constitutes financial product advice if it is intended to influence a person in making a decision on a particular financial product, or could be regarded as being intended to have such an influence, and it is not exempted from the definition of 'financial product advice'.
It is therefore conceivable that an IDS operator who is heavily involved in the content of postings on an IDS may be providing financial product advice. This is supported by Justice Windeyer's finding in the NSW Supreme Court case of ASIC v Matthews in 2000 that informal commentary about financial products posted to an IDS may amount to financial product advice. This case involved postings about securities on an internet site with a chat-room facility and whether postings on the site constituted 'reports about securities' and accordingly fell within the ambit of 'investment advice' (now 'financial product advice') under the Corporations Law (now the Corporations Act).
Currently, IDS operators who do not post comments containing financial product advice, but who authorise or arrange for others to post such comments, may also require an AFSL. Regulation 7.1.31 of the Corporations Regulations 2001 provides an exemption to this requirement ('passing on' exemption) where a person disseminates a document that contains financial product advice, as long as that person:
- is not an AFS licensee; and
- does not select, modify, or otherwise exert control over the content of the document.
This exemption is designed for those IDS operators who do not make posts on the IDSs they operate but rather provide a forum for investors to share their experience with others.
There are also a number of exemptions to the requirement to hold an AFSL where persons provide general advice through the following mediums:
- newspapers or periodicals;
- news and information broadcasts; and
- sound, video and data recordings.
ASIC proposes to change the law relating to the regulation of IDSs requiring all IDS operators who are carrying out a business of providing financial services to hold an AFSL and provide the necessary disclosure documents if they are operating a business of providing financial services. IDS operators were once granted relief by ASIC from the financial services licensing and disclosure regimes. However, ASIC proposes that this will no longer be the case unless an existing exemption applies.
ASIC seeks to amend Regulatory Guide 162 to include a series of factors to consider when determining whether an IDS operator is providing financial product advice and therefore requires an AFSL. ASIC also intends that those IDS operators that may be able to rely on the 'passing on' exemption will need to provide adequate warnings and disclosure to IDS users that they do not endorse or vouch for the accuracy or authenticity of postings, and that people viewing postings should not rely on advice contained in the postings alone.
ASIC proposes to impose a number of key obligations on the AFS licensees such as:
- maintaining the IDS in a fair and efficient manner;
- having good record-keeping practices; and
- giving general advice warnings.
The rationale behind these obligations is the requirement that AFS licensees must do all things necessary to ensure that the financial services covered by their AFS licence are provided efficiently, honestly and fairly.
Submissions on the proposals contained in the Consultation Paper are due by Friday 27 April 2009.
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