From 1 July 2022, a new type of investment product - the Corporate Collective Investment Vehicle (CCIV) - will be able to be established by Australian fund managers.
In this article, we take a look at what a CCIV is, how it will operate, and what the licensing and regulatory requirements are under the financial services laws.
So, what is a CCIV?
A CCIV is an investment vehicle in the form of a new type of company limited by shares. This means that a CCIV:
- will be a separate legal entity, and can therefore enter into contracts in its own right;
- must have a constitution which meets the requirements of the Corporations Act 2001 (the Act);
- will have most of the powers, rights, duties and characteristics of a company;
- will be able to be registered as an Australian passport fund and listed on a stock exchange; and
- will generally be subject to the ordinary company rules under the Act.
A CCIV can also establish sub-funds so as to offer multiple product designs or investment strategies within the same vehicle. Each sub-fund will operate as a segregated entity for asset and liability allocation purposes. A sub-fund can also issue debentures.
A new Chapter 8B has been introduced into the Act which covers the registration and operation of CCIVs.
Why are CCIVs being introduced?
The CCIV will provide an alternative to the existing managed investment scheme (MIS) investment vehicle.
The CCIV structure is one that is commonly used overseas, particularly in Europe.
The implementation of the CCIV structure under Australia's financial services laws is aimed at enhancing Australia's funds management industry by introducing an investment structure that is more familiar to foreign investors, and is more compatible with their local regulatory and taxation regimes, than the trust-based structure of the MIS.
When do CCIVs start?
Funds management businesses can begin registering their CCIVs with ASIC from 1 July 2022.
Who are the parties involved?
As a company limited by shares, the CCIV will be a legal entity in its own right and will issue shares to shareholders like any other such company.
Uniquely though, a CCIV must have a single corporate director which must be an unlisted public company that holds an Australian financial services licence (AFSL).
The CCIV itself must not have any officers or employees other than the corporate director (although the corporate director may have officers and employees of its own). Directors of a corporate director will have duties and responsibilities similar to those applying to the directors of a responsible entity of a registered MIS.
Like the responsible entity of a registered MIS, a corporate director of a CCIV may retire and be replaced in specified circumstances.
What financial products and services are involved?
Shares and debentures issued by a CCIV are financial products and are deemed to be a "security".
The corporate director of a CCIV will provide a new type of financial service of "operates the business and conduct the affairs of the CCIV".
How do I establish a CCIV?
Every CCIV will need to be registered with ASIC. In order to be registered, the CCIV must meet certain basic registration requirements, with the key requirements being that it must:
- be a company limited by shares (which may be ordinary, redeemable and/or preference shares);
- have a constitution that meets prescribed content rules (as is the case for a registered MIS);
- have a sole proposed corporate director that is a public company which holds an AFSL authorising it to "operate the business and conduct the affairs of the CCIV"; and
- have at least one sub-fund, with each sub-fund having at least one shareholder and its own class of shares.
Each registered sub-fund will be given an Australian Registered Fund Number (ARFN).
Registration of a subsequent sub-fund is by a standalone process, and any securities issued by the CCIV must be issued in reference to a specific sub-fund.
Do I need an AFSL to operate a CCIV?
A corporate director operating a CCIV can only "operate the business and conduct the affairs of the CCIV" if it is authorised to provide this new type of financial service under an AFSL. A single AFSL may cover operating the business and conducting the affairs of more than one CCIV. A corporate director cannot be authorised to provide this financial service as a representative of an AFSL holder.
In addition, the CCIV's corporate director:
- must hold authorisations for other financial services that it provides (e.g. providing financial product advice on, or dealing in, underlying financial products);
- must meet the same regulatory capital requirements as the responsible entity of an MIS;
- must "operate the business and conduct the affairs of the CCIV" in accordance with the conditions of its AFSL authorisation, the CCIV's constitution and the Act (which includes general directors duties such as the duty to act honestly and in members' best interests) as well as CCIV-specific directors duties;
- is generally responsible for the conduct of the CCIV, and will therefore be subject to criminal and/or civil penalty provisions for its breaches of its ASFL or the Act.
The CCIV itself will issue the securities pursuant to an exemption to holding an AFSL (which is specific to CCIVs issuing securities). Therefore, a corporate director will not need to be authorised to issue securities under its AFSL.
Any other person (such as a financial adviser) that provides financial services that relate to CCIVs (e.g. providing financial product advice on and/or dealing in CCIV securities) must generally either hold an AFSL or be appropriately authorised.
What if I already operate a registered MIS?
ASIC considers that AFSL holders authorised to provide financial product advice on and/or deal in MIS should be able to transition readily to the CCIV regime.
ASIC will assist with this transition through a "free" ASIC-initiated licence variation that will enable existing AFSL holders to "opt-in" to adding "securities in a CCIV" advice and dealing authorisations where they hold a similar existing financial service authorisation for MIS.
Note that the ASIC-initiated licence variation will not extend to the "operate the business and conduct the affairs of the CCIV" authorisation that a corporate director will require. Such authorisation will need to be obtained in the usual manner through a licence application or variation.
It is not clear whether an existing MIS can transition to being a CCIV or if there will be tax roll-over relief in such a situation.
What if I can already advise or deal in securities?
As CCIV shares and debentures are included as "securities", existing AFSL holders (and their authorised representatives) will be able to rely on their existing authorisations to provide financial product advice on and/or deal in CCIV securities.
How will the wholesale client rules apply to a CCIV?
A CCIV will be deemed to be a "professional investor" and will, therefore, always be a wholesale client itself.
The legislation specifically provides that a CCIV can be either a retail or wholesale CCIV depending on whether any of its shareholders are retail clients. Note that the wholesale clients rules under Chapter 7 of the Act apply to shareholders in a CCIV rather than the similar "securities offering" disclosure exemptions under Chapter 6D.
All CCIVs must be registered with ASIC. However, a retail CCIV will be subject to greater regulatory disclosure, compliance, reporting, auditing and conduct obligations similar to those that apply to a registered MIS.
Further, the corporate director of a retail CCIV must have a majority of "external" directors on its board - the alternative of the registered MIS "external" compliance committee is not available for corporate directors.
It would appear that AFSL authorisations for corporate directors will also be specifically worded for retail and/or wholesale CCIVs.
What do I need to disclose to investors?
A CCIV (rather than its corporate director) is generally responsible for giving retail clients a Product Disclosure Statement (PDS) relating to the relevant sub-fund, prior to issuing the securities in the relevant sub-fund.
The sub-fund's PDS may include further information in relation to the CCIV as a whole.
A CCIV's PDS will generally be subject to the same content requirements that apply to the PDS for other financial products.
How are they taxed?
Amendments to tax legislation will ensure that the tax treatment of CCIVs aligns with the existing treatment of attribution managed investment trusts (AMITs), providing investors with the benefits of "flow-through" taxation on a sub-fund basis.
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.