A Guide to the Law of Securitisation in Australia - Clayton Utz

(FSR) represents the second stage of the implementation of theWallis Inquiry and has two principal aspects:• the licensing of participants in the financial services industry;and• a disclosure regime in relation to financial products.As a general rule, the product disclosure regime only applies toparticipants in the retail market. The distinction between “retail”and “wholesale” for FSR purposes is set out in section 761G ofthe Corporations Act and is similar to the test in section 708(discussed in section 2.2.4) in relation to the requirement tolodge a prospectus for an issue of securities. It includes that theprovision of a financial product will not be “retail” if the price ofthe financial product equals or exceeds $500,000 (section761G(7)(a)).As almost all securitisations in Australia occur in the wholesalemarket (see section 2.2.4), participants in the securitisationindustry will usually only need to consider the new licensingregime.2.3.2 When is a licence required?Previously the Corporations Act only required licences to beobtained by persons who carried on a securities business (whowere required to have a dealer’s licence) or an investment advicebusiness (who were required to have an investment adviser’slicence).The FSR amendments have significantly widened the class ofpersons in the financial services industry required to obtain alicence to operate their business.Section 911A(1) of the Corporations Act requires that anAustralian Financial Services Licence (AFSL) be obtained by aperson who “carries on a financial services business” inAustralia. Section 911D provides that a financial servicesbusiness is taken to be carried on in Australia if in the course ofthe business “the person engages in conduct that is intended toinduce people in Australia to use the financial services theperson provides or is likely to have that effect”.The term “business” is not defined in the FSR provisions(although there is some guidance to the meaning of carrying on abusiness in Division 3 of Part 1.2 of the Corporations Act which isalso applicable to the question under FSR). In particular, it is notalways clear when a transaction or a series of transactions willconstitute a business – but there is case law authority that, insome circumstances, even a single transaction can constitute a“business”.A “financial services business” is defined in section 761A of theCorporations Act, as “a business of providing financial services.”Section 766A in turns sets out the circumstances in which aperson will “provide a financial service”.In determining whether an AFSL is required for a participant inthe securitisation industry, there are essentially four questions tobe considered:• first, does the person do anything in relation to a “financialproduct”?• secondly, is what the person does the “provision of afinancial service”?• thirdly, will the person have the benefit of a class orderissued by ASIC granting relief from the requirement to belicensed?• fourthly, will the person have the benefit of an exemptionfrom the requirement to be licensed?Each of these issues is considered in turn in the followingsections.2.3.3 What is a financial product?Section 763A of the Corporations Act provides that a financialproduct is a facility through which, or through the acquisition ofwhich, a person does one or more of the following:• makes a financial investment;• manages financial risk; or• makes non-cash payments.Each of these terms is further defined. Section 764A contains alist of specific products which will be financial products whetheror not they fit the general definitions. Section 765A in turn listsspecific products that will not be financial products and overridesboth sections 763A and 764A. The following are examples ofsome products, relevant for securitisation, that will be financialproducts:• shares;• debentures;• bank accounts;• derivatives;• insurance policies (with some exceptions);• in some limited cases, the underlying receivables beingsecuritised.13