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

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(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
142.3.4 Provision of a financial serviceSection 766A of the Corporations Act states that a personprovides a financial service if they:• provide financial product advice;• deal in a financial product;• make a market for a financial product;• operate a registered scheme; or• provide a custodial or depository service.All these terms are further defined in the Corporations Act. Ofparticular relevance for participants in the securitisation industryare: the provision of “financial product advice”, “dealing in afinancial product” and “providing a custodial or depositoryservice”.Financial product adviceSection 766B provides that financial product advice means arecommendation or a statement of opinion or a report of eitherof those things that:“– is intended to influence a person ... in making a decision inrelation to a particular financial product or a class of financialproducts or an interest in a particular financial product orclass of financial products; or– could reasonably be regarded as being intended to have suchan influence.”This will be relevant for persons who take responsibility forinformation memorandums for the sale of securitised instrumentsor who participate in roadshows marketing their sale.Dealing in a financial productDealing in a financial product is widely defined in section766C(1) of the Corporations Ac to include “applying for oracquiring a financial product, issuing a financial product,underwriting securities, varying a financial product or disposingof a financial product”.Arranging for a person to engage in any of the conduct referredto above is also dealing in a financial product (section 766C(2) ofthe Corporations Act). This is particularly relevant for managersof securitisation vehicles who will usually arrange for the issuerto deal in financial products.Pursuant to section 766C(3) of the Corporations Act, a person istaken not to deal in a financial product if the person deals in theproduct on their own behalf (whether directly or through anagent or other representative) unless the person is an issuer offinancial products and the dealing is in relation to one or more ofthose products. In the case of derivatives however, each party tothe derivative is deemed to be its issuer – so section 766C(3)will not assist.Providing a custodial or depository servicePursuant to section 766E, “a person (the provider) provides acustodial or depository service to another person (the client) if,under the arrangement between the provider and the client, orbetween the provider and another person with whom the clienthas an arrangement ... a financial product or a beneficial interestin a financial product, is held by the provider in trust for ... theclient or another person nominated by the client”.Accordingly, any person who holds financial products on trust foranother person will be providing a custodial or depository service.This will apply to, amongst others, trustees of special purposetrust securitisation vehicles.2.3.5 Securitisation Class OrdersFollowing industry lobbying to ASIC in relation to therequirement to obtain an AFSL in connection with securitisationtransactions, in December 2003 ASIC issued a temporary classorder (Class Order [CO 03/1098] Securitisation special purposevehicles and securitisation managers) granting temporary reliefto both securitisation special purpose vehicles and managers.The relief was only temporary to enable ASIC to consult with thesecuritisation industry about the form and appropriateness ofpermanent relief. ASIC issued a consultation paper in August2004 and undertook a consultation process with thesecuritisation industry.In January 2005, ASIC issued a permanent class order in relationto securitisation (Class Order [CO 04/1526] Securitisation specialpurpose vehicles). This class order grants relief from obtainingan AFSL to special purpose companies and special purposetrustee companies involved in securitisation transactions, subjectto certain conditions.No relief is granted under the permanent class order tosecuritisation managers and as a result, at the time of writing,those relying on the temporary class order have until 30 June2005 to obtain an appropriate AFSL.2.3.6 ExemptionsSection 911A(2) and the Corporations Regulations 2001 providea variety of exemptions from the requirement that a person whoprovides a financial service hold an AFSL. The exemptions,however, are often narrowly or inexpertly drafted and do notalways achieve their apparent objective.
Page 6: 12.7.3 Euroentitlements............
Page 9 and 10: 1 General overview of the nature of
Page 12: An interest in a managed investment
Page 17 and 18: 3 The disclosure and civil liabilit
Page 19 and 20: 18The statutory source for this ste
Page 21 and 22: The implication of this approach in
Page 23 and 24: Interestingly, the majority then we
Page 25 and 26: 4 Stamp duty and securitisation244.
Page 27 and 28: 264.8 Relief for mortgage-backed se
Page 29 and 30: 4.10 ConclusionStamp duty is a very
Page 31 and 32: Despite the absence of an express a
Page 33 and 34: 32share of the profits of the compa
Page 35 and 36: (d) before the issue:(i) the compan
Page 37 and 38: 365.4 Debt/equity rulesDivision 974
Page 39 and 40: Entities that make GST-free supplie
Page 41 and 42: • “ enterprise” is defined in
Page 43 and 44: 6 The Consumer Credit Code andsecur
Page 45 and 46: 7 The regulation of the participati
Page 47 and 48: inclusion within the ELE depends on
Page 49 and 50: 8 Set-off and securitisation8.1 Int
Page 51 and 52: 50However, this result and the prin
Page 53 and 54: 9 Insolvency and securitisation529.
Page 55 and 56: 54• if the trustee has not limite
Page 57 and 58: Section 588FG provides a measure of
Page 59 and 60: 10 Issues relating to debt securiti
Page 61 and 62: 60indemnity existed) and had no han
Page 63 and 64:
The effect of the decision has been
Page 65 and 66:
the ASX has discretion to ask the e
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• Public Trustee Members - for pr
Page 69 and 70:
When Austraclear receives notificat
Page 71 and 72:
have been completed in relation to
Page 73 and 74:
Some CMBS transactions allow the is
Page 75 and 76:
14.3 GamingIn the past, another con
Page 77 and 78:
16 Clayton UtzOur securitisation te
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A Guide to the Law of Securitisation in Australia - Clayton Utz

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