Updated guidance for corporate collective investment vehicles

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On June 23, 2022, the Australian Securities and Investments Commission (ASICs) published a series of documents relating to the launch of corporate collective investment vehicles (CCVI) on July 1, 2022.

The package of documents includes updates to the main licensing guidelines (Regulatory Guides 1, 2 and 3), the general requirements under an Australian Financial Services (AFS) License (Regulatory Guides 104 and 105) and the fund management (regulatory guides 132 and 133) . These changes now come into force with the entry into force of the CCIV regime.

Further amendments to existing instruments and guidelines are expected to be published soon.

Background

The CCIV is a new type of company that can be registered from July 1, 2022. The CCIV is a partnership limited by shares, recognized as a separate legal person, with a corporate officer who is responsible for managing the affairs and the conduct of the business of the CCIV.

The Collective Investment Vehicles Framework and Other Measures Act 2022 (Cth) implements the CCIV legislative regime by modifying the Companies Act 2001 (Cth) (Corporations Act), the Australian Securities and Investments Commission Act 2001 (Cth) and the Personal Property Security Act 2009 (Cth).

ASIC will be responsible for licensing corporate directors and registering CCIVs. In addition, ASIC will also offer guidance to company directors to ensure compliance with licensee requirements and other obligations under companies law.

New orientation material

ASIC has published Fact Sheet 272 “How to Register a Corporate Collective Investment Vehicle and Sub-Fund” which explains how to register:

  • a CCIV and initial compartment(s);
  • other compartments of a CCIV; and
  • a compartment of a CCIV as an Australian passport fund.

Report 728, “Response to Submissions on CP 360 Corporate Collective Investment Vehicles: Preparing for the Entry into Force of the New Regime” (REP 728), was also published and highlights the main issues raised by the submissions received on CP 360 and details ASIC’s responses to these concerns.

In general, CP 360 respondents supported ASIC’s proposals for licensing enterprise administrators to operate a CCIV. However, the three issues below have been raised.

1. AFS license or modification applications for CCIV

When evaluating an AFS license variation, ASIC will apply the same principles as set out in Section 913B of the Societies Act.. Therefore, ASIC should grant an AFS license if there is no reason to believe that an applicant is likely to violate the licensee’s general obligations.

In addition, ASIC will generally not impose a single bucket limit on administrators of wholesale CCIVs. Finally, AFS licensees who have not used the one-time offer of a variation initiated by ASIC by May 3, 2022 can still request a variation but will be required to pay an application fee and submit the required evidence.

2. Compensation and insurance of corporate officers

An AFS Licensee who is both a Responsible Entity and a Company Director will be required to have adequate IP insurance given the nature of the business conducted by the Licensee.

3. Financial Resource Requirements for Corporate Directors

An AFS Licensee who is both a Responsible Entity and a Corporate Director will have a single NTA requirement.

Updated orientation material

ASIC has updated a series of regulatory guides to support the implementation of the CCIV regime. Below are some of the key changes to CCIV.

See below (Annex 1) for a summary of key takeaways from the updated guidance material.

Other guidance documents

ASIC will soon publish a new legislative instrument (Instrument 2022/449 on ASIC companies (financial requirements for administrators of retail collective investment companies)) and publish updated versions of the guides below:

  • RG 126 Indemnification and insurance arrangements for AFS license holders
  • RG 134 Management of Funds: Constitutions
  • RG 166 AFS permit: Financial requirements
  • RG 168 Disclosure: Product Disclosure Statements (and Other Disclosure Obligations)

Key points to remember

The regulatory space governing CCIVs will continue to evolve in anticipation of the regime’s implementation. As such, entities should familiarize themselves with new guidance documents issued by ASIC and stay informed of any upcoming regulatory or legislative changes.

Annex 1: Updated guidance documents

AFS RG 1 License Kit Updates: Part 1 – Requesting and Modifying an AFS License

GR 1.2: You will provide financial services if you operate the business and direct the affairs of a CCIV.

GR 1.77: If you have applied to operate the business and direct the affairs of a CCIV, you will need to register the CCIV. You can apply to register the CCIV after you have received your final AFS license. Your request for registration with the CCIV will be refused if you do not meet the conditions for approval at the time of your request. Note: the initial compartment(s) of the CCIV are registered when the CCIV is registered. If your license limits you to operating a single retail CCIV (with a single compartment), you will need to ensure that your application for registration complies with your licence.

RG 1.131: If your AFS license amendment includes authorization to operate the business and conduct the affairs of a CCIV, you may apply for registration of the CCIV after you receive your final amended AFS license. Your registration request will be denied if you have not met the AFS license requirements at the time of your request.

Updates to: AFS RG 2 License Kit: Part 2 – Preparing Your AFS License or Change Request

GR 2.69 and 2.78: If you wish to advise or intervene on the securities of the CCIV, you must hold an AFS authorization for advice or intermediation on “securities” (this is a broad authorization covering all types of securities, including CCIV securities). Note: If you already hold a “securities” advisory or transaction authorization on 30 June 2022, you can advise on CCIV securities and will not have to modify your AFS authorisation.

RG 2.100: You generally do not need an authorization to provide custodial or depositary services if you only operate a CCIV.

RG 2.127 – 2.144: Details how to operate the business and conduct the business of a CCIV. These regulations cover choosing the type of CCIV you will operate, limits on retail CCIV operations, types of CCIV assets, other permissions and timing of registration.

RG 2.371: For each accountable manager, you must indicate, among other things, whether you are going to operate a CCIV, his knowledge and skills relating to the operation of the CCIV and the assets under management to be held or the activity operated by the CCIV.

RG 2.382: The financial requirements of Annexes 2 to 10 of RG 166 generally apply to directors of retail CCIV companies.

RG 3 AFS License Kit Updates: Part 3 – Preparing Your Additional Proofs

GR 3.75 and 3.76: Describes the evidence required for a CCIV Operational Capability Statement and a CCIV Asset Statement. For example, the statement should include the target investors and the proposed number of sub-funds.

Updates to the RG 104 AFS license: compliance with general obligations

RG 104.1: If you are an operator of an Australian passport fund or a person with responsibilities in relation to an Australian passport fund, you must comply with the law of each host economy for the fund.

RG 105 AFS License Updates: Organizational Competence

RG 105.41 – If you operate a CCIV, your responsible officers must demonstrate that they understand the issues of investing and operating the assets under management or, if applicable, the business you plan to operate under your license AFS.

RG 105.44 – If you operate a CCIV, you must have at least one responsible manager with knowledge and skills for the CCIV.

RG 105.47 – When assessing whether a responsible manager meets the knowledge and skills component, the following are considered – qualifications and previous experience in providing advice on financial products and/or trading in CCIV, interests in a managed investment scheme; and/or similar experience abroad.

RG 105.104 – 105.109 outlines the limits of retail CCIV operations.

RG 105.110 – If you have an existing authorization to advise and/or trade in securities, you are considered also authorized to advise and/or trade in CCIV securities and will not need to apply to ASIC for a separate authorization.

Updates to RG 132 Funds Management: Compliance and Monitoring

RG 132.26 – A retail CCIV is not required to establish a compliance committee.

GR 132.91 – Given the fundamental differences between a managed UCITS and a CCIV, a retail CCIV cannot incorporate by reference the compliance plan of an authorized UCITS.

RG 132.160 – All assets of a CCIV must be allocated to a compartment. A corporate officer of a CCIV must draw up and keep a register of the assets and liabilities of the sub-funds of the CCIV.

RG 133 Fund Management and Custody Services: Asset Holding

GR 133.6 – This guide does not apply to the corporate officer of a collective investment vehicle (CCIV), a CCIV or a depositary mandated by the corporate officer or the CCIV. However, when the assets of the CCIV are held by the CCIV, the business manager may wish to consider the principles set out in this guide; and where the assets of the CCIV are held by a person other than the CCIV, the company director may wish to consider the principles set out in this guide when assessing whether that person has met the minimum standards of Regulation 8B.5.10 (2) of the Companies Regulations 2001.

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