ASIC has today released updated policy and regulatory guidance to assist issuers and advisers of margin lending facilities comply with new licensing, conduct and disclosure requirements, following the passage of the Corporations Legislation Amendment (Financial Modernisation) Act 2009 (the Act).

The Act, amongst other things, makes margin lending facilities a financial product and requires that issuers and advisers of margin lending facilities hold an Australian Financial Services Licence (AFSL).

The reforms were introduced by the Federal Government to enhance investor protection. The same licensing, conduct and disclosure requirements that currently apply to financial services will soon apply to providers and financial advisers in relation to margin lending facilities and margin lending facilities will be regulated in the same way as other financial products.

In addition, the regime imposes new responsible lending requirements on issuers of margin lending facilities and clarifies responsibility for providing notification of margin calls.

ASIC Commissioner, Dr Peter Boxall, said that in anticipation of the commencement of the Act, entities which intend providing a financial service in relation to margin lending facilities should familiarise themselves with the new requirements (including our regulatory guides). He thanked industry participants for their feedback into ASIC's consultation process and noted that ASIC would work with those likely to be impacted by the new requirements to make the transition as smooth as possible.

Under the Act, issuers and advisers will have a 12-month transition period from commencement of the Act until the new requirements take effect (commencement of the Act is yet to be proclaimed)*. During the first six months of the transition period, existing margin lenders and advisers of margin loans will be required to apply for an AFSL authorisation.

Policy and regulatory guidance

ASIC's regulatory guides explain when and how ASIC will exercise specific powers under legislation and provide practical guidance to regulated entities to assist meeting their compliance obligations.

A number of ASIC's existing regulatory guides have been amended to take into account the inclusion of margin lending facilities as a financial product. This follows a public consultation process in July this year.

The updated policy and regulatory guidance comprises:

• Updates to Regulatory Guide 2 AFS Licensing Kit: Part 2 — Preparing your AFS licence application (RG 2) and Regulatory Guide 3 AFS Licensing Kit: Part 3 — Preparing your additional proofs (RG 3);

• Update to Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146);

• Update to Regulatory Guide 166 Licensing: Financial requirements (RG 166)

• Update to Pro Forma 209 Australian financial services licence conditions (PF 209)

• Regulatory impact statement

Further information about the updated regulatory guidance is summarised in Attachment 1: Updates to ASIC regulatory guides to this advisory.

ASIC’s existing policies and regulatory documents on financial services and products, will apply to margin lending facilities and to licensees that provide financial services in relation to a margin lending facility.

Copies of the existing and updated regulatory guides are available from the ASIC website at www.asic.gov.au.

Transition timeline

The commencement date of the legislation is yet to be proclaimed (ASIC will publish this information and key dates on its website as soon as the commencement date is proclaimed)*. However, to assist issuers and advisers in preparing for the transition, ASIC can confirm the following timeframes:

• ASIC will accept AFSL applications, or variations to existing AFSL's, one month from the commencement of the legislation;

• Applications from existing margin lenders and advisers of margin loans will be accepted for five months in total (that is, until a date six months after the commencement of the legislation and five months from the time ASIC starts accepting applications). Existing margin lenders and advisers on margin loans will need to apply to ASIC for an AFSL authorisation within this timeframe if they intend to continue to provide a margin lending financial service after the application period closes;

• The licensing, conduct and disclosure requirements for issuers and advisers of margin lending facilities, and the new responsible lending and margin call notification requirements, apply from a date 12 months (one year) after the commencement of the legislation.

• There will be an 18-month transition period from the commencement date of the Act for entities and individuals that provide financial product advice on margin lending facilities to comply with the training standards set out in RG 146.

Please refer to Attachment 2: Transition timeline for margin lending reforms for a graphical presentation of the timelines.

Further assistance

Issuers and advisers of margin lending facilities, or any other entities seeking to become licensed to issue or advise on margin lending facilities can contact ASIC's Infoline on 1300 300 630 or by email at infoline@asic.gov.au.

Further information about the reforms to the regulation of margin lending facilities is available from ASIC's website at www.asic.gov.au/credit.

ATTACHMENT 1: Updates to ASIC regulatory guides

Updates to AFS Licensing Kit (RG 2 and RG 3)

ASIC's AFS Licensing Kit comprises three parts:

• Part 1 - Applying for and varying an AFS licence (contained in Regulatory Guide 1 AFS Licensing Kit: Part 1— Applying for and varying an AFS licence [RG 1]);

• Part 2 - Preparing your AFS licence application (contained in Regulatory Guide 2 AFS Licensing Kit: Part 2­-Preparing your AFS licence or variation application) [RG 2]; and

• Part 3 - Preparing your additional proofs (contained in Regulatory Guide 3 AFS Licensing Kit: Part 3- Preparing your additional proofs [RG 3]).

ASIC has updated RG 2 and RG 3 to assist entities to apply for an AFSL authorisation to cover margin lending facilities. The updates to the Licensing Kit will assist applicants understand what they need to do when applying for an AFSL, or a variation to an existing AFSL. These updates should be read with RG 1.

Pro Forma 209 Australian financial services licence conditions [PF 209], which sets out the standard licence conditions that will usually be applied to licences authorising a person to provide financial services under an Australian financial services licence, has also been updated.

Copies of the updated regulatory guides are available below:

• Regulatory Guide 2 AFS Licensing Kit: Part 2 — Preparing your AFS licence application (RG 2)

• Regulatory Guide 3 AFS Licensing Kit: Part 3 — Preparing your additional proofs (RG 3);

• Pro Forma 209 Australian financial services licence conditions (PF 209)

Entities which already have an existing AFS licence will be able to apply (one month after commencement of the Act) for a variation to their existing AFS licence by completing form FS 03 Application for imposition or variation of authorisation conditions.

New applicants (i.e. any entity which does not currently hold an AFS licence) will be able to apply (one month after commencement of the Act) for an AFS licence by completing FS 01  Application for AFS licence.

Both FS 01 and FS 03 can be lodged online through ASIC's AFS Licensee's Portal. More information about online lodgement is available from the ASIC website at www.asic.gov.au/AFSlicenseesonline.

Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146)

The updated regulatory guide follows public consultation on the training requirements for financial product advisers of margin lending facilities. The updated regulatory guide:

• includes margin lending facilities as Tier 1 products;

• requires that courses on margin lending facilities be placed on the ASIC Training Register

ASIC will allow advisers an 18-month transition period from the commencement date of the Act for people who provide financial product advice on margin lending facilities to comply with the training standards.

ASIC has also released a report on feedback to the consultation process.

• Regulatory Guide 146 Licensing: Training of financial product advisers (RG 146)

• Report on feedback (REP 176)

Regulatory Guide 166 Licensing: Financial requirements (RG 166)

The updated regulatory guide follows consultation on the financial requirements for issuers and advisers of margin lending facilities. The updated guide generally applies the current financial requirements (with some amendments). These changes impose:

• the base level requirements in Section B on issuers and advisers of margin lending facilities;

• the Net Tangible Asset (NTA) requirements in Section C on issuers of margin lending facilities;

• the surplus liquid funds requirement in Section E on issuers of margin lending facilities where they hold client money or property; and

• the Adjusted Surplus Liquid Funds (ASLF) requirements in Section F to issuers of non-standard margin lending facilities who have a liability to transfer marketable securities to the client.

ASIC has also released a report on feedback to the consultation process.

• Update to Regulatory Guide 166 Licensing: Financial requirements (RG 166)

• Report on feedback (REP 177)

Application of existing policies relevant to issuers and advisers of margin lending facilities

In addition to the updated regulatory guides issued today, ASIC’s existing policies and regulatory documents on financial services and products, will apply to margin lending facilities and to licensees that provide financial services in relation to a margin lending facility.

Copies of the existing and updated regulatory guides are available from the ASIC website at www.asic.gov.au.

ATTACHMENT 2

Transition timeline for margin lending reforms

Attachment 2: Transition timeline for margin lending reforms (PDF)

*

Editor's note: The reforms to margin lending under the Corporations Legislation Amendment (Financial Modernisation) Act 2009 commence on 1 January 2010.

Issuers and advisers of margin lending facilities will be able to apply for an Australian Financial Services licence, or a variation to an existing licence, between 1 February 2010 and 30 June 2010.

The new requirements will take effect from 1 January 2011.