DOES YOUR CHARITY RAISE FUNDS FOR ITS CHARITABLE PURPOSES AND WILL YOUR CHARITY REQUIRE AN AUSTRALIAN FINANCIAL SERVICES LICENCE FROM 1 JANUARY 2018?
In September 2016, ASIC (Australian Securities and Investments Commission) issued the ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813 (New Instrument), which made changes to the exemptions available to charities that raise funds by issuing debentures and interests in a managed investment scheme. Some of the changes have taken effect during the current transitional period which ends on 31 December 2017, and the remaining changes will take effect from 1 January 2018. We recommend that charities that wish to continue to rely on the exemptions give consideration to the new obligations now in order to ensure they satisfy the conditions by 1 January 2018.
We briefly outline the implications of the changes below and we recommend that you contact our office if you think your charity may be affected by these changes.
The Debenture, Managed Investment, Fundraising and AFSL Provisions
Under the Corporations Act 2001 (Cth) (the Act), a body which issues debentures or interests in managed investment schemes to members of the public, must comply with the debenture, managed investment, fundraising and licensing provisions of the Act. The debenture, managed investment, fundraising and Australian Financial Services Licence (AFSL) provisions require such bodies, among other things, to:
- Hold an AFSL;
- Register managed investment schemes with ASIC;
- Issue compliant disclosure documents;
- Comply with disclosure obligations regarding material changes and significant events;
- Comply with certain prohibitions under the Act concerning issuing debentures and interests in managed investment schemes; and
- Comply with certain dispute resolution requirements.
What are Debentures and Managed Investment Schemes?
Under the Act, a body issues debentures if the body undertakes to repay as a debt, money deposited with or lent to the body. This encompasses activities involving short and long term investments, whereby clients deposit a sum of money with a body and that body promises to pay a rate of interest for a defined term, and then repays the deposit. However, such an activity would not constitute a debenture if one of the exclusions under subsections (a) to (f) of the definition of Debenture under the Act apply.
Under the Act, a body issues interests in a managed investment scheme if the following occur:
- Investors pool money together to buy shares or some other kind of assets or to operate a business;
- Investors get an interest in the scheme. Investors may get units or other rights in the scheme and the number of units received depend on how much the investor invests in the scheme; and
- A responsible entity or fund manager, usually a professional investment manager, operates the scheme and the investors do not have day to day operation of the scheme.
What exemptions are available to which type of Charities?
Under the New Instrument, the exemptions available to a charity depend on several factors including, the type of financial products issued by the charity and the charity’s clients. In order to determine what exemptions a body can rely on, it will need:
- To analyse its client list to determine whether the clients may be classed as:
* Wholesale Clients, being sophisticated investors;
* Retail Associated Clients, being bodies constituted by or under the authority of a decision of the charity, charities with the same or similar charitable purposes to the charity, or members of clergy, employees or volunteers of the charity; or
* Retail Non-Associated Clients, being members of the general public; and
- To determine whether the products issued to its clients are short-term investment products.
Charitable Investment Fundraisers have Retail Non-Associated Clients and may also have Retail Associated Clients and Wholesale Clients. Wholesale Charitable Investment Fundraisers have either or both Wholesale Clients and Retail Associated Clients only.
A Charitable Investment Fundraiser is exempt from the debenture, managed investment and fundraising provisions under the Act, which means it does not, among other things, have to issue a prospectus or produce disclosure documents, enter into Trust Deeds, comply with certain prohibitions with respect to issuing securities and comply with certain dispute resolution requirements under the Act. A Wholesale Charitable Investment Fundraiser is exempt from the AFSL provisions, which means it does not have to hold an AFSL.
What should a Charity do during this Transitional Period?
Up until 31 December 2017, if a charity wants to be exempted from the debenture, managed investment, fundraising and AFSL provisions under the Act during the transitional period, the charity must:
- Have an Identification Statement, which complies with the New Instrument accepted by ASIC or a sponsor (being an entity which is accepted by ASIC and guarantees the performance of the charity);
- Not have issued any short-term investment products to any Retail Non-Associated Clients on and from 1 January 2017; and
- Not allow any Retail Non-Associated Client to continue to hold a short-term investment product on or after 1 January 2018.
What should a Charity do if it wants to be a Charitable Investment Fundraiser and issue financial products to Retail Non-Associate Clients?
On and from 1 January 2018, if the Charity wishes to continue to rely on the debenture, managed investment, fundraising provision exemptions and be a Charitable Investment Fundraiser, it must:
- Obtain an AFSL; and
- Comply with other requirements under the New Instrument.
What should a Charity do if it wants to be a Wholesale Charitable Investment Fundraiser and only issue financial products to Wholesale Clients and Retail Associate Clients?
On and from 1 January 2018, if a charity:
- Continues issuing and dealing with debentures or interests in managed investment schemes;
- Does not obtain an AFSL; and
- Relies on the debenture, managed investment, fundraising provision exemptions,
- Comply with the requirements for relying on the debenture, managed investment, and fundraising provision exemptions; and
- Not issue any financial product (whether it is a long term or short-term investment product) to any Retail Non-Associated Clients or allow any Retail Non-Associated Clients to hold any financial product issued by the charity.
Any such charity can then continue to issue debentures or interests in managed investment schemes to Retail Associated Clients without an AFSL at and from 1 January 2018.
The foregoing is general advice only and cannot be relied upon without specific consideration of the individual circumstances of any charity.
For more information regarding how the changes affect your charity, we invite you to contact Mark Fowler or Tien Nguyen of our office.