Financial Services Update: Proposed new ways to deliver notice of meetings to shareholders

In this edition:

  • Proposed new ways to deliver notice of meetings to shareholders;
  • Federal Budget: Proposed introduction of new Collective Investment Vehicles – what they are what this means for funds managers; and 
  • Australian fintechs get a ‘regulatory sandbox’ in the budget.


Proposed new ways to deliver notice of meetings to shareholders

Currently, all companies must give notice of upcoming meetings to shareholders in person or by post unless an individual shareholder elects to receive notice electronically.
There are a number of problems with this approach:
  • It restricts the use of digital services and is not reflective of current tech use. The ‘opt in’ approach results in companies incurring the significant economic and environmental costs of printing and posting notices to shareholders who have not actively chosen to receive an electronic copy of the notice.
  • The creation a cost barrier to companies using more effective and efficient means of communication (for example, a company website) as the key distribution method for company related information.
To facilitate innovation and reduce costs for companies while maintaining appropriate level of shareholder engagement, the Government proposes a technology neutral mode of distributing meeting notices and materials.

In recognition of this issue, the Federal Government has released a proposal paper to modernise the methods companies may use to notify shareholders of meetings.

The proposed solution involves a company being able to meet the requirement to notify members of a meeting (and to make available meeting material) using one or more of three ‘Methods’ (A, B, C).

Those Methods are:

• A: any universally (mail or mobile phone) or near-universally accepted channel (email, website or mobile app) as a default method;
• B: an alternative method of communication with the consent (express or implied) of the shareholders;
• C: an alternative method of communication provided it is effective, unless a member nominates to receive the notice by a universally or near universally accepted channel, or via a method that the member has previously consented to.
A company may adopt Method C provided that the notification offers shareholders an ability to ‘opt-out’ and instead receive the notice of meeting via a channel covered by Methods A or B.
Notice of a meeting must be given individually to every member.
Reduced notice period for public companies

The Paper does not address the recommendation that the 28 day period of notice for meetings of listed companies should be reduced to 21 days. It will be interesting to see if submissions in response to the Proposal Paper will respond to this recommendation.

Submissions are due Friday 17 June 2016 and can be lodged either electronically or by post.


Fed Budget: Proposed introduction of new Collective Investment Vehicles – what they are what this means for funds managers 

The Government has announced the introduction of a new tax and regulatory framework for two new types of collective investment vehicles (CIVs), in an effort to further contribute to positive reform in the funds management industry.

What are CIVs?

CIVs are an integral component of the Australian investment landscape. They are widely held investment vehicles with typically long-term portfolio investors, allowing investors to pool their funds and have them managed by a professional funds manager.

The change

Under the new framework two new CIVs will be introduced.  A corporate CIV will be introduced for income years starting on or after 1 July 2017. This will be followed by the introduction of a limited partnership CIV for income years starting on or after 1 July 2018. The two new CIVs will be required to meet similar eligibility criteria as managed investment trusts, such as being widely held and engaging in primarily passive investment. Investors in these new CIVs will generally be taxed as if they had invested directly.

This measure is estimated to have an unquantifiable cost to tax revenue over the forward estimates period. To implement this measure, the Government will provide $2.0 million to the Australian Taxation Office and $7.8 million to the ASIC, which will be partially offset by $0.7 million in registration fees.


These reforms will enhance the international competitiveness of the Australian managed funds industry by providing new forms of ‘flow-through’ CIVs that are recognised and understandable to foreign investors. Fund managers will be able to offer investment products using vehicles that are commonly in use overseas. This will also maximise the effectiveness of related government initiatives aimed at increasing access to overseas markets, including the Asia Region Funds Passport.

The Passport was first recommended by the Australian Financial Centre Forum in its 2009 report. The initiative aims to increase access for Australian fund managers to growing Asian markets by creating a regulatory arrangement for the cross border offer of managed funds across participating economies in the region. The addition of these new collective investment vehicles will facilitate the commercial success of the Passport in Australia by being more recognised and understandable by Asian investors, hence improving the attractiveness of Australian funds.

The Government will provide $6.4 million over four years from 2016‑17 (including $2.9 million in capital funding in 2016‑17) to the ASIC to implement a regulatory framework for Australia’s participation in the Asia Region Funds Passport.

The cost of this measure will be partially offset by a registration fee, which will be paid by Australian and foreign funds using the Asia Region Funds Passport.

While these initiatives are welcomed, its success will depend on the implementation of an effective regulatory framework to support the legislative changes.


Australian fintechs get a ‘regulatory sandbox’ in the budget

Hot off the back of entering an agreement with the FCA UK to support fintech companies enter into the UK market, ASIC has announced the launch of a regulatory sandbox. The idea in Australia is to allow some fintechs to test products with customers in an environment where the regulatory and administrative requirements are reduced while still ensuring consumer protections. This a concept that has already played out in the UK with the Financial Conduct Authority UK (FCA) launching its own regulatory sandbox for financial services firms earlier this week.

ASIC is set to start public consultation in June to ensure policy is relevant for a digital economy. ASIC has foreshadowed that it will seek feedback on the following:

  • Improving guidance on ASIC’s licensing process and assessment of skills and experience;
  • Flexibility around the AFSL skills and experience requirements; and
  • A licensing waiver for new business to run early stage test and trials (aka Regulatory Sandbox exemption)

Key Features of the Regulatory Sandbox exemption:

  • 6 month licence free testing period;
  • Restrictions of eligibility;
  • Participation of sophisticated investors and up to 100 retail clients;
  • Maintain external dispute resolution and compensation arrangements; and
  • Modified conduct and disclosure obligations.

The UK experience

On 9 May 2016 the FCA launched a regulatory ‘safe space’ sandbox for financial services firms seeking to test innovative products, services, business models and delivery mechanisms while ensuring that consumers are appropriately protected.

The UK sandbox is for two different types of firms: authorised and unauthorised, and the sandbox offers benefits for both:

  • authorised: offers clarity around applicable rules before testing an idea that does not easily fit into the existing regulatory framework.
  • unauthorised: lets them test their innovation in a live environment making it easier for firms to meet FCA requirements, and reduce the cost and time to get the test up and running.

For authorised entities, the FCA will also offer:

  • individual guidance: setting out how it interprets relevant rules in the context of the test.
  • waivers or modifications to FCA rules.
  • no enforcement action letter.

If, after sandbox testing, a firm wants to launch itself into full activity on the wider market, it can do so after satisfying threshold conditions for that wider activity, in essence allowing regulatory measures that are proportionate to the scale of the concept being tested.


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