What happens when a designation is applied to a financial product
A designation can change how a financial product is categorised under the FMC Act, affecting the compliance obligations for that product under the Act.
There are four kinds of financial products under the FMC Act: equity, debt, managed investment products and derivatives.
How a financial product is regulated depends on the product’s category.
There are also some products that are classed as ‘securities’ under the FMC Act but are not financial products.
Generally, disclosure and governance rules do not apply to products that are ‘securities’ but not ‘financial products’.
What we consider before we make a designation
Before we exercise our designation power, we must consider:
whether the designation is necessary or desirable to promote either or both of the FMC Act’s main purposes in section 3 or any of the additional purposes in section 4.
if the designation relates to financial advice or financial advice services, whether the designation is necessary or desirable to promote the additional purpose in s 431B
the economic substance of the relevant security and (where the designation will call in an offer for sale to the Part 3 disclosure regime) whether the offer was made for circumvention purposes.
We must also consult with substantially affected parties.
How will a designation apply
Designations can be made on terms and conditions that relate to the circumstances in which the designation applies.
We must publish our reasons at the time the declaration is made.
Designations remain in force indefinitely, until they are revoked or varied.
When a designation will not be given
Designations cannot be made for financial products that have already been issued or transferred.
What is an interim order
We can give an interim order that stops securities being acquired or disposed of, or services being supplied while considering whether to make a designation. We must, however, be satisfied the public’s interest is served.
The interim order gives us time to consider whether a designation is required. The order prevents activities that would counteract the effect of the proposed designation (as designations cannot have retrospective effect).
An interim order will apply for 15 working days after the order date. However, we can specify a longer period, of up to 30 working days, if we consider it is not reasonably practicable to reach a decision on the designation within the 15-working day period.
How a designation can change the statutory obligations for a product
A designation can change how a financial product is categorised under the FMC Act. This will change the statutory obligations that apply. There are four classes of financial products under the FMC Act. They are: equity, debt, managed investment products and derivatives. The way a financial product is regulated depends on the product’s category.
The table below provides an idea of what can change with a designation.
Designation that changes how a product is categorised
Designations may declare that:
a security is a financial product of a particular kind
We can call in securities that are not financial products into the FMC regime.
a security that would otherwise be a financial product of one kind is a financial product of a different kind
We can recategorise a financial product (eg from equity to debt)
a security that would otherwise be a financial product is not a financial product
We can exclude financial products from the FMC Act regime
If a designation results in a product being categorised as a particular type of financial product, we can also declare that someone is the issuer or offeror of those products.
If a designation results in a product becoming a managed investment product then we can also declare that there is a related scheme that is a managed investment scheme.
We may use our exemption power to modify the standard requirements being applied to a product upon the designation. This will ensure the requirements are fit for purpose for the particular product.
How designations can remove a statutory exemption
Designations can remove an existing statutory exemption available to an offer or person. This can be used to prevent abuse of the statutory exemptions, or to avoid the use of the exemptions in unintended circumstances.
The table below shows how a designation can remove an existing exemption for a product or a service.
Designation that removes the application of a statutory exemption
Designations may declare that:
an offer of issued financial products that is exempt from disclosure under Part 3 due to an exclusion under Part 1 of Schedule 1, be required to provide disclosure
We can stop a Schedule 1 exclusion applying to an offer and bring the offer back within the Part 3 disclosure regime.
an offer of financial products for sale that would not otherwise require disclosure under Part 3, does require disclosure
We can call-in offers of products for sale to be regulated under the Part 3 disclosure regime.
a person, service, or conduct not be subject to certain exemptions from financial advice provider licensing in s 389(2)
We can call-in certain financial advice providers (who would otherwise not be required to be licensed) to be licensed under the FMC Act.
a person, service, or conduct not be subject to certain exemptions from DIMS licensing in s 389(3)
We can call-in certain DIMS providers (who would otherwise not be required to be licensed) to be licensed under the FMC Act.
a person, service, or conduct to not have exemptions or exclusions that would otherwise apply under section 238(1)(a) to (h) section 285, section 287, or section 309
dis-apply an exemption from having to make market disclosure of interests, as a substantial security holder or director or senior manager
declare that a facility (that is excluded from the definition of financial product market) is a financial product market.
How designations can change the status of a wholesale investor or client
Designations can declare that a person or class of persons that would otherwise be a wholesale investor or wholesale client is a retail investor or retail client for the purposes of the FMC Act.
We can call in wholesale clients and wholesale investors to the protections of the FMC Act that apply in relation to regulated offers of financial products or provision of regulated financial advice to retail clients if we think they need these protections and the statutory test for a designation is met.
How designations can change how financial advice services are regulated
Designations can change how financial advice and financial advice services are regulated under the FMC Act. This will change the statutory obligations that apply. The table below provides an idea of what can change with a designation.
Designation that changes how financial advice and financial advice services are regulated
Designations may declare that:
Advice that would not otherwise be financial advice is financial advice
We can call-in advice, that is not financial advice, into the FMC regime.
Advice that would otherwise be financial advice is not financial advice
We can exclude certain advice, that would otherwise be financial advice, from being financial advice under the FMC regime
Financial advice that would not otherwise be regulated financial advice is regulated financial advice
We can call-in financial advice that would not otherwise be regulated financial advice, so that it is subject to regulation under the FMC regime.
Financial advice that would otherwise be regulated financial advice is not regulated financial advice
We can exclude certain financial advice, that would otherwise be regulated financial advice, from being regulated under the FMC regime.
A service that would not otherwise be a financial advice service is a financial advice service
We can call-in a service that is not a financial advice service into the FMC Act regime.
A service that would otherwise be financial advice service is not a financial advice service
We can exclude a service, that would otherwise be a financial advice service, from being regulated under the FMC regime.
Apply for a designation
Before you apply
Clarify if you should apply for a designation or an exemption. Only apply for a designation if you have products or services that have extraordinary characteristics that you think should fit a different category or should not be regulated at all.
Apply for an exemption if you think some aspects of the regulatory regime need to be adjusted for the circumstances.
Please note that designations cannot be retrospective. That means that we are unable to make designations for financial products that have already been issued or transferred. If you want to alter disclosure obligations for financial products that have already been issued or transferred, then you should consider applying for an exemption.
How to apply for a designation
Your application should provide the following details:
The full name, address, and corporate status of the person(s) seeking the designation.
The relevant designation power in section 562of the FMC Act.
The financial products or class of financial products or services you want the designation to cover.
Specify what you want the designation to do.
Any terms or condition you think should apply.
The jurisdiction where the applicant is incorporated or constituted, and any securities exchanges where the financial products are going to be listed.
Details of any related exemption you are seeking.
Explain why you need the designation and justify the reasons. You should include an explanation of how the designation sought is consistent with the policy of the FMC Act, and how it meets the statutory tests in section 563.
If relevant, explain the economic substance of the relevant financial product and why this supports the designation you are seeking.
Explain how the designation will promote one or more of the purposes of the FMC Act regime set out in sections 3 and 4 of the FMC Act.
Where the designation relates to financial advice or financial advice services, it should also explain how the designation will promote the following purpose in s431B:
Ensuring the availability of financial advice for persons seeking that advice and the quality of financial advice and financial advice services.
You must include a draft declaration to give effect to the designation you seek. The declaration should include:
the matter the designation will apply to
if relevant, the new category you want the financial products to belong to, or if you think the financial products or other matter should no longer be regulated at all
the company’s, or other entity’s, proper legal names
any terms that need to be defined
the particular provisions of the relevant legislation
the terms and conditions for the designation sought
a summary of the key reasons for the designation (consistent with the policy of the FMC Act, and that meet the relevant statutory test for us to grant a designation)
Send your application to firstname.lastname@example.org. It generally takes 8-12 weeks to process individual designation applications (i.e., applications that relate to a particular person or transaction). It may take longer if significant policy issues arise.
Designation fees are set by regulations. Before we can begin processing your application, you need to make a payment of $1,265 to cover the application fee of $115 and an advance fee for fees and costs to be incurred. We will charge any additional time spent on an hourly basis (the hourly rate for FMA Board members is $230 and the hourly rate for FMA staff is $178.25).