The Government on Mon 13.2.2012, released Exposure Draft – Corporations Amendment Regulations 2012 proposing to make limited recourse borrowing arrangements (LRBAs) “financial products” under the Corporations Act 2001 when entered into by superannuation funds. As such, a person dealing in (providing advice on and issuing) an LRBA will be required to have an Australian Financial Services Licence (AFSL) and meet the disclosure requirements where the product is issued to a retail client.
Generally, superannuation funds are not permitted to borrow funds. However, LRBAs (such as instalment warrants) that are permitted under ss 67A and 67B the SIS Act will be deemed to be “financial products” when acquired by regulated superannuation funds.
The draft regs are substantially revised from those previously released in June 2010. Because an LRBA often involves numerous parties, the draft regs specify that an LRBA is “issued” when a person enters into a legal relationship that sets up the arrangement. Furthermore, it will provide that each party to the arrangement is an “issuer” of the product.
To prevent persons that merely provide credit as part of an LRBA from being caught by the new requirements, the draft regs provide that an LRBA is not “credit facility”. An AFSL covering derivatives or securities will also be taken to cover LRBAs so that AFSL holder covering derivatives will not need to apply for a separate licence. An exception is also proposed for certain defined custodial or depository arrangements and services.
Date of effect: When finalised, the regulations will commence 3 months after the day they are registered.
Comments are due by 12 March 2012.
[LTN 28, 13/2]