We are often asked if a trustee of an unregistered scheme that promotes units needs to be licenced, as the units are considered a financial product. The answer is generally ‘yes’, a licence authorising the scheme to deal in financial products will be required however there are some exemptions.
In considering the above ASIC recently issued some guidance to assist the directors of trustee companies when interpreting Information Sheet 251: AFS licensing requirement for trustees of unregistered managed investment schemes.
Just to clarify – what is an unregistered scheme?
- These are pooled investments where multiple investors contribute money and receive an interest in the scheme.
- They need to be registered where the number of investors exceeds 20 and the scheme has been promoted by a person who is in the business of promoting investment schemes.
The two exemptions for trustees from holding an AFS licence are:
- Authorised representative exemption
- Intermediary exemption
The authorised representative exemption operates when a person is authorised under s916A of the Corps Act to provide a financial service by a principal. The exemption holds only where the person is acting as a representative of the principal. So, this exemption does not apply for a trustee that is issuing, varying or disposing of an interest in a scheme where it is the trustee.
An intermediary exemption can be relied on in very limited circumstances. This exemption applies when:
- A product provider has an intermediary authorisation arrangement in place with an AFS licensee.
- The AFS licensee or its authorised representative (if that person is not the product provider (e.g. not a trustee of an unregistered scheme) makes an offer to arrange to issue, vary or dispose of the financial product.
- The product provider issues, varies or disposes of the financial product if the offer is accepted.
- The offer under which the issue, variation or disposal is made, is covered by the licence of the AFS licensee.
Again, the key point is the trustee or product provider is not the person making the offer, this is made by the AFS licensee or their authorised representative.
Exemptions are limited, if you do not have a licence you need to engage an AFS licensee or an authorised representative to make an offer if you act in the trustee capacity where you are therefore issuing, varying and disposing of interests in an unregistered scheme.
Your ESV Engagement Partner can assist in determining if you meet the exemption and can offer counsel on your options. Please reach out if you have questions or need some assistance.