ASIC RG 160 — ASIC Regulatory Guide – RG 160 Time-sharing schemes

Page 1 REGULATORY GUIDE 160 Time-sharing schemes December 2020 About this guide This guide is for responsible entities, operators and promoters of time- sharing schemes, and those who provide credit (credit providers) and credit assistance (credit assistance providers) for the purchase of an interest in a time-sharing scheme. It explains our general approach to regulating time-sharing schemes under the Corporations Act, including exercising ASIC’s powers to modify the law. Page 2 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in December 2020 and is based on legislation and regulations as at the date of issue. Previous versions:  Superseded Regulatory Guide 160, issued 14 February 2008, reissued 15 June 2012  Superseded Policy Statement 160, issued 20 April 2000, reissued 7 February 2007, rebadged as a regulatory guide 5 July 2007 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Page 3 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 3 Contents A Overview ........................................................................................... 4 Time-sharing schemes ...................................................................... 4 Purpose of this guide ......................................................................... 5 Regulatory framework for time-sharing schemes .............................. 5 Our approach to granting relief .......................................................... 7 Transitional arrangements ................................................................. 8 B Regulatory framework for time-sharing schemes ...................... 10 Requirements that apply to time-sharing schemes ......................... 10 Requirement to hold an AFS licence ............................................... 11 Registration and operation of a scheme .......................................... 12 Requirement to provide a PDS and ongoing disclosure .................. 13 Additional obligations that apply to registered time-sharing schemes 16 Financial requirements .................................................................... 26 C Guidance on general consumer protection and finance- related obligations ....................................................................... 29 The general consumer protection provisions for operators and promoters ......................................................................................... 29 Finance-related obligations for credit providers and credit assistance providers ........................................................................ 32 D Guidance on advice-related obligations ..................................... 35 Addressing issues in advice on time-sharing schemes ................... 35 Definition of factual information ....................................................... 36 Definition of financial product advice ............................................... 37 General advice obligations .............................................................. 38 Personal advice obligations ............................................................. 39 E Relief for time-sharing schemes .................................................. 50 Our general approach to relief ......................................................... 50 Technical relief for time-sharing schemes ....................................... 51 Individual relief for certain closed or member-run time-sharing schemes........................................................................................... 58 Individual relief from licensing provisions for resales of interests in a time-sharing scheme .................................................................... 61 Individual relief for non-accommodation based time-sharing schemes........................................................................................... 62 How to apply for relief ...................................................................... 63 Appendix: Transitional arrangements................................................. 64 Relief that applies immediately ........................................................ 64 Transitional arrangements for obligations and requirements that can be opted into by written election ...................................................... 64 Transitional arrangements for pricing and forfeiture relief ............... 66 Transitional arrangements for s912AJ AFS licensee obligations .... 68 Key terms ............................................................................................... 71 Related information ............................................................................... 77 Page 4 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 4 A Overview Key points Responsible entities, operators and promoters of a time-sharing scheme must comply with the managed investment, licensing, disclosure and conduct provisions of the Corporations Act 2001 (Corporations Act). Financial advice and lending obligations arising under the Corporations Act and National Consumer Credit Protection Act 2009 (National Credit Act) are also relevant when promoting a time-sharing scheme and offering finance to acquire an interest in a scheme. In addition, the consumer protection provisions in Div 2 of Pt 2 of the Australian Securities and Investments Commission Act 2001 (ASIC Act) apply to financial services provided in relation to interests in time-sharing schemes and credit facilities. We have provided technical relief from, and modified, certain provisions of the Corporations Act for time-sharing schemes. Some of the relief is subject to conditions. We will consider requests for other relief on a case-by-case basis. Time-sharing schemes RG 160.1 The Corporations Act defines a time-sharing scheme as a scheme, undertaking or enterprise, whether in Australia or elsewhere, that operates for a period of three years or more and in which participants are, or may become, entitled to use, occupy or possess the property of the scheme for two or more periods. RG 160.2 Time-sharing schemes are specifically included in the s9 definition of a ‘managed investment scheme’. Time-sharing schemes are a type of managed investment scheme for the purposes of Ch 5C of the Corporations Act. Note: All references to legislative provisions are references to the Corporations Act, unless otherwise specified. RG 160.3 As an interest in a time-sharing scheme is an interest in a managed investment scheme, it is a financial product under the Corporations Act: see s764A. RG 160.4 Time-sharing schemes commonly involve providing accommodation to members. Accommodation-based time-sharing schemes are generally structured as: (a) points-based programs, where members buy points that they can redeem at certain resorts or holiday accommodation; or (b) interval-based programs, where members are given the use of a specific property for a given period. Page 5 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 5 RG 160.5 There are two types of points-based programs: allocation points-based programs and pay as you go (PAYG) points-based programs. RG 160.6 Time-sharing schemes can also include non-accommodation arrangements— for example, boating or aircraft syndicates. Purpose of this guide RG 160.7 The purpose of this guide is to outline: (a) our approach to regulating time-sharing schemes, including the specific obligations we have imposed on responsible entities, operators and promoters of time-sharing schemes—see ASIC Corporations (Time- sharing Schemes) Instrument 2017/272. This instrument also provides some relief from certain managed investment, licensing and product disclosure provisions of the Corporations Act; (b) our guidance on the general conduct and disclosure obligations arising under the Corporations Act, ASIC Act and the National Credit Act that are relevant to time-sharing schemes, including the consumer protection provisions; and (c) the individual relief we have given to operators of certain closed or member-controlled and non-accommodation time-sharing schemes from the managed investment provisions of the Corporations Act. Note: References to the ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 are to the instrument as amended by ASIC Corporations (Amendment) Instrument 2020/1064 and ASIC Corporations (Amendment) Instrument 2020/1065. For details about the transitional arrangements that apply, see Table 1 and the appendix. Regulatory framework for time-sharing schemes RG 160.8 Responsible entities, operators and promoters of time-sharing schemes carry on financial services businesses when they provide advice about, deal in interests in and operate time-sharing schemes. Generally, they will need an Australian financial services (AFS) licence to carry on that financial services business. The time-sharing scheme must also be registered with ASIC before the scheme can be offered to consumers, unless an exemption from registration applies. Note: In this guide, we use the term ‘consumer’ in the context of a credit product to mean a natural person or strata corporation (see s5 of the National Credit Act) and in the context of financial product to mean a retail client (see s761G of the Corporations Act and Div 2 of Pt 7.1 of the Corporations Regulations 2001 (Corporations Regulations). We use the term ‘responsible entity’ for the entity that operates a registered time- sharing scheme and ‘operator’ to refer to both a responsible entity and operator of an exempt time-sharing scheme. We use ‘promoter’ for an associate of a responsible entity of a registered time-sharing scheme that holds an AFS licence authorising it to advise Page 6 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 6 and deal in interests in a registered time-sharing scheme and that provides such advice to consumers. Most responsible entities market the sale of interests in their own schemes to consumers; some choose to use a promoter instead. RG 160.9 We have imposed specific obligations, including disclosure obligations, on AFS licensees authorised to operate a registered time-sharing scheme as a responsible entity and/or deal in interests in a registered time-sharing scheme. We have also imposed some obligations on promoters who are also AFS licensees. This is because of the particular characteristics of time- sharing schemes and the way they are sold to consumers. Note: As a regulator, ASIC recognises that, while disclosure is necessary, disclosure alone is often not sufficient to drive good consumer outcomes. For more information, see Report 632 Disclosure: Why it shouldn’t be the default (REP 632), our joint report with the Dutch Authority for the Financial Markets. RG 160.10 Operators and promoters of time-sharing schemes must comply with obligations under the Corporations Act and ASIC Act, including (but not limited to): (a) for operators and promoters that are AFS licensees, the obligations under Pts 7.6, 7.8 and 7.10 of the Corporations Act; (b) for responsible entities of registered time-sharing schemes, the obligations under Ch 5C of the Corporations Act; (c) the Product Disclosure Statement (PDS) and ongoing disclosure requirements for interests in a registered time-sharing scheme, under Pt 7.9 of the Corporations Act; (d) when financial product advice is provided to consumers, the obligations under Pts 7.7 and 7.7A of the Corporations Act; and (e) the general consumer protection provisions in the Corporations Act and Div 2 of Pt 2 of the ASIC Act (e.g. the hawking prohibitions and the misleading or deceptive conduct restrictions). RG 160.11 If finance is offered for the purchase of an interest in a time-sharing scheme, the provider of credit under a credit contract (credit provider) and persons who provide credit assistance (credit assistance providers) must comply with conduct and disclosure obligations under the National Credit Act. Note: ‘Credit assistance’ is suggesting to a consumer, or assisting a consumer to apply for, a particular credit contract. RG 160.12 See Section B for further guidance on the regulatory framework. See Section C for guidance on the general consumer protection and finance- related obligations that apply to operators, promoters, credit providers and credit assistance providers for time-sharing schemes. Section D sets out our guidance on the obligations for people who provide advice about interests in time-sharing schemes. Page 7 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 7 Our approach to non-compliance RG 160.13 We have a number of regulatory options for dealing with breaches of the provisions of the Corporations Act, National Credit Act and ASIC Act. These include (but are not limited to) licensing action, stop orders, product intervention orders, and civil or criminal proceedings. Note: For more information on product intervention orders, see Regulatory Guide 272 Product intervention power (RG 272). RG 160.14 The type of regulatory response we will take depends on the particular provision that has been breached and the seriousness of the contravention and its consequences. Note: For more information about how we approach our enforcement role, see Information Sheet 151 ASIC’s approach to enforcement (INFO 151). RG 160.15 We anticipate seeking recurrent data from time-sharing scheme operators and their associates. This is to help us identify potential non-compliance risks or detriment for consumers under the current regulatory framework. Our approach to granting relief RG 160.16 Given the recreational (rather than investment) nature of time-sharing schemes, we have granted technical relief from certain provisions of the Corporations Act for time-sharing schemes: see ASIC Corporations (Time- sharing Schemes) Instrument 2017/272. RG 160.17 We have also continued relief from the managed investment, licensing and product disclosure provisions for rental pools, but only for those operators who relied on Superseded Class Order [SCO 02/237] Time-sharing schemes—Operation of rental pool before its repeal. We will assesss any new applications for rental pool relief on a case-by-case basis. RG 160.18 We have granted individual relief from the managed investment and licensing provisions to certain types of time-sharing schemes, including non- accommodation based and closed or member-run time-sharing schemes: for more information on legacy schemes, see RG 160.20–RG 160.21. RG 160.19 Section E provides information on our general approach to relief. For guidance on how to apply for relief, see RG 160.229–RG 160.233. Legacy schemes RG 160.20 State-exempt time-sharing schemes, title-based time-sharing schemes and member- controlled clubs (legacy schemes) were granted individual relief based on: (a) Pro Forma 205 Time-sharing schemes formerly exempt under state laws (PF 205); Page 8 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 8 (b) Pro Forma 206 Time-sharing schemes Ch 5C relief (PF 206); and (c) Pro Forma 207 Titled-based time-sharing schemes (PF 207). RG 160.21 We have withdrawn these pro formas and are continuing the relief in the existing individual relief instruments, with amendments as appropriate. We will consider any new applications for relief on a case-by-case basis: for more information on our policy for granting relief, see RG 160.212– RG 160.225. Transitional arrangements RG 160.22 In December 2020 we issued ASIC Corporations (Amendment) Instrument 2020/1064 and ASIC Corporations (Amendment) Instrument 2020/1065, which updated certain obligations in ASIC Corporations (Time-sharing Schemes) Instrument 2017/272. RG 160.23 To facilitate business and cut red tape, where possible we have made certain relief and concessional requirements available immediately or at the election of the licensee. Responsible entities and promoters of registered time-sharing schemes must comply with: (a) all new requirements and obligations (other than the fees and costs requirements and obligations for PDSs) after 30 September 2021 (first transition period); and Note: The provisions to facilitate hardship withdrawals from members (see RG 160.188–RG 160.199) are contained in s601GA(1A), as inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 (notional s601GA(1A)). A responsible entity may not be able to change the constitution of a registered time- sharing scheme to reflect notional s601GA(1A) because of the circumstances in RG 160.242. If this is the case, responsible entities do not need to comply with the obligations in ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 relating to hardship withdrawals, and may continue to rely on the relevant provisions of ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 that were in force immediately before the commencement of ASIC Corporations (Amendment) Instrument 2020/1064. (b) the modified enhanced fees and costs disclosure requirements for PDSs after 30 September 2022 (second transition period). Note: The second transition period has been aligned with our transitional arrangements under Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements (RG 97). Responsible entities and promoters can opt in early to all of the new and modified obligations and requirements that have a transition period. RG 160.24 Table 1 sets out the transitional arrangements for complying with these new obligations, and where operators and promoters can find more information on the transitional arrangements for registered time-sharing schemes. Page 9 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 9 Table 1: Transitional arrangements for obligations in ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 Date Arrangements More information Commencing immediately Operators of time-sharing schemes can rely on the new rental pool relief under ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 (as amended by ASIC Corporations (Amendment) Instrument 2020/1064). RG 160.234– RG 160.235 in the appendix Until 30 September 2021 (first transition period) Responsible entities and promoters of registered time- sharing schemes must continue to comply with  the net tangible assets (NTA) and audit requirements that apply because of the definition of ‘special custody assets’ given in Class Order [CO 13/760] Financial requirements for responsible entities and operators of investor directed portfolio service;  the relevant enhanced fees and costs disclosure requirements for periodic statements in Sch 10 to the Corporations Regulations; and  the previous obligations under ASIC Corporations (Time- sharing Schemes) Instrument 2017/272. Note: Early opt-in arrangements apply. Note to RG 160.93, RG 160.236– RG 160.243 and Table 5–Table 6 in the appendix After 30 September 2021 Responsible entities and promoters of registered time- sharing schemes must comply with all the modified obligations (other than the modified enhanced fees and costs disclosure requirements for PDSs) inserted into the Corporations Act by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 and [CO 13/760], as amended by ASIC Corporations (Amendment) Instrument 2020/1064 and ASIC Corporations (Amendment) Instrument 2020/1065. Note: Early opt-in arrangements apply. Section B and Section E RG 160.236– RG 160.245 and Table 5–Table 7 in the appendix Until 30 September 2022 (second transition period) Responsible entities and promoters of registered time- sharing schemes must comply with the relevant enhanced fees and costs disclosure requirements for PDSs in Sch 10 to the Corporations Regulations. Note: Early opt-in arrangements apply. RG 160.236– RG 160.239 and Table 5 in the appendix After 30 September 2022 Responsible entities and promoters of registered time- sharing schemes must comply with the modified enhanced fees and costs disclosure requirements for PDSs. Note: Early opt-in arrangements apply. RG 160.236– RG 160.239 and Table 5 in the appendix Page 10 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 10 B Regulatory framework for time-sharing schemes Key points This section explains how time-sharing schemes are regulated, including: • the requirement to hold an AFS licence and register a scheme; • the obligations imposed on AFS licensees; • the PDS and ongoing disclosure requirements; • the specific obligations that apply to registered time-sharing schemes; and • how the financial requirements apply to responsible entities of registered time-sharing schemes. Requirements that apply to time-sharing schemes RG 160.25 Time-sharing schemes are regulated in a way that is consistent with the Parliamentary intention to regulate time-sharing schemes as managed investment schemes, and interests in time-sharing schemes as financial products. This means that, generally, an operator or promoter of a time- sharing scheme must comply with certain provisions of the Corporations Act. This includes the requirements to: (a) hold an AFS licence to carry on a financial services business—for example, to deal in a financial product, operate a registered managed investment scheme and provide financial advice (RG 160.27); (b) comply with the general AFS licensee obligations (RG 160.28); (c) register the scheme with ASIC and operate the scheme in accordance with Ch 5C (RG 160.31–RG 160.36); (d) comply with certain disclosure obligations—including giving a PDS, providing ongoing disclosure and meeting the enhanced fee disclosure requirements under Sch 10 to the Corporations Regulations when disclosing the fees and costs (RG 160.37–RG 160.47); (e) comply with the specific obligations imposed on registered time-sharing schemes—including requirements relating to the cooling-off period, subject to finance rights, verbal and written consumer warnings, inclusion of a prominent summary of key features in the PDS, disclosure obligations about hardship and forfeiture, purchases involving finance, fees and charges, deposits, and points-based programs (RG 160.48–RG 160.86); Note: Given the nature of time-sharing schemes, we have also provided operators with technical relief from provisions of the Corporations Act (see ASIC Corporations (Time- sharing Schemes) Instrument 2017/272). However, such relief will only be available to Page 11 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 11 registered time-sharing schemes that have a constitution that complies with the provisions to facilitate hardship withdrawals from members (see RG 160.188– RG 160.201). (f) meet the financial requirements, including the base-level financial requirements and those specific to time-sharing schemes (RG 160.87– RG 160.94); and (g) meet the requirements for holding scheme property imposed on responsible entities of registered time-sharing schemes. Note: The minimum standards that apply are set out in Class Order [CO 13/1409] Holding assets: Standards for responsible entities and Regulatory Guide 133 Funds management and custodial services: Holding assets (RG 133). RG 160.26 Operators and promoters must also meet other conduct obligations under the Corporations Act and ASIC Act, including the general consumer protection provisions. Credit providers and credit assistance providers for time-sharing schemes must comply with conduct and disclosure obligations under the National Credit Act. See Sections C and D for guidance on our expectations for complying with conduct and disclosure obligations. Requirement to hold an AFS licence RG 160.27 Before a person carries on a financial services business in Australia, they must hold an AFS licence or act as a representative of an AFS licensee. Operators and promoters of time-sharing schemes provide financial services when they: (a) operate a registered scheme; (b) deal in (including by issuing) interests in a time-sharing scheme; or (c) give financial product advice about an interest in a time-sharing scheme. Note: For more information about carrying on a financial services business in Australia, see Regulatory Guide 121 Doing financial services business in Australia (RG 121). RG 160.28 Operators and promoters that are AFS licensees must comply with the general licensee obligations, set out in the Corporations Act, to: (a) do all things necessary to ensure that the financial services covered by their licence are provided efficiently, honestly and fairly (s912A(1)(a)); (b) have adequate arrangements in place for managing conflicts of interest (s912A(1)(aa)); (c) comply with the conditions on their licence (s912A(1)(b)); (d) comply with the financial services laws (s912A(1)(c)); Note: ‘Financial services law’ is defined in s761A and includes, among other laws, Chs 5C and 7 of the Corporations Act and the provisions of Div 2 of Pt 2 of the ASIC Act. Page 12 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 12 (e) take reasonable steps to ensure that their representatives comply with the financial services laws (s912A(1)(ca)); (f) have adequate financial, technological and human resources to provide the financial services covered by their licence and to carry out supervisory arrangements (s912A(1)(d)); (g) maintain the competence to provide the financial services covered by their licence (s912A(1)(e)); (h) ensure that their representatives are adequately trained and competent to provide those financial services (s912A(1)(f)); (i) if they provide financial services to consumers, have internal dispute resolution (IDR) procedures and membership of the Australian Financial Complaints Authority (AFCA) (s912A(1)(g) and 912A(2)); (j) establish and maintain adequate risk management systems (s912A(1)(h)); and (k) have adequate compensation arrangements if financial services are provided to consumers (s912B). Note: For further guidance on the general obligations, see Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104). RG 160.29 As an AFS licensee, various conduct obligations in Pts 7.6, 7.8 and 7.10 also apply. RG 160.30 An AFS licensee must tell ASIC in writing within 10 business days of becoming aware of any significant breach (or likely breach) of specified obligations: see s912D. Note: For guidance on breach reporting, see Regulatory Guide 78 Breach reporting by AFS licensees (RG 78) Registration and operation of a scheme RG 160.31 Generally, a time-sharing scheme with more than 20 members must be registered with ASIC, unless an exemption applies: see s601ED. If there are 20 or fewer members, the time-sharing scheme does not have to be registered unless: (a) the responsible entity is in the business of promoting managed investment schemes (see s601ED(1)(b)); or (b) the scheme is aggregated with others because of a determination we have made under s601ED(1)(c) and 601ED(3). RG 160.32 A time-sharing scheme does not have to be registered if all the interests that have been made available in the scheme are through issues that would not Page 13 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 13 require a PDS under Div 2 of Pt 7.9, if Div 2 applied at the time of the issue: see s601ED(2). RG 160.33 The requirements for registration of a scheme are set out in Pt 5C.1 and include that the scheme has: (a) a constitution that meets the minimum content requirements in notional s601GA(1A) and is legally enforceable by the members, as required by s601GB; and (b) a compliance plan that sets out adequate measures that the responsible entity will apply when operating the scheme to ensure compliance with the Corporations Act and the scheme’s constitution (see s601HA). Note: An example of measures we expect to be in the compliance plan are measures to ensure that, in operating the scheme, the responsible entity continues to comply with the financial requirements (under s912AA, as notionally inserted by [CO 13/760]) and the additional licensee obligations for registered time-sharing schemes (under s912AJ, as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272). RG 160.34 The responsible entity’s compliance with the compliance plan must be audited annually: see s601HG. Unless at least half of the responsible entity’s directors are ‘external directors’ (see the definition in s601JA(2)), compliance must also be monitored by a compliance committee established under Pt 5C.5. RG 160.35 The responsible entity must ensure the scheme meets the requirements of Ch 5C of the Corporations Act on an ongoing basis. RG 160.36 The responsible entity has duties under Ch 5C, including to: (a) act in the best interests of the members of the scheme (s601FC(1)(c)); (b) comply with the compliance plan of the scheme (s601FC(1)(h)); (c) ensure scheme property is clearly identified and held separately from the property of the responsible entity and the property of any other scheme (s601FC(1)(i)); and (d) hold that property on trust for scheme members (s601FC(2)). Requirement to provide a PDS and ongoing disclosure PDS requirements RG 160.37 Generally, promoters and operators of time-sharing schemes must give a PDS to a consumer when offering or issuing them an interest in a time- sharing scheme: see s1012B(3). Page 14 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 14 RG 160.38 As an interest in a time-sharing scheme is a financial product, the disclosure obligations in Pt 7.9 apply to the offer or acquisition (including to provide a PDS). The PDS must: (a) be worded and presented in a clear, concise and effective manner (s1013C(3)); (b) make specific disclosures (s1013D)—including setting out, among other things: (i) information about the fees and costs; (ii) the significant risks and benefits; and (iii) any other significant characteristics or features associated with holding the product; and (c) include all other information that might reasonably be expected to have a material influence on the decision of a reasonable person (when acquiring as a retail client) about whether to acquire the product (s1013E). Examples of information that would have a material influence include information about: (i) any related party transactions and material agreements (including any arrangements and payments to a developer of a time-sharing scheme); and (ii) the quality, upkeep and availability of accommodation. Note: For guidance on preparing a PDS, see Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) (RG 168). For guidance on related party transactions, see Regulatory Guide 76 Related party transactions (RG 76). RG 160.39 A PDS for interests in a time-sharing scheme must also disclose certain matters upfront, including a written consumer warning and a prominent summary of the key features: see RG 160.65–RG 160.68. RG 160.40 We consider that the shorter, simpler PDS disclosure regime in Schs 10A and 10E to the Corporations Regulations does not apply to interests in a time-sharing scheme or time-sharing schemes generally. This is because a time-sharing scheme does not satisfy the liquidity requirements in the definition of a ‘simple managed investment scheme’ in reg 1.0.02(1) of the Corporations Regulations. Ongoing disclosure requirements RG 160.41 There are ongoing disclosure obligations that apply to responsible entities under Pt 7.9, including the requirement to provide periodic statements to members who acquired their interests as retail clients: see s1017D. The periodic statement must give members information that the responsible entity reasonably believes members need to understand their interests in the time-sharing scheme. Page 15 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 15 Modified enhanced fees and costs disclosure requirements RG 160.42 Issuers of interests in time-sharing schemes (and other managed investment products provided to consumers) must meet certain requirements for disclosing fees and costs in PDSs and periodic statements under the applicable ‘enhanced fee disclosure regulations’ in Sch 10 to the Corporations Regulations: see Class Order [CO 14/1252] Technical modifications to Schedule 10 of the Corporations Regulations and ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070. RG 160.43 Under Sch 10, the PDS must include: (a) a standardised fees and costs template (cls 201–202A of Sch 10); (b) certain additional explanations of fees and costs (cl 209 of Sch 10); (c) an example of annual fees and costs (cls 210–212 of Sch 10); and (d) a boxed consumer advisory warning (cls 221–222 of Sch 10). RG 160.44 We have modified the enhanced fees and costs requirements that apply to PDSs for registered time-sharing schemes to take into account the nature of the scheme and fees and costs involved: see ASIC Corporations (Time- sharing Schemes) Instrument 2017/272. Under the modified requirements, the responsible entity or promoter as issuer must provide PDS disclosure using: (a) adapted fees and costs summaries for the different types of time-sharing scheme, to capture all upfront and ongoing fees and costs associated with a purchase (including the purchase price, finance, and other fees and costs); (b) terminology and explanations of fees and costs tailored to the time- sharing scheme; (c) an adapted example of fees and costs, to help consumers ascertain how much they could pay for an interest in a time-sharing scheme (with and without finance) each year the product is held. The example must be based on: (i) in the case of points-based programs, the most common membership option purchased as at the date of the PDS; or (ii) in the case of interval-based programs, the interval purchased by the greatest number of members in the prior financial year. The example must also include the costs of any financing of the purchase of an interest, if the finance arrangement is facilitated by the responsible entity; (d) adapted cost-of-product information; (e) an adapted consumer advisory warning; and (f) an additional explanation of fees and costs. Page 16 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 16 RG 160.45 Similarly, we have modified the requirements for the periodic statements that must be given under s1017D. Note 1: Responsible entities have until 30 September 2022 to comply with the modified enhanced fees and costs disclosure requirements imposed by the ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 (as amended by ASIC Corporations (Amendment) Instrument 2020/1065) for PDSs. The modified requirements for periodic statements will apply to a periodic statement for a reporting period that commences on or after 30 September 2021, or ends on a day after 30 September 2021: see RG 160.236–RG 160.239 and Table 5 of the appendix for a summary of the transitional arrangements for fees and costs disclosure. Note 2: For guidance on our expectations when disclosing fees and costs information, issuers should read RG 97. In particular, issuers should read the relevant parts of Sections E, G, H and I of RG 97. RG 160.46 Our view is that the modifications reflect the central features of the prescribed format in Sch 10 while promoting the principles of transparency, comparability and ease of consumer understanding that underlie the requirements. We consider that, to achieve these principles, consumers must be informed of all upfront and ongoing costs involved in purchasing an interest in a time-sharing scheme. RG 160.47 The information must be disclosed in a separate section of the PDS, which may include a separate price list that can be easily updated. Additional obligations that apply to registered time-sharing schemes RG 160.48 As well as modifying Sch 10 for registered time-sharing schemes, we have also imposed additional obligations on responsible entities and promoters of registered time-sharing schemes. See Table 2 for a summary of the additional obligations we have imposed. RG 160.49 We have modified the Corporations Act to impose these obligations on AFS licensees: see ASIC Corporations (Time-sharing Schemes) Instrument 2017/272. Table 2: Additional obligations that apply Additional obligations Applies to More information Cooling-off rights Both responsible entities and promoters RG 160.50–RG 160.53, Table 3 ‘Subject to finance’ rights Both responsible entities and promoters RG 160.50, RG 160.54– RG 160.61, Verbal consumer warning Both responsible entities and promoters RG 160.50, RG 160.62– RG 160.64 Page 17 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 17 Additional obligations Applies to More information Disclosure obligations for PDSs, including a written consumer warning and prominent summary of key features Both responsible entities and promoters RG 160.42–RG 160.47 and RG 160.65– RG 160.68 Disclosure obligations about hardship and forfeiture Responsible entities RG 160.50, RG 160.69– RG 160.70 Paying continuing charges on interests and providing levy notices Responsible entities RG 160.71–RG 160.74 Restrictions on deposits for property developments Responsible entities RG 160.75–RG 160.83 Additional obligations for the allocation of points in points-based programs Responsible entities RG 160.84–RG 160.86 Hardship arrangements Responsible entities RG 160.188–RG 160.201 Note 1: See Table 6–Table 7 of the appendix for a summary of the transitional arrangements for cooling-off periods, payment of fees and charges, handling deposits and the new AFS licensee obligations. Note 2: If an AFS licensee meets the new licensee obligations in the ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 (as amended by ASIC Corporations (Amendment) Instrument 2020/1064 and ASIC Corporations (Amendment) Instrument 2020/1065), they will be taken to have complied with any specific time-sharing scheme licence conditions that are still imposed under their licence. See Pro Forma 209 Australian financial services licence conditions (PF 209) for our standard licence conditions, including licence conditions specific to time-sharing schemes. RG 160.50 A consumer may choose to void their application for an interest if the responsible entity notifies them of its failure to give them: (a) a cooling-off statement and ‘subject to finance’ notice (see Table 3, RG 160.55); (b) the verbal consumer warning (see RG 160.64); (c) copies of the following signed and dated documents received from the consumer: (i) the application form; and/or (ii) the acknowledgement of receipt of the cooling off statement and subject to finance notice (see Table 3); or (d) a copy of the PDS explaining whether the hardship arrangements in notional s601GA(1A) apply to the scheme. If they do provide hardship arrangements, they must explain that a member may lodge a hardship application and set out the hardship criteria and procedures. If they do not, they must explain the reason why. The responsible entity must also explain the provisions and procedures for forfeiture and exercising a power of sale. This information must also be disclosed on the responsible entity’s website—see s912AJ(13) (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272). Note: If there is no PDS in use before a consumer acquires an interest in the scheme, this information must be provided in writing. Page 18 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 18 RG 160.51 If the responsible entity becomes aware that they have failed to give the consumer any of the documents or warnings in RG 160.50, they must notify the consumer of their refund rights: see s912AJ(15) (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272). Cooling-off rights RG 160.52 As a non-liquid scheme, the purchase of an interest in a time-sharing scheme is not subject to any cooling-off requirements under the Corporations Act. However, under our modification we have imposed an obligation on the responsible entity and promoters to provide: (a) cooling-off rights to consumers, to allow the consumer to withdraw from the arrangement they have entered into with the responsible entity within a specific period; and (b) a full refund to the consumer of all money they paid. RG 160.53 A responsible entity that deals in an interest in a time-sharing scheme by issuing or selling it to a consumer must (and must ensure any of its associates): (a) comply with the cooling-off period requirements set out in Table 3; (b) prominently disclose that the consumer has a right to withdraw during a cooling-off period that is: (i) not less than 7 calendar days, if the operator is a member of the Australian Timeshare and Holiday Ownership Council (ATHOC); and (ii) not less than 14 calendar days in all other cases. The cooling-off period disclosure must be in any PDS and application form a responsible entity or promoter provides to a consumer. Note: A shorter cooling-off period applies to ATHOC members because members are bound by the ATHOC Code of Practice, which specifically deals with marketing, selling, related issues and reporting to ASIC. Page 19 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 19 Table 3: Summary of the cooling-off period requirements Requirement Details Form of the statement Consumers must be given a written cooling-off statement in the form set out in s912AK(1) (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272), together with the application form for the offer and a copy of the PDS (if required). If the consumer signs an application form, the responsible entity or promoter must give the consumer a copy to keep of:  the signed and dated application form;  the PDS—or if there is no PDS in use before a consumer acquires an interest in the scheme, information in writing—providing a clear explanation about the hardship and forfeiture arrangements (see RG 160.50(d));  the cooling-off statement;  the ‘subject to finance’ notice: and  the consumer’s signed and dated acknowledgement that they have received the cooling-off statement and the ‘subject to finance’ notice. Length of the period If the responsible entity is a member of ATHOC, the cooling-off period is seven days. If the responsible entity is not a member of ATHOC, the cooling-off period is 14 days. The cooling-off period commences on the date on which the consumer signs the acknowledgement that they have received the cooling-off statement. The cooling- off period expires at the end of the 7th or 14th day after that date. This means a consumer can cool off at any point up until midnight on the 7th or 14th calendar day. Note: If the 7th or 14th day is a Saturday, Sunday, public holiday or bank holiday where the consumer is, then the cooling-off period ends on the next day that is not a Saturday, Sunday, public holiday or bank holiday—see s36(2) of the Acts Interpretation Act 1901, as in force on 1 January 2005. Manner of exercise Consumers can give notice that they wish to exercise their cooling-off rights in any way that is disclosed in the PDS or cooling-off statement. We consider that responsible entities should provide consumers with both electronic and physical methods for giving the responsible entity notice they wish to exercise their cooling-off rights. Consequences of exercise If a consumer withdraws their application by exercising their cooling-off rights, all money paid by the consumer for the application (including any administration fees or other fees) must be returned to the consumer. Record keeping The responsible entity must keep records of:  all consumers given the responsible entity’s cooling-off statement;  the dates the statements were given; and  each signed and dated acknowledgement that the consumer has received the cooling-off statement. Finance to purchase an interest in a time-sharing scheme RG 160.54 It is common for consumers to obtain finance to purchase an interest in a time-sharing scheme and for the finance to be facilitated by an entity related Page 20 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 20 to the responsible entity (related finance provider). Our view is that, in addition to circumstances where the consumer exercises their cooling-off rights, the purchase should not proceed if the consumer does not obtain finance to enable the purchase, even if the cooling-off period has already ended. RG 160.55 Accordingly, we have imposed additional obligations on responsible entities and promoters. They must provide consumers with a subject to finance notice, including a cancellation form, and obtain from consumers an acknowledgement that they have received this notice. RG 160.56 The responsible entity must ensure a purchase does not proceed when a consumer does not obtain finance for the purchase. Consumers already have some rights against suppliers of goods and services and credit providers, under s134 and 135 of the National Credit Code (in Sch 1 to the National Credit Act). The additional obligations we have imposed supplement those existing rights. Additional requirements and consumer rights where the purchase of an interest in the scheme is ‘subject to finance’ RG 160.57 Applications to purchase an interest in a time-sharing scheme must include: (a) a question about whether the consumer intends to seek finance to pay for the interest in a time-sharing scheme; and (b) a description of the ‘subject to finance’ rights to withdraw the application and how those rights may be exercised. RG 160.58 The effect of the ‘subject to finance’ rights is that the application for the interest in the time-sharing scheme is withdrawn if the applicant notifies the responsible entity or promoter that they have: (a) failed to obtain finance; (b) decided not to proceed with an application for finance; or (c) rejected an offer of finance. RG 160.59 A responsible entity or promoter must not require a consumer to accept any finance offered to the consumer. This is intended to ensure consumers are able to exercise ‘subject to finance’ rights. Consumer rights when finance is from a related finance provider RG 160.60 Under s135 of the National Credit Code, consumers that have a ‘tied loan contract’ with a ‘linked credit provider’ of a supplier are entitled to terminate the tied loan contract, and recover interest charges and other amounts paid under that contract, if the sale contract for the associated goods or services is rescinded or discharged. The provisions require the supplier to notify the credit provider of the rescission or discharge, and allow for the credit Page 21 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 21 provider to recover from the supplier any loss suffered by the credit provider as a result of the contract being terminated. Note: ‘Tied loan contracts’ are credit contracts consumers enter into for the purpose of purchasing goods or services, and the credit provider knows or should reasonably know about this purpose. The credit provider is a ‘linked credit provider’ when they have arrangements with the supplier for facilitating the provision of credit: see s127 of the National Credit Code. RG 160.61 For information on the requirements that apply to the credit provider, see Section C. Verbal consumer warning RG 160.62 The acquisition of an interest in a time-sharing scheme generally involves the outlay of many thousands of dollars, as well as an ongoing financial commitment to pay levies and other charges, which can increase over the membership term. Depending on the length of the term, the ongoing financial commitment may last for up to 80 years. RG 160.63 There is often only a short time between the communication of an offer of an interest in a time-sharing scheme and consumers acquiring these interests. In these circumstances, we consider that it is important for a consumer to be provided some additional information before making a decision about acquiring an interest, which may improve their understanding of the product. RG 160.64 A responsible entity or promoter must take reasonable steps to ensure that, at any seminar or sales presentation promoting a time-sharing scheme, consumers are provided with a verbal consumer warning. This applies regardless of whether the seminar or presentation is conducted in person, by telephone or by electronic communication. The warning must be given at the start of the presentation and must consist of the statements set out in s912AK(4) (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272): see RG 160.67. Written consumer warning and prominent summary of key features RG 160.65 An interest in a time-sharing scheme is complex. To help consumers understand interests in time-sharing schemes, responsible entities must disclose key information upfront in a PDS. We consider that this promotes compliance with the requirement that PDSs must be worded in a clear, concise and effective manner, by highlighting certain matters that may assist consumers making a decision about whether to acquire an interest in a time-sharing scheme. RG 160.66 We have modified the Corporations Act to require responsible entities to ensure that the PDS for an interest in the time-sharing scheme contains a prominent consumer warning on the front cover of the PDS and a prominent Page 22 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 22 summary of the key features of the time-sharing scheme in the first seven pages of the PDS. Note: When calculating the first seven pages of the PDS, the front cover should be counted as the first page. Written consumer warning RG 160.67 A boxed consumer warning must be presented on the front cover of the PDS and be in the form set out in s912AK(3) (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272). See Figure 1 for the wording of the warning. Figure 1: Written consumer warning Consumer warning Timeshares are not appropriate for everyone. You should take time to consider whether buying this timeshare is right for you before you sign the application form. It is important to understand: 1. Timeshares are generally very long term. The term of this timeshare is [state period of this scheme in years or different years of the PAYG memberships]. You will generally be required to pay ongoing costs for as long as you own the timeshare, regardless of whether or not you use the timeshare. [Insert if applicable— This includes any costs of financing the purchase.] 2. [Insert if applicable— You are not guaranteed the type of accommodation or location you want at the time you want.] 3. After the cooling-off period has ended, [insert if applicable— and you have not withdrawn your application under any ‘subject to finance’ rights], it may be difficult to get out of this timeshare and there is no guarantee that you will be able to sell it to another person or get any money back. 4. Timeshares are not an investment and you should not expect any financial return from a timeshare. You are buying an interest in a managed investment scheme for recreational use [insert if applicable— and not buying real property]. Note: In the consumer warning, a ‘timeshare’ is an interest in a time-sharing scheme. Prominent summary of key features RG 160.68 The prominent summary of key features should be clear and concise and must be included in the first seven pages of the PDS. It must contain the following information: (a) the length of the term of membership of the scheme; (b) any criteria used by the responsible entity to identify consumers the responsible entity considers most likely to be: (i) suited to the time-sharing scheme; and Page 23 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 23 (ii) interested in purchasing an interest in the scheme through its sales presentations (if applicable); (c) a description of the restrictions on exit from the scheme; (d) a statement that the consumer should have no expectation of being able to sell the membership on any secondary market or get any money back; (e) a description of the consumer’s cooling-off rights; (f) a description of the consumer’s ‘subject to finance’ rights; (g) a description of key limitations on access to accommodation (such as seasonality or other factors); (h) a summary of the fees and costs involved in acquiring and holding an interest, and a cross-reference to where further information about fees and costs can be found in the PDS; and (i) for points-based programs, a summary of how the points system works, and a cross-reference to where further information about the operation of the points system can be found in the PDS. Note: The information in the summary of key features should be balanced, giving equal prominence to the risks, costs and benefits of acquiring and holding an interest in a time-sharing scheme. The summary should direct consumers to where they can find more information on the key features in the PDS (see RG 168 at RG 168.67(e)). Disclosure obligations about hardship and forfeiture RG 160.69 A responsible entity of a registered managed investment scheme must provide consumers with a clear explanation about the hardship and forfeiture arrangements: see s912AJ(13) (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272). Note 1: For a summary of these disclosure obligations, see RG 160.50(d). For further information on hardship withdrawals, see RG 160.188–RG 160.201. RG 160.70 It is important that consumers understand whether hardship arrangements are provided and the forfeiture provisions that apply to defaulting members before purchasing an interest in a time-sharing scheme. Note: For the definition of ‘defaulting member’, see s601GA(1B) of the Corporations Act (as notionally inserted by ASIC Corporations (Time-sharing Schemes) Instrument 2017/272). Fees and charges Continuing charges RG 160.71 To prevent members from incurring the costs of continuing charges (such as maintenance levies and special levies) on interests in a time-sharing scheme Page 24 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 24 that are held by the responsible entity or any of its associates, we have modified the Corporations Act. The modification requires the responsible entity and its associates to pay the same continuing charges as members are required to pay. Levy notices RG 160.72 It is important for members to understand their liability for charges and levies, any changes in those charges and levies, and how the money paid as charges or levies will be used. RG 160.73 We have modified the Corporations Act to require responsible entities to give members a levy notice for each period that the member is charged levies, and a copy of the budget that relates to that period. The budget must include the estimated and itemised material expected income and expenditure for the period to which the levy notice relates. RG 160.74 These levy and budget details can be provided electronically or published on the responsible entity’s website (if the notification requirements in ASIC Corporations (Time-sharing Schemes) Instrument 2017/272 are satisfied). Deposits for property developments RG 160.75 We consider that consumers take on additional risks when they purchase an interest in a time-sharing scheme where the scheme relates to a property under construction or part of a property development that is not ready for occupation. RG 160.76 We have modified the Corporations Act to impose restrictions on the deposits taken for an interest in such a time-sharing scheme, to protect consumers from these risks. Cap on deposits RG 160.77 We have imposed a cap on the size of a deposit for the purchase or issue of an interest in a time-sharing scheme if the scheme relates to a property under construction or part of a property development that has not been completed to the stage at which it is ready for occupation. RG 160.78 If the property of the scheme is not ready for occupation, any deposit for the purchase or issue of an interest must be no more than 30% of the price payable for the interest. Use of deposits—Registerable dealings not lodged and incomplete construction RG 160.79 We have modified the Corporations Act to impose restrictions on a responsible entity’s use of a deposit when: Page 25 REGULATORY GUIDE 160: Time-sharing schemes © Australian Securities and Investments Commission December 2020 Page 25 (a) a registrable dealing, conferring title to any real property that the member is to acquire, has not been lodged with the relevant authority; and (b) the construction of the property to which the interest being acquired by the consumer relates, and any improvements necessary to permit normal use of that property, have not been substantially completed. RG 160.80 In those cases, the responsible entity must deposit any money paid by the consumer into a trust account with an Australian authorised deposit-taking institution (ADI) on the day they receive it or the next business day. RG 160.81 Further, the responsible entity must not use the deposit for any other purpose until both: (a) a registrable dealing, conferring title to any real property that the consumer is to acquire, is lodged with the relevant authority; and (b) the construction of the property to which the interests being acquired by the consumer relates, and any improvements necessary to permit normal use of that property, are substantially completed. RG 160.82 The responsible entity must also immediately notify a member if it becomes aware that, by the date specified in the PDS: (a) the registrable dealing is not lodged with the relevant authority; or (b) the development of property is not subst