ASIC RG 87 — ASIC Regulatory Guide – RG 87 Charitable schemes and school enrolment deposits

Page 1 REGULATORY GUIDE 87 Charitable schemes and school enrolment deposits September 2016 About this guide This is a guide for charities that wish to raise funds by issuing debentures or interests in a managed investment scheme to help them meet their objectives. It sets out our policy on giving relief to those charities from the fundraising, managed investment, debenture and licensing provisions of the Corporations Act. It also covers our exemption for schools accepting enrolment deposits from the fundraising provisions of the Corporations Act. Page 2 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 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 September 2016 and is based on legislation and regulations as at the date of issue. On 27 July 2020, we updated the process for lodging an application for an ASIC approval, consent, statement, nomination and exemption in RG 87.47–RG 87.48, RG 87.133, RG 87.136– RG 87.137 and RG 87.153. Previous versions:  Superseded Policy Statement 87, issued December 2004, rebadged as a regulatory guide on 5 July 2007 Disclaimer This guide does not constitute legal advice.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. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. Page 3 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 3 Contents A Overview ........................................................................................... 4 Charities and charitable investment fundraisers................................ 4 Application of the Corporations Act provisions .................................. 5 Relief for charitable investment fundraising....................................... 6 Application of the requirements ......................................................... 8 B What exemptions apply................................................................. 11 Overview of exemptions .................................................................. 11 Associates........................................................................................ 12 Exclusion.......................................................................................... 13 C Requirements of relief for charitable investment fundraisers relying on ASIC’s exemptions ...................................................... 15 Identification statements .................................................................. 15 Disclosure ........................................................................................ 21 Investor acknowledgment statements ............................................. 22 Lodge financial report ...................................................................... 23 Breach reporting .............................................................................. 24 D Product restrictions for charitable investment fundraisers relying on ASIC’s exemptions ...................................................... 25 Products repayable in less than 31 days ......................................... 25 Transactional facilities ..................................................................... 26 Allowing short-term repayment ........................................................ 27 Use of restricted terms and misleading comparisons ...................... 28 E School enrolment deposits exemption ....................................... 29 Appendix: Transitional requirements.................................................. 30 What this appendix is about............................................................. 30 Our general policy ............................................................................ 31 The ‘group charities’ exemption ....................................................... 34 The ‘individual charities’ exemption ................................................. 39 Key terms ............................................................................................... 44 Related information ............................................................................... 48 Page 4 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 4 A Overview Key points This section provides an overview of our regulatory approach to charitable investment fundraisers. It explains: • what ASIC means by the terms ‘charity’ and ‘charitable investment fundraiser’; • how the fundraising, managed investment, debenture and licensing provisions in the Corporations Act 2001 (Corporations Act) apply to charitable investment fundraisers; and • the types of conditional relief available to charitable investment fundraisers from those provisions. A staged implementation of the requirements in this guide applies: see RG 87.19–RG 87.21 and Table 1. Schools that require a deposit to be lodged as a condition of enrolment may come within a separate exemption from the fundraising provisions of the Corporations Act: see Section D. Charities and charitable investment fundraisers What is a ‘charity’? RG 87.1 In this guide, we use the definitions of ‘charity’ and ‘charitable purpose’ from s5 and 12, respectively, of the Charities Act 2013. Broadly, charities are religious, educational, community and other types of organisations or bodies that are recognised in law as being formed for religious, educational, community or other charitable purposes. What is a ‘charitable investment fundraiser’? RG 87.2 In this guide the term ‘charitable investment fundraiser’ is used to describe a charity that raises funds to support its purposes by issuing: (a) debentures (other than by way of certain limited offers); and/or (b) interests in a managed investment scheme. Note: We use the definitions of these terms from s9 of the Corporations Act. A managed investment scheme run by a charitable investment fundraiser is known as a ‘charitable scheme’. These financial products are issued on the basis that the money will be repaid to, or a monetary return will be delivered to, holders of the debentures or interests in a registered scheme (investors). Page 5 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 5 RG 87.3 Debentures and interests in a managed investment scheme generally constitute a financial product: see s92 and 764A(1)(a) and (ba). Charitable investment fundraisers that conduct fundraising using a managed investment scheme in this manner are likely to be providing a financial service: see s766A. RG 87.4 This guide and the fundraising, managed investment, debenture and licensing provisions in the Corporations Act do not apply to fundraising undertaken by charities that is limited to the solicitation or acceptance of donations. Application of the Corporations Act provisions Fundraising, managed investment and debenture provisions RG 87.5 Various provisions of the Corporations Act may apply to charities that seek to raise funds using a charitable scheme, including: (a) the debenture provisions, set out in Pts 2L.1–2L.5; (b) the managed investment provisions, set out in Ch 5C; and (c) the fundraising provisions, set out in: (i) Pts 6D.2–6D.3 (securities fundraising); (ii) s992A and 992AA (anti-hawking); and (iii) Div 2 and 4 of Pt 7.9, and s1017B and 1017G (financial product disclosure). RG 87.6 For the purposes of this guide, these provisions are collectively referred to as the ‘fundraising, managed investment and debenture provisions’. RG 87.7 The particular provisions that will apply to a charity or charitable investment fundraiser will vary depending on whether the charitable investment fundraiser raises funds through the issue of debentures or interests in a charitable scheme, or both: see RG 87.8. RG 87.8 A charity that operates a charitable investment fundraiser may be subject to a number of requirements in the Corporations Act. For example, if they offer: (a) debentures, they may be required to: (i) have a trust deed and trustee (Ch 2L); and (ii) issue a prospectus and comply with certain fundraising requirements, including the prohibition on securities hawking (Pts 6D.2 and 6D.3); Page 6 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 6 (b) interests in a charitable scheme, they may be required to: (i) comply with the managed investment scheme provisions (Ch 5C); (ii) comply with the anti-hawking prohibitions (s992A and 992AA); (iii) issue a Product Disclosure Statement (PDS) (Div 2 of Pt 7.9) and provide ongoing disclosure of material changes and significant events (s1017B); (iv) comply with the dispute resolution requirements (s1017G); and (v) comply with certain restrictions on advertising (Div 4 of Pt 7.9); or (c) both debentures and interests in a charitable scheme, they may be subject to all of these requirements. Licensing provisions RG 87.9 A charity that issues debentures or interests in a charitable scheme may be required to comply with the licensing provisions, which would require them to hold an Australian financial services (AFS) licence and to meet obligations as an AFS licensee: s911A(1) and 912A. Application to ‘exempt bodies’ RG 87.10 Some provisions in the Corporations Act will not apply in certain circumstances to charities that are an ‘exempt body’, as defined in s66A. An exempt body is a body corporate that is not a company and is incorporated by or under a law of a state or territory. For example, an exempt body that limits itself to: (a) offering debentures within the state or territory where it is incorporated may be exempt from certain fundraising provisions (see s708(20)); and (b) certain conduct in relation to interests in a charitable scheme may be exempt from certain financial product disclosure provisions (see s1012D(8)) and consequently may also be exempt from the requirement to register the scheme. Relief for charitable investment fundraising Fundraising, managed investment and debenture provisions RG 87.11 Conditional relief is available for charitable investment fundraisers from the fundraising, managed investment and debenture provisions. Relief is not available under this policy for a charitable investment fundraiser that issues financial products that are not debentures or interests in a charitable scheme. Page 7 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 7 RG 87.12 Unless the charitable investment fundraiser has the benefit of a licensing exemption or exclusion under the Corporations Act, all operators or promoters of a charitable investment fundraiser will generally need to hold an AFS licence with appropriate authorisations: see RG 87.25–RG 87.26. Examples of exemptions and exclusions under the Corporations Act Exemption A charitable investment fundraiser that issues financial products through an intermediary who holds an AFS licence with appropriate authorisations may be exempt from the licensing provisions: s911A(2)(b). Exclusion Issuing debentures is not generally a financial service, although it may be if the funds are invested in an investment business of the issuer, following an offer to the public or a section of the public on terms that this will be done. Licensing and product disclosure provisions RG 87.13 We have given conditional relief to charitable investment fundraisers from the licensing provisions for certain activities. The relief does not apply if any debenture or interest in a charitable scheme is issued to a person as a retail client, except if all retail clients are associates of the charitable investment fundraiser (associated retail clients). Note: See RG 87.27 for the definition of ‘associate’. RG 87.14 We have also given conditional relief from the licensing and product disclosure provisions to persons involved in arranging the issue of, or providing financial product advice about, the debentures or interests in a charitable scheme issued by a charitable investment fundraiser. Underlying principles of exemption RG 87.15 Our exemptions for charitable investment fundraisers recognise that investors are likely to want to assist a charity to fulfil its purpose and, either through personal or common knowledge of the charity, believe the charity will use its funds for that purpose. For many of those investors, financial benefit is not the primary consideration in choosing to invest with the charitable investment fundraiser. Therefore, the investor is not likely to expect or seek disclosures in complete compliance with the Corporations Act or the full protection of the fundraising, managed investment and debenture provisions or (where there are no non-associated retail clients) the licensing provisions. Page 8 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 8 RG 87.16 On this basis we have given charitable investment fundraisers relief from significant parts of the regulatory burden applicable to other debenture issuers or operators of managed investment schemes. Investors in charitable investment fundraisers are not likely to lose confidence in participation in the financial system more broadly on the basis of experience with charitable investment fundraisers. The relief is limited to certain financial products with characteristics that make the investor protections that would apply, if not for the exemption, less necessary—such as a restriction on accepting short-term investments. RG 87.17 Nevertheless, we do not consider that the licensing provisions are unreasonably burdensome. They set a minimum regulatory standard that helps ensure compliance with the requirement of the relief and the financial services laws that do apply, including the prohibition on misleading and deceptive conduct under the Australian Securities and Investments Commission Act 2001. RG 87.18 It is important that retail clients are not misled about whether the financial product offerings of a charitable investment fundraiser are comparable to those provided by issuers to whom our exemptions do not apply. Requiring that offerings are made through an AFS licensee, together with the requirements of the relief such as investor acknowledgement statements, help ensure this. Application of the requirements RG 87.19 A staged implementation of the requirements applies: see Table 1. All requirements apply from 1 January 2018, except: (a) the restriction on the issue of at-call or short-term investments to non- associated retail clients, which applies to debentures or interests in a charitable scheme issued from 1 January 2017; and (b) having an identification statement accepted for lodgement by ASIC or a sponsor for the purposes of the ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813, which applies from 1 March 2017. RG 87.20 In this guide: (a) a ‘wholesale charitable investment fundraiser’ is a charitable investment fundraiser that has not issued any debentures or interests in a charitable scheme to non-associated retail clients after 31 December 2016; and (b) a ‘retail charitable investment fundraiser’ is a charitable investment fundraiser that is not a wholesale charitable investment fundraiser. Page 9 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 9 RG 87.21 This means that a retail charitable investment fundraiser can become a wholesale charitable investment fundraiser when it repays or redeems all investments held by non-associated retail clients. Table 1 sets out what requirements apply and to whom, and where we have provided guidance. Table 1: Application of the requirements Requirement of relief Who it applies to Guidance Identification statement accepted for lodgement All charitable investment fundraisers (from 1 March 2017). RG 87.37–RG 87.61 Disclosure requirements All charitable investment fundraisers that issue to retail clients (including associated retail clients). RG 87.62–RG 87.67 Avoid indicating product regulated All charitable investment fundraisers. RG 87.64 Investor acknowledgement statement Retail charitable investment fundraisers. RG 87.68–RG 87.71 Lodge and publish financial report All charitable investment fundraisers. If they issue:  debentures, the report must be for the charitable investment fundraiser; and  interests in a charitable scheme, the report must be for the scheme. RG 87.72–RG 87.73 Breach reporting All charitable investment fundraisers. RG 87.74–RG 87.78 Prohibition on issue of at-call or short-term investments Retail charitable investment fundraisers, for issues to non-associated retail clients (from 1 January 2017). RG 87.80–RG 87.84 Prohibition on short-term investments All charitable investment fundraisers where the short- term investment is held by a non-associated retail client. RG 87.81 Payments to investors by cheque or transfer to an authorised deposit-taking institution (ADI) account only Retail charitable investment fundraisers. RG 87.85–RG 87.86 Restriction on the terms of issue, repayment and redemption Retail charitable investment fundraisers RG 87.87-RG 87.92 Prohibition on the use of ‘at- call’, ‘deposit’ or derivatives of those terms Retail charitable investment fundraisers. RG 87.93–RG 87.95 Page 10 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 10 Transitional requirements RG 87.22 Transitional requirements apply until 1 January 2018. This means that charitable investment fundraisers that do not meet the requirements set out in Sections C and D can continue to rely on the pre-existing relief (contained in Part 3 of ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813), but must meet the conditions of that relief. They must also comply with the requirements set out in RG 87.19. RG 87.23 The conditions in the pre-existing relief are discussed in the former version of RG 87, which is reproduced in the appendix. It contains different conditions for exemption from the fundraising, managed investment, debenture and licensing provisions of the Corporations Act. Page 11 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 11 B What exemptions apply Key points This section provides an overview of relief exemptions available for charitable investment fundraisers. It explains: • the conditional relief provided under ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813; • the definition of ‘associate’; and • what exclusions from the relief apply. Overview of exemptions RG 87.24 We have given conditional relief to charitable investment fundraisers from the fundraising, managed investment and debenture provisions and certain relief from the licensing provisions of the Corporations Act: see ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813. A charitable investment fundraiser is eligible for this exemption only if: (a) either we or a sponsor have accepted for lodgement the charitable investment fundraiser’s identification statement; and (b) the charitable investment fundraiser complies with the breach reporting requirement under the relief (see RG 87.74–RG 87.78). Licensing exemption RG 87.25 Under the relief, wholesale charitable investment fundraisers will not need an AFS licence to: (a) deal in financial products by issuing debentures or interests in a charitable scheme that relate to the scheme; (b) deal in financial products that are assets held for investors in the course of the operation of a scheme; (c) provide a custodial or depository service by holding financial products on behalf of investors in a scheme in the course of operating the scheme; and (d) provide financial product advice that is general advice in an offer document issued in connection with the scheme. The offer document must be supplied, in place of a PDS or a prospectus, as a condition of our product disclosure relief. We have treated this offer document as if it were an exempt document. Page 12 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 12 RG 87.26 Charitable investment fundraisers cannot rely on this exemption after 31 December 2017 if they issue any financial product to a non-associated retail client from 1 January 2018. Associates RG 87.27 For the purposes of this guide and our policy, we consider an ‘associate’ of a charitable investment fundraiser to be: (a) a body constituted by or under the authority of a decision of the charity, or which is controlled by the charity; (b) a person or body that constituted the charity or under whose authority the charity was constituted or that controls the charity; (c) a charity with related charitable purposes that is the same as or similar to the charity; (d) a person acting as a trustee of a trust for the charity or for a charity with a related charitable purpose; (e) a member of the clergy, an employee or a voluntary staff member who works for any person mentioned in RG 87.27(a)–RG 87.27(d); or (f) a person undertaking training or education to enable them to be a person under RG 87.27(e) and who receives money or money’s worth from any person mentioned in RG 87.27(a)–RG 87.27(e). Underlying principles for treatment of associates RG 87.28 We do not treat retail clients who qualify as ‘associates’ like other retail clients for the purpose of determining: (a) the application of our exemption from the licensing provisions; and (b) whether and how certain conditions or requirements apply to the exemptions provided to charitable investment fundraisers. RG 87.29 We understand that associated retail clients may not be sophisticated and, indeed, may face a heightened risk due to the concentration of exposure to the charitable investment fundraiser both as an investor and an associate. However, we consider that associates are more likely than non-associated retail clients to appreciate that the charitable investment fundraiser is not being regulated as an issuer of debentures or interests of a managed investment scheme. RG 87.30 Investments in charitable investment fundraisers can also provide an advantageous way of remunerating certain associates, where remuneration is provided by a charity that is not subject to fringe benefits tax. Applying Page 13 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 13 regulatory requirements that could discourage the use of this mechanism may disadvantage staff. RG 87.31 If offers may be made to people who are associates because they are voluntary staff members, this must be stated in the identification statement. It must also be stated what criteria will be applied when determining if a person is to be treated as a voluntary staff member (and therefore an associate). RG 87.32 We expect that appropriate criteria, such as number of hours regularly worked, will be included to ensure that this category is limited to persons who are genuinely and substantially involved in the organisation of the charity. For example, in the case of a religious charity this would not include members of the religious group that contribute to specific tasks—such as agreeing to be included in a roster from time to time for performing such functions as welcoming, social organisation, music, reading, assisting celebrants of religious services, counting collections, cleaning premises or decorating places where religious services occur—as distinct from persons performing an identifiable staff role as a minister or leader. RG 87.33 We will, and we expect that any sponsor will, assess any such criteria in an identification statement to ensure that offers that are not intended to be treated as being made to an associate are not so classified as on the basis of an a broad criteria for identifying voluntary staff members. Exclusion RG 87.34 We may exclude a charitable investment fundraiser from relying on ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813 if, for example, we consider that the charitable investment fundraiser: (a) will not, or will not be engaged in activities that, meet the underlying principles of our relief; (b) has a sponsor that is not an associate; (c) has not complied with the conditions of the exemption or is not likely to comply with those conditions; or (d) has engaged in false or misleading conduct in relation to debentures or interests in a charitable scheme offered, or purportedly offered, in reliance on the exemption. If we decide to exclude a charitable investment fundraiser from our relief, we will notify them in writing. Page 14 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 14 No relief from s1017E or 1017F RG 87.35 Even though relief may be available from the requirements to issue a PDS or prospectus, we will not provide relief from s1017E and 1017F. Charitable investment fundraisers must: (a) ensure that until interests in a charitable investment scheme are issued, the charity holds any money paid to acquire the products in a separate account, where required by s1017E; and (b) confirm all transactions when a retail client acquires or disposes of a financial product or when the charity varies the terms of the financial product, where required by s1017F. Page 15 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 15 C Requirements of relief for charitable investment fundraisers relying on ASIC’s exemptions Key points This section explains the requirements of relief that will apply to charitable investment fundraisers that seek to rely on exemptions from the fundraising, managed investment, debenture and licensing provisions. The conditions cover the requirement for charitable investment fundraisers to: • to have an identification statement accepted for lodgement by a sponsor or ASIC (see RG 87.37–RG 87.61); • give disclosure to persons acquiring financial products offered under the exemptions (see RG 87.62–RG 87.66); • seek a specific investor acknowledgement statement from non- associate retail clients when they acquire financial products offered under the exemptions, and take reasonable steps to ensure that the product is only likely to be acquired by those who understand the disclosures (see RG 87.68–RG 87.69); • lodge an audited financial report with ASIC, unless it has been lodged with the Australian Charities and Not-for-profits Commission (ACNC) (see RG 87.72–RG 87.73); and • report breaches of the conditions to ASIC (see RG 87.74–RG 87.78). RG 87.36 Some conditions apply to all charitable investment fundraisers who seek to rely on this relief and others will apply only to retail charitable investment fundraisers. Some conditions apply only in relation to retail clients and others apply more generally, as indicated in Table 1. Note: For the commencement dates for the requirements in this section, see Table 1. Identification statements RG 87.37 Our exemptions only apply to charitable investment fundraisers that have an identification statement accepted for lodgement by ASIC or a sponsor. This is to ensure that ASIC and current and potential investors can ascertain who may be relying on the exemption, and that there is sufficient information to understand the scope and purpose of the reliance. The identification statement must be publicly available, but it is not required to be used as an offer document. RG 87.38 This process of accepting an identification statement for lodgement is intended to reduce the extent of any inappropriate reliance on the relief, and Page 16 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 16 the potential for revocation of acceptance provides a means of excluding charitable investment fundraisers from relief where appropriate. Benefit of a sponsor RG 87.39 A sponsor establishes an arrangement under which it accepts identification statements of charitable investment fundraisers for which it is an associate for the purpose of ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813. We expect the sponsor to assess whether the identification statement meets the content requirements set out in Table 2 and confirm that it is dated and signed on behalf of the charitable investment fundraiser by a named and identified signatory. We also expect a sponsor to assess whether the charitable investment fundraiser is likely to comply with the conditions of the exemption it is seeking to rely on. RG 87.40 A sponsorship arrangement can promote confidence in investment in the charitable investment fundraisers the sponsor accepts identification statements from. This is because the associated entity is likely to have more direct knowledge of the charitable investment fundraisers that is relevant to assessing whether they meet the criteria for an identification statement, both at the time of acceptance and on an ongoing basis. RG 87.41 The sponsor will guarantee the charitable investment fundraiser will meet its obligations for the debentures and interests issued, or purportedly issued, under the exemption by a charitable investment fundraiser (whose identification statement it has accepted and not revoked). This ensures that the sponsor has an interest in properly performing its functions in accepting identification statements. This sponsorship will be provided by covenants, set out in a deed, to make payments to the charity up to the amount needed to meet the claim against the charitable investment fundraiser of any holder of any relevant debenture or interests for their entitlements in relation to the investment. RG 87.42 A prospective sponsor must make inquiries to ensure that stamp duty obligations for the deed are met and provide adequate evidence to ASIC that any stamp duty needed to ensure the deed is enforceable has been paid. RG 87.43 Any entity that is to be a sponsor will need to be accepted by ASIC. The entity must execute a deed in favour of: (a) ASIC; and (b) each person that holds any debentures or interests in a charitable scheme issued in reliance on the exemptions. RG 87.44 The sponsor must ensure that the deed poll is published on a website maintained by the sponsor or its associate. The deed poll must be easy to find for persons who have access to the internet. The sponsor must also Page 17 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 17 provide us with any information or assistance that we request to ensure compliance by: (a) the sponsor with the deed; or (b) the charitable investment fundraiser with the Corporations Act, including the conditions of exemption, or the Australian Securities and Investments Commission Act 2001. RG 87.45 An entity that is interested in being a sponsor should first discuss its proposal and the process that will apply with ASIC. The proposed sponsor will need to explain what steps it will take to ensure it adequately performs its functions. Withdrawal of acceptance of sponsor RG 87.46 We will consider notifying the sponsor that it is no longer able to act as a sponsor if they: (a) do not meet any of the expectations in this guide; or (b) accept identification statements when they do not reasonably believe that: (i) the identification statements are compliant; (ii) the charitable investment fundraiser is likely to comply with the conditions for the exemption on which it seeks to rely; (iii) the charitable investment fundraiser is their associate; and (iv) the issue of the debentures or interests is intended by the charitable investment fundraiser to promote its charitable purpose. Application for ASIC to accept identification statements RG 87.47 For ASIC to accept identification statements for lodgement, the charitable investment fundraiser must provide to ASIC: (a) an application for the charitable investment fundraiser’s identification statement to be accepted by ASIC for the purposes of ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813, and (b) an identification statement meeting the content requirements set out in Table 2. The identification statement must be dated and signed on behalf of the charitable investment fundraiser by a named and identified signatory. Note: A person who makes a false or misleading statement in a document either required by or for the purposes of the Corporations Act or lodged or submitted to ASIC is guilty of an offence: s1308(2)–(3). Page 18 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 18 RG 87.48 The charitable investment fundraiser should lodge the application through the ASIC Regulatory Portal using the transaction named ‘Apply for an ASIC approval, consent, statement, nomination, or other’. The fundraiser will need to pay fees for their application. We have provided details about payment options in the portal. For more information, see how you apply for relief. Note: You can also contact ASIC on 1300 300 630 for information and assistance. Content requirements of identification statements RG 87.49 Identification statements must include the information set out in Table 2. Table 2: Content requirements for identification statements Information Explanation Identification information Information necessary to identify the charitable investment fundraiser—including, as applicable:  its Australian Business Number;  particulars of its corporate status, including any legislation under which the charitable investment fundraiser was incorporated and, where relevant, an incorporation number;  the full name and date of birth of any natural person who is or is a part of the charitable investment fundraiser; and  its address. Compliance Which exemptions the charitable investment fundraiser intends to rely on and information demonstrating how the charitable investment fundraiser meets, or may be expected to meet, all the conditions for the exemptions. Financial year The start and end dates of the financial year of the charitable investment fundraiser, if it is to issue debentures or interests in a charitable scheme. AFS licence Whether the operator of the charitable investment fundraiser is or will be required to hold an AFS licence and, if so, the AFS licence number of the licensee. Charitable purpose The charitable purpose of the charity, a statement that the issue of the relevant debentures or interests in a charitable scheme will promote that charitable purpose, and information about how the issue of the debentures or interests will do so. Method of fundraising Whether investment funds will be raised by issue of debentures or interests in a charitable scheme or both, together with clear identification of any charitable scheme. Key terms The key terms of the product, including how the rate of return will be determined, the fees and costs payable by the investor and, for a charitable scheme, any fees and costs payable from the scheme assets. Page 19 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 19 Information Explanation Investors To whom and through what means the debentures or interests will be offered, including whether any offers are to be made to non-associated retail clients and wholesale investors and associated retail clients. If offers may be made to persons who are associates because they are voluntary staff members, what criteria will be applied in determining if a person is to be treated as a voluntary staff member (and therefore an associate). Audited financial reports Whether the charitable investment fundraiser will be required to lodge an audited financial report with the ACNC and, if issuing interests in a charitable scheme, whether the charitable investment fundraiser will be required to lodge the scheme’s audited financial report with the ACNC. Guarantees or obligations The identity of the provider and the terms of any guarantees or obligations to holders of interests or debentures by any person other than the charitable investment fundraiser that are to apply. Asset types What types of assets the charitable investment fundraiser will hold or, if there is to be a charitable scheme, are to be held under the scheme. Also, particulars of the extent to which any of those assets are outside Australia. Acceptance of identification statement by a sponsor If the identification statement is to be accepted by a sponsor, a statement to that effect, specifying the sponsor and where a copy of the deed poll required of the sponsor can be found. Acceptance of identification statement RG 87.50 Before we accept an identification statement we will check some or all of its contents. We may ask the charitable investment fundraiser for further evidence of information. If we consider that the information is likely to be false, incomplete or misleading, we will not accept the identification statement. RG 87.51 We will also refuse to accept an identification statement if it appears to us that the scheme does not fall within the underlying principles of our policy, or we consider it is likely that the charitable investment fundraiser will not comply with the conditions of relief. RG 87.52 If we accept an identification statement, this does not imply that we have reviewed all the information in the statement or formed any view on it. We may at any time check that any part of the identification statement is true and not misleading and that the statement meets the content requirements. A charitable investment fundraiser must provide any information or assistance that we ask for to enable us to do this. RG 87.53 We expect a sponsor to only accept an identification statement if the sponsor reasonably believes that it is true, complete and not misleading, and that the charitable investment fundraiser is likely to comply with the conditions of relief. Page 20 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 20 Changes to information in an identification statement RG 87.54 The charitable investment fundraiser must take all reasonable steps to ensure that the identification statement is up to date, complete and not misleading at all times while it is being relied on to comply with the conditions of the exemption. If the identification statement will not be current, the charitable investment fundraiser must lodge an application for acceptance of a replacement identification statement before the change and, if practicable, lodge in sufficient time to ensure that the new identification statement is accepted before the change has taken effect. RG 87.55 If a charitable investment fundraiser has not lodged an application for acceptance of a replacement identification statement with ASIC 28 days before the change, we are not likely to accept the replacement identification statement before the change. If less than 28 days is provided, the application should explain why it was not practicable to make an earlier application. RG 87.56 If a sponsor has accepted a charitable investment fundraiser’s identification statement, the charitable investment fundraiser should (where practicable) arrange for the sponsor to accept a replacement identification statement to ensure that while the exemption is relied on the identification statement is current. Revocation of acceptance of an identification statement RG 87.57 We may revoke acceptance of an identification statement at any time. We will notify the charitable investment fundraiser if we do so. We will consider revoking acceptance if we suspect that: (a) the identification statement is untrue, incomplete, misleading or not up to date; or (b) the charitable investment fundraiser has not complied with all the conditions that apply to the exemption. RG 87.58 We will give the charitable investment fundraiser a reasonable opportunity to satisfy us that: (a) we should not suspect deficiencies with either the identification statement or their compliance; or (b) it is not appropriate in the circumstances to revoke acceptance of the identification statement. RG 87.59 A sponsor may also revoke acceptance of an identification statement at any time. We expect that the sponsor will consider revoking acceptance if they suspect that: (a) the identification statement is untrue, incomplete, misleading or not up to date; or (b) the charitable investment fundraiser has not complied with all the conditions that apply to the exemption. Page 21 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 21 RG 87.60 If we or a sponsor revoke acceptance of an identification statement, the exemption will no longer apply to the charitable investment fundraiser and the charitable investment fundraiser must then comply with the relevant fundraising, managed investment, debenture and licensing provisions. Public access RG 87.61 Each charitable investment fundraiser must maintain, or arrange for an associate to maintain, a website on which it publishes its identification statement, as accepted by ASIC or a sponsor, for five years after the charitable investment fundraiser relied on or purported to rely on it. The identification statement must be easy for members of the public who have access to the internet to find. Disclosure RG 87.62 Charitable investment fundraisers must not issue a debenture or interest in a charitable scheme under the exemption unless they have given certain disclosures to retail clients (including any associated retail clients). This also applies if the charitable investment fundraiser accepts an additional investment under: (a) a debenture that was issued under a previous exemption given by ASIC; or (b) an interest in a charitable scheme in relation to which any interest has been or is to be issued under a previous exemption given by ASIC. Note: If the disclosures have already been provided to a client, they need not be provided again for an additional investment, whether it involves the issue of a new financial product or not. RG 87.63 We do not propose to prescribe the form of the disclosures provided, other than in relation to the content requirements set out in RG 87.25–RG 87.66. The charitable investment fundraiser may wish to conduct consumer testing on the structure and promotion of the product so it is unlikely to be acquired by persons who do not understand the required disclosures, and to otherwise ensure that the prospective investor understands the product. Avoid indicating that the product is regulated RG 87.64 There must be no reference in any promotional material or offer document that states or implies that ASIC has approved or examined the charitable investment fundraiser, the financial products, or any promotional material or offer document. Note: A charitable investment fundraiser may be under additional disclosure requirements under the conditions of an exemption provided by the Australian Prudential Regulation Authority (APRA) from the Banking Act 1959 (Banking Act). Page 22 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 22 Additional disclosure required for retail clients RG 87.65 The charitable investment fundraiser must disclose to each retail client: (a) how the investment funds are used to support the charitable purpose. For example, it may be the yield on the investments made by the charitable investment fundraiser or charitable scheme (less costs and income payable to investors), rather than the investment itself, that is directed towards promoting the charitable purpose; (b) where the identification statement may be viewed; (c) that the charitable investment fundraiser is required by law to notify investors that the debenture or interest and their offering is not subject to the usual protections for investors under the Corporations Act and is not regulated by ASIC; and (d) if the charitable investment fundraiser does not hold an AFS licence, a statement of that fact. RG 87.66 Certain disclosures must be made in each offer document and promotional material given to retail clients in connection with the debentures or interests in a charitable scheme. These documents and materials must incorporate clear and prominent statements that the charitable investment fundraiser is required by law to notify investors that: (a) the investment is only intended to attract investors whose primary purpose for making their investment is to support the charitable purpose; (b) the investment is not comparable to investments that are issued by banks, finance companies or fund managers; and (c) the investor may be unable to get some or all of their money back when they expect to or at all. RG 87.67 In addition to meeting mandatory disclosure requirements, we expect the charitable investment fundraiser to clearly disclose to retail investors: (a) the identity of the charity; and (b) the terms and conditions of the offer (or a summary of those terms and conditions). Investor acknowledgment statements RG 87.68 Charitable investment fundraisers must not issue a debenture or interest in a charitable scheme under the exemption to a non-associated retail client unless the client has provided an investor acknowledgement statement to the charitable investment fundraiser. This also applies if the charitable investment fundraiser accepts an additional investment under: Page 23 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 23 (a) a debenture that was issued under the exemption or a previous exemption given by ASIC; or (b) an interest in a charitable scheme in relation to which any interest has been or is to be issued under the exemption or a previous exemption given by ASIC. Note: If the investor acknowledgement statement has already been provided by the client, it need not be provided again for an additional investment, whether it involves the issue of a new financial product or not. RG 87.69 The investor acknowledgement statement must state that the retail client understands the matters set out at RG 87.65–RG 87.66. The writing need not include the matters but can refer to them in another document that is part of the document containing the acknowledgement. RG 87.70 The statement must be separate from any other agreement or acceptance by the client. It cannot be part of an application for the investment or document containing other representations. RG 87.71 The investor acknowledgement statement is ‘signed’ if the client is identified and their intention indicated. The statement can be signed physically or electronically—for example, by appending the client’s name to an email that is intended to demonstrate acceptance of the content or by typing their name into the signature field on an electronic form. Lodge financial report RG 87.72 A charitable investment fundraiser must, if it has issued debentures or interests under the exemptions: (a) prepare a financial report in accordance with the Australian accounting standards: (i) for itself, if it issues debentures; or (ii) for the charitable scheme, if it issues interests in the charitable scheme. The report must be in accordance with the recognition and management standards that apply to a reporting entity, even if it is not a reporting entity; (b) arrange for a registered company auditor to prepare an audit report on the financial report within six months after the end of its financial year; (c) publish the financial report on the internet, accessible by a link from where the relevant identification statement is or was most recently published for at least three years after they were first published; and Page 24 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 24 (d) lodge the audited financial report with: (i) the ACNC, if required by law to do so; or (ii) ASIC. Note: The Australian Charities and Not-for-profits Commission Act 2012 (ACNC Act) provides that financial reporting requirements that apply depend on the size of the registered charity, measured by its annual revenue. Some charities (including small-sized and medium-sized charities and charities that are ‘basic religious charities’, irrespective of size) may not be required to lodge an audited financial report with the ACNC. However, if the charity is not required to lodge the financial report with the ACNC, it will be required to lodge it with ASIC. RG 87.73 The requirements are to ensure that certain information is available to ASIC and current and prospective investors. It also supports accountability of the charitable investment fundraiser. Breach reporting RG 87.74 Charitable investment fundraisers must submit a written report to ASIC of the full particulars of each breach, or likely breach, of a condition of relief. The charitable investment fundraiser must report within 15 business days of becoming aware of the breach. RG 87.75 We may exclude certain kinds of breaches from these requirements if we consider that, based on our experience, the nature and materiality of these breaches mean that the burden of compliance outweighs the benefit of disclosure. RG 87.76 The requirement is in addition to any breach reporting obligation those entities that hold an AFS licence with authorisations to offer investments to retail clients have under the Corporations Act. RG 87.77 If a charitable investment fundraiser becomes aware of a breach of a condition of relief and does not notify ASIC, the relief will no longer apply unless and until we confirm in writing that the fundraiser may continue to rely on our exemptions. We may impose conditions for providing such confirmation. RG 87.78 In light of the potential implications, we strongly encourage a charitable investment fundraiser to report to ASIC if in any doubt. The fact that a breach is reported to ASIC does not imply that we will take any further action. See Regulatory Guide 78 Breach reporting by AFS licensees (RG 78) for more information. Page 25 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 25 D Product restrictions for charitable investment fundraisers relying on ASIC’s exemptions Key points This section explains the product restrictions that will apply to charitable investment fundraisers that seek to rely on exemptions from the fundraising, managed investment, debenture and licensing provisions. The conditions cover the restrictions on: • investments that are repayable or redeemable within 31 days, except on expiry of a fixed term of at least 31 days (see RG 87.80–RG 87.84); • certain modes of discharging, in whole or in part, the entitlements of a client that may enable financial products offered under the exemptions to be used as transaction facilities (see RG 87.85–RG 87.86); • allowing repayment or redemption if there are grounds for concern about the ability to meet all investors’ entitlements (see RG 87.87– RG 87.92); and • the use of certain terms that imply financial products offered under the exemptions can be used as transaction facilities (see RG 87.93– RG 87.95); RG 87.79 Some conditions apply to all charitable investment fundraisers who seek to rely on this relief and others will apply only to retail charitable investment fundraisers. Some conditions apply only in relation to retail clients and others apply more generally, as indicated in Table 1. Note: For the commencement dates for the requirements in this section, see Table 1. Products repayable in less than 31 days Products issued from 1 January 2017 RG 87.80 From 1 January 2017, a retail charitable investment fundraiser relying on the exemptions must not issue to any non-associated retail clients debentures or interests in a charitable scheme that are short-term investment products— that is, products that: (a) have a fixed term of less than 31 days (from the time of a payment made by the investor under the product) within which the investor cannot require that they be repaid or have their rights redeemed in whole or part; (b) have a fixed term of 31 days or more but do not require the investor to be promptly paid at the expiry (e.g. they require a request for repayment), unless the investor’s entitlement if they do not get paid Page 26 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 26 becomes a right that would not be prohibited if originally made on that basis; or (c) do not have a fixed term and the investor can be repaid or have the rights acquired from the payment redeemed in less than 31 days of request of the investor. Products held from 1 January 2018 RG 87.81 By January 2018, all charitable investment fundraisers that rely on the exemptions must ensure that no non-associated retail client holds a short- term investment product. Underlying principles for short-term investment restrictions RG 87.82 We consider that the circumstances in which relief is appropriate should be limited by the restriction on retail clients acquiring products that could be used on a very short-term basis, to ensure that the financial products offered are not being used by non-associated retail clients as transactional facilities. RG 87.83 Transactional facilities imply a strong expectation of availability of funds; if present, these facilities should be subject to regulation under the fundraising, debenture and managed investment provisions. These provisions would be more appropriate for products involving transactional facilities, as they can help ensure that investors understand the risks and also require arrangements that can help ensure the liquidity risks are managed. RG 87.84 Our requirements are similar to those that APRA has indicated it will apply to religious charitable development funds to be exempted from the Banking Act from 1 January 2017 and 1 January 2018. Most major charitable investment fundraisers rely on the exemption under the Banking Act. Our exemption condition ensures this applies to all charitable investment fundraisers. Transactional facilities RG 87.85 Retail charitable investment fundraisers must only issue debentures and interests to non-associated retail clients if these clients can only be paid or repaid for the debenture or interest by cheque to the client or to an account of the client with an Australian ADI. RG 87.86 This requirement helps ensure that from 1 January 2018, existing retail clients are less likely to treat as transactional facilities financial products that could affect the liquidity of the financial products held by the non-associated retail clients that are receiving new issues. Page 27 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 27 Allowing short-term repayment RG 87.87 Retail charitable investment fundraisers that rely on the exemption must only allow any repayment or redemption of debentures or redemption of interests: (a) on a winding up; (b) if the charitable investment fundraiser has reasonable grounds to believe that all holders of debentures or interests will be repaid on that day and at all future times in accordance with their entitlements: (i) if all repayments and redemptions that the charitable investment fundraiser may be required to pay on the relevant day were made; and (ii) if all repayments and redemptions that may reasonably be expected to be due on each future day were made on that future day; and (c) if the debenture or interest is held by an individual and the charitable scheme is satisfied the repayment or redemption would alleviate financial hardship that the individual is suffering or would suffer. RG 87.88 Except when relieving financial hardship or on a winding up, it is not appropriate that repayment or redemptions occur where it creates an unreasonable risk of other clients not being paid. This applies especially when there are non-associated clients who will not have short-term investment products, and therefore be unable to act even when a liquidity issue affecting the investment has arisen. RG 87.89 In assessing investors’ entitlements, the charitable investment fundraiser must consider entitlements created by the marketing of the debentures or interests—that is, if the marketing has created an expectation about repayment—as well as the entitlements derived from the terms of issue of the debentures or interests. RG 87.90 We expect charitable investment fundraisers to ensure that debentures or interests are not marketed (especially to retail clients), in a way that creates expectations about repayment or redemption being available if these may not be fulfilled. If any representation, express or implied, is made that the charitable investment fundraiser will have the ability to make repayments or redemptions and there are not reasonable grounds for the representation, we will treat the representation as misleading: s728(2) and 769C. RG 87.91 We understand that on any day, many of the payments that holders of debentures or interests may be entitled to may not have to be paid because the holder rolls over their investment. A charitable investment fundraiser can establish cut-off times for requests for repayment or redemption so as to be in a position to know that, when the cut-off time has passed, the amounts that have been rolled over and not requested for repayment or redemption will not have to be paid on that day. This cut-off process would enable Page 28 REGULATORY GUIDE 87: Charitable schemes and school enrolment deposits © Australian Securities and Investments Commission September 2016 Page 28 repayments and redemptions