What happens when a designation is applied to a financial product
A designation can change how a financial product is categorised under the FMC Act, affecting the compliance obligations for that product under the Act.
There are four kinds of financial products under the FMC Act: equity, debt, managed investment products and derivatives.
How a financial product is regulated depends on the product’s category.
There are also some products that are classed as ‘securities’ under the FMC Act but are not financial products.
Generally, disclosure and governance rules do not apply to products that are ‘securities’ but not ‘financial products’.
What we consider before we make a designation
Before we exercise our designation power, we must consider:
whether the designation is necessary or desirable to promote either or both of the FMC Act’s main purposes in section 3 or any of the additional purposes in section 4.
the economic substance of the relevant security and (where the designation will call in an offer for sale to the Part 3 disclosure regime) whether the offer was made for circumvention purposes.
We must also consult with substantially affected parties.
How will a designation apply
Designations can be made on terms and conditions that relate to the circumstances in which the designation applies.
We must publish our reasons at the time the declaration is made.
Designations remain in force indefinitely, until they are revoked or varied.
When a designation will not be given
Designations cannot be made for financial products that have already been issued or transferred.
What is an interim order
We can give an interim order that stops securities being acquired or disposed of, or services being supplied while considering whether to make a designation. We must, however, be satisfied the public’s interest is served.
The interim order gives us time to consider whether a designation is required. The order prevents activities that would counteract the effect of the proposed designation (as designations cannot have retrospective effect).
An interim order will apply for 15 working days after the order date. However, we can specify a longer period, of up to 30 working days, if we consider it is not reasonably practicable to reach a decision on the designation within the 15-working day period.
How a designation can change the statutory obligations for a product
A designation can change how a financial product is categorised under the FMC Act. This will change the statutory obligations that apply. There are four classes of financial products under the FMC Act. They are: equity, debt, managed investment products and derivatives. The way a financial product is regulated depends on the product’s category.
The table below provides an idea of what can change with a designation.
Designation that changes how a product is categorised
Designations may declare that:
a security is a financial product of a particular kind
We can call in securities that are not financial products into the FMC regime.
a security that would otherwise be a financial product of one kind is a financial product of a different kind
We can recategorise a financial product (eg from equity to debt)
a security that would otherwise be a financial product is not a financial product
We can exclude financial products from the FMC Act regime
If a designation results in a product being categorised as a particular type of financial product, we can also declare that someone is the issuer or offeror of those products.
If a designation results in a product becoming a managed investment product then we can also declare that there is a related scheme that is a managed investment scheme.
We may use our exemption power to modify the standard requirements being applied to a product upon the designation. This will ensure the requirements are fit for purpose for the particular product.
How designations can remove a statutory exemption
Designations can remove an existing statutory exemption available to an offer or person. This can be used to prevent abuse of the statutory exemptions, or to avoid the use of the exemptions in unintended circumstances.
The table below shows how a designation can remove an existing exemption for a product or a service.
Designation that removes the application of a statutory exemption
Designations may declare that:
an offer of issued financial products that is exempt from disclosure under Part 3 due to an exclusion under Part 1 of Schedule 1, be required to provide disclosure
We can stop a Schedule 1 exclusion applying to an offer and bring the offer back within the Part 3 disclosure regime.
an offer of financial products for sale that would not otherwise require disclosure under Part 3, does require disclosure
We can call-in offers of products for sale to be regulated under the Part 3 disclosure regime.
a person, service, or conduct not be subject to certain exemptions from DIMS licensing in s 389(2)
We can call-in certain DIMS providers (who would otherwise not be required to be licensed) to be licensed under the FMC Act.
a person, service, or conduct to not have exemptions or exclusions that would otherwise apply under section 238(1)(a) to (h) section 285, section 287, or section 309
dis-apply an exemption from having to make market disclosure of interests, as a substantial security holder or director or senior manager
declare that a facility (that is excluded from the definition of financial product market) is a financial product market.
How to apply
You can apply for a designation if you intend to offer financial products, and your view is, based on their economic substance, they should not be regulated under the FMC Act, or they should be classified and treated as a different category of financial product.
You apply for a designation by emailing your application to us.
You also need to send a hard copy letter identifying your emailed application.
Your letter should be forwarded to our offices and addressed to 'Exemptions Team'.
Should you apply for a designation or an exemption
A designation changes how a financial a product is classified under the FMC Act. It may change a financial product from one category to another (eg equity to debt) or declare that something is not a financial product at all. The result of these designations is to change the statutory obligations that apply to the product under the FMC Act.
You should consider applying for a designation if you have products that have extraordinary characteristics that you think should fit a different category, or should not be regulated as a financial product at all.
You should consider applying for an exemption rather than a designation when you think a product, in economic substance, is similar to other products of its type but that some aspects of the regulatory regime need to be adjusted for the circumstances. If your application relates to products that are already issued or transferred then this is another situation where you should consider applying for an exemption rather than a designation.
What information should be included in the application
An important part of your application is telling us what designation you are seeking.
The designation information you need to include are:
the full name, address and corporate status of the person(s) seeking the designation
the relevant designation power in section 562 of the FMC Act
the financial products or class of financial products you want the designation to cover
what you want the designation to do
any terms or condition you think should apply
the jurisdiction where the applicant is incorporated or constituted, and any securities exchanges where the applicant’s financial products are going to be listed
details of any related exemption you are seeking for the particular designation.
Explain why are you seeking this designation
You need to explain why you need the designation and justify the reasons. You should include an explanation of how the designation sought is consistent with the policy of the FMC Act, and how it meets the statutory tests in section 563.
Your application should explain the economic substance of the relevant financial product and why this supports the designation you are seeking.
It should explain how the designation will promote one or more of the purposes of the FMC Act regime:
confident and informed participation in financial markets
development of fair, efficient and transparent financial markets
to provide for timely, accurate, and understandable information for investment decisions
to ensure appropriate governance arrangements for financial products and services that allow for effective monitoring and reduce governance risks
to avoid unnecessary compliance costs
to promote innovation and flexibility in the financial markets.
Your application should also specify any proposed terms or conditions for the circumstances of the designation.
Related exemption application
If you think your financial product may be subject to unnecessary or inappropriate new disclosure or compliance obligations that come with the designation given, you might want to apply for an exemption to modify certain aspects of the new disclosure or compliance obligations.
You must include a draft declaration to give effe ct to the designation you seek. The declaration should include:
the financial products the designation will apply to
the new category you want the financial products to belong to, or if you think the financial products should no longer be regulated at all
the company’s, or other entity’s, proper legal names
any terms that need to be defined
the particular provisions of the relevant legislation
the terms and conditions for the designation sought
a summary of the key reasons for the designation (consistent with the policy of the FMC Act, and that meet the statutory tests for us to make a designation)
How much does it cost
Designation fees are set by regulations and apply from 17 December 2015. You need to send a cheque with your application for $1,265 to cover the application fee of $115 and an advance fee for fees and costs to be incurred. We will charge any additional time spent on an hourly basis (the hourly rate for FMA Board members is $230 and the hourly rate for FMA staff is $178.25).
We can also recover the cost of obtaining expert assistance in relation to particular applications. Applicants must also reimburse us for the costs of notifying the declaration notice in the Gazette.
How long does it take
Once we receive your application, it generally takes 8 to 12 weeks to process individual designations (that is applications relating to a particular person or transaction). However, this may take longer if significant policy issues arise.
When designations cannot be made
Designations cannot be retrospective. That means we are unable to make designations for financial products that have already been issued or transferred.
If you want to alter disclosure or compliance obligations for financial products that have already been issued or transferred, then you should consider applying for an exemption.