Thinking | 22 December 2010

New ASIC Class Order 10/1219 – Facilitating the electronic delivery of disclosure documents

The Australian Securities Investment Commission (ASIC) has released Class Order 10/1219 (CO 10/1219) and Regulatory Guide 221 (RG 221). CO 10/1219 aims to make the online delivery of Product Disclosure Statements (PDS), Financial Services Guides (FSG) and Statements of Advice (SOA) easier for financial service and product providers (Providing Entities).

The Class Order follows ASIC’s consultation with industry on how to better facilitate the online delivery of financial services disclosure. CO 10/1219 seeks to remove practical difficulties to the electronic delivery of disclosure documents but does not fundamentally alter existing regulatory settings.

RG 221 sets out ASIC’s interpretation of the online disclosure principles in the Corporations Act 2001 (the Act) and describes the relief available under CO 10/1219. It also sets out ASIC’s good practice guidance on online disclosure.

Who will the relief apply to?

Providing Entities may include:

  • anyone who is required to provide a client with a PDS, FSG or SOA under chapter 7 of the Act;
  • financial product issuers;
  • financial advisers who issue SOAs;
  • Australian Financial Service (AFS) licensees who distribute FSGs; and
  • Authorised Representatives of AFS licensees who distribute FSGs on behalf of the AFS licensee.

What does the law say about electronic delivery of these documents?

The Act permits the electronic delivery of PDS, FSGs and SOAs to a client or their agent. Before CO 10/1219, the Act and the Corporations Regulations 2001 (the Regulations) did not specifically state that a Providing Entity could make these documents available to their clients via their websites. However, the Act does permit the delivery of these documents in a manner that has been agreed between the Providing Entity and the client or the client’s agent. The practice has been that where the client or the client’s agent has agreed, the Providing Entity has made these documents available to their clients (or their agents) through its website or by providing a text hyperlink to its website.

However, the Regulations created uncertainty for Providing Entities wanting to make these documents available via electronic means because, in the case of a PDS for example, they require that the Providing Entity be satisfied, on reasonable grounds, that the client or the client’s agent has received the disclosure. Practically, this could mean that the Providing Entity would need some sort of tracking mechanism confirming that the client has in fact received the document. According to ASIC, in the case of an email that contains a hyperlink to the disclosure, the Providing Entity would not only need to be satisfied that the client has received the email, but also that they have clicked on the link and followed through to the document.

How does CO 10/1219 modify the existing law?

CO 10/1219 has modified the Act to make it clear that where a client or the client’s agent agrees:

  • PDS, FSGs, and SOAs may be delivered by sending clients a written (paper or electronic) notice with a reference to a website address where the disclosure document can be found; and
  • PDS, and FSGs, but not SOAs, may be delivered by sending clients an email with a hyperlink to the disclosure. ASIC has stated that SOAs will not be permitted to be delivered via hyperlink to a website to reduce the risk that clients will be exposed to security risks such as phishing.

CO 10/1219 also modifies the Regulations so that where these disclosure documents are delivered electronically, the Providing Entity will not be required to satisfy itself, on reasonable grounds, that the client or the client’s agent has received the disclosure. This eliminates any practical difficulty for the Providing Entity in having to monitor whether the client has accessed the disclosure.

RG 221

RG 221 provides ASIC’s good practice guidance in relation to the electronic delivery of disclosure documents. ASIC has stated that:

 

  • client consent to a particular delivery method should be express, and it must be easy for clients to unsubscribe to a delivery method at any time. Clients should be able to request paper copies of the disclosures at no cost;
  • the disclosure documents should be easy to find on the Providing Entity’s website. Clear and exact instructions should be provided to clients about how and where the documents will be found;
  • clients should be able to readily access these documents in the future – this means that the documents must be capable of being saved or printed, and clients should be readily encouraged to do this;
  • the disclosure document should be available electronically for at least two years unless the document is superseded with a new version;
  • the Providing Entity must retain copies of all versions of the disclosures; and
  • where the Providing Entity delivers the document via email, ASIC has expressed a preference that the client be provided with a website reference rather than a hyperlink. This is to prevent security risks. Providing Entities may wish to direct clients to www.staysmartonline.gov.au.

The appendix to RG 221 summarises ASIC’s views on how Providing Entities can use online disclosure within the law.

What does this mean for you?

Practically, nothing much should change for Providing Entities that have taken the view that the law allows for electronic delivery of disclosure documents, and have developed practices accordingly. The purpose of CO 10/1219 is to legitimise current industry practice in the delivery of disclosure document via electronic media, and to remove any unintended practical difficulties regarding the monitoring of the receipt of the disclosures by clients.  In particular, client consent will still be required in many cases.

Providing Entities who use email and web addresses to deliver disclosure should familiarise themselves with CO 10/1219 and give consideration to the good practice guidance in RG 221.

Contact

Adrian Verdnik

Adrian’s financial services law practice covers superannuation, managed funds, insurance, and financial advice.

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