The Australian Securities and Investments Commission (ASIC) released Regulatory Guide 236 Do I need a licence to participate in carbon markets? (RG 236) on 9 March 2012. RG236 sets out new guidelines to help businesses comply with their legal obligations leading up to the introduction of Australia's carbon pricing mechnism (CPM) under the Clean Energy Act 2012 and related legislation, from 1 July this year.
ASIC has also released Consultation Paper 175 Carbon Markets: Training and financial requirements (CP 175) which invites feedback on the proposal for applying their current AFS licensing policies to licensees providing financial services in relation to certain carbon credits and emissions units.
ASIC is seeking feedback by 10 April 2012.
Summary of the carbon pricing mechanism
Certain carbon credits and emissions units under the CPM will be financial products under the Corporations Act 2001 (Corporations Act). This means you may require an Australian financial services (AFS) licence to carry on a financial services business in relation to trading a carbon product.
Under the CPM, liable entities will incur a penalty charge for their carbon emissions, unless they acquire and surrender a number of eligible emissions units equal to their total annual emissions. The related Carbon Farming Initiative (CFI) allows liable entities to also use offset credits generated through domestic emissions offset projects that reduce or sequester carbon emissions.
The CPM will commence on 1 July 2012.
Regulatory Guide 236
RG 236 includes the following key elements to help determine whether an AFS licence is required to participate in the trading of eligible emission units:
• an introduction to ASIC's role as regulator in relation to carbon markets and emissions units;
• details regarding the "regulated emissions units" which are financial products that likely require an AFS licence. These include:
‑ carbon units (see RG 236.51–RG 236.53);
‑ Australian carbon credit units (ACCUs) from CFI projects (see RG 236.54–RG 236.61); and
‑ eligible international emissions units (EIEUs) (see RG 236.62– RG 236.68);
• an outline of when a person is providing a financial service in relation to regulated emission units;
‑ a service is provided if you give financial product advice, deal in a financial product, make a market for a financial product, operate a managed investment scheme or provide a custodial or depository service;
• an outline of the steps required to apply for an AFS licence or vary an existing licence:
‑ this clarifies that a liable entity or market participant is likely to require an AFS licence if they are carrying on a financial services business in Australia, and no exemption applies to their circumstances;
‑ exemptions exist for personal dealings in regulated emissions units on a liable entity's or market participant's own behalf; for persons dealing in derivatives over regulated emissions units and foreign exchange contracts in some circumstances; and for foreign financial service providers;
‑ for steps to apply or vary an AFS licence see RG 236.128.
Consultation Paper 175
CP 175 is designed to address licensing requirements for persons providing financial services for regulated emissions units under the CPM.
ASIC is seeking feedback on the following proposals:
• guidance on training financial product advisors; and
• policy on financial requirements;
Proposed guidance on training financial product advisors:
AFS licensees are currently subject to the conduct obligations of Ch 7 of the Corporations Act, including to:
a) maintain the competence to provide the financial services covered by their licence; and
b) ensure that their representatives are adequately trained and competent to provide these financial services.
ASIC has set minimum standards for the training of all advisors providing financial services as described in Regulatory Guide 146: Licensing Training of financial product advisors (RG 146).
In CP 175, ASIC is proposing that after the commencement of the CPM, all advisors who provide financial product advice on regulated emissions units to retail clients will need to meet the training requirements in RG 146.
Regulated emissions units are proposed to be treated as Tier 1 financial products for the purposes of the training requirements.
Proposed policy on financial requirements:
In addition, AFS licensees are currently required to maintain:
a) adequate resources to provide the financial services covered by their licence and to carry out supervisory arrangements; and
b) adequate risk management systems.
ASIC describes these standards in Regulatory Guide 166: Licensing: Financial requirements (RG 166).
ASIC proposes that AFS licensees providing financial services for regulated emissions units should meet the current requirements of RG 166.
In association with these proposals, ASIC is asking for feedback on:
• the likely compliance costs;
• the likely effect on competition; and
• other impacts, costs and benefits.
To provide feedback to ASIC
We encourage our clients who are likely to require an AFS licence to provide feedback to ASIC in response to CP 175.
If you have any questions on the above, or would like assistance in making a submission, please contact one of partners listed (above) or the lawyer that you usually work with.