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ASIC Simplifies Website Disclosure By Paul Cleary | December 2010 Area of Expertise | Insurance & Financial Services

Summary Effective 13 December 2010, ASIC released Class Order [CO 10/1219] Facilitating online delivery of PDSs, FSGs and SOAs and Regulatory Guide 221 Facilitating online financial services disclosures (RG 221). [CO 10/1219] modifies the Corporations Act 2001 (Act) and the Corporations Regulations 2001 (Regulations) to enable providers in certain circumstances to make required disclosures online without the requirement that the provider be reasonably satisfied that the disclosure has been received. In RG 221, ASIC sets out its interpretation of the online disclosure provisions in the Act. ASIC also explains the relief it has given in [CO 10/1219].

Who Does This Impact? All financial services providers and their advisers.

What Action Should Be Taken? As RG 221 and [CO 10/1219] clarify the online disclosure practices that ASIC considers are allowed under the law, all financial services providers using email and the internet to deliver financial services disclosures to clients should read [CO 10/1219] and RG 221.

Why are CO 10/1210 and RG 221 necessary? Previously, where website disclosure was the chosen method of disclosure, the provider was required to be satisfied on reasonable grounds that the client or the client’s agent had received the required disclosure (see regs 7.7.01(2)(a)(ii), 7.7.01(2)(b)(ii), 7.9.02A(1)(a)(ii) and 7.9.02A(1)(b)(ii) of the Regulations). In a practical sense, the law appeared to require the provider to have in place a tracking mechanism to establish whether the client had accessed the website disclosure. It was also arguable that where a provider sent an email to a client with a hyperlink or url where the disclosure was located the disclosure was not ‘sent’ because the client still needed to retrieve the disclosure upon receipt of the email. ASIC’s stated aim is to facilitate the online delivery of financial services disclosures (see RG 221). Given that the previous practical difficulties could discourage providers from delivering disclosure online, ASIC issued Class Order [CO 10/1219] to enable providers in certain circumstances to make required disclosures available online without the requirement that the provider be reasonably satisfied that the disclosure has been received. ASIC also considers that its guidance will enhance member engagement and save providers considerable printing and mailing costs.

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ASIC Simplifies Website Disclosure by Paul Cleary

What are the details of the Class Order? [CO 10/1219] inserts the following new sections into the Act: •

s940C(1)(a)(iia) which enables the product provider to make a Financial Services Guide (FSG), Supplementary Financial Services Guide (SFSG), or a Statement of Advice (SOA) available to the client (or the client’s agent) by agreeing to make it available on a website that is maintained by or on behalf of the provider and giving a notice in printed or electronic form to the client, or the client’s agent, that it is available on the website;

s940C(1A) which provides that a notice in electronic form that a SOA is available on a website must not contain a hypertext link to the website;

s940C(2)(b)(iia) which enables the product provider to make the disclosures required by ss941C(7) and 946B(6) (ie. information that may be given in substitution for an FSG or SOA where the financial service relates to certain products including basic deposit products and related non-cash payment facilities) available to the client (or the client’s agent) by agreeing to make it available on a website that is maintained by or on behalf of the provider and giving a notice in printed or electronic form to the client, or the client’s agent, that it is available on the website;

s940C(2A) which provides that a notice in electronic form that information given in substitution for a SOA is available on a website must not contain a hypertext link to the website; and

s1015C(1)(a)(iii) which enables the product provider to make a Product Disclosure Statement (PDS) available to the client (or the client's agent) by agreeing to make it available on a website that is maintained by or on behalf of the provider and giving a notice in printed or electronic form to the client, or the client’s agent, that it is available on the website.

In relation to the requirement under new ss940C(1A) and 940C(2A) that a notice not contain a hyperlink, ASIC’s view is that this will reduce the risk that a client will be exposed to a security risk such as phishing that ASIC considers particularly applies to SOAs due to the personalised nature of the information typically provided in an SOA. The Class Order also modifies the Regulations as follows: Reg 7.7.01(2A) has been inserted. It provides that reg 7.7.01(2) does not apply to a FSG, a SFSG or SOA made available to a person, or a person’s agent, in accordance with s940C(1)(a)(iia). This change makes it clear that once the provider and client (or agent) have agreed about the online provision of the FSG, SFSG or SOA , the provider does not have to be satisfied on reasonable grounds that the client has received the disclosure. In other words, in these circumstances, the provider is not required to track whether the client or client’s agent has accessed the disclosures on the website. Reg 7.9.02A(1A) has been inserted. This provides that reg 7.9.02A(1) does not apply to a PDS made available to a person, or a person’s agent, in accordance with s1015C(1)(a)(iii). This change also makes it clear that once the provider and client (or agent) have agreed about the online provision of the PDS, the provider does not have to be satisfied on reasonable grounds that the client has received the PDS. The Class Order also makes various consequential and clarifying amendments to the Act and Regulations.

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ASIC Simplifies Website Disclosure by Paul Cleary

What guidance does RG 221 contain? RG 221 explains how delivery methods can be used relying on the online disclosure provisions under Parts 7.6–7.9 of the Act. Section B of RG 221 explains whether a provider is required to obtain a client’s express consent before delivering required disclosures online. With the aim of ensuring that clients continue to receive clear, concise and effective information where disclosures are delivered online, ASIC gives good practice guidance on online disclosure in Section C of RG 221. The appendix to RG 221 then summarises how different types of financial services disclosures can be delivered online under the law.

What should financial services providers do now? As this guidance from ASIC clarifies the online disclosure practices that ASIC considers are allowed under the law, all financial services providers using email and the internet to deliver financial services disclosures to clients should read [CO 10/1219] and RG 221. We note that ASIC has strongly encouraged providers to take into consideration its good practice guidance when delivering disclosures online (see RG 221 at RG 221.15). For advice in relation to the online provision of financial disclosures please contact Paul Cleary:

Paul Cleary Partner T: 02 8257 5760 paul.cleary@turkslegal.com.au

Sydney | Level 29, Angel Place, 123 Pitt Street, Sydney, NSW 2000 | T: 02 8257 5700 | F: 02 9239 0922 Melbourne | Level 10 (North Tower) 459 Collins Street , Melbourne, VIC 3000 | T: 03 8600 5000 | F: 03 8600 5099 Insurance & Financial Services | Commercial Disputes | Workers Compensation | Business & Property

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ASIC Simplifies Website Disclosure