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Home Forums Australian Financial Services Licensing (AFSL) Forum Should I apply for a derivatives authorisation on my AFSL, because I recommend instalment warrants?

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  • #2207 Reply

    Some instalment warrants currently require a “securities” or “managed investment schemes” authorisation on your AFSL. Others already require a derivatives authorisation (check the PDS of the relevant product to find out). On our blog, in August 2010, we said that:


    Draft regulations have been released by Treasury, which, once passed, will amend the Corporations Act 2001 so that limited recourse borrowing arrangements (including instalment warrants) entered into in relation to superannuation funds will become derivatives (which are a type of financial product).


    As a consequence, you’ll need an appropriate AFSL Derivatives authorisation if you: issue a limited recourse borrowing arrangement to a superannuation fund; arrange for the issue of such a borrowing; or provide advice about such a borrowing.

    It may be necessary to have the authorisation as soon as September, as the draft regulations proclaim to commence on 29 September 2010. A summary of Treasury’s proposal, with links to the exposure draft and explanatory memorandum, can be found here.


    What does it mean for you?
    If you don’t have a derivatives authorisation, you will need to vary your AFSL using ASIC’s forms FS03 (licence variation), and FS20 (appointing a Responsible Manager). Nominating a Responsible Manager who has at least 3 years relevant derivatives experience may be a challenge. We’re available to discuss this with you if you’d like assistance.


    However, the draft legislation still has not been passed. In our experience, ASIC is not accepting derivatives applications until the legislation is finalised. This is current as at 15 December 2010.


    Author: Paul Derham


    #3049 Reply

    Did this legislation ever get passed, are Warrants a financial product that require a variation to an AFSL?

    #3051 Reply

    Paul Derham

    The legislation has not yet been passed.  In response to the draft legislation, the FPA suggested that “derivatives” was not appropriate classification and the appropriate authorisation should be “superannuation.”  AFMA submitted the existing argument that standard form instalment warrants (and many other warrants) are securities or interests in managed investment schemes, with a useful summary of the law.  Currently, many warrants are “securities”, but the nature of the warrant currently varies depending on the nature of the underlying product and this affects its legal classification.  An instalment warrant over real property is most likely a derivative as such property is not a financial product itself.


    Please fee free to contact us if you require further information.


    Author: Paul Derham
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Reply To: Should I apply for a derivatives authorisation on my AFSL, because I recommend instalment warrants?

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