ASIC issues licensing relief for securitisation special purpose vehicles

By Ninian Lewis and Gautham Srinivas.

Key Points:
The Australian Securities and Investment Commission ("ASIC") issued Class Order [CO 04/1526] Securitisation special purpose vehicles on 11 January 2005. The new Class Order contains no relief for managers of securitisation vehicles. The existing relief has been extended until 30 June 2005. Securitisation managers relying upon Class Order [CO 03/1098] Securitisation special purpose vehicles and securitisation managers will need to obtain an Australian Financial Services Licence ("AFSL") by 1 July 2005. Under the new Class Order, special purpose companies and special purpose trustee companies will be exempted from the requirement to obtain an AFSL subject to certain conditions.

No relief for securitisation managers

Class Order [CO 04/1526] does not provide any relief for the managers of securitisation vehicles. Any securitisation manager currently relying upon Class Order [CO 03/1098] will need to obtain an AFSL by no later than 1 July 2005 (unless the securitisation manager is not proposing to manage any new transactions - in which case advice should nevertheless be sought).

Relief for special purpose companies and special purpose trustee companies

"Securitisation entities", as defined in [CO 04/1526], will be not be required to obtain an AFSL in relation to the provision of certain financial services. A "securitisation entity" is, in summary, a company which funds itself by issuing securitisation products and is an insolvency-remote special purpose entity according to rating agency criteria. A securitisation entity can be acting as trustee of a trust providing that it satisfies these criteria (that is, it would effectively not be able to undertake business other than securitisation transactions). The relief is only provided in relation to the provision of specified financial services and subject to a number of conditions. The specified financial services are:

• issuing debt instruments or interests in a managed investment scheme;
• dealing in derivatives;
• providing custodial or depository services; and
• dealing, as trustee, on behalf of the beneficiaries of a trust.

The exempted financial services do not include the provision of advice in relation to a financial product (and, accordingly, to the extent that issuing an information memorandum is the provision of advice this will not be covered by the Class Order).

Conditions for relief

There are a number of conditions that apply in order for a securitisation entity to obtain the exemptions. These conditions vary depending upon the relevant financial service. The two main conditions are:

• either a person holding an AFSL must take responsibility for the FSR obligations of the securitisation entity by way of its licence conditions and a deed poll or the securitisation entity must act on advice given by the holder of an AFSL under a written agreement which does not exclude liability on behalf of the AFSL holder for negligence in providing that advice. The latter alternative has been added since ASIC's consultation paper and seems workable.
• the securitisation entity must "have taken all reasonable steps to ensure that" securitisation products issued by it are not acquired by retail clients. It is not clear what ASIC will require in this regard.

A condition that ASIC previously suggested in its consultation paper - that the securitisation entity only be conducting a single transaction - has been dropped. The securitisation entity may be established for multiple transactions.

Will it work?

Each special company will need to consider the Class Order as it applies to its particular circumstances. However, in general, the Class Order appears to provide sufficient relief such that special purpose companies will not need to obtain an AFSL - although it is likely that some amendments will need to be made to their program documents.

There are some technical problems (particularly in applying the new Class Order to securitisation entities which undertake synthetic securitisation transactions and in relation to ensuring that securitisation products are not acquired by retail clients) which may need to be clarified with ASIC.