ASIC Class Order [CO 04/194]

Managed discretionary accounts

This instrument has effect under s601QA(1)(a), 741(1)(a), 951B(1)(a), 1020F(1)(a) and 1020F(1)(c) of the Corporations Act 2001.

This compilation was prepared on 7 January 2015 taking into account amendments up to [CO 14/1270]. See the table at the end of this class order.

Prepared by the Australian Securities and Investments Commission.

Australian Securities and Investments Commission
Corporations Act 2001 — Paragraphs 601QA(1)(a), 741(1)(a), 951B(1)(a), 1020F(1)(a) and 1020F(1)(c) — Exemption and Declaration

ASIC grants this exemption and makes this declaration under paragraphs 601QA(1)(a), 741(1)(a), 951B(1)(a), 1020F(1)(a) and 1020F(1)(c) of the Corporations Act 2001 (the Act).

1 MDA Operators

1.1 An MDA operator does not have to comply with section 601ED in relation to a managed investment scheme if the only interests in the scheme are rights to MDA services.

1.2 An MDA operator does not have to comply with Part 7.9 in relation to a financial product that is:

(a) a right to MDA services provided under a managed investment scheme that the MDA operator operates; or

(b) held by a client because a legal or equitable interest in a financial product is held on behalf of the client as part of the MDA services provided under a managed investment scheme that the MDA operator operates.

1.3 An MDA operator does not have to comply with Chapter 6D for an offer to a client of securities to be held by the client because a legal or equitable interest in securities is held on behalf of the client as part of the MDA services the MDA operator provides.

1.4 An MDA operator who relies on paragraph 1.1, 1.2 or 1.3 must comply with the conditions in paragraphs 1.11 to 1.33.

1.5 After 10 December 2004, paragraphs 1.1, 1.2 and 1.3 do not apply to an MDA operator unless the MDA operator has an Australian financial services licence that expressly authorises it to operate MDA services under this instrument.

1.6 Before 11 December 2004, paragraphs 1.1, 1.2 and 1.3 do not apply to an MDA operator unless, before providing MDA services, the MDA operator:

(a) reasonably believes that it can and will be able to rely on paragraphs 1.1, 1.2 and 1.3 and comply with the associated conditions of this instrument; and

(b) has a statement in writing signed by one of its responsible officers and dated of the belief and the process by which the belief was formed; and

(c) has lodged with ASIC a notice, in the form if any that ASIC specifies in writing from time to time, that it intends to provide MDA services under this instrument.

The notice referred to in subparagraph (c) must be lodged within 3 months after the date of the statement in subparagraph (b).

1.7 Before 11 December 2004, an MDA operator does not have to comply with section 601ED in relation to a managed investment scheme if the only interests in the scheme are rights to MDA services if it:

(a) provided MDA services before the date of this instrument; and

(b) has taken at all times after 10 June 2004 all practicable steps to satisfy subparagraphs 1.6(a) to (c).

1.8 Before 11 December 2004, an MDA operator does not have to comply with Part 7.9 in relation to a financial product that is:

(a) a right to MDA services provided under a managed investment scheme that it operates; or

if it:

(d) has taken at all times after 10 June 2004 all practicable steps to satisfy subparagraphs 1.6(a) to (c).

1.9 Before 11 December 2004, an MDA operator does not have to comply with Chapter 6D for an offer to a client of securities to be held by a client because a legal or equitable interest in securities is held on behalf of the client as part of the MDA services the MDA operator provides if it:

(a) provided MDA services before the date of this instrument; and

(b) has taken at all times after 10 June 2004 all practicable steps to satisfy subparagraphs 1.6(a) to (c).

1.10 Paragraph 1.1, 1.2 and 1.3 cease to apply to an MDA operator if:

(a) it is notified by ASIC in writing that it is excluded from relying on this instrument; or

(b) 5 business days have elapsed since the MDA operator became or should reasonably have become aware of matters that give it reason to believe that it has failed or is likely to fail, in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applies, to comply with a condition of this instrument without full particulars of the failure having been notified to ASIC (to the extent that the MDA operator knows those particulars or would have known them if it had undertaken reasonable enquiries); or

(c) having received a notification under paragraph (b), ASIC does not notify the MDA operator in writing that it may continue to rely on this instrument within 20 business days of the notification.

Financial Services Guide condition

1.11 Before entering into an MDA contract to provide MDA services to a retail client, the MDA operator must give to the client, a Financial Services Guide that complies with Division 2 of Part 7.7 and includes such of the following information, to the extent to which it is actually known to the MDA operator, as a person would reasonably require to make a decision, as a retail client, whether to participate in the MDA service and the statements to the following effect:

(a) information about any significant risks associated with investing through the MDA service; and

(b) a statement whether and, if so, information as to how, the client may give instructions to the MDA operator on how rights relating to financial products in the client’s portfolio assets are to be exercised; and

(c) a statement that the client must first enter into an MDA contract before MDA services are provided to the client; and

(d) if the investment program that will be included in the MDA contract is to be one prepared by the MDA operator, statements that the investment program complies with Division 3 of Part 7.7 and will contain:

(i) statements about the nature and scope of the discretions the MDA operator will be authorised and required to exercise under the MDA contract and any investment strategy that is to be applied in exercising those discretions; and

(ii) information about any significant risks associated with the MDA contract; and

(iii) the basis on which the MDA operator considers the MDA contract to be suitable for the client; and

(iv) the warnings that subparagraph 1.16(c)(iii) requires; and

(e) a statement of who will be responsible for reviewing the investment program; and

(f) if the investment program that will be included in the MDA contract is to be prepared by an external MDA adviser:

(i) a statement of the name and contact details of the external MDA adviser; and

(ii) the statements and information in subparagraphs (d)(i) and (ii), to the extent that those statements or information are not included in the investment program; and

(iii) a statement to the effect that the investment program contains:

(A) the basis on which the external MDA adviser considered the MDA contract to be suitable for the client; and

(B) the warnings that paragraph 1.18(b) requires; and

(g) if an external MDA custodian or a person acting on behalf of an external MDA custodian holds the legal title to any of the client’s portfolio assets:

(i) a statement to the effect that the MDA operator does not provide custodial or depository services relating to the MDA services for those client’s portfolio assets; and

(ii) a statement of the name and contact details of the external MDA custodian who is responsible for the custodial or depository services in relation to those client’s portfolio assets; and

(iii) statements of the services for which the external MDA custodian is responsible and for which the MDA operator is responsible;

(h) if the client will hold the client’s portfolio assets, a statement to the effect that the MDA service does not include custodial or depository services; and

(i) any other information that might reasonably be expected to have a material influence on the decision of a reasonable person, as a retail client, about whether to invest through the MDA service; and

(j) a statement to the effect that the Financial Services Guide complies with this instrument.

MDA contract conditions

1.12 The MDA operator must ensure that each MDA contract obliges the MDA operator to:

(a) act honestly in providing the MDA services to the client; and

(b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the MDA operator’s position in providing the MDA services to the client; and

(c) act in the best interests of the client in providing the MDA services to the client and, if there is a conflict between the interests of the client and its own interests in providing the MDA services to the client, give priority to the client’s interests; and

(d) not use information the MDA operator has through providing MDA services to the client to gain an improper advantage for itself or any other person or to cause detriment to the client; and

(e) comply with:

(i) the conditions of this instrument that apply to it; and

(ii) the investment strategy set out in MDA contract unless otherwise agreed in writing by the client; and

(iii) any representations about how it will provide MDA services included in a Financial Services Guide given to the client for the MDA services unless otherwise agreed in writing by the client; and

(f) compensate the client for any loss because of any act or omission of any agent or other person engaged in connection with the MDA service, other than an external MDA custodian or external MDA adviser or a person acting on their behalf, as if the acts or omissions were acts or omissions of the MDA operator.

1.13 The MDA operator must comply with the provisions of the MDA contract that subparagraphs 1.12(a) to (d) and (e)(ii) require.

Note: This condition does not affect in any way the MDA operator’s contractual obligation to comply with all the terms of the MDA contract, nor any remedy a client may have for any breach of the contract.

1.14 The MDA operator must ensure that the MDA contract clearly specifies the nature and scope of the discretions that the MDA operator will be authorised and required to exercise and any investment strategy that is to be applied in exercising those discretions.

Investment program conditions

1.15 The MDA operator must ensure that the MDA contract with a retail client contains an identifiable part that is entitled “Investment Program” prepared by the MDA operator or an external MDA adviser that includes an opinion that the MDA contract is suitable for the client’s relevant personal circumstances.

1.16 If the MDA operator prepares the investment program, the MDA operator must ensure that the investment program:

(a) is appropriate for the client; and

(b) includes the basis on which the MDA operator considers entering the MDA contract to be suitable for the client’s relevant personal circumstances; and

(i) any significant risks associated with the nature and scope of the MDA operator’s discretions under the MDA contract and the strategies that are to be applied in exercising those discretions; and

(ii) whether and if so how the client may give instructions to the MDA operator that affect the MDA operator’s discretions under the MDA contract; and

(iii) warnings that the MDA contract:

(A) may not be suitable for the client if the client has provided to the MDA operator limited or inaccurate information relating to the client’s relevant personal circumstances; and

(B) may cease to be suitable if the client's relevant personal circumstances change; and

(iv) details of when and by whom the suitability of the MDA contract to the client’s relevant personal circumstances will be reviewed as required by this instrument; and

(d) is worded and presented in a clear, concise and effective manner; and

(e) unless there is a separate Statement of Advice that meets those requirements, complies with, and has a statement to the effect that it complies with, the requirements for a Statement of Advice in Subdivisions C and D of Division 3 of Part 7.7.

1.17 If an external MDA adviser prepares the investment program, the MDA operator must have no reason to believe that:

(a) the investment program does not comply with the requirements for a Statement of Advice in Subdivisions C and D of Division 3 of Part 7.7; or

(b) any statement in the Financial Services Guide given by the MDA operator under this instrument about the investment program prepared by the external MDA operator is misleading or deceptive or likely to mislead or deceive.

1.18 If an external MDA adviser prepares the investment program, the MDA operator must ensure that the investment program contains:

(a) the basis on which the external MDA adviser considered the MDA contract to be suitable for the client’s relevant personal circumstances; and

(b) warnings that the MDA contract:

(i) may not be suitable for the client if the client has provided to the external MDA adviser limited or inaccurate information relating to the client’s relevant personal circumstances; and

(ii) may cease to be suitable if the client’s relevant personal circumstances change.

Investment program review conditions

1.19 The MDA operator must ensure that it or an external MDA adviser gives each retail client personal advice about whether the MDA contract for that client is suitable in light of the client's personal objectives, needs and relevant personal circumstances at least once every 13 months.

1.20 If the MDA operator gives the personal advice, it must comply with Division 3 of Part 7.7 in relation to that advice and provide a Statement of Advice for the advice that complies with the requirements for a Statement of Advice in Subdivisions C and D of Division 3 of Part 7.7.

1.21 If an external MDA adviser gives the personal advice, the MDA operator must have no reason to believe that the external MDA adviser did not comply with Division 3 of Part 7.7 in relation to that advice or give a Statement of Advice for the advice that complies with the requirements for a Statement of Advice in Subdivisions C and D of Division 3 of Part 7.7.

Asset holding conditions

1.22 The MDA operator must not permit client’s portfolio assets of a client to be pooled with any other assets to enable an investment to be made or made on more favourable terms.

1.22A From 2 January 2014 or, if the MDA operator has an Australian financial services licence that expressly authorises it to operate an MDA service under this instrument before 2 January 2014, 2 January 2015:

(a) paragraphs 1.22B to 1.22R apply; and

(b) paragraphs 1.22 and 1.23 do not apply.

1.22B The MDA operator must do all things necessary to ensure that:

(a) if it holds a client’s portfolio assets, it holds those assets on trust for the client or the client and other clients of the MDA service it provides unless the client’s portfolio assets are held under Division 2 or 4 of Part 7.8; and

(b) a client’s portfolio assets held by a person the MDA operator directly or indirectly engages are held in a way so that the client or the client and other clients of the MDA service have a beneficial interest in the client’s portfolio assets (whether directly or indirectly) unless the assets are held under Division 2 or 4 of Part 7.8.

Note: Subparagraph (b) could be satisfied by a person holding the client’s portfolio assets on trust for the operator and the operator holding the beneficial interest in those assets on trust for the client or the clients of the MDA service as a whole.

1.22C Paragraph 1.22B does not apply where either of the following apply:

(a) where both of the following apply:

(i) the client’s portfolio assets are located in a place outside of this jurisdiction where trusts are not known to the law;

(ii) it is reasonable for the assets to be held in accordance with the law in that place;

(b) where both of the following apply:

(i) the client’s portfolio assets are located in a place outside of this jurisdiction and it is not reasonable for the assets to be held on trust in accordance with the law in that place;

(ii) the MDA operator has documented in writing that:

(A) it is satisfied that the client’s portfolio assets are held in a manner that, having regard to the relevant laws, provides reasonably effective protection in case of insolvency of the person holding the property; and

(B) the basis on which the MDA operator is satisfied.

1.22D The MDA operator must have reasonable procedures for giving instructions to the custodian or where there is no custodian, any custodial staff in relation to the client’s portfolio assets that include how the instructions are given and reasonable controls to ensure that the instructions are properly authorised and carried out.

1.22E The MDA operator must ensure that it, and must do all things necessary to ensure that any person it directly or indirectly engages to hold client’s portfolio assets:

(a) as far as practicable identifies the client’s portfolio assets as held on behalf of the person for whom they are held; and

(b) holds the client’s portfolio assets separately from property in which the MDA operator or the person holding the client’s portfolio assets has an interest and from the property of any other person other than the client and other clients of the MDA service except in relation to:

(i) Australian or foreign currency; or

(ii) a deposit taking facility of a body carrying on a business of accepting money on deposit including rights under that facility; or

(iii) securities (as defined in subsection 92(1)); or

(iv) derivatives;

held separately from property in which the MDA operator or the person has an interest other than as a trustee for a person other than the MDA operator, except where property is not held separately to comply with subparagraph 1.22F(f).

1.22F The MDA operator must do all things necessary to ensure that, if the client’s portfolio assets are not held separately from property in which the MDA operator or the person holding the client’s portfolio assets has an interest and separately from the property of any other person other than the client and other clients of the MDA service:

(a) the MDA operator has put in place and keeps for 7 years after it was last relied on a written policy in relation to not holding client’s portfolio assets separately which sets out its reasons why that policy is appropriate having regard to any extent to which it might expose its clients to the risks arising from client’s portfolio assets not being held separately and its duties to each client; and

(b) the MDA operator reviews the policy at least every 13 months, prepare a written record of the outcome of the review and keep that record for 7 years; and

(c) adequate records are kept at all times showing each client’s entitlement to property that includes the client’s portfolio assets not held separately; and

(d) reconciliation procedures are performed on each business day in relation to the client’s portfolio assets not held separately or if because of the nature of the property, it is ordinary and reasonable commercial practice in the place where the property is located to reconcile property of that kind less frequently, as frequently as would be performed in accordance with that practice; and

(e) not holding the client’s portfolio assets separately does not restrict the ability of the MDA operator to exercise its powers in relation to the client’s portfolio assets in accordance with its duties including in relation to voting rights; and

(f) if the property that includes the client’s portfolio assets is not sufficient to meet the entitlements of all persons in relation to that property, the insufficiency ceases by the second business day after the insufficiency arises, whether through the provision of additional property by the MDA operator or otherwise.

1.22G The MDA operator must do all things necessary to ensure that if it holds client’s portfolio assets, it, and if a custodian holds those assets, the custodian, has an organisational structure that supports compliance with subparagraph 1.22E(b).

1.22H The MDA operator must do all things necessary to ensure that if it holds client’s portfolio assets, it, and if a custodian holds those assets, the custodian, segregates custodial staff from staff performing other functions in a way that minimises the potential for conflict, if a conflict of interest exists or might arise between:

(a) their duties as custodial staff; and

(b) the interests served or advanced by persons who perform duties to make investment decisions, trading decisions or other discretionary decisions resulting in the transfer or disposal of client portfolio assets other than discretionary decisions in relation to holding a deposit account with a corporation that is regulated for the taking of deposits where the balance of the deposit account is payable on demand and discretionary decisions relating to transactions in foreign currency.

1.22I The MDA operator must do all things necessary to ensure that if it holds client’s portfolio assets, it, and if a custodian holds the client’s portfolio assets, the custodian, has a documented policy that is:

(a) approved by its directors or governing body, or a senior manager authorised to give approval on behalf of the directors or governing body or in the case of a foreign company that is carrying on business in this jurisdiction or registered under Division 2 of Part 5B.2, its most senior officer or employee in this jurisdiction with responsibility for managing the functions of custodial staff; and

(b) designed to ensure that custodial staff are not influenced because of a conflict mentioned in paragraph 1.22H to act other than in accordance with their duties.

1.22J The MDA operator must do all things necessary to ensure that if it holds the client’s portfolio assets, it, and if a custodian holds those assets, the custodian, undertake reasonable checks to find out and document if there has been any attempt to inappropriately influence custodial staff and take reasonable action in the event this happens.

1.22K The MDA operator must do all things necessary to ensure that if it holds the client’s portfolio assets, it, and if a custodian holds those assets, the custodian, structure its business so that:

(a) custodial staff can report to the MDA operator if the MDA operator is a natural person or otherwise the directors or governing body of the MDA operator directly or through other custodial staff; and

(b) the duties of:

(i) direct managers of custodial staff; and

(ii) indirect managers of custodial staff that are not the most senior officer or employee of the MDA operator or the custodian in this jurisdiction or the jurisdiction in which the MDA operator or the custodian is based; and

(iii) custodial staff;

do not extend to other functions that may create conflicts of interest including that custodial staff and those managers are not responsible for investment decisions, trading decisions or other discretionary decisions resulting in the transfer or disposal of client’s portfolio assets, other than discretionary decisions in relation to holding a deposit account with a corporation that is regulated for the taking of deposits where the balance of the deposit account is payable on demand and discretionary decisions relating to transactions in foreign currency; and

(c) custodial staff and persons involved in investment decisions, trading decisions or other discretionary decisions resulting in the transfer or disposal of client’s portfolio assets other than discretionary decisions in relation to holding a deposit account with a corporation that is regulated for the taking of deposits where the balance of the deposit account is payable on demand and discretionary decisions relating to transactions in foreign currency are located sufficiently separately during the performance of their duties to reduce, so far as reasonably practicable, the risk of inappropriate influence on decisions relating to holding of those assets.

1.22L The MDA operator must, for its custodial staff ensure that, and for custodial staff of any custodian do all things necessary to ensure that the custodian ensures that:

(a) custodial staff have the knowledge and skills necessary to perform their duties properly; and

(b) ongoing training and educational programs are provided to custodial staff that provide reasonable assurance that they have knowledge that remains at a level necessary for performing their assigned duties including knowledge of the MDA operator’s obligations under this instrument to the extent relevant to enable the custodial staff to perform their particular duties; and

(d) resources are made available to custodial staff to the extent necessary for them to adequately perform their duties as custodial staff.

1.22M The MDA operator must also comply with paragraphs 1.22G to 1.22L as if any sub-custodian were the custodian, except to the extent that, in relation to client’s portfolio assets outside this jurisdiction, it is not reasonably practicable for the MDA operator to do all things necessary to ensure that the sub-custodian does a particular thing.

Note: For example, if the custodian engaged a sub-custodian, the operator would need to do all things necessary to ensure that the requirements of paragraphs 1.22G to 1.22L were satisfied in relation to the custodian, the sub-custodian and their custodial staff, subject to the exception in relation to assets outside this jurisdiction.

1.22N The MDA operator must keep for 7 years records demonstrating how it complies with paragraphs 1.22B to 1.22M.

1.22O The MDA operator must set out in writing and implement a reasonable process:

(a) for determining if it should hold client’s portfolio assets or engage a custodian, unless either choice is determined by its contractual obligations, and if it is to engage a custodian which person will be the custodian and on what terms. The process must involve the application of a reasonable written policy:

(i) approved by the directors or governing body, or a senior manager authorised to give approval on behalf of the directors or governing body or in the case of a foreign company that is carrying on business in this jurisdiction or registered under Division 2 of Part 5B.2, its most senior officer or employee in this jurisdiction with responsibility for managing the functions of custodial staff; and

(ii) which addresses potential conflict of interests and other considerations relevant to the interests of each client; and

(b) to monitor and assess any custodian’s performance of its obligations as a custodian and do all things necessary to ensure that a custodian it engages sets out in writing and implements a reasonable process to monitor and assess the performance of its obligations by any sub-custodian.

1.22P The MDA operator must not permit a custodian or a sub-custodian to be involved in discretionary decisions concerning a deposit account, unless the MDA operator is satisfied that the custodian or sub-custodian has set out in writing and implements reasonable processes for:

(a) determining which account to use; and

(b) monitoring performance by the issuer of the account of the issuer’s obligations in relation to that account; and

(c) taking action in case of failure of the issuer of the account of the issuer’s obligations in relation to that account.

1.22Q The MDA operator must ensure that it keeps records of client’s portfolio assets in a way that enables the holding of those assets to be conveniently and properly audited by an auditor of the MDA service and do all things necessary to ensure that any custodian or sub-custodian keeps such records in relation to any asset that is held by the custodian or sub-custodian.

1.22R The MDA operator must:

(a) review the appropriateness of the written policies and processes it is required to have under paragraph 1.22O and any written processes it relies on to comply with paragraph 1.22P at least once in every 13 months; and

(b) as directed by ASIC in writing, arrange for a report on the effectiveness or reasonableness of any of the processes or policies to be prepared and given to ASIC.

The written direction may state who is to prepare the report or the time by which it must be given to ASIC.

1.22S From 2 January 2014 or, if the MDA operator has an Australian financial services licence that expressly authorises it to operate an MDA service under this instrument before 2 January 2014, 1 November 2015, an MDA operator that engages a custodian to hold client’s portfolio assets must ensure that:

(a) if the MDA operator holds a beneficial interest in the client’s portfolio assets on behalf of the client, it has a written agreement with the custodian that meets the requirements of subparagraphs (c) to (e) except:

(i) to the extent that, in relation to client’s portfolio assets held outside of this jurisdiction, the MDA operator holds documents that demonstrate that it is not reasonably practicable to engage another person to hold client’s portfolio assets who is willing to include such matters in the agreement; or

(ii) where the custodian is controlled by the MDA operator and the MDA operator is liable to its client for the acts and omissions of the custodian as if they were the acts or omissions of the MDA operator; and

(b) if the MDA operator does not hold a beneficial interest in the client’s portfolio assets on behalf of the client:

(i) it has a written agreement with the custodian that meets the requirements of subparagraphs (c) to (e); and

(ii) it does all things necessary to ensure that the custodian has a written agreement with each person that the custodian engages to hold client’s portfolio assets and the written agreement meets the requirements of subparagraphs (c) to (e) as if the person were the custodian and the custodian were the MDA operator except:

(A) to the extent that, in relation to client’s portfolio assets held outside of this jurisdiction, the MDA operator holds documents that demonstrate that it is not reasonably practicable to engage another person to hold the client’s portfolio assets who is willing to include such matters in the agreement; or

(B) where the person is controlled by the custodian and the custodian is liable to its client for the acts and omissions of the person as if they were the acts or omissions of the custodian; and

(i) specifying reasonable rights that the MDA operator has for the ongoing review and monitoring of the custodian and any sub-custodian and the standards against which their performance will be assessed; and

(ii) to the effect that the custodian must certify to the MDA operator in writing at least every 13 months that the custodian believes on reasonable grounds that the custodian and each sub-custodian have met since the date of the previous statement in writing or the commencement of the agreement, and the custodian has no reason to believe that the custodian and each sub-custodian will not continue to meet:

(A) in the case of the custodian, the terms of the agreement; and

(B) in any case, the requirements that the MDA operator must do all things necessary to ensure under paragraphs 1.22E to 1.22M, subparagraph 1.22O(b) and paragraph 1.22Q are met by the custodian or the sub-custodian in relation to the client’s portfolio assets held by the custodian or a sub-custodian (except to the extent that the licensee is not complying with a requirement under paragraphs 1.22F(a) or (b) and the custodian is not aware of any non-compliance);

other than:

(D) that the custodian reasonably believes are trivial, and

the custodian acknowledges that it or the sub-custodian must continue to meet those obligations; and

(iii) to the effect that the custodian must acknowledge to the MDA operator on request that client’s portfolio assets to which the agreement relates are held on trust and for whom they are held on trust and notify any other person where the custodian is aware to do so might protect the rights or equitable interest of the MDA operator or the client that the assets are so held unless the MDA operator directs in writing otherwise; and

(iv) specifying how instructions will be given by the MDA operator to the custodian; and

(v) to the effect that the custodian must not take or grant a security interest, mortgage, lien or other encumbrance over, or in relation to, the client’s portfolio assets held under the agreement unless it is accordance with the agreement and does not cover unpaid fees of the custodian; and

(vi) specifying how the custodian will maintain records of the client’s portfolio assets to which the agreement relates and the transactions in relation to those assets including by whom, when and how transactions were authorised; and

(vii) specifying procedures for reconciliation each business day or if it is ordinary and reasonable commercial practice to reconcile certain assets less frequently, in accordance with that practice, by checking information the custodian is given as to the existence and quantity of client’s portfolio assets against the records of the custodian and for reporting by the custodian concerning the outcomes of the reconciliation in case of any unreconciled matter; and

(viii) to the effect that the custodian must provide all reasonable access and assistance to any auditor engaged to audit the MDA operator’s financial statements or statements and records concerning clients’ holdings or transactions; and

(ix) to the effect that the custodian will provide the MDA operator with written notice and contact information of any other person holding client’s portfolio assets or to be appointed by the custodian:

(A) as soon as reasonably practicable; and

(B) in any event before the assets are held, except in exceptional circumstances identified in the agreement; and

(x) to the effect that the MDA operator may terminate the agreement without:

(A) payment other than in relation to entitlements previously accrued or the reasonable expenses involved in transfer of the assets to the MDA operator or another custodian; and

(B) limiting any right to damages the MDA operator may have under the agreement, including recovering expenses referred to in subparagraph (A) if the custodian is in breach;

if the MDA operator has reasonable grounds for believing that:

(C) there is or has been an act or omission of the custodian or a sub-custodian that results in the custodian being in breach of the agreement; and

(D) as a result of the act or omission, to a material extent the custodian or a sub-custodian is not complying with or is unlikely to comply with the requirements that the MDA operator must do all things necessary to ensure under paragraphs 1.22E to 1.22M, subparagraph 1.22O(b) and paragraph 1.22Q are met by the custodian or the sub-custodian in relation to the client’s portfolio assets held by the custodian or that the custodian arranged to be held, having regard to any remedy provided or that may be expected to be provided by the custodian or the sub-custodian; and

(xi) to the effect that on termination of the engagement, client’s portfolio assets must be transferred to the MDA operator or as the MDA operator directs within a reasonable period, subject to reasonable provisions for the obligations of the parties at termination, including the payment of outstanding fees and charges to the custodian and any costs of the transfer; and

(xii) to the effect that the custodian must notify material or systemic breaches of the agreement by it or by the MDA operator in writing to the MDA operator within a reasonable time of becoming aware of the breach; and

(xiii) specifying the terms on which the custodian is authorised to engage another person to hold the client’s portfolio assets to which the agreement relates and providing that any such engagement must be either:

(A) under a written agreement meeting the requirements of subparagraphs (c) to (e) (including this sub-subparagraph and sub-subparagraph (B)) as if the person engaged were the custodian and the custodian were the MDA operator except to the extent that, in relation to assets held outside of this jurisdiction, the custodian has provided written reasons to the MDA operator as to why it reasonably considers that it is not practicable to engage a person that is willing to include such matters in the agreement; or

(B) an arrangement with a related body corporate of the custodian, where the custodian has a written agreement with the MDA operator that it is liable to the its client for the acts and omissions of the related body corporate as if those acts and omissions were the acts or omissions of the custodian; and

(xiv) to the effect that the custodian must establish and maintain business continuity arrangements that are reasonable for a business of the nature, scale and complexity of the custodian’s business; and

(xv) to the effect that the custodian must not disclose any confidential information relating to client’s portfolio assets, apart from any disclosure to ASIC or as required or permitted by law or by the MDA operator in writing; and

(d) the agreement with the custodian has reasonable liability provisions and does not include provisions that exclude the liability of the custodian for direct loss that it would have if the exclusion were not included except in particular circumstances that the MDA operator considers to be reasonable and contains, if appropriate, reasonable indemnity provisions in relation to losses caused to the MDA operator or to the relevant client or clients by the custodian’s acts and omissions that relate to that agreement; and

(e) it does not, under the agreement with the custodian or otherwise, permit the granting of a security interest, mortgage, lien or other encumbrance in favour of the custodian or its associates unless the MDA operator reasonably believes, for reasons it has recorded in writing, that any conflict that may arise as a result of the security interest, mortgage, lien or encumbrance will not materially increase the risks that the custodian will fail to meet its obligations and the MDA operator must keep the written record of reasons for 7 years after the security interest has ceased.

1.23 For client’s portfolio assets of a retail client held by the MDA operator or a person acting on its behalf, the MDA operator must ensure that those assets:

(a) are held:

(i) in trust for the client; or

(ii) in trust for the client and other clients of MDA services provided under a managed investment scheme that the MDA operator operates; or

(iii) in trust for the MDA operator who holds the beneficial interest in trust for the client; or

(iv) in accordance with the operating rules of a licensed market, in a client segregated account operated by a participant of that market where the participant is required to call margins from a client under those rules; and

(b) unless held in accordance with subparagraph (a)(iv), are held separately from the assets of the MDA operator and any person acting on its behalf and any client other than the client and any other person, except for:

(i) cash (including foreign currency); and

(ii) accounts and deposits with a Australian ADI or other financial institution; and

(iii) securities as defined in subsection 92(1); and

(iv) derivatives (but not including a chattel or real property mortgage); and

(v) an interest arising from an “Eligible SELECT Master Agreement” within the meaning given in Class Order [CO 98/51] or any Class Order that replaces it,

where the MDA operator:

(vi) ensures that it or, if another entity is the entity holding the relevant client’s portfolio assets, that entity, performs regular reconciliation procedures appropriate to the nature of the asset; and

(vii) reasonably considers that holding the relevant client’s portfolio assets separately would not be in the best interests of the client; and

(c) that are moneys held with a person carrying on a banking business, are held in an account that complies with section 981B; and

(d) are clearly identified as client’s portfolio assets.

Rights relating to portfolio assets conditions

1.24 If the MDA contract with a retail client includes provisions that require the MDA operator to consider exercising or to exercise a right that relates to the client’s portfolio assets, the MDA operator must fulfil those duties as provided in the MDA contract.

1.25 If the MDA contract with a retail client does not include provisions that require the MDA operator to consider exercising or to exercise a right that relates to the client’s portfolio assets, the MDA operator must:

(a) give to the client, as soon as practicable after receipt, a copy of all the communications sent to the operator that are relevant to the exercise of the right; and

(b) take reasonable steps to implement any instructions given by the client about how the right relating to the asset is to be exercised.

Investments in unregistered schemes condition

1.26 The MDA operator must not invest the client’s portfolio assets of a retail client in, or keep as client’s portfolio assets of a retail client:

(a) interests in a managed investment scheme that is not a registered scheme, unless that investment would be permitted if the MDA service were a registered scheme; or

(b) interests in a scheme that is not a managed investments scheme because of paragraph (e) of the definition of “managed investment scheme” in section 9.

Professional indemnity insurance condition

1.27 The MDA operator must maintain at all times professional indemnity insurance and insurance covering fraud by its officers and employees that:

(a) is adequate having regard to the nature of the activities carried out by the MDA operator; and

(b) covers claims amounting in aggregate to whichever is the lesser of:

(i) $5 million; or

(ii) the aggregated average value of the client’s portfolio assets of all clients to whom it provided MDA services in reliance on paragraph 1.1, 1.2 or 1.3 during a 12 months period ending no more than one month previously or, if it has not been providing MDA services in reliance on paragraph 1.1, 1.2 or 1.3 for 13 months, the amount that it reasonably estimates will be the aggregated average value of the client’s portfolio assets of all clients to whom it will provide MDA services during the first 12 months that it relies on paragraph 1.1, 1.2 or 1.3.

Compliance measures and audit condition

1.28 The MDA operator must:

(a) have and maintain adequate documented measures to ensure compliance with the MDA operator’s obligations relating to the provision of MDA services in accordance with this instrument and the Act and the Corporations Regulations 2001; and

(b) lodge with ASIC, together with its annual financial statements under section 989B, a statement from a registered company auditor as to whether:

(i) the MDA operator has complied with the documented measures during the financial year to which the financial statements relate; and

(ii) the documented measures met the conditions of this instrument during the financial year.

Client reporting conditions

1.29 The MDA operator must give to each retail client to whom it provides MDA services the following information:

“(a) particulars of all transactions effected as part of the MDA services provided to the client during each three month period (the reporting period) ending on each quarter day;

(b) the particulars of, and a reasonable valuation of, each of the client’s portfolio assets at the end of the reporting period; and

(c) as at the beginning and the end of the reporting period, the total value of the client’s portfolio assets and the total value of liabilities that the client has that were incurred in the operation of the MDA services; and

(d) all revenue and expenses including fees and charges relating to the MDA services.

1.30 The MDA operator must give the information referred to in paragraph 1.29 to the client by:

(a) giving electronically or otherwise quarterly reports for each reporting period within 1 month after the end of the period; or

(b) providing electronic access to the information on a substantially continuous basis if:

(i) the retail client agrees to access that information electronically instead of being given quarterly reports; and

(ii) the MDA operator has no reason to doubt that the client can electronically access this information on a substantially continuous basis; and

(iii) the information covers a period of at least 12 months to a time specified in the information that is no more than 48 hours (excluding hours on a day that is not a business day) before the time of access.

1.30A If, for the purposes of paragraphs 1.29 and 1.30, the MDA operator gives electronic access to information under during a reporting period instead of giving a quarterly report:

(a) the information that was displayed at the quarter’s end for the reporting period that purports to be the information required under paragraph 1.29 must remain readily accessible to the client through the same facility by which electronic access was given during the reporting period until 1 July second occurring after the start of the reporting period; and

(b) the facility on which the information remains accessible must display to clients a statement to the effect that only information displayed at the quarter’s end will be considered by the auditor in providing its annual report to clients relating to the information provided electronically.

1.31 The MDA operator must also give the following documents to each retail client to whom it has provided MDA services during each year ending 30 June within 3 months of the end of the year:

(a) a summary of the transactions that occurred as part of the MDA services provided to the client during the year including the nature and purpose of those transactions and if the client has been given quarterly reports under subparagraph 1.30(a) a statement that the client may request a copy of any quarterly report relating to the year; and

(b) a report of a registered company auditor that contains no statement that has or purports to have the effect of excluding or disclaiming liability to the client as a user of the report and states in relation to the provision of MDA services by the MDA operator:

(i) the auditor’s opinion whether internal controls and other procedures of the MDA operator and any other relevant person acting on behalf of the MDA operator were suitably designed and operated effectively in all material respects to ensure that:

(A) summaries given under paragraph (a) for the year and quarterly reports for each quarter during the year that have been given under subparagraph 1.30(a); and

(B) information made accessible electronically under subparagraph 1.30(b) in respect of the year at each quarter’s end in the year;

have not been materially misstated; and

(ii) the auditor’s opinion whether the aggregate of assets, liabilities, revenue and expenses shown in the summaries provided under paragraph (a) by the MDA operator for the year have been properly reconciled in all material repects to the corresponding amounts shown in reports prepared by the holder of any client’s portfolio assets (or if the holder is the client, by the MDA operator) that have been audited by the auditor or another registered company auditor who is independent of the holder and the MDA operator; and

(iii) the auditor’s statement as to whether or not the auditor has any reason to believe that:

(A) any summary under paragraph (a) for the year or any quarterly report under subparagraph 1.30(a) for a reporting period in the year; or

(B) any information accessible electronically under subparagraph 1.30(b) in respect of the year at each quarter’s end in the year,

has been materially misstated; and

(c) if any of the client’s portfolio assets are held by an external MDA custodian or a person acting on behalf of an external MDA custodian, a report of a registered company auditor that contains no statement that has or purports to have the effect of excluding or disclaiming liability to the client as a user of the report and states in relation to the provision of custodial or depository sevices by each external MDA custodian or any person acting on its behalf that holds client’s portfolio assets for MDA services of the MDA operator, the auditor’s opinion as to whether internal controls and other procedures of the external MDA custodian and any other relevant person acting on behalf of the external MDA custodian were suitably designed and operated effectively in all material respects to enable the MDA operator to rely on information provided by the external MDA custodian to prepare:

(i) the summaries given under paragraph (a) for the year and the quarterly reports for quarters during the year that have been given under subparagraph 1.30(a); and

(ii) information that is made accessible electronically under subparagraph 1.30(b) in respect of the year at each quarter’s end in the year,

without material misstatement; and

(d) either:

(i) a Statement of Advice of the MDA operator or an external MDA adviser which includes advice on whether the MDA contract for that client is suitable for the client’s relevant personal circumstances; or

(ii) statements:

(A) that a Statement of Advice which includes advice on whether the MDA contract for that client is suitable for the client’s relevant personal circumstances at a specified date from either the MDA operator or an external MDA adviser has been given to the client; and

(B) that a copy of the Statement of Advice is available from the MDA operator free of charge on request; and

(e) if the Statement of Advice referred to in subparagraph (d)(i) or (ii) includes advice that the MDA contract for that client is not suitable for the client’s relevant personal circumstances, whether and if so how and when changes to the MDA contract have been made or the MDA operator offers to make them and if so whether the advice states that those changes would have made the MDA contract suitable.

Note: Paragraph 7.5 deals with an assumption that an auditor may make for the purposes of forming opinions for the purposes of the reports required by subparagraph (b).

Record keeping condition

1.32 The MDA operator must keep a copy of:

(a) each MDA contract it enters with a retail client for at least 7 years after it is terminated; and

(b) any Financial Services Guide given to a retail client under paragraph 1.11 together with records showing to whom and when the Financial Services Guide was given for at least 7 years after financial services were provided relying on the fact that the Financial Services Guide was given to the client; and

(d) a document given to a retail client under subparagraph 1.30(a) or paragraph 1.31 for at least 7 years after it was given.

The copy must be kept in accordance with this condition even if the MDA operator stops relying on paragraphs 1.1, 1.2 or 1.3.

Notifying breaches

1.33 The MDA operator must notify ASIC in writing in such form if any as ASIC may from time to time specify as soon as practicable after it has become aware or should reasonably have become aware of matters that give it reason to believe that it has failed or is likely to fail, in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applies, to comply with a condition in relation to the MDA service. The MDA operator must provide full particulars of the failure to the extent that it from time to time knows those particulars or would have known them if it had undertaken reasonable enquiries.

2 External MDA Custodians

2.1 An external MDA custodian does not have to comply with section 601ED in relation to a managed investment scheme if the only interests in the scheme are rights to MDA services.

2.2 An external MDA custodian does not have to comply with Part 7.9 in relation to a financial product that is:

(a) a right to MDA services provided under a managed investment scheme where the external MDA custodian provides custodial or depository services under the scheme; or

(b) held by a client because a legal or equitable interest in a financial product is held on behalf of the client as part of the MDA services for which the external MDA custodian provides custodial or depository services.

2.3 An external MDA custodian does not have to comply with Chapter 6D in relation to securities that are held by a client because a legal or equitable interest in securities is held on behalf of the client as part of the MDA services for which the external MDA custodian provides custodial or depository services.

2.4 An external MDA custodian who relies on paragraph 2.1, 2.2 or 2.3 must comply with the conditions in paragraphs 2.6 to 2.15. Paragraphs 2.6 to 2.11 only apply after 11 June 2004 or, if it is practicable for the external MDA custodian to comply with the relevant paragraph before then, from when it is practicable.

2.5 Paragraphs 2.1, 2.2 and 2.3 cease to apply to an external MDA custodian if:

(a) it is notified by ASIC in writing that it is excluded from relying on this instrument; or

(b) 5 business days have elapsed since it became or should reasonably have become aware of matters that give it reason to believe that it has failed or is likely to fail, in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applies, to comply with a condition of this instrument without full particulars of the failure having been notified to ASIC (to the extent that it knows those particulars or would have known them if it had undertaken reasonable enquiries); or

(c) having received a notification under paragraph (b), ASIC does not notify it in writing that it may continue to rely on this instrument within 20 business days of the notification.

Custodian’s contract conditions

2.6 The external MDA custodian must ensure that there is a written contract with each client who is a retail client to whom it provides custodial or depository services for MDA services that includes provisions to the effect that the external MDA custodian will in providing custodial or depository services to the client:

(a) act honestly; and

(b) exercise the degree of care and diligence that a reasonable person would exercise if they were in the external MDA custodian’s position; and

(c) not use information the external MDA custodian acquired through providing the services to gain an improper advantage for itself or any other person or to cause detriment to the client; and

(d) comply with the conditions in this instrument that apply to it; and

(e) compensate the client for any loss because of any act or omission of any agent or other person (other than the MDA operator or a person acting on the operator’s behalf) engaged in connection with the custodial or depository services for the MDA service that it contracts to provide as if the acts and omissions were acts or omissions of the external MDA custodian.

2.7 The external MDA custodian must comply with the provisions of the contract that subparagraph 2.6(a) to (c) requires.

Note: This condition does not affect in any way the external MDA custodian's contractual obligation to comply with all the terms of the contract for the provision of custodial or depository services, nor any remedy a client may have for any breach of the contract.

Asset holding conditions

2.8 For client’s portfolio assets held by the external MDA custodian or a person acting on its behalf, the external MDA custodian must ensure that those assets:

(a) are held in trust for the client; or

(b) in trust for the client and other clients of MDA services provided under a managed investment scheme that the MDA operator operates; or

2.8A From 2 January 2014 or, if the MDA operator has an Australian financial services licence that expressly authorises it to operate an MDA service under this instrument before 2 January 2014, from 2 January 2015:

(a) paragraphs 2.8B and 2.8C apply; and

(b) paragraphs 2.8, 2.9 and 2.10 do not apply.

2.8B The external MDA custodian must do all things necessary to ensure that:

(a) a client’s portfolio assets it holds, other than when held under Division 2 or 4 of Part 7.8, are held on trust for the client or the client and other clients of the MDA service provided by the MDA operator; and

(b) where a client of the MDA service has an entitlement as a client to payment out of a deposit taking facility the facility is an account that complies with section 981B; and

(c) a client’s portfolio assets held by a person the external MDA custodian directly or indirectly engages are held in a way so that the client of the MDA service or the client and other clients of the MDA service have a beneficial interest in the client’s portfolio assets (whether directly or indirectly).

Note: Subparagraph (c) could be satisfied by a person holding the client’s portfolio assets on trust for the external MDA custodian who in turn holds the beneficial interest in those assets on trust for the operator who in turn holds the beneficial interest which it has on trust for the client or the clients of the MDA service as a whole.

2.8C Subparagraphs 2.8B(a) and (c) do not apply where either of the following apply:

(a) where both of the following apply:

(i) the client’s portfolio assets are located in a place outside of this jurisdiction where trusts are not known to the law; and

(ii) it is reasonable for the property to be held in accordance with the law in that place;

(b) where both of the following apply:

(i) the client’s portfolio assets are located in a place outside of this jurisdiction and it is not reasonable for the assets to be held on trust in accordance with the law in that place;

(ii) the external MDA custodian has documented in writing that it is satisfied that the property is held in a manner that, having regard to the relevant laws, provides reasonably effective protection in case of insolvency of the foreign asset holder and the basis on which the external MDA custodian is satisfied.

2.9 For client’s portfolio assets held by the external MDA custodian or a person acting on its behalf, the external MDA custodian must ensure that those assets are clearly identified as the client’s portfolio assets.

2.10 For client’s portfolio assets held by the external MDA custodian or a person acting on its behalf, the external MDA custodian must ensure that those assets are held separately from the assets of the external MDA custodian and any person acting on its behalf and any client other than the client and any other person, except for:

(a) cash (including foreign currency); and

(b) accounts and deposits with a Australian ADI or other financial institution; and

(d) derivatives (but not including a chattel or real property mortgage); and

(e) an interest arising from an “Eligible SELECT Master Agreement” within the meaning given in CO 98/51 or any Class Order that replaces it,

where the external MDA custodian performs regular reconciliation procedures appropriate to the nature of the asset.

Financial Services Guide for custody services condition

2.11 Before providing custodial or depository services to a retail client, the external MDA custodian must provide to the retail client a Financial Services Guide for its custodial or depository services provided as part of MDA services that:

(a) complies with Division 2 of Part 7.7; and

(b) clearly explains the services for which it is responsible and for which the MDA operator is responsible.

Record keeping condition

2.12 The external MDA custodian must keep:

(a) each contract it enters into under paragraph 2.6 with a retail client for at least 7 years after the contract is terminated; and

(b) any Financial Services Guide given to a retail client under paragraph 2.11 together with records showing to whom and when the Financial Services Guide was given for at least 7 years after financial services were provided relying on the fact that the Financial Services Guide had been given to the client.

The copy must be kept in accordance with this condition even if the external MDA custodian stops relying on paragraphs 2.1, 2.2 or 2.3.

Professional indemnity insurance condition

2.13 The external MDA custodian must maintain at all times professional indemnity insurance and insurance covering fraud by its officers and employees that:

(a) is adequate having regard to the nature of the activities carried out by the external MDA custodian; and

(b) covers claims amounting in aggregate to whichever is the lesser of:

(i) $5 million; or

(ii) the aggregated average value of the client’s portfolio assets of all clients to whom it provided custodial or depository services relying on paragraph 2.1, 2.2 or 2.3 during a 12 months period ending no more than one month previously or, if it has not been providing custodial or depository services relying on paragraph 2.1, 2.2 or 2.3 for 13 months, the amount that it reasonably estimates will be the aggregated average value of the client’s portfolio assets of all clients to whom it will provide custodial or depository services during the first 12 months in which it relies on paragraph 2.1, 2.2 or 2.3.

MDA operator breaches condition

2.14 The external MDA custodian must not knowingly cause the MDA operator to fail to comply with this instrument or be knowingly concerned in the MDA operator not complying with this instrument.

Notifying breaches

2.15 The external MDA custodian must notify ASIC in writing in such form if any as ASIC may from time to time specify as soon as practicable after it has become aware or should reasonably have become aware of matters that give it reason to believe that it has failed or is likely to fail, in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applies, to comply with a condition in relation to the MDA service. The external MDA custodian must provide full particulars of the failure to the extent that it from time to time knows those particulars or would have known them if it had undertaken reasonable enquiries.

3 Other persons involved in acquiring MDA service

3.1 Where a person has no reason to believe that an MDA operator may not rely on an exemption from Part 7.9 under this instrument for a financial product, the person does not have to comply with Part 7.9 for that financial product.

Note: For example, an MDA operator may not rely on the exemption from Part 7.9 in paragraph 1.2 because they have failed to report a significant breach of a condition of this instrument to ASIC within 5 business days (see subparagraph 1.10(b)).

3.2 Paragraph 3.1 does not apply to the MDA operator.

3.3 Paragraph 3.1 does not apply to an external MDA custodian engaged to provide custodial or depository services as part of the MDA service to which the financial product relates.

4 Dealers contracted by MDA operator

4.1 Where a holder of an Australian financial services licence that authorises dealing for retail clients contracts with an MDA operator to deal on behalf of a client in the client’s portfolio assets and does not contract with the client except under a contract that the MDA operator enters as the client’s agent in relation to the dealing, the licensee does not have to give a Financial Services Guide under subsection 941A(1) to the client because of the dealing.

4.2 Where a holder of an Australian financial services licence that authorises dealing for retail clients contracts with an MDA operator to deal on behalf of a client in the client’s portfolio assets and neither the financial services licensee nor its authorised representative contracts with the client except under a contract that the MDA operator enters as the client’s agent in relation to the dealing, an authorised representative of the licensee does not have to give a Financial Services Guide under subsection 941B(1) to the client because of the dealing.

4.3 A financial services licensee who relies on paragraph 4.1 must comply with the conditions in paragraphs 4.6 to 4.8.

4.4 An authorised representative who relies on paragraph 4.2 must comply with the conditions in paragraphs 4.9 and 4.10.

4.5 Paragraph 4.1 ceases to apply to a licensee if:

(a) it is notified by ASIC in writing that it is excluded from relying on this instrument; or

(c) having received a notification under paragraph (b), ASIC does not notify it in writing that it may continue to rely on this instrument within 20 business days of the notification,

and, except when acting on behalf of another licensee, paragraph 4.2 ceases to apply to an authorised representative of the licensee if they have reason to believe that paragraph 4.1 has ceased to apply to the licensee.

MDA operator breaches condition – licensee

4.6 The financial services licensee must not knowingly cause the MDA operator to fail to comply with this instrument or be knowingly concerned in the MDA operator not complying with this instrument.

No misleading conduct condition — licensee

4.7 The financial services licensee must not knowingly engage in misleading or deceptive conduct, or conduct that is likely to mislead or deceive, in relation to the MDA service.

Notifying breaches – licensee

4.8 The financial services licensee must notify ASIC in writing in such form if any as ASIC may from time to time specify as soon as practicable after it has become aware or should reasonably have become aware of matters that give it reason to believe that it has failed or is likely to fail, to comply with a condition in relation to the MDA service in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applies. The licensee must provide full particulars of the failure to the extent that it from time to time knows those particulars or would have known them if it had undertaken reasonable enquiries.

MDA operator breaches condition – authorised representative

4.9 The authorised representative must not knowingly cause the MDA operator to fail to comply with this instrument or be knowingly concerned in the MDA operator not complying with this instrument.

No misleading conduct condition – authorised representative

4.10 The authorised representative must not knowingly engage in misleading or deceptive conduct, or conduct that is likely to mislead or deceive, in relation to the MDA service.

5 Issue of client’s portfolio assets

5.1 A person does not have to comply with Division 2 of Part 7.9 or Division 3 of Part 7.9 other than section 1017E for financial products that are, or, if acquired, will be, the client’s portfolio assets of a client of a MDA service provided under a managed investment scheme that the MDA operator operates.

5.2 Part 7.9 applies to a person who does not have to comply with Division 2 of Part 7.9 because of this instrument and to a client of a MDA service under a managed investment scheme, in relation to financial products that are the client’s portfolio assets of the client as if Division 5 of Part 7.9 were omitted.

5.3 A person who relies on paragraph 5.1 must comply with the conditions in paragraphs 5.5 to 5.7.

5.4 Paragraphs 5.1 and 5.2 cease to apply to a person if:

(a) they are notified by ASIC in writing that they are excluded from relying on this instrument; or

(b) for a person who is not an authorised representative unless they are also a financial services licensee, 5 business days have elapsed since they became or should reasonably have become aware of matters that give them reason to believe that they have failed or are likely to fail, in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applies to comply with a condition of this instrument without full particulars of the failure having been notified to ASIC (to the extent that they know those particulars or would have known them if they had undertaken reasonable enquiries); or

(c) having received a notification under paragraph (b), ASIC does not notify them in writing that they may continue to rely on this instrument within 20 business days of the notification; or

(d) the person is an authorised representative who has reason to believe that paragraph 5.1 or 5.2 has ceased to apply to a licensee on whose behalf they act, where they are acting on behalf of that licensee.

MDA operator breaches condition – issue of client’s portfolio assets

5.5 The person must not knowingly cause the MDA operator to fail to comply with this instrument or be knowingly concerned in the MDA operator not complying with this instrument.

No misleading conduct condition – issue of client’s portfolio assets

5.6 The person must not knowingly engage in misleading or deceptive conduct, or conduct that is likely to mislead or deceive, in relation to the MDA service or the financial products that are or are to be client’s portfolio assets.

Notifying breaches – issue of client’s portfolio assets

5.7 Except for a person who is an authorised representative and not a financial services licensee, the person must notify ASIC in writing in such form if any as ASIC may from time to time specify as soon as practicable after they have become aware or should reasonably have become aware of matters that give them reason to believe that they have failed or are likely to fail, to comply with a condition in relation to the MDA service in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applied. The person must provide full particulars of the failure to the extent that it from time to time knows those particulars or would have known them if it had undertaken reasonable enquiries.

6 Securities offers

6.1 A person does not have to give a disclosure document under Chapter 6D to a client for an offer of securities that if acquired will be client’s portfolio assets of the client.

6.2 A person who relies on paragraph 6.1 must comply with the conditions in paragraphs 6.4 to 6.6.

6.3 Paragraph 6.1 ceases to apply to a person if:

(a) they are notified by ASIC in writing that they are excluded from relying on this instrument; or

(b) 5 business days have elapsed since they became or should reasonably have become aware of matters that give them reason to believe that they have failed or are likely to fail, in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applied, to comply with a condition of this instrument without full particulars of the failure having been notified to ASIC (to the extent that they know those particulars or would have known them if they had undertaken reasonable enquiries); or

(c) having received a notification under paragraph (b), ASIC does not notify them in writing that they may continue to rely on this instrument within 20 business days of the notification.

MDA operator breaches condition – securities offers

6.4 The person must not knowingly cause the MDA operator to fail to comply with this instrument or be knowingly concerned in the MDA operator not complying with this instrument.

No misleading conduct condition – securities offers

6.5 The person must not knowingly engage in misleading or deceptive conduct, or conduct that is likely to mislead or deceive, in relation to the MDA service.

Notifying breaches – securities offers

6.6 The person must notify ASIC in writing in such form if any as ASIC may from time to time specify as soon as practicable after it has become aware or should reasonably have become aware of matters that give it reason to believe that it has failed or is likely to fail, to comply with a condition in relation to the MDA service in a significant respect having regard to the matters referred to in paragraph 912D(1)(b) of the Act as if the failure were a breach to which that paragraph applied. The person must provide full particulars of the failure to the extent that it from time to time knows those particulars or would have known them if it had undertaken reasonable enquiries.

7 Interpretation

7.1 In this instrument, references to:

(a) Chapters, Parts, Divisions, Subdivisions, sections and subsections are references to provisions of the Act; and

(b) paragraphs and subparagraph are references to paragraphs and subparagraphs of this instrument, unless otherwise stated.

7.2 For this instrument, a document is given to a person only when:

(a) it is received in accessible form by that person or their agent, being an agent who is not one of the following (their eligible agent):

(i) an MDA operator who provides or is to provide MDA services to the person; or

(ii) an external MDA custodian who provides custodial or depository services for the person; or

(iii) an external MDA adviser, who provides financial product advice to the person; or

(iv) an associate (within the meaning given by Division 2 of Part 1.2 as if this paragraph 7.2(a) were included in Chapter 7) of a person in subparagraph (i) to (iii); or

(b) if there is no way of sending the document that may reasonably be expected to result in it being received by that person or their eligible agent — when all reasonable steps are taken to send it to that person or their eligible agent; or

(c) one business day after an email is sent to the email address of the person or their eligible agent that the sender reasonably believes is the address of the person or eligible agent where the person has agreed to receive the document by email; or

(d) one business day after an email is sent containing a hypertext link to the document to the email address of the person or their eligible agent that the sender reasonably believes is the address of the person or eligible agent where:

(i) the person has agreed to receive documents in that manner; and

(ii) the sender has no reason to suspect that the person is unlikely by mere scrolling or use of direct hypertext links to be able to see all of the contents of the document by using the emailed hypertext link; and

(iii) the document can be downloaded free of charge (excluding any normal fees payable to the recipient’s internet service provider); and

(iv) the hypertext link is accompanied by a prominent statement to the effect that the recipient is advised to access the document and download it; or

(e) when it would be delivered in the ordinary course of post, if it is posted as a letter prepaid from the sender to an address of the person or their eligible agent that the sender reasonably believes is the address of the person or eligible agent.

For this paragraph an email is “sent” when the email would be taken to be dispatched under section 14 of the Electronic Transactions Act 1999 if this instrument were a law of the Commonwealth for the purposes of that section.

7.3 For this instrument, a document is taken as having been given if:

(a) a copy of the document is given in accordance with paragraph 7.2; and

(b) the giver takes reasonable steps to ensure that the document received by the person is complete and unaltered.

7.4 For this instrument, a document is taken to be a copy of another document regardless of:

(a) immaterial differences in the sequence in which information is presented; and

(b) prompts and links if they are not likely to:

(i) cause a reasonable person to confuse the contents of the document with another document; or

(ii) reduce the likelihood of a reasonable person reading any part of the document; and

(d) the inclusion in the document of codes or features to control the display of the document which do not otherwise alter the sense or content of the document.

7.5 An auditor providing an opinion or statement required by subparagraph 1.31(b) may, if a report under subparagraph 1.31(c) contains the opinion that the internal controls and other procedures of an external MDA custodian are as stated in subparagraph 1.31(c), assume that those internal controls and other procedures are as stated in subparagraph 1.31(c) unless the auditor is aware that is not true.

7.6 In this instrument:

(a) authorised representative has the meaning given in section 761A;

(b) client means a person to whom MDA services are provided or are to be provided;

(i) paying the MDA operator or giving to the MDA operator ownership of other property other than money; or

(ii) giving to the MDA operator access to and control of property through a power of attorney, an arrangement for the MDA operator or its agent to be a signatory on an account of the client or otherwise;

(d) client’s portfolio assets means financial products and other property that are the client’s contribution or that are derived directly or indirectly from the client’s contributions;

(e) custodial or depository service has the meaning given in section 766E;

(ea) custodial staff means natural persons who under an arrangement with the MDA operator or a custodian have duties relating to holding client’s portfolio assets, record keeping relating to those assets, checking authorisations for instructions to transact or functions incidental to these functions other than making investment decisions, trading decisions or other discretionary decisions resulting in the transfer or disposal of client’s portfolio assets other than discretionary decisions in relation to holding a deposit account with a corporation that is regulated for the taking of deposits where the balance of the deposit account is payable on demand and discretionary decisions relating to transactions in foreign currency;

(eb) custodian means a person engaged by a MDA operator to hold client’s portfolio assets or a beneficial interest in those assets;

(f) external MDA adviser means a financial services licensee authorised to provide financial product advice to retail clients who directly contracts with a retail client to prepare or review an investment program where:

(i) the investment program is, or is intended to be, included in an MDA contract; and

(ii) the MDA contract is between that client and another person, who is an MDA operator;

(g) external MDA custodian means a person who:

(i) directly contracts with a retail client to provide custodial or depository services for MDA services provided to that client by another person who is an MDA operator; and

(ii) has an Australian financial services licence with an authorisation to provide custodial or depository services and to deal on behalf of retail clients;

(h) Financial Services Guide has the meaning given by section 761A;

(i) investment program means the part of the MDA contract including personal advice referred to in paragraph 1.15;

(j) licensed market has the meaning given by section 761A;

(k) MDA contract means a contract under which an MDA operator provides MDA services to a retail client;

(l) MDA operator means a person who holds an Australian financial services licence with authorisations to:

(i) deal in all the financial products in which a client’s portfolio may be invested under the terms of the MDA contract; and

(ii) except where an external MDA adviser has contracted directly with each retail client to whom the MDA operator provides MDA services to provide financial product advice relating to the investment program — give financial product advice to retail clients; and

(iii) except where an external MDA custodian has contracted directly with each retail client to whom the MDA operator provides MDA services to provide custodial or depository services by holding or causing another person acting on the external MDA custodian’s behalf to hold each client’s portfolio asset that is a financial product or a beneficial interest in a financial product — provide custodial or depository services;

(m) MDA service means a service with the following features:

(i) a person makes client contributions; and

(ii) the client agrees with the MDA operator that the client’s portfolio assets will:

(A) be managed by the MDA operator at its discretion, subject to any limitation that may be agreed, for purposes that include investment; and

(B) not be pooled with property that is not the client’s portfolio assets to enable an investment to be made or made on more favorable terms; and

(iii) the client and the MDA operator intend that the MDA operator will use client contributions of the client to generate a financial return or other benefit from the MDA operator’s investment expertise;

(n) participant has the meaning given by section 761A;

(o) personal advice has the meaning given by subsection 766B(3);

(oa) quarter’s end means, in relation to electronic access to information under subparagraph 1.30(b):

(i) the end of the day that is a quarter day; or

(ii) where such access is not given at the time mentioned in paragraph (a)—the time at which access is first given after that time.

(p) relevant personal circumstances has the meaning given in section 761A;

(q) retail client has the meaning given by section 761G; and

(qa) sub-custodian means a person that a custodian directly or indirectly engages to hold client’s portfolio assets or a beneficial interest in those assets;

(r) Statement of Advice has the meaning given by section 761A.

7.7 For this instrument:

(a) a person (first person) engages another person if the first person engages or authorises the other person; and

(b) a person (first person) indirectly engages another person (second person) if:

(i) the first person engages a person and that person engages the second person; or

(ii) a person who is indirectly engaged by the first person under sub-subparagraph (i) or this sub-subparagraph (ii) engages the second person.

7.8 For this instrument, an affected auditor (as defined in ASIC Class Order [CO 14/757]) is taken to be a registered company auditor.

8 Date and Commencement

8.1 This instrument was made, and commences, on 11 March 2004.

Notes to ASIC Class Order [CO 04/194]

Note 1

Note: ASIC Class Order [CO 04/194] (in force under s601QA(1)(a), 741(1)(a), 951B(1)(a), 1020F(1)(a) and 1020F(1)(c) of the Corporations Act 2001) as shown in this compilation comprises that Class Order amended as indicated in the tables below.

Table of Instruments

Instrument number	Date of FRLI registration	Date of commencement	Application, saving or transitional provisions
[CO 04/194]	11/3/2004 (see F2006B00589)	11/3/2004
[CO 04/612]	9/6/2004 (see F2006B00590)	9/6/2004	-
[CO 04/1551]	14/12/2004 (see F2006B00591)	14/12/2004	-
[CO 05/903]	21/9/2005 (see F2005L02777)	21/9/2005	-
[CO 06/226]	31/3/2006 (see F2006L01003)	31/3/2006	-
[CO 07/480]	2/7/2007 (see F2007L02072)	2/7/2007	-
[CO 13/1411]	27/11/2013 (see F2013L01989)	2/1/2014	-
[CO 14/757]	7/8/2014 (see F2014L01082)	7/8/2014	-
[CO 14/1270]	7/1/2015 (see F2015L00018)	8/1/2015	-

Table of Amendments

Note: ad. = added or inserted am. = amended rep. = repealed rs. = repealed and substituted

Provision affected	How affected
Para 1.6(a)........	am. [CO 04/612]
Para 1.7..........	am. [CO 04/612]
Para 1.8..........	am. [CO 04/612]
Para 1.9..........	am. [CO 04/612]
Para 1.22E(b)(iii) ...	am. [CO 14/1270]
Para 1.23(b)(v).....	am. [CO 04/1551]; [CO 05/903] and [CO 06/226]
Para 1.29(a).......	rs. [CO 07/480]
Para 1.31A........	ad. [CO 07/480]
Para 1.31(b).......	am. [CO 07/480]
Para 1.31(c)(ii).....	am. [CO 07/480]
Para 1.22A–1.22S...	ad. [CO 13/1411]
Para 2.10(e).......	am. [CO 04/1551]; [CO 05/903] and [CO 06/226]
Para 2.8A–2.8C.....	ad. [CO 13/1411]
Para 7.6(ea)–(eb) ...	ad. [CO 13/1411]
Para 7.6(oa).......	ad. [CO 07/480]
Para 7.6(qa) .......	ad. [CO 13/1411]
Para 7.7..........	ad. [CO 13/1411]
Para 7.8..........	ad. [CO 14/757]

ASIC Class Order [CO 04/194]

Plain English Summary

Deep dive

Current sections

ASIC Class Order [CO 04/194]

Source text: opening excerpt

1 ASIC Class Order [CO 04/194]