Multijurisdictional fund marketing in Australia

‚ÄčFund raising in Australia is highly regulated. Any entity wishing to raise funds in Australia must comply with strict regulations and hold appropriate licences, or fall within one of the specific narrow exemptions. This article examines various ways in which funds are raised in Australia and the regulations that govern each method of fund raising.
Corporations Act framework
Chapter 7 of the Corporations Act (known as the Financial Services Reform Act) is the framework regulating all fund raising and risk management activities in Australia. It regulates all "financial products". A "financial product" is defined as a facility through which a person:
  • makes a financial investment;
  • manages a financial risk; or
  • makes a non-cash payment.
Shares, debentures and bonds, certain types of unit trusts and deposit products are all "financial products".
"Financial services" are services that are provided in respect of a financial product. They include:
  • providing financial product advice;
  • dealing in a financial product;
  • making a market in financial products; and
  • operating a managed investment scheme.
The issuing of securities (including equity securities such as shares and debt securities such as debentures) and the operation of certain types of unit trusts (managed investment schemes) are all "financial services".
The Corporations Act states that any person that "carries on a financial services business in Australia" must hold an Australian Financial Services Licence unless they fall within one of the strict exemptions. The definition of when a person will "carry on a financial services business in Australia" is broad and includes any conduct that is intended to or is likely to induce a person in Australia to use the provider's financial services. Any person who wishes to raise funds from people in Australia is required to hold an AFSL (unless a specific exemption applies) regardless of the jurisdiction in which the person raising the funds resides. The law applies equally to fund raising from wholesale (institutional and sophisticated) investors and fund raising from retail investors (consumers).
The Australian Securities and Investments Commission is the regulator responsible for issuing AFSLs and overseeing the provision of financial services in Australia.
Issuing shares
A company may wish to raise capital by issuing shares. The Corporations Act governs the offer of shares received in Australia, regardless of where any issue or sale takes place. Foreign companies offering shares to persons in Australia, including by electronic means such as the internet, must therefore be aware of the requirements under the act.
Although shares are "securities", and are therefore "financial products", a company issuing shares does not require an AFSL because of the "fund raising exemption" in the Corporations Act. The act, however, does require that a disclosure document must be prepared and lodged with ASIC in relation to offers for the issue of shares, unless an exception to disclosure applies. There are several exemptions, including offers open only to sophisticated investors and small-scale offerings to less than 20 investors raising less than $2m in 12 months.
Bank deposits
Deposit-taking institutions in Australia include banks, building societies, credit unions and friendly societies. These institutions may raise funds from investors by offering deposit products; these deposit accounts bear interest at a fixed or variable rate and may be made on an "at call" or "term" basis. In addition to the requirement to hold an AFSL, all deposit-taking institutions in Australia are required to be authorised under the Banking Act. An authorised deposit-taking institution is required to meet certain prudential requirements (including strict capital and liquidity requirements) and to obtain an authorisation from the Australian Prudential Regulation Authority. Further, any entity which wishes to use the word "banks", "banker" or "banking" in Australia is required to obtain a specific authorisation from APRA in order to do so.
The Corporations Act defines a debenture as a chose in action that includes an undertaking by a company to repay, as a debt, money deposited with or lent to the company. A number of instruments that fall within this broad definition are specifically excluded from the definition in the act, including an undertaking by an Australian ADI to repay money lent to it or deposited with it in the ordinary course of its banking business. Debentures are debt securities and are therefore "financial products". As a result, any entity that raises funds by issuing debentures for the purpose of raising funds to invest those funds in securities, interests in land or other investments as part of a business is required to hold an ASFL. For example, a finance company raising funds by debentures for the purposes of on-lending those funds to borrowers is required to hold an AFSL. Public issues of debentures are required to be made under an information memorandum where all the investors are "wholesale" (sophisticated) investors or under a product disclosure statement where the investors are "retail" investors. There are strict laws regulating the disclosures made to "retail" investors in a product disclosure statement.
Managed investment schemes
A managed investment scheme is a special type of unit trust in which:
  • investors contribute funds to acquire rights to benefits produced by a scheme;
  • the contributions are pooled or used as a common enterprise;
  • the contributions produce financial benefits or benefits consisting of rights or interests in property for the investors; and
  • the investors do not have day-to-day control over the operation of the scheme.
The Corporations Act regulates any managed investment scheme if:
  • the scheme has more than 20 members;
  • the operator of the scheme is in the business of promoting managed investment schemes; or
  • the scheme is part of two or more "closely-related schemes" which together have more than 20 members.
As a result, any unit trust with more than 20 investors, or any unit trust with less than 20 members that is operated by an entity running several such schemes, is likely to be regulated as a managed investment scheme under the Corporations Act. Only the operators of small, closely-held unit trusts will be able to operate without an AFSL.
A managed investment scheme which is open to "retail" investors must be registered with ASIC and interests in such a scheme must be offered under a product disclosure statement. Although the operators of managed investment schemes in which all the unit holders are "wholesale" are required to hold an AFSL, the scheme is not required to be registered with ASIC and interests in the scheme may be offered under an information memorandum rather than a product disclosure statement.
Exemptions to licensing
As noted above, there are a number of exemptions to the requirement to hold an AFSL. These are set out in the Corporations Act, the Corporations Regulations and various "class orders" issued by ASIC. Many of these apply to offshore operators raising funds from "wholesale" investors in Australia. In particular, a number of exemptions apply to offshore operators who are regulated by the UK Financial Services Authority, the US Securities and Exchange Commission or the Federal Reserve Board or the Comptroller of the Currency, the Monetary Authority of Singapore or the Hong Kong Securities and Futures Commission. None of the exemptions apply to persons wishing to raise funds from "retail" investors in Australia. Any person wishing to rely on an exemption to hold an AFSL must ensure that they comply strictly with the terms of the exemption. Many exemptions require the entity to notify ASIC of their intention to rely on the exemption. Certain disclosures are also required to be made to "wholesale" investors where the issuer of the financial product does not hold an AFSL.


This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.