AUSTRALIAN BANKERS’ ASSOCIATION INC.
Level 3, 56 Pitt Street, Sydney NSW 2000
p. +61 (0)2 8298 0410 f. +61 (0)2 8298 0402
10 April 2012
Ms Chloe Youl
Senior Lawyer, Strategic Policy
Australian Securities and Investments Commission
GPO Box 9827
SYDNEY NSW 2001
Dear Ms Youl,
The Australian Bankers Association (ABA) welcomes the opportunity to provide comments on Consultation Paper 175:
Carbon markets: Training and financial requirements [CP 175]. We support regulatory guidance to help existing AFS
licensees and other businesses (whether they are required to become AFS licensees or not) comply with their legal
requirements leading up to the introduction of the carbon pricing mechanism on 1 July 2012.
1. Opening comments
The ABA notes that the Australian Government has introduced a carbon pricing mechanism which will operate from
1 July 2012. “Liable entities” will be required to acquire and surrender “emissions units” to meet their carbon liabilities
under the Clean Energy Act 2011. From 2 April 2012, the Clean Energy Regulator will be responsible for administering
the carbon pricing mechanism.
Under the law, there are three types of emissions units which are to be treated as “regulated emissions units”, including:
• Carbon units issued by the Clean Energy Regulator under the Clean Energy Act;
• Australian carbon credit units (ACCUs), which may be generated via carbon offset projects under the Carbon
Farming Initiative; and
• eligible international emissions units (EIEUs), which are various types of internationally traded units, including
certain units issued in accordance with the rules of the Kyoto Protocol.
In addition to the carbon pricing mechanism, markets through which participants make “voluntary” commitments to offset
carbon emissions also operate in Australia and overseas.
“Regulated emissions units” will be treated as financial products under the Corporations Act 2001. Therefore, persons
carrying on a business of providing financial product advice, dealing in a financial product, making a market for a financial
product, operating a registered scheme, providing a custodial or depository service, and providing traditional trustee
company services in relation to regulated emissions units will need to have an AFS licence from 1 July 2012. This
includes those participating in or providing advice about the carbon pricing mechanism (‘Corporations Act-regulated’) and
those participating in the voluntary carbon markets. AFS licensees are required to meet conduct and disclosure
obligations under legislation and the conditions of their licence.
Previously, the ABA has advocated that it would be inappropriate to treat emissions units as financial products. However,
given that the Australian Government has decided to generally apply the legal obligations associated with financial
products to regulated emissions units, we consider that it will be vital for the Clean Energy Regulator and ASIC to ensure
the boundaries of services about emissions units and greenhouse gas and energy reporting are clearly articulated so that
existing AFS licensees, liable entities and other individuals and entities can prepare themselves for the new regime.
We do not see any reason as to why the criteria applied to AFS licensees should not apply to other individuals and
entities that are in the business of providing financial services (including financial product advice in relation to emissions
units). With this in mind, we acknowledge ASIC’s regulatory guidance about licensing1.
The ABA notes the exposure draft regulations to amend the Corporations Regulations 2001 to modify the regime
contained in the Clean Energy Act to address the unique characteristics of emissions units and to avoid unnecessary
compliance costs associated with the treatment of emissions units as “financial products”.
Previously, the ABA has submitted that there should be a number of exemptions to ensure that certain conduct does not
constitute dealing in a financial product. We note that generally our comments have been adopted in the proposed
regulations, such as dealing on own behalf (or a related body corporate or associated entity), managing a financial risk
(in relation to the surrender, cancellation or relinquishment of carbon units including hedging a sale or surrender), market
making (regularly stating prices including during the auction process), dealing in foreign exchange or derivatives over
carbon units, or dealing not as the principal purpose of business. However, where these licence exemptions are not
otherwise available, we consider that it is appropriate for liable entities or other individuals and entities to hold an
1.2. Transition to the carbon pricing mechanism
The ABA believes that it will be important to minimise regulatory burden, administrative complexities and compliance
costs by streamlining the licensing processes for new licensees (for example, introducing new licensing arrangements for
liable entities (where required as a licence exemption is not available)).
Therefore, the ABA believes a number of matters should be clarified through regulatory guidance, including:
• Availability of licence exemptions for liable entities that are acquiring or disposing of regulated emissions units
(we note regulatory guidance contained in RG 236 and the exposure draft regulations);
• Circumstances when liable entities or others are required to hold an AFS licence and meet the various licence
conditions including conduct and disclosure obligations as well as adequate resources (and in particular financial
• Organisational competencies and training requirements that liable entities and other individuals and entities are
required to meet.
Additionally, the ABA believes that it is appropriate for financial services providers to have their licence varied to
accommodate the provision of financial services in relation to emissions units (where applicable). However, we do not
believe that obligations imposed on existing AFS licensees should be varied in relation to a business of providing
financial services in relation to emissions units, with the exemption of discrete areas to ensure regulatory requirements
are appropriate for the characteristics of emissions units (for example, training requirements). It will be important to
minimise regulatory burden, administrative complexities and compliance costs by streamlining the licensing processes for
existing AFS licensees (for example, adjusting existing licensing arrangements, variations to authorisations,
implementation and timing).
Regulatory Guide 236: Do I need an AFS licence to participate in carbon markets? [RG 236]
The ABA is concerned that ASIC will accept applications for new AFS licences or licence variations relating to emissions
units when the Corporations Amendment Regulations are finalised (likely by May 2012). This will mean that banks which
intend to provide financial services in relation to emissions units could have only around 1 month to seek a licence
variation and demonstrate compliance with any new requirements2. The banking industry understands the tight timing
associated with the new legislation, and therefore we suggest that it would be helpful if ASIC could not only publish
information on its website about the new regulatory framework, including the licensing process, general obligations and
the timetable in which requirements will take effect, but also publish an invitation for AFS licensees and entities or
individuals that anticipate that they will need a licence to contact ASIC to assist in preparing their licence variation or
licence application (as needed).
2. Specific comments
2.1. Training requirements
The ABA generally supports the proposed training requirements. We consider that it is appropriate to treat emissions
units as Tier 1 products under Regulatory Guide 146: Licensing: Training of financial product advisers [RG 146].
Emissions units have characteristics that are similar to market-linked products. Additionally, emissions units are deemed
personal property (with associated rights).
The ABA believes that advisers should be required to meet certain training requirements if they provide financial product
advice on regulated emissions units, including specialist knowledge. Specifically, we consider that specialist knowledge
• Types of products and their characteristics: types of regulated emissions units; personal property rights
(including implications of carbon assets with distinguishable and tradable rights); awareness of risks associated
with emissions units (including price risk, liquidity risk, regulatory risk, and other risks depending on the
participant, such as credit risk, investment risk, operational risk); strategies for managing risks (including
hedging); processes for acquiring, transferring and surrendering emissions units (including requirements of the
• Operation of the carbon markets: differences between the operation of the carbon pricing mechanism (fixed price
period) and voluntary carbon markets; issuance and auction of emissions units; secondary trading of emissions
units; drivers of supply and demand (including different participants).
• Legal: understanding the domestic and international regulatory frameworks for carbon trading (including the role
of the Clean Energy Regulator, requirements of the registry, the Carbon Farming Initiative, the Clean
Development Mechanism, possible variability in offset programs and schemes); relevant documentation
requirements; relevant legal principles and ethical requirements; relevant disclosure obligations (including fees,
conflicts of interest, etc); relevant industry standards and codes of conduct; complaints resolution procedures.
• Tax: awareness of taxation issues associated with emissions units; deductibility of costs associated with
The ABA believes that the cost of specialist knowledge training will be likely around $2,000 per adviser. However, this
cost assumes the adviser has already undertaken generic knowledge training (RG 146-compliant) and requires specialist
knowledge in carbon markets and derivatives only. We note the ABA’s submission on Consultation Paper 153: Licensing:
Assessment and professional development framework for financial advisers [CP 153], and in particular industry concerns
regarding the wide variety of quality standards available to obtain Tier 1 accreditation. Therefore, we consider that ASIC
The ABA notes that transitional arrangements in the exposure draft regulations will be critical to ensure market integrity as well as allow industry to
transition to the new arrangements.
should engage with training providers to ensure quality and timing around training programs, especially to ensure that
specialist knowledge competencies are appropriately referenced and contained in training modules. Furthermore, we
note that the compliance costs and administrative complexities associated with meeting the training requirements will
ultimately be dependent on the outcome of ASIC’s consultation process on CP 153, which proposes additional
professional development and training requirements for advisers to those contained in RG 146, such as the
supervisor/mentor proposal is likely to present significant practical difficulties for AFS licensees.
The ABA believes that the majority of liable entities will be ‘wholesale’ and generally regulated emissions units will be
traded by wholesale investors. However, we are concerned that in the absence of the FOFA reforms to the
‘retail/wholesale distinction test’ adequately addressing the existing issue regarding “sophisticated businesses” that the
provision of services to liable entities will carry with it unnecessary compliance costs as AFS licensees may have to meet
the various obligations applicable to the provision of financial services to a retail client. While we consider that smaller
entities that otherwise do not meet the statutory tests should be afforded the protections contained in the Corporations
Act, equally clarification about the application of the statutory tests to liable entities in relation to emissions units would
ensure that the associated compliance costs with the carbon pricing mechanism are appropriately contained and
representatives of businesses that are authorised to conduct trades, transactions or investments on behalf of their
businesses would be able to do so without the need for the AFS licensee to have to meet all the obligations applicable to
other financial products.
The ABA notes that even though we are advised that training providers are developing appropriate training modules,
we are concerned that there will be insufficient programs available in the market to demonstrate compliance with the
training requirements. Training providers will require time to develop these courses and ensure that they are registered
on the ASIC Training Register. Advisers will also need time to complete the required training. Therefore, we request
ASIC clarifies its expectations in relation to AFS licensees demonstrating adequate arrangements to ensure the
competencies of their staff and demonstrating adequate compliance systems in relation to training requirements,
including transitional arrangements. We suggest that it is appropriate to introduce a transitional period of the shorter
(a) 18 months from the commencement of the regulation of emissions units under the Corporations Act (date yet to
be settled by regulation); or
(b) 18 months from the date a new AFS licence is granted or a licence variation is made (authorising the existing
AFS licensee to provide financial services for regulated emissions units).
In practice, this means that all new AFS licences or licence variations offered during the first 18 months of the regulation
of emissions units under the Corporations Act would be conditional on the licensee and/or their representatives
completing the full training requirements by the required date.
However, the ABA believes that this transitional period should be dependent on the development and endorsement of
national competency standards by the end of June 2012 as well as access to appropriate specialists to provide expert
input into the development of training modules. Therefore, we request ASIC monitors the evolution of competency
standards and the development of training programs.
Additionally, the ABA suggests ASIC clarifies its position in relation to the legal liabilities associated with this transitional
period where a licence or licence variation is subsequently revoked due to non-compliance with RG 146 (and the new
training requirements in relation to emissions units).
2.2. Financial requirements
The ABA believes that the current requirements contained in Regulatory Guide 166: Licensing: Financial requirements
[RG 166] should apply to AFS licensees providing financial services for regulated emissions units, unless the licensee is
exempt, such as the licensee is an APRA-regulated entity, the licensee has in place an alternative arrangement because
it is a subsidiary or a related body corporate of an APRA-regulated entity, or the licensee has in place financial
requirements applying to a participant of a licensed market of CS facility. We consider that it is important to ensure that
financial requirements apply consistently with existing policy.
3. Other issues
3.1. Licence exemption
The ABA notes that it will be important for the Clean Energy Regulator and ASIC to work together to administer the
regime under the Clean Energy Act. Specifically, it will be important to ensure that liable entities and other individuals and
entities are aware of, and act in accordance with, their legal obligations. For example, it could be possible in the ordinary
conduct of a liable entity to make a market in derivatives over emissions units. However, trading may become an
additional source of profit, rather than just an activity to meet its compliance obligations. It will be important for ASIC to
ensure compliance with the obligations in the Corporations Act, especially where entities have a licence exemption (for
example, managing a financial risk which is not a significant part of their business).
3.2. Financial product advice
The ABA believes that it is appropriate for individuals and entities to be licensed to offer financial services and products
or provide financial product advice in relation to regulated emissions units. Licensing should not be based on the
subjective intent of a client (for example, to purchase emissions units to meet compliance obligations, voluntarily
surrender or cancel, or for investment purposes) or on the person carrying on the business in relation to emissions units
(for example, to provide information and advice to liable entities about their obligations in relation to emissions units and
greenhouse gas strategies). We are concerned that advice about emissions units may involve broad ranging discussions
about sustainability strategies, emissions and energy reporting, carbon accounting, strategies for adopting abatement
technologies, techniques for minimising carbon price exposures, emissions unit trading, etc. In practice, not all of these
discussions are likely to constitute “financial product advice”. We note that it is likely that individuals and entities not
currently AFS licensees are in fact providing financial product advice in relation to emissions units. Alternatively, some
individuals and entities may believe they are required to be licensed, and in fact, are not providing financial product
advice as pursuant to the law.
While the ABA recognises the regulatory guidance contained in RG 236 and proposed in CP 175, given this is a new
regime we believe that further regulatory guidance should clarify the implications of providing financial product advice
about emissions units for compliance purposes, and in particular what constitutes financial product advice, rather than
factual information or incidental advice about emissions units.
3.3. RG 236
The ABA suggests that RG 236 may need to be amended to take account of various exemptions contained in the
exposure draft regulations.