THE LAW COUNCIL has called for the corporate watchdog to provide permanent relief from holding a financial services licence for those of its members who operate fidelity funds and professional indemnity schemes.
Since the Financial Services Regulations (FSR) were implemented in 2002, all those deemed to be offering a financial service have had to hold a financial services licence or seek exemption.
The Law Council has sought a permanent exemption from the Australian Securities and Investments Commission (ASIC) for its members who provide these services, including litigation funders, but has so far only been granted temporary relief until June this year.
“Fidelity funds and professional indemnity services … allow those who suffer loss as a result of a lawyer’s defalcation of trust funds or negligent conduct to recover those losses,” the Council said in a recent submission to a federal government inquiry, ‘Reducing the Regulatory Burden on Business’.
ASIC has advised the Council that it is unable to grant permanent relief as it has not yet determined its approach to mutual funds, but the the Council said this justification did not take account of the fact that a number of the organisations the Law Council has sought relief for do not maintain mutual funds.
There remains uncertainty over whether litigation funders require a financial services licence, for example. ASIC did provide the Law Council with the view that it considers these to be a form of derivative, but the Law Council said this is contrary to advice received by the Standing Committee of Attorneys-General.
The Council said it knows of one litigation funder that has voluntarily obtained a financial services licence, but four others that are operating without one.
ASIC should set up a “public ruling system” to provide advice for individual organisations whose status is uncertain under the regulations, just as the tax office provides advice on GST issues, the Council said.
John Price, Director, Applications and Licensing at ASIC, said the details of the Law Council’s application for relief were confidential, but “where requests are made to us they are not forgotten”.
“Whenever we receive an application [for relief] we work through the issues and whether we are in a position to provide relief.”
He pointed out that the government is reviewing the regulation of discretionary mutual funds and direct offshore foreign insurers.