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15-117MR ASIC updates guidance for carbon market participants
ASIC today released updated regulatory guidance for carbon market participants.
ASIC’s updated Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236) follows changes to the structure and regulation of carbon markets in Australia. The updated guidance will assist carbon market participants – in particular, carbon abatement project developers and aggregators – to operate their businesses in compliance with the financial services laws.
RG 236 has been updated to take into account:
- the end of the carbon pricing mechanism in February 2015
- the startup of the Emissions Reduction Fund (ERF), including the broader scope of project types and new participants under the ERF
- anticipated ERF project structures that involve multiple small-scale carbon abatement activities under a single project (i.e. ‘ERF aggregated project’ carried out by an ‘aggregator’)
- competitive ERF reverse auctions for carbon abatement contracts, and
- the introduction of the emissions reduction safeguard mechanism in July 2016.
RG 236 has also been updated to reflect:
- that carbon units, European Union allowances and Australian-issued international units ceased to be financial products from the end of the carbon pricing mechanism, and
- the exemption of carbon abatement contracts from the definitions of ‘derivative’ and ‘financial product’ for the purposes of the Corporations Act 2001 (Corporations Act).
This exemption means that a person is not required to hold an Australian financial services (AFS) licence to provide advice about, or enter into, a carbon abatement contract.
In January 2015, the Australian Government consulted on further exemptions from the managed investment scheme and AFS licence obligations for ERF aggregated projects, aggregators and technical advisers providing advice about ACCUs – and, as set out in the Explanatory Statement to the Corporations Amendment (Emissions Reduction Fund Participants) Regulation 2015, the Australian Government will monitor participation in ERF auctions as it continues to consider these exemptions and the feedback from the submissions to consultation.
Consequently, RG 236 provides guidance on the application of the current financial services laws to carbon market activities under the ERF and the emissions reduction safeguard mechanism. RG 236 also provides particular guidance on:
- when an ERF aggregated project may be a managed investment scheme, and
- when the arrangement for the provision of carbon abatement by a person to an ERF project proponent may be a financial product.
In developing this guidance, ASIC has worked closely with the Department of the Environment and the Clean Energy Regulator to anticipate a variety of different structures of ERF aggregated projects that may emerge under the ERF. ASIC will, however, monitor the need to more closely align its guidance to emerging and evolving ERF practices.
Given the broad range of financial services that may be provided in carbon markets, we encourage carbon market participants to obtain their own professional advice on how the Corporations Act and other applicable laws apply to their particular circumstances, as it is their responsibility to determine their obligations.