ASIC has today released a consultation paper on proposed updates to its regulatory guidance for participants in the carbon market in relation to Australian financial services (AFS) licensing requirements.

The proposed updates address the implications of the safeguard mechanism reforms to the financial services and markets section of the Corporations Act 2001, as well as changes in the regulatory landscape for carbon markets, particularly Australian Carbon Credit Units (ACCUs), that have occurred since RG 236 was last re-issued in May 2015.

ASIC invites feedback on its proposals to update RG 236 by 3 June 2024.

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Consultation Paper 378 Safeguard mechanism reforms: Updates to RG 236 (CP 378)

Implications of Safeguard Mechanism reforms

The reforms were introduced under the Safeguard Mechanism (Crediting) Amendment Act 2023 and National Greenhouse and Energy Reporting (Safeguard Mechanism) Rule 2015 and commenced on 1 July 2023. Under the Safeguard Mechanism, the Clean Energy Regulator (CER) may issue safeguard mechanism credits units (SMCs) to large industrial facilities to whom the safeguard mechanism applies (termed ‘safeguard facilities’) from January 2025. Like ACCUs, SMCs are regulated as financial products under the Corporations Act.

The regulation of SMCs as a financial product has implications if you are a safeguard facility, provide advice to a safeguard facility, or deal in or make a market in SMCs. For example, you may require an AFS licence to provide financial product advice in relation to SMCs as part of a financial services business you carry on in Australia.

Updates to RG 236 and INFO 156

ASIC also proposes to update several examples in RG 236, including those relating to derivatives over emissions units and financial product advice on SMCs and ACCUs. In addition, ASIC is seeking input on whether there are other common real-world scenarios of activities in the carbon market that industry considers ASIC’s guidance should address.

ASIC will also update INFO 156 Regulated emissions units: Applying for or varying an AFS licence when the updated RG 236 is published. We expect to publish this in the second half of 2024.

ASIC is Australia’s corporate, markets and financial services regulator.