The reforms are designed to improve investor protection within an emerging sector as some platforms have ineffective risk management as well as being largely unregulated in Australia. It aims to strengthen governance and align crypto with the standards already applied to traditional financial services. 

Bringing crypto in line with AFSL is expected to create consolidation within the sector and targets crypto exchanges rather than at the token level.   

Key changes 

• New categories under the Corporations Act 2001 will recognise digital asset platforms (DAPs) and tokenised custody platforms (TCPs) 

• These entities will be required to obtain an AFSL and meet obligations consistent with traditional financial service providers 

• The draft framework sets out obligations relating to custody, settlement, tokenisation, staking, governance, disclosures and consumer protection standards 

• Significant penalties will apply for operating without a licence, with some exemptions proposed for smaller operators 

What the draft law proposes 

The proposed changes amend the Corporations Act 2001 to introduce two new categories of financial service providers: 

1. Digital Asset Platforms (DAPs): Operators of trading platforms for crypto assets. 

2. Tokenised Custody Platforms (TCPs): Custodians of digital assets on behalf of clients. 

Entities falling into these categories will be required to: 

• hold an AFSL, with obligations largely aligned to those already imposed on traditional financial services providers. 

• implement and maintain controls for custody and settlement of digital assets. 

• comply with requirements on tokenisation, staking, governance, disclosures and consumer protection. 

• submit to ASIC oversight, including reporting obligations and enforcement measures. 

The regime proposes threshold exemptions for smaller operators. For example, platforms with client holdings below $5,000 per person or with annual transaction values under $10 million may not need to hold a licence. However, these exemptions are tightly defined and will not apply to most exchanges operating at scale. 

Penalties for non-compliance 

The penalties set out in the draft legislation are significant. Operating without an AFSL could attract fines up to $16.5 million, or a percentage of turnover or profit derived from unlicensed activities. This brings crypto regulation into line with other parts of the financial services sector where strong deterrence measures apply. 

Implications for the industry 

For many crypto exchanges and custodians, this will be the first time they are required to meet obligations such as: 

• annual and continuous reporting to ASIC. 

• preparation of audited financial statements in line with Australian Accounting Standards. 

• maintenance of sufficient financial resources to comply with licence conditions. 

• demonstration of effective internal processes, controls and governance frameworks. 

• the draft legislation also highlights areas of focus for regulators, including consumer protection, asset segregation, valuation of digital assets, cyber security, and the robustness of custody arrangements. 

Audit considerations 

The changes carry significant implications for AFSL audits. Crypto entities will be required to obtain assurance over governance structures, custody processes and financial resource requirements. Auditors will need to assess the operating effectiveness of internal controls, review the accuracy of financial projections, and test compliance with both the AFSL framework and guidance such as GS003 issued by the Auditing and Assurance Standards Board.  

There will also be an increased focus on digital asset risks, transparency, and the robustness of control environments. For many operators who have not previously prepared financial statements under Australian Accounting Standards, complex financial reporting matters are likely to arise which will require a high level of skill and experience in the sector to address. 

How can SW help?  

We recommend that organisations begin preparing now by assessing whether the regime applies to their business, reviewing current practices against the proposed obligations, and developing compliance plans well ahead of implementation. Engaging advisors early will be key to identifying gaps and reducing the risk of non-compliance, while staying across ongoing consultation and ASIC guidance will be essential as the regulatory detail develops. 

SW has a dedicated financial services team that advises cryptocurrencies, banks, fund managers, superannuation providers and brokers, and we meet regularly to share insights on emerging regulatory issues and industry trends. Our focus is on conducting efficient audits that address the risks of material misstatement, ensure compliance with Australian Accounting Standards, and provide clear reporting on governance and control effectiveness in line with GS003. 

With extensive experience in AFSL audits, our team is ready to help digital asset businesses understand and prepare for the new licensing environment. 

The post Crypto exchanges to require AFSL licences  appeared first on SW Accountants & Advisors.

This year, the series was delivered online with a focus on topics of particular relevance and importance to our clients in 2023, and also provided a general update on what’s new in financial reporting.

Series details

Webinar 1: Financial Reporting update for 30 June 2023

Our experts provided insight and an update on:

• Accounting standard changes
• Key focus areas for 30 June 2023 reporting
• ASIC update
• Corporate governance update
• Sustainability standards
• Other regulatory changes

Webinar 2: Financial Reporting update for 31 December 2023

Our experts covered:

• Accounting standard changes
• Key focus areas for 31 December 2023 reporting
• ASIC update
• Corporate governance update
• Sustainability standards
• Other regulatory changes

Series experts

Tom Mullarkey
Partner, Assurance and Advisory Services
SW 

René Muller
Partner, Assurance and Advisory Services
SW 

Jimmy Cao
Associate Director, Assurance and Advisory Services
SW 

James Serpell
Senior Manager, Assurance and Advisory Services
SW 

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Financial Reporting Webinar Series appeared first on SW Accountants & Advisors.

The CCIV regime provides a new type of corporate flow-through entity, which is an incorporated company but which, through a set of deeming principles, is effectively treated as a trust for all tax law purposes.

The purpose of the regime is to increase the competitiveness of Australia’s managed funds industry by creating a flow through corporatised entity which is more widely recognised internationally and draws on characteristics of similar regimes currently utilised in Singapore, UK, Hong Kong and elsewhere.  

A further objective of the CCIV tax framework is to align the tax treatment of CCIVs and their members with the existing tax treatment of general trusts and attribution managed investment trusts (AMITs). Where a CCIV sub-fund trust:

• meets the AMIT eligibility criteria, it will be taxed as an AMIT under the attribution flow-through tax regime
• fails to meet the AMIT eligibility criteria, the CCIV sub-fund trust will be taxed in accordance with general trust provisions, which is consistent with the current outcomes for AMITs 

Characteristics of a CCIV

A CCIV is a legal form company limited by shares, the income of which is distributed by way of legal form dividends. The company must be registered with ASIC under the new chapter 8B of the Corporations Act 2001.

The company has a sole corporate director which must be a public company that holds an Australian Financial Services License (AFSL). The company must have at least one sub-fund which has at least one member and it can either be a wholesale or retail sub-fund.  

The CCIV will effectively operate as an umbrella vehicle of separate sub funds, with each sub fund potentially providing a different investment offering, and each sub-fund potentially having different members. The sub-funds are not separate legal entities but operate as cells within the CCIV.

A CCIV is deemed to be the trustee of each sub-fund, each of which is a separate entity for income tax purposes. The sub-funds, subject to meeting relevant requirements, may be treated as AMITs.

The constitution of the CCIV will be its primary governing document and will contain different provisions depending on whether the CCIV is a retail or wholesale fund.

While a CCIV is not a MIS, there are separate requirements which build in similar protections for CCIV investors, similar to those available to MIS entities.

Advantages of a CCIV

International recognition

The CCIV regime draws on characteristics of similar regimes which operate in other jurisdictions. Given many international investors are not familiar with the unit trust structure widely adopted in Australia in relation to Funds, the CCIV increases international competitiveness in the funds management space by creating an entity which is more widely recognised internationally and may therefore be more attractive to international investors.

Segregation of assets and liabilities

Whilst each sub-fund is not a separate legal entity, the assets and liabilities are segregated from each other. The assets of each sub-fund can legally only be applied for purposes relating to that specific sub-fund.

Flow through taxation

The income earned by the CCIV sub-fund trusts will retain its character when received by investors, such that investors will effectively be taxed as if they hold assets of the trust directly (subject to the usual tests such as Division 6C). Whilst the CCIV pays legal form dividends, the income received by investors will not be taxed as dividends but rather taxed as distributions from a trust.

Fixed entitlement to income and capital

Investors will be deemed as having a vested and indefeasible interest in the income and capital of the sub fund-fund trusts. This is relevant for the utilisation of trust losses and application of franking credit provisions.

Concessional withholding rates

If a sub-fund qualifies as a MIT, distributions to investors who reside in countries that have an Exchange of Information Agreement with Australia may be subject to the lower concessional withholding rate of 15% on certain types of income (excluding interest, dividend and royalty income).

Capital account election

In addition to the above, if the sub-fund trust qualifies as a MIT it can make an election to treat certain assets as on capital account. This will mean that in most cases asset disposals will be treated as capital gains which may be a more favourable tax outcome for both resident and non-resident investors.

Disadvantages of a CCIV

Rollover relief

There are currently no specific rollovers or concessions which would allow existing fund structures to seamlessly convert to the CCIV regime without any income tax implications. Existing CGT roll-overs may apply in some cases and should be considered accordingly. This limitation may make it difficult to transfer existing “in the money” investments to the CCIV regime.

Tax losses

Currently, there are no specific provisions which allow the transfer of revenue or capital losses from an existing structure into a CCIV structure. This means an entity converting to a CCIV would currently not be able to retain any existing tax or capital losses.

Trust income

Under the CCIV regime, the definition of income in relation to the sub-fund trusts is broadly determined based on accounting profit of the trust. The limited flexibility in defining income could result in unintended and unfavourable income tax consequences with respect to income earned by the sub-fund trusts.

Duty & land tax

There is yet to be any guidance released by the various States in relation to the treatment of CCIV entities from a duty or land tax perspective.

How SW can assist

There will be cases where the CCIV regime will provide clear benefits to fund managers and to investors.  These will predominantly relate to where the fund is either attracting foreign investment, or where the fund is designed to invest in foreign assets (even if the investors are domestic). 

Given the challenges in converting from a traditional trust structure to a CCIV, the CCIV regime should be considered even if these international factors are not present at the inception of the fund but are recognised as possibilities in later years.

Reach out to our team to discuss whether the CCIV regime is appropriate for your fund.

Click here to find out more about how we work with fund managers and financial services business across the sector.

Contributors

Carmelin De Francesco, Senior Manager, Tax

The post Corporate Collective Investment Vehicle Regime (CCIV) appeared first on SW Accountants & Advisors.

This announcement on Friday 3 June effectively removes annual special purpose financial statements as an option for AFSL holders.

Under the new reporting requirements, many AFS licensees’ annual financial reports must be prepared in accordance with the disclosure requirements of all Australian Accounting Standards as set by the Australian Accounting Standards Board (AASB). Some AFS licensees will be able to apply a simplified disclosure regime.

Some AFSL holders will also be able to choose to defer these changes by one year, if they meet the requirements described below.

Changes to AFSL reporting requirements

From financial years commencing 1 July 2021, entities preparing financial statements in accordance with the Corporations Act 2001 (the Act) can no longer prepare special purpose financial reports (SPFRs) that do not contain all disclosures required by the accounting standards set by the AASB.

All entities must apply the full recognition and measurement requirements for assets, liabilities, income and expenses. Accounting standards, however, allow entities that do not have public accountability to use a simplified disclosure regime.

Entities that have public accountability must comply with the disclosure requirements of the full standards.

An entity has public accountability where:

• its debt or equity instruments are currently, or in the process of being, traded in a public market, or
• it holds assets in a fiduciary capacity e.g. entities that hold client monies.

ASFL entities with Public Accountability

For the avoidance of doubt of ‘Public Accountability’, ASIC has also stated that the following entities will be required to comply with the disclosure requirements of all AASB standards:

• Large or sophisticated licensees with greater market impact
• Regulated by the Australian Prudential Regulatory Authority
• Participants in a licensed market
• Participants in a clearing and settlement facility
• Retail over-the-counter derivative issuers
• Wholesale electricity dealers
• Corporate advisors that deal in financial products
• Over-the-counter derivative traders
• Wholesale trustees
• Responsible entities of a registered scheme
• Corporate directors of a corporate collective investment vehicle
• Providers of a custodial or depository service
• Operators of an investor directed portfolio service.

All licensees will be required to prepare a cash flow statement. In addition to single entity financial statements, consolidated financial statements must be presented where the licensee has controlled entities.

Option to defer by 12 months

AFS licensees that prepared SPFRs last year, and that do not prepare reports under Chapter 2M, can choose to defer the new disclosure requirements to financial years commencing on or after 1 July 2022, i.e. until 30 June 2023.

In deciding whether to defer adoption of this standard, AFSL holders should consider the costs and benefits of adopting the new reporting framework from 1 July 2021 vs deferring to 1 July 2022.

Investors, lenders and other stakeholders may have an expectation of the entity to comply with disclosure requirements of Australian Accounting Standards and might have concerns about the quality of the entity’s financial reporting if the entity continues to prepare special purpose financial statements in FY22. However, adopting a new financial reporting framework is likely to incur additional compliance costs.

We recommend that AFSL holders reach out to their trusted SW advisor to discuss the most suitable approach for 30 June 2022.

Transitional relief

Comparative information need not contain the new disclosures in the first report prepared under the new requirements.

Update form FS70

We are expecting ASIC to release an amended version of form FS70 in late June

Action to Be Taken

Consider whether the entity would be required to comply with the full disclosure requirements of all AASB standards (Tier 1); or can apply simplified disclosures (Tier 2)

• Consider whether the entity qualifies for a 12 month deferral and whether deferring would be beneficial
• Update the financial statement template as soon as possible to avoid last minute problems

Reference

ASIC media release 3 June 2022: 22-128MR ASIC announces financial reporting changes for AFS licensees

Important Dates

Annual reporting periods beginning before 1 July 2021 i.e. financial year ending 30 June 2022

How SW can assist

Contact René, Rami or your trusted SW expert for assistance to:

• assess whether deferral of adoption is beneficial or detrimental to the company
• migrate and prepare new reports under AASB reporting requirements.

The post ASIC announces financial reporting changes for AFS licensees appeared first on SW Accountants & Advisors.

This year, the series will be delivered online, and sessions are spread across the year with a focus on topics of particular relevance and importance to our clients in 2022, and also provide you with a general update on what’s new in financial reporting.

Series details

Webinar 1 (28 April 2022): Share-based payments

This session delved into the key tax and accounting issues surrounding share-based payments with insightful worked examples. The webinar covered:

• Overview and background
• Recent changes to tax legislation
• What is a share-based payment?
• Vesting conditions
• Recognition and measurement – worked example
• Valuation methodologies

Webinar 2 (19 May 2022): Financial services

Our experts focused on financial services and provided an update on:

• Regulatory update – accounting standards, regulatory bodies
• SIV fund compliance update
• AFSL compliance update including transition to general purpose financial reporting
• Tax update for financial services

Webinar 3 (9 June 2022): Financial Reporting update for financial year end 30 June 2022

Our experts provided insight and an update on:

• Accounting standard changes
• Key focus areas for 30 June 2022 reporting
• ASIC update and focus areas
• Corporate governance update
• Other regulatory changes

Webinar 4 (17 November 2022): Financial Reporting update for financial year end 31 December 2022

Our experts will cover:

• Accounting standard changes
• Key focus areas for 31 December 2022 reporting
• ASIC update and focus areas
• Corporate governance update
• Other regulatory changes

Series experts

René Muller
Partner, Assurance and Advisory Services
SW 

Tom Mullarkey
Partner, Assurance and Advisory Services
SW 

Jimmy Cao
Associate Director, Assurance and Advisory Services
SW 

Justin Batticciotto
Associate Director, Tax
SW

Vikas Nahar
Director, Corporate Finance 
SW

Bessie Zhang
Partner, Assurance and Advisory Services
SW

Rami Eltchelebi
Partner, Assurance and Advisory Services
SW 

Simon Tucker
Director, Tax 
SW

Brent Sheers
Senior Manager, Assurance and Advisory Services
SW

Mark Smit
Associate Director, Assurance and Advisory Services
SW 

Contact us

If you have any queries or would like more information, please contact the Marketing team via marketing@sw-au.com.

The post Financial Reporting Webinar Series appeared first on SW Accountants & Advisors.

Holding our own Australian Financial Services Licence (AFSL), we have access to all products available on the market for which we receive research, conduct our own research or in many circumstances, both. Read more in our Financial Services Guide.

Daniel Minihan is an Authorised Representative of ShineWing Australia Wealth Pty Ltd trading as SW Wealth.

Australian Financial Services and Credit Licence No 236556

Level 10, 530 Collins Street, Melbourne VIC 3000 Australia

Wealth Privacy Policy

Wealth Compliant Policy

The post Wealth management appeared first on SW Accountants & Advisors.