CP 378 Safeguard mechanism reforms: Updates to RG 236

Released 6 May 2024. Comments closed 3 June 2024. 

ASIC is proposing to update Regulatory Guide 236 Do I need an AFS licence to participate in carbon markets? (RG 236) to address the safeguard mechanism reforms.

The proposed updates also address changes that have occurred since RG 236 was last re-issued in May 2015, particularly in relation to Australian Carbon Credit Units (ACCUs).

This guidance is intended to assist participants in carbon markets understand their Australian financial services (AFS) licensing requirements.

We have today released a consultation paper on these proposed updates. We seek feedback by 3 June 2024.

Download

• CP 378 Safeguard mechanism reforms: Updates to RG 236
• Attachment to CP 378: Draft updated RG 236

Feedback on CP 378

Released 30 September 2024.

ASIC received 19 submissions in response to CP 378, including six confidential submissions. Respondents were supportive of our proposals to update the RG to address the safeguard mechanism reforms, and to provide updated guidance in relation to derivatives, managed investment schemes, financial product advice and making a market.

The feedback we received primarily sought:

• additional guidance from ASIC on whether certain advice constitutes financial product advice, including:
  • advice about which ACCUs to purchase;
  • advice on the co-benefits of an ACCU Scheme project;
  • advice on a governance structure for an ACCU Scheme project;
  • advice about prospective buyers for ACCUs;
  • advice on complying with safeguard mechanism obligations – including, for example, advice that compares the costs and benefits of making operational changes to safeguard facilities against the cost of purchasing SMCs or ACCUs;
• clarity on the regulatory implications for:
  • dealing in forward contracts, as these are commonly-traded derivatives in the carbon market;
  • trading in derivatives over non-financial products, such as derivatives over tradeable certificates under state-based energy efficiency schemes, known as ‘white certificates’;
  • retiring ACCUs on behalf of clients who do not have their own Australian National Registry of Emissions Units account; and
  • the provision of financial product advice as between a responsible emitter and other entities connected to the operation of a safeguard facility, such as other joint venture participants, shareholders or owners of the safeguard facility.
• further elaboration on ASIC’s proposed guidance on when a contract is not for the ‘future provision of services’ because it provides exposure to an underlying product; and
• additional guidance on circumstances where entities, including project proponents, responsible emitters and other entities may rely on an AFS licensing exemption for dealing in derivatives over regulated emissions units to manage a financial risk.

In response to the feedback, we updated RG 236 to address the submissions referred to above to the extent appropriate, through the inclusion of additional guidance and examples in relation to the above. These are set out in the sections of RG 236 related to financial product advice, dealing, derivatives and AFS licensing exemptions.

ASIC acknowledges that some submissions also sought a more comprehensive update of RG 236. Respondents suggested that the guidance be restructured to help entities more easily identify if they do not engage in activities that are regulated under the Corporations Act. ASIC considered it was appropriate to limit the scope of this update to RG 236, recognising that there are limits to the guidance we can provide. However, where appropriate, we have included more examples to assist entities operating in the carbon markets to identify which activities are not likely to be caught by AFS licensing requirements.

Related links

• ASIC updates guidance for participants in the carbon market following Safeguard Mechanism reforms
• RG 236 Do I need an AFS licence to participate in carbon markets?