Proposed changes to the concept of ‘control’ of AFSLs by the corporate regulator are “perplexing”, according to The Fold Legal.
The Fold Legal solicitor director Jaime Lumsden Kelly said the introduction of ‘group control’ in ASIC’s position paper on strengthening its licensing powers “may create more uncertainty for business” given it broadens the existing definition.
“The position paper introduced a new concept – the group of controllers. This is perplexing because section 50AA of the Corporations Act contemplates that only one person can have control of a company,” she said.
“That section specifically states that if two people can determine the outcome of a decision together, then neither has control.”
Ms Lumsden Kelly cautioned that the introduction of the group control concept “raises a lot more issues than it solves”.
These difficulties include ASIC’s ability to apply its ‘fit and proper’ leadership test where some members of the controlling group do not meet the requirements but others do, and its capacity to assess who has “practical control”.
“The concept of 'control' isn’t just about what rights an entity has to control a licensee. It also extends to practical influence and patterns of behaviour. This is a very broad definition that raises many questions, particularly when trying to identify whether a change of control has occurred,” Ms Lumsden Kelly said.
“Practical control can also shift often. For example, if a company has two equal shareholders but one holds practical control, their control may shift temporarily to the other shareholder if they are on holidays or fall ill.
“In this scenario, it’s not appropriate to issue multiple change of control notifications.”
Ms Lumsden Kelly said the definition of control should be restricted to apply solely to changes in shareholdings in order to avoid this problem and allow businesses to plan their transactions and minimise the compliance workload.