1. What is securities advice?
Shares and other financial products (eg bonds, managed investment funds, futures) (Securities) may be traded online (see Corporations and Securities Law Fact Sheet). Securities advice on the internet may take the form of advice provided on a website or sent by electronic mail.
2. Regulation of securities advice
(a) Equivalence of online and offline regulation: the Australian Securities and Investment Commission (ASIC) considers most of the securities advice licensing provisions of the Corporations Act 2001 apply to investment advice on the internet in the same way they apply to investment advice in any other medium.(1)
(b) Providers of investment advice on the internet must have an investment advisers licence:(2) if they are in the business of providing direct or indirect securities recommendations, general securities advice or publishing analysis or reports on securities.(3) A person is deemed to carry on the business of providing securities advice where carried on with system, continuity and repetition.
The fact an internet adviser does not get paid or earn a profit will not prevent those operations from being deemed to be carrying on business(4). The investment advice may be provided as part of any other business. This means any home page containing advice or tips on securities (regardless of how substantial) may be subject to the licensing requirements of the <Corporations Act 2001.
If a person holds themselves out on the internet to be an investment adviser or to be carrying on a securities business (regardless of whether or not they are in fact carrying on a business), they must have a licence.(5)
(c) Dealers licence may be required in certain cases: a person providing investment advice or reports on the internet may need a dealers licence instead of an investment advisers licence if the adviser:
* receives commissions and other benefits from securities (or financial product) providers for offering the advice; or
* has some economic interest in the outcome of a transaction resulting from the advice.(6)
(d) Adviser must disclose any personal interest: it has in securities advice provided by it.(7)
(e) Adviser must provide an Advisory Services Guide and warnings: when providing general securities advice to a retail investor.(8)
(f) Adviser providing general securities advice: should provide a warning to the effect:
* that the advice has not been prepared taking into account the particular investment objectives, financial situation and needs of any particular investor; and
* as a result, investors using the internet advice should assess whether it is appropriate in light of their own individual circumstances before acting on the advice.
(g) Internet discussion sites (IDS): ASIC will allow an Australian IDS (eg targets people in Australia or operates within Australia) to operate without a securities adviser licence if it complies with certain guidelines (see Corporations and Securities Law fact sheet).(9)
An interactive site or membership based site may operate without a licence if it complies with the above guidelines.(10)
Newsgroups and sites whose main purpose is to provide advice about securities are not within the guidelines and must operate under a licence.(11) Internet facilities used for private communications between individuals (such as exchange of emails or private real time chat sessions) are not IDS.(12)
To avoid the risk of investors being misled, licensed advisers who also operate an IDS must carry on the IDS as a licensed advice activity.
ASIC recommends the inclusion of an additional disclosure that the IDS facility is not intended for people outside Australia. Despite this disclaimer, if the IDS is targeting people in overseas jurisdictions it may become subject to regulatory controls in those jurisdictions.
(h) Securities advice provided by persons outside Australia: foreign internet investment advisers will be subject to Australian licensing requirements under the Corporations Act 2001 where they email investment advice to Australian investors.
The investment advice licensing provisions of the Corporations Act 2001 may apply to investment advice provided on a website (eg authored and hosted by persons outside Australia) that is accessible in Australia.
ASIC works closely with regulators in overseas jurisdictions when attempting to enforce compliance by overseas investment advisers with the Corporations Act 2001 . ASIC may take action in order to protect the interests of Australian investors or maintain confidence in the integrity of the Australian securities market.
(i) Duties of brokers when giving advice to clients: to avoid a conflict of interest arising between the interests of the broker and those of its clients, the ASX Business Rules (see http://www.asx.com.au) provide that a broker has a duty to:
* act in good faith;
* know the client,
* to give proper advice taking into account the clientÌs financial situation and objectives;
* ensure the client understands the advice;
* avoid conflict of interest; and
* to disclose interests.
(j) ASIC may take action: against people who provide investment advice without a license and prevent them from publishing information which is either false or unsubstantiated (see http://fido.asic.gov.au/).
3. Purely factual information exemption
A website operator will not require a licence under the Corporations Act 2001 if it only provides purely factual information about securities on the Internet. To be considered purely factual, the information must:
(a) not provide any direct or implicit advice or opinion on securities; and
(b) provide warnings to the effect that the information is not suitable to be acted on as investment advice and that it is advisable to obtain investment advice before making decisions based on the information.
4. Media advisers exemption
Media advisers give investment advice on securities using media such as newspapers, periodicals and information services generally available to the public. Media advisers are not required to obtain a licence under the Corporations Act 2001 provided the advice they transmit is via an information service which is generally available to the public and not principally for the purpose of advising others. ASIC considers it will be difficult for an internet investment adviser to fall within the media adviser exemption.
5. Website host publishing electronic disclosure statements
An internet content host operating a website dedicated to publishing electronic prospectuses may be conducting an investment advice business. ASIC will not enforce any action against a website operator publishing electronic prospectuses if the provider is acting purely as a hosting service provider and satisfies a number of requirements.
See Corporations and Securities Law Fact Sheet.
6. Managing legal risk with online securities advice
When considering securities advice provided online, a consumer should ensure:
(a) Advice is not incorrect or misleading: investment advice and tips on the internet may be written by people who are not licensed investment advisers and not qualified to give advice. The advice may be wrong or misleading or repeat incorrect information have taken from other sources. Such advice may contravene trade practice legislation. See Trade Practices and Consumer Protection.
(b) Adviser is licensed: you should only deal with Australian licensed advisers and their authorised representatives given they are obliged by law to act honestly, efficiently and fairly . You can check if the adviser is licensed or authorised by searching the registers of licensed and authorised advisers maintained by ASIC (at http://www.asic.gov.au).
The registers list the names of:
* Licensed investment advisers and dealers.
* Authorised representatives - this constitutes the bulk of people giving investment advice. Their name will appear on the ASIC register if they have the authority to work for a securities dealer, futures dealer or an investment adviser.
* People banned from practising as investment advisers.
Contact ASIC directly if you cannot find a name on the registers maintained by them.
(c) Adviser is Australian: If not you may not receive protection under Australian law.
ASIC works with overseas regulators but it is difficult (and sometimes impossible) to enforce the Australian Corporations Act 2001 against people from other jurisdictions.
(d) Online adviser complies with Best Practice Model: when dealing with companies on the internet, check whether they have adopted and comply with the e-commerce best practice model. See Best Practice Model.
Other relevant Articles on this site:
Best practice model
Terms and conditions of website
Overseas transactions
Trade practices and consumer protection
Contract
Other relevant Fact Sheets:
Consumer Protection
Corporations and Securities Law
Electronic Payment Systems
Electronic Transactions Act
Funding Business Start-ups
Jurisdiction
Keeping Electronic Records
Online Contracts
Secure Electronic Transactions
End Notes
1. ASIC policy statement 118 [PS 118.40]
2. section 781 Corporations Act 2001
3. section 77(1) Corporations Act 2001
4. section 18 Corporations Act 2001
5. ASIC policy statement 118 [PS 118.40]
6. see section 9 for the definition of ‘deal’ and s 93 for the definition of a ‘securities business’. Some securities advice could be included in the activities of a securities business.
7. cl 849-852
8. Policy Statement 121
9. The guidelines are set out in greater detail in ASIC’s Interim Policy Statement 162.
10. Policy Statement 162
11. Policy Statement 162
12. Policy Statement 162