Carbon is a financial product
Since 1 July 2012, some emissions units are regulated as financial products in Australia. These include:
- Carbon units issued by the Clean Energy Regulator
- Australian carbon credit units (ACCUs) issued by the Clean Energy Regulator under the Carbon Farming Initiative (CFI)
- Eligible international emissions units (EIEUs) issue and traded in international carbon markets which are recognised under the Clean Energy Legislative Package including certified emissions reductions (CERs), emissions reduction units (ERUs) and removal units (RMUs)
- Derivatives over emissions units
Recent changes to regulated emission units
Clean Energy Regulator issued Carbon Units ceased
With the repeal of the Carbon Tax, the Clean Energy Regulator have stopped issuing Carbon Units for the purpose of the carbon pricing mechanism. All such carbon units have now ceased (all liable entities should have their final carbon price liability for the 2013-2014 financial year satisfied by 2 February 2015) and they are no longer a financial product.
The term “Carbon Unit’ is often used as a generic name for emission units, so we would like to point out that the above only applies to Carbon Units that were issued by the Clean Energy Regulator in relation to the former carbon pricing mechanism.
Updated Regulatory Guide RG236 details new carbon market licensing requirements, released 20 May 2015
Following consultation rounds earlier this year, ASIC has now finalised the revision of RG236 ‘Do I need a licence to participate in carbon markets?’ detailing the amended licensing requirements for regulated emission units.
In summary the fundamental requirements remain unchanged:
- ACCUs and EIEUs are financial products.
- Derivatives on regulated emission units and voluntary (non-regulated) emission units such as RECs, ESCs, VEEC’s, EUAs, NZUs, VCUs are also financial products.
- Certain project aggregation arrangements could qualify as a Managed Investment Scheme. The units of such arrangements, depending on structure, could also be considered financial products.
- Providing financial advice relating to, and dealing, making a market, operating a registered managed investment scheme, provide custody services in the above mentioned products will require an Australian Financial Services Licence (AFSL). Please be aware that certain exemptions may exist.
A new development, as flagged in the initial consultation paper, is that Abatement Contracts are no longer considered a financial product. Abatement contracts are contracts between project proponents or aggregators and the Clean Energy Regulator (CER), to sell ACCU’s generated under the Carbon Farming Initiative (CFI) for the Emission Reductions Fund (ERF). At the moment, Abatement Contracts are awarded through an auction process. Any forward transaction component in these contracts, which would normally be classified as a derivative, are no longer defined as financial products.
Consequently, it is no longer a requirement to hold an AFSL to be able to provide advice and deal in ACCU’s in transactions with the CER in relation to the ERF.
It is important to highlight that all other ACCU related financial services still require an AFSL. This would include providing financial advice on projects where the ACCU’s won’t be offered to the ERF, small transactions with third parties to compensate for a shortfall in an Abatement Contract, or to sell ACCUs generated by a project past the term of the Abatement Contract.
We are happy to assist with determining your AFSL requirements.
Our carbon market services
Certainty Compliance specialises in making compliance part of your business.
Certainty Compliance can assist you determine if your business requires an AFS licence, and identify any exemptions that apply to you . We can assist you understand the costs of complying with an AFS licence and the impact on your operations.
Certainty Compliance can help you determine the appropriate licence authorisation for you business, identify whether you provide services to wholesale or retail clients and assist you to meet your requirements.
We will complete the registration on your behalf and manage correspondence with ASIC.
AFS licence applications
We have a 10 year track record of assisting businesses new to financial services regulation obtain appropriate licences and grow into successful, compliant businesses. Our consultants have direct experience from working in energy, commodity and environmental markets. The Carbon Markets Institute assessed us as having expertise and the experience to assist their members to obtain Australian Financial Services Licences.
Certainty Compliance will project manage the application process, prepare the proof documents, liaise with regulators on your behalf and ensure your business is ready on day one to comply with your obligations.
Ongoing compliance services
At Certainty Compliance, we don’t just get you a licence. We provide outsourced compliance services to ensure you continue to comply with your obligations. We don’t provide off-the-shelf products, we design a framework that will work in your business. We provide systems, policies and procedures, compliance diary, training, review and day-to-day compliance management so that you can get on with running your business, with certainty that you comply.
You can outsource your entire compliance function to Certainty Compliance or we can provide the services you need to supplement your compliance management.
Certainty Compliance provides financial services compliance workshops for carbon markets.
Certainty Compliance has developed training courses especially for Senior Managers requiring essential, practical and up to date knowledge in financial services regulation.
Certainty Compliance delivers in-house workshops tailored to your exact requirements.
For more information, please call 02 8324 5300 or email firstname.lastname@example.org.
Responsible Manager Essentials: Carbon Trading AFS Licensees
Financial services regulation is complex and new for many in the carbon market. Understanding your obligations is crucial for anyone holding a senior position within an AFS licensee.
- Understand your AFSL authorisations
- Understanding the role of the responsible manager and other key roles in the organisation
- Identifying your licence obligations
- Implementing an effective compliance system
Contact 02 8324 5300 or via email email@example.com.