House of Representatives

Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007

Corporations (Fees) Amendment Bill 2007

Corporations (Fees) Amendment Act 2007

Corporations (Review Fees) Amendment Bill 2007

Corporations (Review Fees) Amendment Act 2007

Explanatory Memorandum

(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon Chris Pearce MP)

Chapter 1 Financial Services Regulation

Outline of chapter

1.1 The Bill amends the Corporations Act to reduce the regulatory burden on those providing financial services to facilitate consumer access, while maintaining investor protection.

1.2 The amendments primarily apply to those providing financial advice. They also assist in: reducing the exposure of licensees in cases of cross-endorsement of authorised representatives; improving the mechanism for reporting the use of Product Disclosure Statements to ASIC; ensuring that trustees of superannuation trusts are treated as wholesale in their deALIGNs with pooled superannuation trusts; and allowing registered managed investment schemes to invest in unregistered managed investment schemes.

1.3 In addition, they assist in maintaining the integrity of a financial market where, for example, a company which is related to the market operator is a participant on the market.

Context of amendments

Exemption from providing a Statement of Advice - no product recommendation and no remuneration

1.4 Many financial advisers provide a free initial consultation at which general investment options may be discussed but no specific products are recommended.

1.5 Such discussions would generally constitute the provision of personal advice under the Corporations Act, where the exemption from financial advice for asset allocation advice (regulation 7.1.33A of the Corporations Regulations) cannot be relied upon.

1.6 In these situations, it is argued that the requirement to prepare a written Statement of Advice is onerous for the adviser and of little benefit for the client.

1.7 It has been submitted that the requirement to produce a Statement of Advice under these circumstances potentially distorts the provision of client focussed advice. For example, advisers may consider that the cost of producing a Statement of Advice is not economic in relation to a free initial consultation where a client has a relatively small amount of money to invest. This may result in these consumers being unable to access general strategic financial advice.

1.8 Where a financial adviser recommends that a person continue to hold an existing product, such advice may also constitute personal advice even if the client is recommended to take no action and the adviser receives no additional remuneration.

Threshold for requiring a Statement of Advice

1.9 The Corporations Act defines the circumstances in which personal financial advice is provided to a client. The personal financial advice definition is triggered if a financial service provider knows a client's objectives, financial situation or needs and considers that information in recommending a decision in relation to a financial product or class of products.

1.10 The definition of personal advice captures situations where a financial services provider uses personal information and product information to make a recommendation to a retail client. In those circumstances, a Statement of Advice is required to be provided to the client.

1.11 In certain situations, it may not be economic for an adviser to produce a Statement of Advice if a client is seeking a minor piece of advice and/or has a relatively small amount to invest. Many advisers are choosing not to provide personal advice to such clients, with the result that, in these circumstances, small-scale consumers may not be able to access advice that may benefit them.

Financial Services Guide exemption - general advice to the public

1.12 Where a licensee or authorised person provides general advice to a client, usually that person must give the client a Financial Services Guide (which describes the services the licensee provides, information about remuneration and certain other matters). However, subsection 941C(4) exempts the entity providing the general advice from supplying a Financial Services Guide if the general advice is provided in a public forum.

1.13 While the regulations may define what constitutes a public forum for the purposes of subsection 941C(4), the regulation requires that it needs to be open to the public.

1.14 This means that seminars for a subset of the public, such as the employees of a particular business, would not be a public forum and therefore would not be eligible for the public forum exemption.

Sophisticated investors

1.15 Subsection 761G(1) of the Corporations Act provides that a financial product or service is provided to a client in a retail capacity except in certain circumstances. The Corporations Act contains a number of tests to determine whether a client is considered retail or wholesale.

1.16 For example, when deALIGN in financial products (other than general insurance, superannuation and retirement savings account products), if the individual provides evidence that they have net assets of at least $2.5 million or gross income in the last two financial years of at least $250,000 a year, then they may be considered wholesale investors (paragraph 761G(7)(c) and Corporations Regulation 7.1.28).

1.17 Additional disclosure protections apply to retail clients only.

1.18 Although the existing tests adequately address the circumstances of many investors, there are some investors who are defined in the legislation as retail investors and are unable to access wholesale status. For reasons such as experience or professional training, these investors may wish to be treated as wholesale investors. Such investors may consider retail disclosure an unnecessary hindrance to activities they well understand and would prefer to access wholesale investor status. They may also wish to access wholesale-only products.

1.19 Subsection 708(10) of Chapter 6D of the Corporations Act already includes a mechanism which allows a financial services licensee to be satisfied that the investor is sufficiently experienced not to need the disclosure provided to other (retail) persons. This status extends only to Chapter 6D which addresses disclosure in relation to securities.

1.20 Chapter 7, which addresses financial product advice and disclosure in relation to other financial products, does not include such a provision.

Cross-endorsement of authorised representatives of licensees

1.21 Authorised representatives may act for a number of financial services licensees. However, each licensee must consent to the agent being the authorised representative of each of the other licensees. This is commonly referred to as cross-endorsement.

1.22 The cross-endorsement arrangements expose the endorsing licensees to joint and several responsibility for the activities of cross-endorsed authorised representatives that are authorised to provide the same class of financial service (section 917C). One class of financial service is advice in relation to general insurance.

1.23 Accordingly, two licensees may be jointly and severally responsible for advice provided by an agent, even if the advice relates to a type of general insurance that the agent only handles on behalf of one of the two issuers. This means that, for example, an authorised representative of Licensee A who only handles motor vehicle insurance could expose Licensee A to liability in respect of, say, conduct in relation to advice on travel insurance products offered by the authorised representative on behalf of Licensee B.

Product activity and data collection

1.24 A Product Disclosure Statement contains key information regarding a financial product sold to investors. For most classes of financial product, section 1015D of the Corporations Act requires the product issuer to lodge an 'in use' notice with ASIC within five business days of the first use of the Product Disclosure Statement. This requirement ensures ASIC is aware of all products being promoted in the market.

1.25 ASIC received approximately 12,000 in use notices in 2004. However, due to the current manual lodgment mechanism, the notice does not fully serve its regulatory purpose as it does not provide adequate means for ASIC to determine when a Product Disclosure Statement is no longer current, for example when it is out of date and/or when a product is withdrawn from the market.

Licensed market operators and related participants and listed bodies

1.26 Section 798C of the Corporations Act anticipates circumstances where a market licensee may be included in the market's official list. This would mean the market would be self-listed.

1.27 Under subsection 798C(2) the financial products of the market licensee can be traded on the market if the licensee enters into an arrangement with ASIC for deALIGN with possible conflicts of interest and ensuring the integrity of the trading of the licensee's financial products.

1.28 The market's listing rules must provide for ASIC instead of the licensee to make decisions and to take action in relation to the admission of the licensee to the market's official list, the removal of the licensee from that list and the allowing, stopping, or suspending of the trading on the market of the licensee's financial products.

1.29 In providing for ASIC to make decisions in relation to these matters the law addresses possible conflicts of interest which could arise in the market licensee's oversight of itself.

1.30 The current law does not address a number of other possible conflict situations.

1.31 At present the legislation does not address situations where a related body corporate to the market licensee, a managed investment scheme whose responsible entity is a related body corporate of the market licensee or a trust whose trustee is a related body corporate of the market licensee wishes to be listed on the market.

1.32 Further, the current legislation does not address the potential conflicts which arise because the market licensee, a related body corporate or a related partnership is a participant in the market. The issue of a market licensee supervising competitor participants is also not dealt with.

Pooled superannuation trusts and product disclosure

1.33 A pooled superannuation trust is one in which the assets of a number of superannuation funds, approved deposit funds or other pooled superannuation trusts are invested and managed by a professional manager. Pooled superannuation trusts can accept deposits only from complying superannuation funds, complying approved deposit funds, and other pooled superannuation trusts. These are regulated entities typically of significant substance and experience.

1.34 Under section 761G of the Corporations Act, the product disclosure and associated retail client protections in Part 7.9 apply to all investors in pooled superannuation trusts regardless of their nature and scale. This means, for example, that investors in pooled superannuation trusts must be given a Product Disclosure Statement, have the benefit of a cooling off period and receive periodic statements even if the investor is itself a large superannuation fund.

1.35 Other financial services provided by trustees of pooled superannuation trusts are treated differently.

Registered managed investment schemes investing in unregistered managed investment schemes

1.36 The responsible entity of a registered managed investment scheme may only invest scheme property or keep scheme property invested in another managed investment scheme if that other scheme is registered under Chapter 5C of the Corporations Act (subsection 601FC(4)).

1.37 This restriction is intended to prevent a responsible entity from establishing or investing in an unregistered managed investment scheme to avoid the scheme property protections that apply to registered managed investment schemes.

1.38 A managed investment scheme which operates predominantly outside Australia, such as real estate investment trusts in the United States, will generally not be a registered managed investment scheme. Increasingly registered managed investment schemes seek to diversify their investments among a range of foreign collective investment structures or focus on overseas investments. Generally such investment is not for the purpose of avoiding regulation and is directed to the best interests of members. No such restriction applies to trustees of superannuation funds.

1.39 There is already ASIC Class Order relief for some kinds of investment in Australian-based unregistered managed investment schemes.

Summary of new law and comparison of key features of new law and current law

Exemption from providing a Statement of Advice - no product recommendation and no remuneration

1.40 The Bill will exempt financial services licensees from providing a Statement of Advice in the circumstance where they provide personal advice where that advice does not recommend a product and the adviser does not receive any remuneration for providing that advice. Personal advice that satisfies these requirements will be required to be documented in a Record of Advice and provided to the client upon their request. The measure does not alter the need for the advice to be appropriate or for the adviser to be appropriately trained to provide personal advice.

New law Current law
Any personal financial advice that does not recommend a product and for which the adviser does not receive any remuneration will not be required to be documented in a Statement of Advice. All personal financial advice must be documented in a Statement of Advice provided to the client.
Instead of a Statement of Advice, the advice will be documented by a Record of Advice to be provided to the client upon their request. Only further market related advice can be documented by a Record of Advice which is to be provided to the client upon their request.
No change. A Record of Advice is required to contain certain information in relation to remuneration, interests and associations.

Threshold for requiring a Statement of Advice

1.1 The Bill will introduce a threshold into the Statement of Advice requirements, so that a full Statement of Advice would only be required if the advice given is in relation to an investment amount that is above a certain monetary threshold. An initial threshold of $15,000 is proposed.

1.2 A Statement of Advice will be required to be prepared and provided to a client if the amount to which the advice relates is $15,000 or more. For advice relating to amounts less than $15,000, the adviser will be required to provide a Record of Advice to the client.

1.3 The Bill will limit the application of this relief in relation to superannuation advice. Where advice is to consolidate into, or supplement, a superannuation fund of which the person is an existing member, the Statement of Advice exemption may be relied on. Similar arrangements will apply to advice regarding retirement savings accounts. Where this occurs, the Record of Advice must disclose the matters listed in section 947D of the Corporations Act. These disclosures relate primarily to charges and pecuniary interests relevant to the client. Where the advice relates to the consolidation or supplementation of superannuation in relation to an investment amount of $15,000 or less, the proposal will extend to the consideration of life risk insurance associated with the superannuation interest only.

1.4 The existing Statement of Advice arrangements that apply to general insurance products (including in relation to sickness and accident and consumer credit insurance) would not be altered by this proposal. General insurance products (other than sickness and accident and consumer credit insurance) have previously been granted an exemption from the provision of a Statement of Advice. It is not proposed that the threshold apply to advice in relation to life risk insurance products (except those related to superannuation, as mentioned above).

1.5 The measure does not alter the need for the advice to be appropriate or for the adviser to be appropriately trained to provide personal advice.

New law Current law
Personal advice in relation to investments of $15,000 or less is to be documented by a Record of Advice. All personal financial advice must be documented in a Statement of Advice.
Records of Advice are permissible disclosure for the provision of both initial and further advice where that advice meets the above conditions. Only further market related advice can be documented by a Record of Advice which is to be provided to the client upon their request.
The Record of Advice is required to contain the currently required information. The Record of Advice is required to contain certain information in relation to remuneration, interests and associations.
Personal advice in relation to investment in superannuation of $15,000 or less will be documented by a Record of Advice where the advice relates to consolidation into, or supplementation of, a superannuation fund in which the person is an existing member. All personal financial advice must be documented in a Statement of Advice.
Personal advice in relation to investment in superannuation of $15,000 or less will be required to contain disclosures, normally contained in a Statement of Advice (as in subsection 947D(2)) regarding charges, pecuniary interests and significant costs. All personal advice which recommends the replacement of one product with another must contain disclosure in relation to charges, pecuniary interests and significant costs (as in subsection 947D(2)).

Financial Services Guide exemption - general advice to the public

1.1 The amendments permit an entity which is providing general advice not to give the client a Financial Services Guide where the general advice is provided to the public, or a section of the public, in the manner prescribed in the regulations.

1.2 This means that regulations can be made which do not require that any person is permitted to attend the event at which the general advice is given.

New law Current law
The exemptions from providing a Financial Services Guide will still be limited. However, the seminar or forum at which the general advice is given may be open to the public or a section of the public (in the manner prescribed in the regulations). The exemptions from providing a Financial Services Guide are limited. In the case of a forum, it must be a public forum.

Sophisticated investors

1.1 The amendments provide for the adoption in Chapter 7 of a mechanism which will allow an investor to be treated as a wholesale client if they satisfy a financial services licensee that the investor is adequately experienced to be determined a wholesale investor. The licensee would have to document the reasons for his conclusion. The investor would need to acknowledge the effect of being treated as a wholesale client.

1.2 The mechanism is based on subsection 708(10) which provides such a mechanism in Chapter 6D.

New law Current law
Investors who satisfy a financial services licensee as to their experience may be treated as wholesale clients for the purpose of Chapter 7.

There is no mechanism in Chapter 7 which would allow an experienced investor who did not meet any of the other tests to be treated as a wholesale client.

Such a mechanism is, however, included in Chapter 6D.

Cross-endorsement of authorised representatives by licensees

1.1 The amendments refine the cross-endorsement provisions so that the joint and several responsibility of financial services licensees for the conduct of their authorised representatives will not apply where the authorised representative provides services in relation to different kinds or sub-classes of financial product on behalf of each licensee (for example in relation to motor vehicle insurance and travel insurance).

New law Current law
Licensees are not jointly and severally responsible for the conduct of their authorised representative where those representatives provide financial services in relation to different kinds or sub-classes of financial product by each licensee. Licensees which cross-endorse an authorised representative in relation to the same class of financial product are jointly and severally responsible for the conduct of the representative, even in circumstances where the agents provide services in relation to different sub-classes of financial product on behalf of the licensees.

Product activity and data collection

1.1 The Bill includes a revised approach for lodging 'in use' notices with ASIC. The approach is an on-line reporting mechanism for product issuers to advise ASIC of matters relating to Product Disclosure Statement distribution.

1.2 The measure will apply the following triggers for lodgement of the Statement (as set out in subsection 1015D(2) of the Corporations Act): when a Product Disclosure Statement (as defined for subsection 1015D(2)) is first given to someone in a recommendation, issue or sale situation; when a Product Disclosure Statement is no longer available to be given in a recommendation, issue or sale situation; and when changes are made to the fees and charges contained in the enhanced fee disclosure table (details of the enhanced fee disclosure requirements are in regulations 7.9.16K, 7.9.16M and 7.9.16N as well as in Schedule 10 of the Corporations Regulations).

1.3 The regulations will be amended to provide that the lodgement fee for the 'in use' notice is payable only once when the original notice is lodged. Any subsequent lodgements of a notice about the same Product Disclosure Statement caused by changes to the fees and charges or due to the product no longer being available will not require the payment of additional fees.

1.4 The requirement commences on 1 July 2008, when ASIC has established the on-line report and electronic lodgement mechanism. From 1 July 2008 to 1 January 2009, both hard copy and electronic lodgement will be available. From 1 January 2009, the notices will have to be lodged electronically.

New law Current law

The new subsection 1015D(2) requires the person responsible for the Product Disclosure Statement to lodge a notice with ASIC within five business days of: the first use of the Product Disclosure Statement; a change to the fees and charges set out in the Product Disclosure Statement; and cessation of the use of the Product Disclosure Statement.

It allows the notice to be lodged electronically, commencing 1 July 2008. It requires that it be lodged electronically from 1 January 2009.

Subsection 1015D(2) of the Corporations Act requires the person responsible for the Product Disclosure Statement to lodge a notice with ASIC within five business days of the first use of the Product Disclosure Statement.

Where a Product Disclosure Statement is altered after lodgement of the notice with ASIC, a notice relating to the Supplementary Product Disclosure Statement is required to be lodged with ASIC.

Licensed market operators and related participants and listed bodies

1.1 The Bill will extend the application of the current section 798C to the licensee and various entities which are related to the market licensee.

1.2 The Bill will also enact a new provision which will provide for ASIC to take over from the licensee in making decisions and taking action in relation to various participants who are related to the market licensee or in competition with it.

New law Current law
The new section 798C will apply not only to market licensees, but also to a body corporate related to the market licensee, a managed investment scheme whose responsible entity is a related body corporate of the market licensee and a trust whose trustee is a related body corporate of the market licensee, if they list on that market. Section 798C provides for market licensees who self-list to enter into an arrangement with ASIC and to have listing rules that provide for ASIC to make certain decisions and take certain actions.

New law Current law
Section 798DA will require a market licensee's operating rules to provide for ASIC to make decisions and to take action where a participant in the market is the market licensee, a related body corporate of the market licensee or a partnership where a partner is a related entity of the market licensee. Entities which conduct, or are a participant in, a business that is in competition with a business conducted by the market licensee or a related body corporate of the market licensee, will have the option of having ASIC supervise them. No current law.

Pooled superannuation trusts and product disclosure

1.1 When an interest in a pooled superannuation trust is provided to the trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme that has net assets of at least $10 million, the latter will no longer be treated as retail clients for the purpose of the product disclosure provisions. The protections provided by Part 7.9 of the Corporations Act, such as a Product Disclosure Statement, will not apply.

New law Current law
The trustees of superannuation funds, approved deposit funds, pooled superannuation trusts or public sector superannuation schemes with net assets of at least $10 million are no longer treated as retail clients for the purpose of the product disclosure and related provisions when acquiring an interest in a pooled superannuation trust. The provision of an interest in a pooled superannuation trust to the trustee of a superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme with net assets of at least $10 million triggers the investor protections of Part 7.9.

Registered managed investment schemes investing in unregistered managed investment schemes

1.1 The amendments omit the prohibition on registered managed investment schemes investing in unregistered managed investment schemes.

1.2 It is not confined to schemes operating predominantly outside Australia. It is considered appropriate to extend it to Australian unregistered schemes in the light of the existing ASIC Class Order relief, the duties on responsible entities of registered managed investment schemes and ASIC's existing powers in relation to bodies which operate such schemes.

New law Current law
Registered managed investment schemes are allowed to invest in unregistered managed investment schemes. Registered managed investment schemes are prohibited from investing in unregistered managed investment schemes.

Detailed explanation of new law

Exemption from providing a Statement of Advice - no product recommendation and no remuneration

1.1 The providing entity does not have to provide a Statement of Advice to the client, when providing personal advice that meets the two following requirements (subsection 946B(7)).

1.2 The personal advice does not recommend or state an opinion in respect of the acquisition or disposal of a specific financial product; and the following persons do not receive any remuneration directly or any other benefit for providing the advice:

·
the providing entity;
·
an employer of the providing entity;
·
the authorising licensee, or any of the authorising licensees;
·
an employee or director of the authorising licensee;
·
an associate of any of the above.

1.3 The providing entity must record the advice in a Record of Advice and comply with requirements regarding Records of Advice, including the requirement to include information about remuneration or other benefits and other interests and associations (subsections 946B(8) and (9)). [Schedule 1, Part 1, item 118]

Threshold for requiring a Statement of Advice

1.4 A providing entity does not have to provide the client with a Statement of Advice, when providing personal advice in relation to financial investments of a threshold amount that does not exceed an amount prescribed by regulations (section 946AA).

1.5 The exemption does not apply to advice in relation to a derivative, a general insurance product or a life risk insurance product (except where the advice about a superannuation product relates to a life risk insurance product). In addition, it does not apply to a superannuation product or a retirement savings account product unless the client already has an interest in the product.

1.6 The amendment provides the principles for determining the total value of the investments to which the advice relates and provides a mechanism for determining the value in relation to particular kinds of financial products.

1.7 Instead of providing the client with a Statement of Advice, the providing entity must keep a record of the personal advice and comply with all requirements that currently apply in regard to the content of Records of Advice, including the requirement to include information about remuneration or other benefits and other interests and associations (as required in paragraphs 947B(2)(d) and (e) or 947C(2)(e) and (f)).

1.8 The providing entity must give the client a copy of the Record of Advice as soon as practicable and prior to the provision of any further financial service to the client. [Schedule 1, Part 1, item 117]

Financial Services Guide exemption - general advice to the public

1.9 An entity which provides general advice to clients does not have to give a Financial Services Guide to those clients if the general advice is provided to the public, or a section of the public in the manner prescribed in the regulations [Schedule 1, Part 3, item 219] .

1.10 Currently, this exemption only applies to public forums.

1.11 By virtue of the regulations, the exemption is expected to apply to sections of the public such as seminars to groups of employees, as well as broadcasts and promotional material available to the public (to which the current exemption applies).

Sophisticated investors

1.12 The amendment inserts a mechanism whereby a financial services licensee can certify that a client has sufficient experience to be treated as wholesale. [Schedule 1, Part 1, item 100, section 761GA]

1.13 The licensee needs to be satisfied on reasonable grounds that the previous experience allows the client to assess such matters as the merits and value of the financial product or service, and the risks associated with holding the product. [Schedule 1, Part 1, item 100, paragraphs 761GA(a) and (d )]

1.14 The licensee must provide the client with a written statement of the reasons for being satisfied about these matters and the client needs to sign an acknowledgement of the consequences of being treated as wholesale. [Schedule 1, Part 1, item 100, paragraphs 761GA(e) and (f )]

1.15 The mechanism does not apply to general insurance products, superannuation products or retirement savings account products, or where the product is provided for use in connection with a business. [Schedule 1, Part 1, item 100, paragraphs 761GA(b) and (c )]

Cross-endorsement of authorised representatives

1.16 The effect of section 917C on two or more financial services licensees cross-endorsing a particular authorised representative is refined where the licensees have authorised the representative in relation to different kinds or sub-classes of financial products.

1.17 The kinds of financial product to which this amendment applies will be prescribed by regulations. [Schedule 1, Part 3, item 218]

1.18 The regulations are expected to specify the kinds or sub-classes of general insurance to which this provision applies. If appropriate, the regulations could extend this cross-endorsement provision beyond general insurance.

Product activity and data collection

1.19 The person responsible for the Product Disclosure Statement must lodge a notice with ASIC, as soon as possible or at least within 5 business days of any of the following events:

·
The Product Disclosure Statement is first given to someone in a recommendation, issue or sale situation;
·
A change is made to the fees and charges in the Product Disclosure Statement;
·
The financial product to which the Product Disclosure Statement relates is no longer recommended or offered to new clients in a recommendation, issue or sale situation. [Schedule 1, Part 4, item 223]

1.20 The notice will be able to be lodged electronically with ASIC from 1 July 2008 and will be required to be lodged electronically from 1 January 2009. [Schedule 1, Part 5, items 224, 225 and 226]

Licensed market operators and related listed bodies

1.21 Section 798C pertaining to self-listing markets is replaced with a new section extending its application to a wider variety of potential conflict situations. [Schedule 1, Part 1, item 101]

1.22 The current law addresses conflicts of interest where a market licensee is self-listed.

1.23 To ensure that adequate supervisory functions are also in place for listed bodies which are related to the market licensee, subsection 798C(1) provides for the market licensee, a related body corporate of the market licensee, a managed investment scheme whose responsible entity is a related body corporate of the market licensee or a trust whose trustee is a related body corporate of the market licensee to be included in the market's official list only if certain arrangements are entered into with ASIC. [Schedule 1, Part 1, item 101]

1.24 The arrangements which either the market licensee or the listed entity or both are required to enter into will address the potential conflict of interest which could arise and matters required for the purpose of ensuring the integrity of trading in the listed entity's financial products. [Schedule 1, Part 1, item 101, subsection 798C(2 )]

1.25 In addition, while the listed entity is included in the market's official list, the listing rules of the market must provide for ASIC to make decisions and to take action in relation to the admission to the official list, the removal from the official list and the allowing, stopping or suspending of trading on the market of the listed entity's financial products. [Schedule 1, Part 1, item 101, subsection 798C(4 )]

1.26 It is an offence for the listed entity or the market licensee, whichever ASIC entered into an arrangement with, to fail to comply with an arrangement. [Schedule 1, Part 1, item 101, subsection 798C(3 )]

1.27 To ensure that the market is supervised in an adequate manner it is necessary for ASIC to be able to exempt or modify the provisions of the corporations legislation. The current law allows for ASIC to exempt or modify the application of the law to a self-listing market. Items 102, 103 and 104 will allow ASIC to exempt or modify the application of the corporations legislation with respect to the market licensee or the listed body. [Schedule 1, Part 1 , items 102, 103 and 104, paragraphs 798D(1 )( a) and (b ), subsections 798D(4) and (5 )]

Licensed market operators and related participants

1.28 At present the law does not address situations where a market licensee or a body related to a market licensee may be a participant on its own market.

1.29 In addition the current law does not address the situation where a participant in the market is a competitor of, or a participant in a business that is in competition with, a business conducted by the market licensee or a body corporate related to the market licensee.

1.30 To address this issue the Bill enacts a provision to regulate who is to supervise certain participants in the market. [Schedule 1, Part 1, item 105, subsection 798DA]

1.31 Section 798DA will require the market licensee to amend their market operating rules to provide for ASIC instead of the market licensee to make decisions and take action in relation to certain participants with regard to the admission, expulsion, suspending, disciplining of participants and the supervision of their compliance with the market's operating rules, the Corporations Act and the regulations. [Schedule 1, Part 1, item 105, subsection 798DA(2 )]

1.32 The section applies to the following participants in a market:

·
the market licensee;
·
a related body corporate of the market licensee;
·
a partnership where a partner is a related entity of the market licensee; and
·
a competitor or a participant in a business which is in competition with the market licensee or a related body corporate of the market licensee, but only where the participant chooses that ASIC will act in place of the market licensee. [Schedule 1, Part 1, item 105, subsection 798DA(1 )]

1.33 It is an offence for a participant to participate in the market except in accordance with the section. [Schedule 1, Part 1, item 105, subsection 798DA(4] , [Schedule 1, Part 1, item 173]

Pooled superannuation trusts and product disclosure

1.34 A pooled superannuation trust, approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme that has net assets of at least $10 million and which is provided with an interest in a pooled superannuation trust by a trustee of the trust will be treated as wholesale. It will no longer be treated as retail in this transaction. [Schedule 1, Part 1, item 98, paragraph 761G(6 )( aa )]

1.35 The opportunity has been taken to correct the left hand margin of paragraph 761G(6)(c). [Schedule 1, Part 1, item 99]

Registered managed investment schemes investing in unregistered managed investment schemes

1.36 The amendment repeals subsection 601FC(4) which imposes the duty on the responsible entity of a registered managed investment scheme not to invest scheme property in unregistered managed investment schemes. [Schedule 1, Part 1, item 66]

1.37 Other duties on the responsible entity (for example, to act in the best interests of the members) are unchanged.

Application and transitional provisions

Exemption from providing a Statement of Advice - no product recommendation and no remuneration

1.38 The amendments will commence on Royal Assent. [Clause 2]

Threshold for requiring a Statement of Advice

1.39 The amendments will commence on Royal Assent. [Clause 2]

Financial Services Guide exemption - general advice to the public

1.40 The amendments commence from a day to be fixed by Proclamation. If no date is fixed within 6 months from the date on which the Act receives Royal Assent, then the amendment will commence on the first day after that period. [Clause 2]

Sophisticated investors

1.41 The amendments will commence on Royal Assent. [Clause 2]

1.42 The amendments apply to financial products and financial services provided on and after the day the amendments commence. [Schedule 1, Part 6, item 238]

Cross-endorsement of authorised representatives

1.43 The amendments commence from a day to be fixed by Proclamation. If no date is fixed within 6 months from the date on which the Act receives Royal Assent, then the amendment will commence on the first day after that period. [Clause 2]

1.44 The amendments apply in relation to the conduct of a representative on or after the day on which the amendments commence. [Schedule 1, Part 6, item 243]

Product activity and data collection

1.45 Amendments providing for the optional use of electronic lodgement of in use notices will commence on 1 July 2008. Electronic lodgement will become mandatory on 1 January 2009. [Clause 2 and Schedule 1, Part 6, items 245 and 246]

Licensed market operators and related participants and listed bodies

1.46 The amendments commence on Royal Assent. [Clause 2]

1.47 Item 239 ensures that arrangements already in place under section 798C retain their validity. [Schedule 1, Part 6, item 239]

Pooled superannuation trusts and product disclosure

1.48 The amendments will commence on Royal Assent. [Clause 2]

1.49 The amendments apply to financial products and financial services provided on and after the day the amendments commence. [Schedule 1, Part 6, item 238]

Registered managed investment schemes investing in unregistered managed investment schemes

1.50 The amendments will commence on Royal Assent. [Clause 2]

Consequential amendments

Exemption from providing a Statement of Advice - no product recommendation and no remuneration

1.51 Consequential amendments are made to subsection 940C(3) which sets out how documents, information and statements are to be given. [Schedule 1, Part 1, item 107]

1.52 A Record of Advice is currently used to document further market advice. This measure extends the use of the Record of Advice to initial advice in a particular situation. Consequential amendments omit 'further market related advice' and substitutes various terms and references to describe the initial advice covered by the new provision as well as the further market related advice. [Schedule 1, Part 1, items 108-115]

1.53 A consequential amendment is made to subsection 946A(3) to acknowledge the additional situation in which a Statement of Advice is not required. [Schedule 1, Part 1, item 116]

1.54 As a consequence of the use of a Record of Advice, amendments are made clarifying the definition of defective disclosure statements in relation to offence penalties and civil liability is expanded to include the record. [Schedule 1, Part 1, items 119-126]

1.55 The maximum penalty is specified for the offence of breaching the requirement to keep and provide a Record of Advice under the new provisions. This new provision carries the default rate of 50 penalty units. [Schedule 1, Part 1, item 175]

Threshold for requiring a Statement of Advice

1.56 As a consequence of the use of a Record of Advice when section 946AA is relied on, amendments are made to subsection 940C(3) which sets out how documents, information and statements are to be given. [Schedule 1, Part 1, item 107]

1.57 A consequential amendment is made to subsection 946A(3) to acknowledge the additional situation in which a Statement of Advice is not required. [Schedule 1, Part 1, item 116]

1.58 As a consequence of the use of a Record of Advice, amendments are made clarifying the definition of defective disclosure statements in relation to offence penalties and civil liability is expanded to include the record. [Schedule 1, Part 1, items 119-126]

1.59 The maximum penalty is specified for the offence of breaching the requirement to keep and provide a Record of Advice under the new provisions. This new provision carries the default penalty of 50 penalty units. [Schedule 1, Part 1, item 175]

Financial Services Guide exemption - general advice to the public

1.60 As a consequence of the amendment to the circumstances in which a provider need not provide a Financial Services Guide, subsection 941C(4A) which provides that the regulations may define what constitutes a public forum for the purposes of subsection 941C(4) is repealed. [Schedule 1, Part 3, items 219 and 220]

Sophisticated investors

1.61 References to the new section which provides a mechanism by which experienced investors can be certified as wholesale clients are included in the definition of retail client in section 761A and in subsection 761G(1). [Schedule 1, Part 1, items 95 and 97]

Cross-endorsement of authorised representatives

1.62 A consequential amendment is made to section 917A which describes the application of Division 6 of Part 7.6 of the Corporations Act. [Schedule 1, Part 3, item 216]

1.63 Consequential amendments to the references to 'product' in paragraphs 917A(3)(c), (d) and (e) are also made. [Schedule 1, Part 3, item 217]

Supporting bill

Licensed market operators and related participants

1.64 This Bill requires a market operator's operating rules to provide for ASIC to supervise certain participants. This will impose additional responsibilities on ASIC, resulting in additional expenditure.

1.65 The Corporations (Fees) Act 2001 will be consequentially amended so ASIC can impose a fee for the functions conferred on it by the operating rules of a market as required by subsection 798DA(2). [Schedule 1, item 1, Corporations (Fees) Amendment Bill 2007]


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