House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, The Hon Josh Frydenberg MP)

Chapter 4 Licensing and false or misleading documents

Outline of chapter

4.1 Schedule 3 to the Bill amends the Corporations Act 2001 and Credit Act to strengthen ASIC's licensing powers and the offences for false and misleading documents. The amendments implement the recommendations in Chapter 5 of the ASIC Enforcement Review Taskforce Report ^[4] (the ASIC Enforcement Review) that was presented to the Government in December 2017.

Summary of new law

4.2 The amendments in Part 1 of Schedule 3 update the requirements for obtaining an Australian financial services licence (AFS licence) by replacing requirement that a person be of 'good fame and character' with the requirement that they be a 'fit and proper person' to provide the financial service covered by the licence. The amendments in Parts 1 and 2 of Schedule 3 make a number of changes to the AFS licence and Australian credit licence regimes to ensure broader application of the respective fit and proper person tests to all officers, partners and trustees of an applicant, and to extend the test to their controllers. The 'fit and proper person' requirements must be satisfied on an ongoing basis.

4.3 The amendments in Parts 1 and 2 of Schedule 3 also make a number of other improvements to the AFS licence and Australian credit licence regimes. These improvements ensure that ASIC has access to adequate information in relation to an application or a licence, ensure that ASIC can refuse to grant a licence when a material particular in an application is false or misleading, and ensure that a licence can be suspended or revoked in certain circumstances (including where the financial services authorised by the licence have not been provided within 6 months of the licence being granted).

4.4 The amendments in Part 3 of Schedule 3 align the consequences for making false or misleading statements in documents provided to ASIC in AFS licence and Australian credit licence contexts.

Comparison of key features of new law and current law

Detailed explanation of new law

Licence application

Fit and proper test - alignment of AFS licensing and the credit licensing regimes (recommendation 27)

4.5 To grant an AFS licence, currently, ASIC must have no reason to believe that an applicant (either an individual, responsible officers of a body corporate, partners of a partnership or trustees of a trust) is not of 'good fame or character'.

4.6 A 'fit and proper' test was adopted in the credit licensing regime (implemented in 2009) after having regard to the administration of the AFS licensing regime that had been operating for a number of years. A number of other enhancements to the AFS licensing model were implemented as part of the credit licensing regime.

4.7 The ASIC Enforcement Review Taskforce found that there are no policy reasons for applicants to be subject to different tests as both licensing regimes regulate similar types of conduct, and therefore to the extent practicable, the application requirements should be aligned.

4.8 The amendments replace the 'good fame or character' test with a 'fit and proper' person test in the AFS licensing regime. The amendments also make minor changes to the current fit and proper test in the credit licensing regime to ensure alignment in both regimes, as set out below.

AFS licensing

Individual applicant

4.9 If the applicant is a natural person, ASIC must be satisfied that there is no reason to believe that the individual is not a fit and proper person to provide the financial services covered by the licence. [Schedule 3, items 4 and 7, subsection 913B(1)(c) and paragraph 913BA(1)(a) of the Corporations Act 2001]

Body corporate applicant

4.10 If the applicant is a body corporate, ASIC must have no reason to believe that the body corporate is not a fit and proper person to provide the financial services authorised by the licence. [Schedule 3, item 4 and 7, paragraph 913B(1)(c) and paragraph 913BA(1)(a) of the Corporations Act 2001]

4.11 In addition, ASIC must have no reason to believe that each officer of the body corporate is not a fit and proper person to perform one or more functions as an officer of an entity that provides financial services covered by the licence. [Schedule 3, items 4 and 7, paragraph 913B(1)(c) and paragraph 913BA(1)(b) of the Corporations Act 2001]

4.12 The requirement to test the 'officer' of a body corporate replaces the current requirement to test the 'responsible officers' of a body corporate. The concept of 'officer' in the Corporations Act 2001 is broader than the concept of 'responsible officer'. [Schedule 3, item 1, section 9 of the Corporations Act 2001, definition of 'responsible officer']

4.13 An 'officer' is defined in section 9 of the Corporations Act 2001 . An officer of a corporation means:

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a director or secretary of the corporation; or

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a person:

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who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation; or

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who has the capacity to affect significantly the corporation's financial standing; or

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in accordance with whose instructions or wishes the directors of the corporation are accustomed to act (excluding advice given by the person in the proper performance of functions attaching to the person's professional capacity or their business relationship with the directors of the corporation); or

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a receiver, or receiver and manager, of the property of the corporation; or

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an administrator of the corporation; or

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an administrator of a deed of company arrangement executed by the corporation; or

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a liquidator of the corporation; or

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a trustee or other person administering a compromise or arrangement made between the corporation and someone else.

4.14 A 'responsible officer' in relation to a body corporate is an officer of the body who would perform duties in connection with the holding of the AFS licence. The amendment ensures that all persons who meet the definition of 'officer' are required to meet the fit and proper test, not just those who would perform duties in connection with the licence. This is appropriate because the fitness and proprietary of all persons occupying these positions is relevant to ASIC's consideration of whether an application should be granted, as they can affect or influence the operations, policies and procedures of the body corporate.

Partnership or trustees of a trust applicant

4.15 If the applicant is a partnership or trustees of a trust, ASIC must have no reason to believe that any of the partners or trustees are not fit and proper to provide the financial services covered by the licence. [Schedule 3, items 4 and 7, paragraph 913B(1)(c) and subparagraph 913BA(1)(c)(i) of the Corporations Act 2001]

4.16 In addition, ASIC must have no reason to believe that any of the senior managers (as defined under section 9) of the partnership or trust are not fit and proper persons to perform one or more functions as an officer of an entity that provides the financial services authorised by the licence. [Schedule 3, items 4 and 7, paragraph 913B(1)(c) and subparagraph 913BA(1)(c)(ii)) of the Corporations Act 2001]

4.17 A 'senior manager' in relation to a partnership or a trust means a person, other than a partner or a trustee, who:

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makes, or participates in making, decisions that affect the whole, or a substantial part, of the business or affairs of the partnership or trust; and

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has the capacity to affect significantly the financial standing of the partnership or trust.

4.18 The fit and proper test, as it applies to a partner or trustee, also removes the current requirement to assess the good fame or character of only the partners or trustees 'who would perform duties in connection with the holding of the licence' (current subparagraph 913B(3)(a)(ii)).

4.19 The removal of this requirement ensures that ASIC must be satisfied that all partners and trustees are fit and proper, not just those who would perform duties in connection with the holding of the licence. This amendment aligns the fit and proper test to the credit licensing regime.

Removal of 'ability not significantly impaired' alternative to good fame or character test

4.20 Currently, if ASIC is not satisfied that certain applicants (body corporates, partnerships or trustees of a trust) are of good fame or character, but is otherwise satisfied that the applicant's ability to provide financial services covered by the licence would not be significantly impaired, the applicant does not fail the good fame or character test (current paragraph 913B(3)(b)).

4.21 The amendments remove this alternative test as part of the introduction of the fit and proper test. It is not appropriate to include an alternative ground where the applicant does not meet the fit and proper test. This amendment aligns the fit and proper test to the credit licensing regime. [Schedule 3, items 4 and 7, paragraph 913B(1)(c) and section 913BA of the Corporations Act 2001]

Credit licensing

4.22 The fit and proper test applies to Australian credit licence applicants in an equivalent way as it applies to AFS licence applicants, set out below.

Individual applicant

4.23 If the applicant is a natural person, ASIC must be satisfied that there is no reason to believe that the individual is not a fit and proper person to engage in the credit activities authorised by the licence. [Schedule 3, items 34 and 41, paragraph 37(1)(c) and paragraph 37A(1)(a) of the Credit Act]

Body corporate applicant

4.24 If the applicant is a body corporate, ASIC must have no reason to believe that the body corporate is not a fit and proper person to engage in the credit activities authorised by the licence. [Schedule 3, items 34 and 41, paragraph 37(1)(c) and paragraph 37A(1)(b) of the Credit Act]

4.25 In addition, ASIC must have no reason to believe that an officer of the body corporate is not a fit and proper person to perform one or more functions as an officer of an entity that engages in credit activities authorised by the licence. [Schedule 3, items 34 and 41, paragraph 37(1)(c) and paragraph 37A(1)(b) of the Credit Act]

4.26 The term 'officer' takes its meaning from section 9 of the Corporations Act 2001 . This term is explained in further detail above.

Partnership or trust applicant

4.27 If the applicant is a partnership or trustees of a trust, ASIC must have no reason to believe that any partner or trustee is not fit and proper to engage in the credit activities authorised by the licence. [Schedule 3, items 34 and 41, paragraph 37(1)(c) and subparagraph 37A(1)(c)(i) of the Credit Act]

4.28 In addition, ASIC must have not reason to believe that any of the senior managers of the partnership or trust are not fit and proper persons to perform one or more functions as an officer of an entity that engages in the credit activities authorised by the licence. [Schedule 3, items 34 and 41, paragraph 37(1)(c) and subparagraph 37A(1)(c)(ii)]

4.29 A 'senior manager' takes its meaning from section 9 of the Corporations Act 2001 . This term is explained in further detail above.

Fit and proper test - extension to controllers (recommendation 23)

4.30 Currently, the good fame or character test (AFS licensing), and fit and proper test (credit licensing) does not apply to the controllers of a licence applicant. Despite the legal separation between a controller and an applicant, a controller may be the directing mind of an applicant and have the capacity to influence the applicant's financial and operating policy, and any practice or behaviour of the applicant.

4.31 Under current practices, ASIC requires new applicants to identify its controller/s on an AFS or Australian credit licence application, and undertakes a search of its database to ascertain if it has any information regarding the character or prior conduct of those individuals. If so, this conduct is taken into account in determining whether ASIC has reason to believe the applicant will not comply with its obligations as an AFS or credit licensee. However, there is no obligation for an applicant to make specific disclosures about the past history, conduct or character of controllers and ASIC receives no upfront information about these matters.

4.32 Under the amendments, the fit and proper test applies to controllers of an applicant in both the AFS and credit licensing regimes, as set out below.

The meaning of 'control'

4.33 Control , of a body corporate, or another entity, for the purposes of both the AFS and credit licensing regimes, can be determined through a number of ways. The control test applies to both the banning and licensing regimes, and is being re-written as part of the amendments to the banning regime in Schedule 4. The re-written test is explained in the explanatory memorandum for those amendments.

AFS licensing

4.34 ASIC must be satisfied that there is no reason to believe that any person who controls the applicant is not a fit and proper person to control a person that provides the financial services covered by the licence. [Schedule 3, item 7, paragraph 913BA(1)(d) of the Corporations Act 2001]

4.35 If the controller is a body corporate, ASIC must also be satisfied there is no reason to believe that an officer of its controller or controllers is not a fit and proper person to perform one or more functions as an officer of a controller body corporate that provides the financial services covered by the licence. [Schedule 3, item 7, paragraph 913BA(1)(e) of the Corporations Act 2001]

Example 4.1

ABC Co Pty Ltd ( ABC Co ) applies for an AFS licence to be authorised to provide general financial advice.

ABC Co has two directors, John and Vibhu, and is wholly owned by XYZ Co Pty Ltd ( XYZ Co ).

XYZ Co has 3 directors, Sally, Anh and Jordan. Jordan's brother, Nik, holds more than half of the issued share capital of XYZ Co. Although Nik is not a director of XYZ Co, his shareholding in the company means that he is also a controller of. XYZ Co is not owned by any other entities and is not subject to any other controlling interests.

ABC Co provides ASIC with the required information to assess whether ABC Co, John and Vibhu satisfy the fit and proper test. ABC Co is also required to provide ASIC with the required information to assess whether XYZ Co, Sally, Anh, Jordan and Nik, satisfy the fit and proper test.

4.36 If the controller is a partnership or trustee, ASIC must be satisfied there is no reason to believe that:

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any of the partners or trustees are not fit and proper persons to control an entity that provides the financial services covered by the licence;

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any of the senior managers of the partnership or trust are not fit and proper persons to perform one or more functions as an officer of a controller entity that provides the financial services covered by the licence.

[Schedule 3, item 7, paragraph 913BA(1)(f) of the Corporations Act 2001]

4.37 ASIC must have regard to a number of matters when considering whether the applicant or their controller/s are fit and proper (see the Fit and proper test - factors for consideration section below). [Schedule 3, item 7, paragraph 913BA(2) of the Corporations Act 2001]

Credit licensing

4.38 ASIC must be satisfied that there is no reason to believe that any person who controls the applicant is not a fit and proper person to control a person that engages in credit activities authorised by the licence. [Schedule 3, items 34 and 41, paragraph 37(1)(c) and paragraph 37A(1)(d) of the Credit Act]

4.39 If the controller is a body corporate, ASIC must also be satisfied there is no reason to believe that an officer of its controller or controllers is not a fit and proper person to perform one or more functions as an officer of a controller body corporate that controls a person that engages in the credit activities authorised by the licence. [Schedule 3, item 41, paragraph 37A(1)(e) of the Credit Act]

4.40 If the controller is a partnership or trustee, ASIC must be satisfied there is no reason to believe that:

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any of the partners or trustees are not fit and proper persons to control an entity that that engages in the credit activities authorised by the licence;

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any of the senior managers of the partnership or trust are not fit and proper persons to perform one or more functions as an officer of a controller entity that provides the financial services authorised by the licence.

[Schedule 3, item 41, paragraph 37A(1)(f) of the Credit Act]

4.41 ASIC must have regard to the matters listed in section 37B of the Credit Act, when considering whether the applicant or their controller/s are fit and proper (see the Fit and proper test - factors for consideration section below). [Schedule 3, item 41, paragraph 37A(2) of the Credit Act]

Fit and proper test - factors for consideration

4.42 ASIC must have regard to a number of factors when applying the fit and proper test to an applicant and their officers, or a controller and their officers. These factors broadly reflect the existing matters in subsection 37(2) of the Credit Act with amendments to implement recommendations of the ASIC Enforcement Review Taskforce and align the two licensing regimes. The factors are also used for the purposes of the fit and proper tests for the banning order regimes in the Corporations Act 2001 and Credit Act, which are updated by Schedule 4. This ensures that determinations about whether or not a person is a fit and proper person under each regime is made in a consistent manner.

4.43 The amendments specify the matters that ASIC must have regard to in working out whether a person is a fit and proper person for the purposes of the new grounds. These matters are generally consistent with those that are relevant in working out whether a person is a fit and proper person to engage in credit activities for the purposes of the Credit Act.

4.44 In determining when a person is a fit and proper person, ASIC must, subject to Part VIIC of the Crimes Act 1914 , have regard to each of the following:

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whether the person has ever had an Australian financial services licence suspended or cancelled;

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whether the person has ever had an Australian credit licence, or a registration under the Transitional Act, within the meaning of the Credit Act, suspended or cancelled;

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whether the person has ever had a banning order under the Corporations Act 2001 or Credit Act;

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if the person is an individual - whether the person has ever been disqualified from managing corporations under any law of the Commonwealth, or of a State or Territory;

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whether the person has ever been banned from engaging in a credit activity under a law of a State or Territory;

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whether a person has ever been linked to a refusal or failure to give effect to a determination made by AFCA;

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for the AFS licensing test:

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whether the person has even been a Chapter 5 body corporate or an insolvent under administration;

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if the person is partnership - whether the person has ever had a creditor's petition or debtor's petition presented against it under Division 2 or 3 of Part IV of the Bankruptcy Act 1966 ;

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if the person is the multiple trustees of a trust - whether a trustee of the trust has ever been a Chapter 5 body corporate or an insolvent under administration;

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for the credit licensing test:

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whether the person has even been insolvent;

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if the person is the multiple trustees of a trust - whether a trustee of the trust has ever been insolvent;

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whether, in the last 10 years, the person has been convicted of an offence;

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any relevant information given to ASIC by a State or Territory, or an authority of a State or Territory, in relation to the person;

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any matters prescribed by regulations;

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any other matters ASIC considers relevant.

[Schedule 3, items 7 and 41, subsection 913BB(2) of the Corporations Act 2001 and subsection 37B(2) of the Credit Act]

4.45 While these considerations replace those that applied in working out whether a person was of good fame or character under the Corporations Act 2001 , a number of the considerations are the same under each test. As with the previous test, none of these matters is determinative, but each must be taken into account by ASIC when it forms its view about whether a person is not fit and proper.

4.46 In particular, the considerations about having had an Australian financial services licence, banning orders and disqualifications in relation to financial services, and other matters that ASIC considers relevant are all relevant for working out whether person was not of good fame or character.

4.47 The requirement that ASIC have regard to any offences that a person has been convicted of in the last 10 years is similar to the test of whether a person was of good fame or character. However, the new consideration is not limited to offences involving dishonesty that are punishable by imprisonment for at least three months. This expanded scope is appropriate given the different scope of the fit and proper person test, and is based on the original requirement in the Credit Act.

4.48 Consistent with the previous tests in both Acts, ASIC must take into account Part VIIC of the Crimes Act 1914 . Part VIIC provides that a person that has been granted a pardon for an offence is taken to have never been convicted of the offence. Part VIIC also specifies that person is not required to disclose a conviction that has been quashed or spent, and that another person (such as ASIC) is not permitted to take into account the fact that a person was charged or convicted of a quashed or spent conviction.

4.49 The amendments respective sets of matters contain different provisions for persons who have been insolvent or subject to bankruptcy proceedings. These differences reflect the differences in approach taken under the Corporations Act 2001 and Credit Act.

4.50 For the Corporations Act 2001 , the amendments specify that ASIC must take into account whether a person has been a Chapter 5 body corporate or an insolvent under administration. Although the reference to Chapter 5 bodies corporate is not included in the Credit Act, the scope of the two matters under each Act is the same. This is because the definition of insolvent in that Act is not limited to natural persons. Extending these considerations to a person who is a partner of a partnership or the multiple trustees of a trust ensures that the same considerations apply to each of the partners or trustees.

4.51 For the Credit Act, in contrast to the previous consideration about a person having ever been insolvent, the revised consideration applies to all persons, irrespective of whether they are the trustee of a trust. This change is consistent with the broader change to the ground for making a banning order that relates to a person being insolvent.

4.52 The meaning of 'linked to a refusal or failure to give effect to a determination made by AFCA' is being inserted as part of the amendments in Schedule 4 for banning orders. Those amendments ensure that being linked to a refusal or failure to give effect to a determination on more than one occasion is a ground on which a banning order may be made. The concept is explained in further detail in Chapter 2.

4.53 Including this concept in the matters that are relevant for determining whether a person is a fit and proper person means that such refusals or failures can also be taken into account and balanced against other matters, irrespective of the number of times that such failure or refusal have occurred. This is particularly relevant for the licensing regimes, which do not contain specific provisions requiring ASIC to refuse a licence because of a failure or refusal to comply with an AFCA determination.

4.54 As noted above, the other matters are based on those that are relevant for the test in the Credit Act. Aligning the two provisions ensures ongoing consistency between the regimes under each Act. There are two primary benefits with this approach.

4.55 First, the additional matters require ASIC to consider whether a person has been subject to a banning order or a disqualification order under the Credit Act, or banned from engaging in a credit activity (within the meaning of the Credit Act) under the law of a State or Territory). As such activities are comparable in nature, it is appropriate that they also be taken into account under each act.

4.56 Second, the additional matters about whether a person has been insolvent or disqualified from managing corporations require ASIC to take into account matters that are relevant to the person's broader capacity or suitability to control or manage the activities of a financial services entity.

ASIC may request further information or documents from the applicant (recommendation 27)

4.57 The credit licensing regime currently includes a specific provision that provides ASIC may, by written notice, request information from an applicant in relation to the application, or an audit report in relation to any matters ASIC may have regard to in deciding whether to grant the licence (subsection 37(4) of the Credit Act).

4.58 If an applicant for an Australian credit licence does not provide the required information within the time specified in the notice and ASIC does not extend the time, the application is deemed to be withdrawn (subsection 37(5) of the Credit Act).

4.59 These principles equally apply to the AFS licensing regime. There is currently a broad power to request information from the applicant but no power to request an audit report. All the required information, including any required audit reports, should be provided by the applicant to ASIC before it can make a decision on whether a licence can be granted.

4.60 The amendments provide that ASIC may, by written notice, request information from an applicant in relation to an AFS licence application, or an audit report in relation to any matters ASIC may have regard to in deciding whether to grant the licence. To avoid doubt, the amendments also clarify in both licensing regimes that ASIC may request information relating to any person to which the fit and proper test applies. This means that ASIC may request information relating to controllers. [Schedule 3, items 5 and 39, paragraphs 913B(3)(a) and (b) of the Corporations Act 2001 and subsection 37(5) of the Credit Act]

4.61 ASIC's power to request information serves as an authorisation to collect, use and disclose personal information for the purposes of the Australian Privacy Principles in the Privacy Act 1988 .

4.62 If an AFS licence applicant does not provide the information within the time specified and ASIC does not extend the time for compliance, the applicant is deemed to have withdrawn the application. ASIC may however, within the time specified in the notice, withdraw the request or extend the time specified in the request. [Schedule 3, items 5 and 40, subsections 913B(4A) and (4B) of the Corporations Act 2001 and subsections 37(6) and (7) of the Credit Act]

4.63 The amendments also clarify that the regulations may make provision in relation to all types of audit reports that ASIC may request under both the AFS and credit licensing regimes. [Schedule 3, items 5 and 53, subsection 913B(4D) of the Corporations Act 2001 and paragraph 106(b) of the Credit Act]

Express obligation for applicants to confirm no material changes prior to granting of licence (recommendation 26)

4.64 To ensure that ASIC has considered all the relevant and accurate information in assessing a licence application, if ASIC proposes to grant the licence, the amendments required an applicant to confirm that there have been no material changes to the information provided, or if there have been, inform ASIC of those changes. This is because there can be a significant period of time between when a licence application is received and when ASIC finalises its assessment.

4.65 The confirmation is required at the end of the assessment period, generally after the applicant has been provided with the draft licence that ASIC proposes to grant. [Schedule 3, items 5 and 39, subsection 913B(3)(c) of the Corporations Act 2001 and subsection 37(4)(c) of the Credit Act)]

Application false or misleading in a material particular - grounds for refusal (recommendation 25)

4.66 ASIC is currently able to cancel an AFS licence or Australian credit licence, after giving the licensee a hearing, if the application for the licence was false in a material particular or materially misleading (see subsection 915C(2) of the Corporations Act 2001 and paragraph 55(1)(d) of the Credit Act).

4.67 There is no specific ground for ASIC to refuse a licence in the first instance if it is false or misleading in a material particular. ASIC must rely on the general test under which the false or misleading statement may provide a basis for ASIC to have reason to believe that the applicant is likely to contravene its licence obligations.

4.68 The amendments provide ASIC with a specific ground to refuse a licence where there has been false or misleading in a material particular or there is an omission of a material matter in an application, information, report or statement from the applicant. [Schedule 3, items 5 and 35, subsection 913B(2)of the Corporations Act 2001 and subsection 37(2) of the Credit Act]

Licence requirements and obligations

Requirement to commence business within 6 months of granting of licence (recommendation 24) (AFS licensing and credit licensing)

4.69 Currently, the AFS licensing regime allows ASIC, with written notice, to suspend or cancel an AFS licence if the licensee ceases to carry on a financial service business. However, under the credit licensing regime, ASIC can suspend or cancel a licence if the licensee does not engage, or ceases to engage, in credit activities.

4.70 ASIC's existing powers in the AFS licensing regime do not provide for suspension or cancellation if the licensee does not provide the financial services that have been authorised.

4.71 The ASIC Enforcement Review Taskforce found that this provides an opportunity for entities to 'warehouse' and commoditise AFS licences. In practice, an entity is able to apply for a licence without any intention of commencing activities authorised by the licences. The intention is to sell the licences to persons who may not always meet the requirements to hold an AFS or Australian credit licence. The ASIC Enforcement Review Taskforce also found there was a lack of certainty as to when a licensee should have commenced business after being granted a licence.

4.72 The amendments implement the ASIC Enforcement Review Taskforce's recommendation that ASIC be given the power to cancel an AFS licence if the licensee does not start to provide the financial services covered by the licence within six months after the licence is granted.

4.73 The amendments also clarify ASIC's power to suspend or cancel an Australian credit licence if the person does not engage, or ceases to engage, in credit activities, to align the amendments to the AFS licensing regime with the credit licensing regime.

4.74 The amendments also support these powers by requiring licensees to notify ASIC if they do not start to provide the financial services or engage in the credit activities covered by licence within six months of it being granted.

4.75 The amendments to both regimes are detailed below.

AFS licence

Individual licensee

4.76 If the licence holder is an individual, ASIC may cancel an AFS licence by giving written notice to the individual if they do not provide a financial service covered by the licence within six months after the licence is granted. [Schedule 3, item 13, subsection 915B(1A) of the Corporations Act 2001]

Partnership licensee

4.77 If the licensee is a partnership, ASIC may cancel an AFS licence by giving written notice to the partnership if the partnership does not provide a financial service covered by the licence within six months after the licence is granted. [Schedule 3, item 15, subsection 915B(2A)]

Body corporate licensee

4.78 If the licensee is a body corporate, ASIC may cancel an AFS licence by giving written notice to the body corporate if the body corporate does not provide a financial service covered by the licence within six months after the licence is granted. [Schedule 3, item 23, subsection 915B(3A)]

Trustees of a trust licensee

4.79 If the licence holder is the trustees of a trust, ASIC may cancel an AFS licence by giving written notice to the trustees if the trustees do not provide a f

4.80 inancial service covered by the licence within six months after the licence is granted. [Schedule 3, item 28, subsection 915B(4A)]

Australian credit licence

4.81 The amendments clarify that ASIC may cancel an Australian credit licence if the licensee does not engage in credit activities authorised by the licence within six months after the licence is granted. [Schedule 3, item 49, subsection 54(1A) of the Credit Act]

'Provide a financial service covered by the licence' and 'engage in credit activities authorised by the licence'

4.82 The licensee must provide a financial service covered by the licence or engage in credit activities authorised by the licence within six months after the licence is granted.

4.83 Including this requirement to provide a financial service or engage in credit activities is intended to reduce the incentive to commoditise licences. This requirement, along with applying the fit and proper test to the licensees and their controllers, and the requirement to notify ASIC if there is a change of control with a penalty for non-compliance aims to effectively address 'warehousing' of licences identified by the ASIC Enforcement Review Taskforce.

4.84 Licensees must have commenced providing the relevant services to clients within the 6 month period. It is intended that merely preparatory or auxiliary activities related to the provision of a service or activity will not be sufficient to satisfy this requirement. ASIC will provide further guidance on compliance with this requirement as part of regulatory guidance material.

4.85 The ASIC Enforcement Review Taskforce also recommended providing licensees an extension of time from ASIC should the licensee be unable to commence its business within the six months period. Under this amendment, the power to cancel the licence is discretionary and it will be open to ASIC to work with licensees if there are genuine reasons for not being able to commence its business within the six month timeframe.

Requirement to notify ASIC if no financial service provided or no credit activities engaged in

4.86 These amendments also introduce a notification requirement to support ASIC's ability to cancel an AFS licence or Australian credit licence if no financial services are provided, or no credit activities engaged in, within 6 months of the relevant licence being granted.

4.87 In such cases, the licensee must lodge a notification with ASIC in the prescribed form (for notifications in relation to AFS licences) or the approved form (for Australian credit licences) before the end of 15 business days after the end of the 6 months. Failure to do so is a strict liability offence that carries a penalty of 30 penalty units for individuals and 300 penalty units for body corporates. [Schedule 3, items 3 and 46, section 912DB of the Corporations Act 2001 and section 53B of the Credit Act]

4.88 The amendments provide certainty as to when the notification time frame commences, that is, it commences when the licence is granted.

4.89 In imposing a strict liability offence for non-compliant conduct, the Attorney General's Department Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers has been considered and applied. A strict liability offence is appropriate as it is likely to enhance enforcement by deterring non-reporting of a failure to provide a financial service or engage in a credit activities. These are both matters that the licensee will be aware of, as they can only be provided or undertaken by the licensee, or provided or undertaken on their behalf in accordance with their instructions. A strict liability offence is also appropriate to ensure integrity of the financial regulatory regime.

Fit and proper test - applies to a licence variation request (AFS and credit licensing)

4.90 An AFS or credit licensee may make an application for ASIC to impose, vary or revoke their licence (variation request) (see paragraph 914A(2)(b) of the Corporations Act 2001 and paragraph 45(2)(b) of the Credit Act).

4.91 Currently, where a variation request is made, there is no specific provision to require ASIC to apply the good fame or character test, or fit and proper test (as applicable). However, a licensee has an implicit ongoing obligation to comply with the relevant test as ASIC has a power to suspend or cancel a licence if it is no longer satisfied the licensee meets the relevant test, and therefore a reconsideration of whether the licensee meets the relevant test does occur when a licence is varied.

4.92 The amendments specifically provide that where a licensee makes a variation request, ASIC must apply the fit and proper test, in a similar manner to a licence application. That is, ASIC must have no reason to believe that the licensee and the controllers are not fit and proper having regard to the factors described above. The amendments to the variation provisions also align with the amendments to the original licence application process, that is, provide ASIC with the power to request information from controllers, confirm that there have been not material changes to the information provided by the licensee before the variation is granted and deem withdrawal of the variation request if the licensee does not provide information that is requested by ASIC. [Schedule 3, items 8, 10, 42 and 44, subsection 914A(1) and section 914B of the Corporations Act 2001 and subsection 45(1) and section 46A of the Credit Act)]

Licence variations in accordance with licensee's request

4.93 The amendments also clarify that ASIC is not required to provide a hearing to a licensee before imposing new conditions or varying or revoking existing conditions on a licence if the change to the licence is in accordance with an application made by the licensee. [Schedule 3, item 9 and 43, subsection 914A(3) of the Corporations Act 2001 and subsection 45(5) of the Credit Act)]

4.94 Such hearings are not required where ASIC agrees to a request by the licensee to vary their licence in the manner requested. The exception to the hearing requirement does not apply if ASIC makes any variations that are not accordance with the licensees request (for example, a hearing would be required if ASIC imposed a condition that was in addition to a condition requested by a licensee).

Fit and proper test - suspension or cancellation of licence where ASIC no longer satisfied of the fit and proper test (AFS and credit licensing)

4.95 Currently, as part of the ongoing licence requirements, the licensee and relevant officers (as applicable) must satisfy the good fame or character test (paragraph 915C(1)(b) of the Corporations Act 2001 ), or fit and proper test (paragraph 55(1)(c) of the Credit Act). If ASIC is no longer satisfied the licensee meets the relevant test, ASIC may suspend or cancel the licence (after offering the licensee a hearing).

4.96 The amendments that extend the fit and proper test to licensees, controllers and officers of those entities (as applicable) in both licensing regimes, also extend and apply an ongoing requirement that these persons continue to satisfy the fit and proper test. This is to ensure that licensees, their controllers and officers of those entities (as applicable) remain fit and proper to provide or control financial or credit services to consumers. [Schedule 3, items 29 and 50, paragraph 915C(1)(b) of the Corporations Act 2001 and paragraph 55(1)(c) of the Credit Act]

4.97 For the purposes of assessing compliance with this ongoing requirement, the amendments also give ASIC the ability to request relevant information from the licensee in relation to its controllers and relevant officers (as applicable). ASIC's power to request information serves as an authorisation to collect, use and disclose personal information for the purposes of the Australian Privacy Principles in the Privacy Act 1988 . [Schedule 3, items 2 and 45, paragraph 912C(1)(c) of the Corporations Act 2001 and subsection 49(1) of the Credit Act]

Obligation to notify of a change in control within 30 business days (recommendation 28)

4.98 Currently, a condition of an AFS or Australian credit licence is that a licensee is required to notify ASIC within 10 business days of becoming aware of a change in control (see subsection 914A(8) of the Corporations Act 2001 , regulation 7.6.04(1)(i) of the Corporations Regulations, subsection 45(7) of the Credit Act and regulation 9(10) of the Credit Regulations). A breach of this condition is not currently subject to any specific penalty.

4.99 The amendments provide that a licensee must notify ASIC of a change in control within 30 business days after an entity starts to control, or stops controlling, a licensee. Failure to do so is a strict liability offence that carries a penalty of 30 penalty units for individuals and 300 penalty units for body corporates. [Schedule 3, items 3 and 46, section 912DA of the Corporations Act 2001 and section 53A of the Credit Act]

4.100 The amendments provide certainty as to when the notification time frame commences, that is, it commences when the change of control takes effect.

4.101 In imposing a strict liability offence for non-compliant conduct, the Attorney General's Department Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers has been considered and applied. The ASIC Enforcement Review Taskforce report found that the timely reporting about changes of controllers of licensees is required to ensure ongoing compliance with the fit and proper test. A strict liability offence is appropriate as it is likely to enhance enforcement by deterring non-reporting of a change of controller. A strict liability offence is also appropriate to ensure integrity of the financial regulatory regime.

4.102 To comply with this obligation, applicants are expected to implement systems and procedures to ensure they are aware of changes in control in a timely manner.

False and misleading statements

Aligning the consequences for making false or misleading statements in documents provided to ASIC (recommendation 29) (AFSL and credit licensing)

4.103 Currently, the AFS and Australian credit licence regimes contain different sets of obligations that direct licensees to ensure that documents provided to ASIC do not contain false or misleading statements. The consequences for breaching these obligations also differ under each regime.

4.104 Section 225 of the Credit Act sets out a number of civil penalty provisions and offences relating to the lodgement of documents with ASIC. The section applies to any document required, lodged or submitted to ASIC under the Credit Act, and includes documents relating to Australian credit licence applications. Under section 225, a person must not make, or authorise the making of, a statement in a document that is:

•

false in a material particular or materially misleading;

•

omitted from the document that makes it materially misleading;

•

based on information that is false in a material particular or materially misleading, or omitted information that makes the document materially misleading.

4.105 Section 1308 of the Corporations Act 2001 also contains specific offences in relation to false or misleading statements. Subsection 1308(2) is an offence relating to knowingly making misleading statements in documents required under the Corporations Act 2001 or submitted to ASIC. Subsection 1308(4) is an offence provision relating to misleading statements in documents submitted to ASIC without taking reasonable steps, and subsection 1308(8) is an offence provision relating to knowingly misleading statements in applications for a CS facility, AFSL or market licence.

4.106 The amendments rewrite the existing provisions about false or misleading statements in section 1308 of the Corporations Act 2001 and false and misleading documents in section 225 of the Credit Act. These changes strengthen the provisions relating to false and misleading conduct under the Corporations Act 2001 and the Credit Act. They also greatly improve consistency between the provisions and provide ASIC with a broader range of enforcement tools to prosecute for non-compliance.

4.107 While the effect of the re-written Credit Act provisions remains broadly the same, the changes result in some substantive changes to the provisions in the Corporations Act 2001 . These changes are consistent with the ASIC Enforcement Review Taskforce's recommendations about increasing the applicable criminal penalties and introducing civil penalty provisions under the Corporations Act 2001 to ensure consistency with the Credit Act.

Corporations Act 2001 amendments

4.108 The amendments to the Corporations Act 2001 relate to previous section 1308 of that Act. The amendments repeal that section and replace it with re-written provisions.

4.109 The amendments relocate the previous strict liability offence about publishing false or misleading statements about share capital to a separate section. [Schedule 3, item 58, section 1308B of the Corporations Act 2001]

4.110 This restructure ensures the re-written section 1308 can focus on the same types of offences for materially false or misleading documents that are covered by the Credit Act. The change does not affect the way the offence applies.

4.111 The penalty for committing this offence continues to be 20 penalty units. [Schedule 3, item 60, Schedule 3 (table items item dealing with subsection 1308B(1) of the Corporations Act 2001)]

4.112 The penalty is subject to section 4D of the Crimes Act 1914 , meaning that the specified amounts are the maximum penalties that can be imposed.

4.113 The amendments do not include the specific offence relating to false or misleading statements in applications made to ASIC. Such statements are now covered by the general offences, consistent with the ASIC Enforcement Review Taskforce's recommendation.

Re-written fault-based offence

4.114 The amendments re-write the existing offence for false or misleading documents contained in previous subsection 1308(2). The new offence is substantially the same as the previous offence, but is restructured to improve readability. Under the re-written provision, a person commits an offence if:

•

a document is required under or for the purposes of the Corporations Act 2001 , or is lodged with or submitted to ASIC; and

•

the person makes a statement in the document, omits a matter or thing from the document, or authorises such statement or omission; and

•

the person knows that the document is materially false or misleading because of the statement or omission.

[Schedule 3, item.58, subsection 1308(1) of the Corporations Act 2001]

4.115 Consistent with the previous offence, the re-written offence is fault-based. For an individual to commit an offence, it is therefore necessary to demonstrate that the person had knowledge that a document was materially false or misleading because of the statement or omission that they made or authorised.

4.116 The amendments describe the circumstances in which a document is materially false or misleading for the purposes of the re-written section 1308. These circumstances are explained below.

4.117 The amendments also specify that a person cannot be proceeded against for both the fault-based offence and another offence in consequence of a regulation made under section 1364 of the Corporations Act 2001 . [Schedule 3, item 58, subsection 1308(2) of the Corporations Act 2001]

4.118 This provision prevents a person from being prosecuted for multiple offences but does not dictate which offence should be proceeded with in the case that another offence applies. The provision is consistent with previous provision that applied in relation to the equivalent fault-based offence.

4.119 As with the previous offence, the penalty for committing this offence is 5 years imprisonment. [Schedule 3, item 60, Schedule 3 (table items dealing with subsection 1308(1) of the Corporations Act 2001)]

4.120 This original penalty was consistent with the penalties for the equivalent offence in the Credit Act and so does not need to be changed to give effect to the ASIC Enforcement Review Taskforce's recommendation about aligning penalties under the two regimes.

4.121 The penalty is subject to section 4D of the Crimes Act 1914 , meaning that the specified amounts are the maximum penalties that can be imposed.

Strict liability offence for failing to take reasonable steps

4.122 The amendments re-write the existing offence of failing to take reasonable steps in previous subsection 1308(3) and convert it to a strict liability offence. Applying the offence as a strict liability offence is consistent with the approach to the equivalent offence in the Credit Act and gives effect to the ASIC Enforcement Review Taskforce's recommendation for aligning the respective regimes.

4.123 Under the re-written provision, a person will commit an offence of strict liability if:

•

a document is required under or for the purposes of the Corporations Act 2001 , or is lodged with or submitted to ASIC; and

•

the person makes a statement in the document, omits a matter or thing from the document, or authorises the statement or omission; and

•

the document is materially false or misleading because of the statement or omission; and

•

the person did not take all reasonable steps to ensure that the document was not materially false or misleading because of the statement or omission.

[Schedule 3, item 58, subsection 1308(3) of the Corporations Act 2001]

4.124 The first two elements of the offence are identical to the fault-based offence. They provide for the types of documents that are within scope of the offence, and the role that the person played in respect of the document. The other two elements differ as they do not require the person to have knowingly taken an action in respect of the document. Rather, a person commits an offence of strict liability under this provision if a statement or omission causes a document to be materially false or misleading, and the person did not take all reasonable steps to ensure that this did not occur.

4.125 The questions of whether a document is materially false or misleading and whether a person took reasonable steps are to be objectively determined without having regard to a fault element. As with the fault-based offence, the provision (explained below) about when a document is materially false or misleading is relevant for this offence.

4.126 In imposing this strict liability offence, the Attorney General's Department Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers has been considered and applied. A strict liability offence is appropriate as it will greatly enhance enforcement of provision, and greatly improve compliance with the fundamental policy objective of the provision of ensuring that persons taking all reasonable steps to ensure that documents are not false or misleading.

4.127 The penalty for committing this offence is 20 penalty units. [Schedule 3, item 60, Schedule 3 (table items item dealing with subsection 1308(3) of the Corporations Act 2001)]

4.128 The amount of the penalty is within the range that is generally considered appropriate for strict liability offences in the Attorney General's Department Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers . It is also consistent with the penalties for the equivalent offence in the Credit Act and so gives effect to the ASIC Enforcement Review Taskforce's recommendation about aligning penalties under the two regimes.

4.129 The penalty is subject to section 4D of the Crimes Act 1914 , meaning that the specified amounts are the maximum penalties that can be imposed.

Removing offence-specific defences

4.130 The amendments do not replicate the offence-specific defences that were previously contained in subsections 1308(10) to (13) of the Corporations Act 2001 . These defences set out particular circumstances that a person could prove in order to demonstrate that they had taken reasonable steps to ensure that a document was not false or misleading. The defences essentially acted as safe-harbours that could apply even where a person had not objectively taken all reasonable steps. Their removal enables the Court to take into account all facts and circumstances in determining whether a person has taken all reasonable steps. The removal of these defences ensures greater consistency between the provisions of the Corporations Act 2001 and the equivalent provisions of the Credit Act, which do not contain equivalent defences.

4.131 Removing these exceptions also gives effect to recommendation 7.3 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, where the Commissioner noted that exceptions and qualifications to generally applicable rules of conduct make the law more complex. This additional prescription can leave regulated entities 'with little more than a box-ticking task', and creates an incentive to comply with the letter, rather than the spirit, of the law.

Civil penalties

4.132 The amendments introduce new civil penalty provisions that mirror the fault-based and strict liability offences. The grounds for contravening these civil penalty provisions are identical to the grounds for committing the equivalent offence. [Schedule 3, item 58, subsections 1308(4) and (5) of the Corporations Act 2001]

4.133 These penalty provisions are 'uncategorised' for the purposes of the section 1317E, meaning that it is neither a corporation/scheme penalty provision nor a financial services civil penalty provision. [Schedule 3, item 59, subsections 1317E(3) table item for subsection 1308(4) and (5) of the Corporations Act 2001]

4.134 The pecuniary penalty applicable to the contravention of these types of civil penalty provisions is set out in the standard penalty provisions in subsection 1317G if the Corporations Act 2001 . A standard maximum penalty of 5,000 penalty units is applicable to individuals, which is consistent with the penalties for the equivalent civil penalty provisions in the Credit Act. The standard maximum penalty that can be applied to bodies corporate is 50,000 penalty units. These penalties can also be increased where the Court can determine a benefit derived or detriment avoided because of the contravention, or in the case of bodies corporate based the penalty on the annual turnover of the body corporate.

When a document is materially false or misleading

4.135 The amendments describe the circumstances in which a document is materially false or misleading for the purposes of the re-written section 1308. A document is materially false or misleading if:

•

it includes a statement that is false in a material particular or materially misleading;

•

it includes a statement that is based on information that is false in a material particular or materially misleading, or contains an omission that renders the document materially misleading;

•

a matter or thing is omitted from the document, and that omission results in the document being false in a material particular or materially misleading.

4.136 These allow statements made in, and omissions from, a document to be taken into account in working out whether a document is materially false or misleading. The question of whether a statement or document is false or misleading is a question of fact and degree that will depend on the nature of the statement or omission.

4.137 This provision synthesises the details that were previously in subsections 1308(3) and (5). Those provisions provided particulars about when a person was taken to know that a statement was false or misleading. The new provision also covers documents containing statements that are based on information that is false in a material particular or materially misleading. The references to matters or things that are omitted from the document itself are based on previous subsection 225(2) of the Credit Act. This expansion is appropriate to ensure alignment between the two sets of provisions, and addresses the fact that an omission can cause the document to be misleading in the same way as a misleading statement.

Other provisions

4.138 The amendments also re-write a number of provisions that were previously contained in subsections 1308(6), (7) and (9). These provisions apply for the purposes of the re-written section 1308 and relate to:

•

when a document is authorised;

•

the incorporation of documents; and

•

when certain notices are taken to be required for the purposes of the Act or taken to be misleading in a material respect.

4.139 The rule about authorisations is relevant to the elements of the offences and civil penalty provisions that relate to an individual authorising the making of a statement in a document or the omission of any matter of thing from a document.

4.140 For the purposes of the re-written section 1308, a person is taken to have authorised such a statement or omission if they vote in favour of a resolution approving, or otherwise approve the document. [Schedule 3, item 58, subsection 1308(7) of the Corporations Act 2001]

4.141 This provision is based on the equivalent provision in previous subsection 1308(6) and in subsection 225(6) of the Credit Act. While it provides clarity for particular types of authorisations, the circumstances covered by the rule are not exhaustive. As such, it is open for a person to have authorised a document for the purposes of section 1308 if they have actually authorised the document in another manner.

4.142 The rule about the incorporation of documents is relevant for determining when a document is required to be provided by the Act.

4.143 The rule treats a statement, report or document as being part of a report provided under section 314 or laid before a company at an annual general meeting if it relates to the affairs of the company or of a subsidiary and is attached to or included to such a report. [Schedule 3, item 58, subsection 1308(8) of the Corporations Act 2001]

4.144 The rule is based on the equivalent provision in previous subsection 1308(7).

4.145 The rules about notices apply to notices under subsection 708AA(2) (which relates to an offer of a body's securities), subsection 708A(5) (which relate to certain sale offers that no not need disclosure), and notices under subsections 1012DAA(2) or 1012DA(5) (which relate to certain notices in place of product disclosure statements). These rules are identical to the rules contained in previous subsection 1308(9).

4.146 Notices to which these rules apply are taken to be notices that are required for the purposes of the Act. [Schedule 3, item 58, paragraph 1308(9)(a) of the Corporations Act 2001]

4.147 Notices to which these rules apply are also taken to be misleading in a material respect if they fail to comply with the specifying the matters that must be included in the notices. These provisions are paragraphs 708AA(7)(d), 708A(6)(e), 1012DAA(7)(e) and 1012DA(6)(f), respectively. [Schedule 3, item 58, paragraph 1308(9)(b) of the Corporations Act 2001]

4.148 These matters are essential to ensuring that the notices are not misleading. The combination of the interpretive rules for notices means that a failure to include the matters specified in the above provisions will satisfy the first two grounds for each of the offences and civil penalty provisions.

Credit Act amendments

4.149 The amendments to the Credit Act relate to section 225 of that Act. The amendments repeal that section and replace it with re-written provisions. These amendments mirror the re-written provisions in the Corporations Act 2001 , with some departures to reflect the differences in scope and architecture of the two Acts.

Re-written fault-based offence

4.150 The amendments re-write the existing offence for false or misleading documents contained in previous subsections 225(3) and (4) of the Credit Act.

4.151 The new offence is substantially the same as the previous offence, but is restructured to improve readability. Consistent with the re-written provision in the Corporations Act 2001 , a person commits an offence under the re-written provision if:

•

a document is required under or for the purposes of the Credit Act, or is lodged with or submitted to ASIC; and

•

the person makes a statement in the document, omits a matter or thing from the document, or authorises the statement or omission; and

•

the person knows that the document is materially false or misleading because of the statement or omission.

[Schedule 3, item 61, subsection 225(1) of the Credit Act]

4.152 As with the previous offence, the re-written offence is fault-based. For an individual to commit an offence, it is therefore necessary to demonstrate that the person had knowledge that a document was materially false or misleading because of the statement or omission that they made or authorised.

4.153 The amendments describe the circumstances in which a document is materially false or misleading for the purposes of the re-written section 225. These circumstances are explained below.

4.154 As with the previous offence, the penalty for committing this offence is 5 years imprisonment. [Schedule 3, item 61, subsection 225(1) of the Credit Act]

4.155 The penalty is subject to section 4D of the Crimes Act 1914 , meaning that the specified amounts are the maximum penalties that can be imposed.

Re-written strict liability offence for failing to take reasonable steps

4.156 The amendments re-write the existing offence of strict liability for failing to take reasonable steps contained in previous subsection 225(6). The re-written penalty is structured differently to the previous penalty, but is broadly the same in its effect.

4.157 Under the re-written provision, a person will commit an offence of strict liability if:

•

a document is required under or for the purposes of the Credit Act, or is lodged with or submitted to ASIC; and

•

the person makes a statement in the document, omits a matter or thing from the document, or authorises the statement or omission; and

•

the document is materially false or misleading because of the statement or omission; and

•

the person did not take all reasonable steps to ensure that the document was not materially false or misleading because of the statement or omission.

[Schedule 3, item 61, subsection 225(2) of the Credit Act]

4.158 The first two elements of the offence are identical to the fault-based offence. They provide for the types of documents that are within scope of the offence, and the role that the person played in respect of the document. The other two elements differ as they do not require the person to have knowingly taken an action in respect of the document. Rather, a person commits an offence of strict liability under this provision if a statement or omission causes a document to be materially false or misleading, and the person did not take all reasonable steps to ensure that this did not occur.

4.159 The questions of whether a document is materially false or misleading and whether a person took reasonable steps are to be objectively determined without having regard to a fault element. As with the fault-based offence, the provision explained below about when a document is materially false or misleading are relevant for this offence.

4.160 In imposing this strict liability offence, the Attorney General's Department Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers has been considered and applied. A strict liability offence is appropriate as it will greatly enhance enforcement of provision, and greatly improve compliance with the fundamental policy objective of the provision of ensuring that persons taking all reasonable steps to ensure that documents are not false or misleading.

4.161 The penalty for committing this offence is 20 penalty units. [Schedule 3, item 61, subsection 225(2) of the Credit Act]

4.162 The penalty is subject to section 4D of the Crimes Act 1914 , meaning that the specified amounts are the maximum penalties that can be imposed.

Civil penalties

4.163 The amendments replicate the existing penalty provisions contained in subsections 225(3) and (4) of the Credit Act. The grounds for contravening these civil penalty provisions are identical to the grounds for committing the equivalent offence. [Schedule 3, item 61, subsections 225(3) and (4) of the Credit Act]

4.164 The penalties applicable to the contravention of these civil penalty provisions is 5,000 penalty units. This is the same penalty that applied for the equivalent civil penalty provisions in the previous provision.

When a document is materially false or misleading

4.165 The amendments describe the circumstances in which a document is materially false or misleading for the purposes of the re-written 225. A document is materially false or misleading if:

•

it includes a statement that is false in a material particular or materially misleading;

•

it includes a statement that is based on information that is false in a material particular or materially misleading, or contains an omission that renders the document materially misleading;

•

the document itself contains an omission that results in the document being false in a material particular or materially misleading.

4.166 These allow statements made in, and omissions from, a document to be taken into account in working out whether a document is materially false or misleading. The question of whether a statement or document is false or misleading is a question of fact and degree that will depend on the nature of the statement or omission.

4.167 This provision is consistent with the substantive explanations contained in the previous offences. Consistent with the approach in the amendments to the Corporations Act 2001 , these elements have been moved to a separate provision to improve readability.

Authorisations

4.168 The amendments also re-write provision related to authorisations that was previously contained in subsections 225(8). This rule is relevant to the elements of the offences and civil penalty provisions that relate to an individual authorising the making of a statement in a document or the omission of any matter of thing from a document.

4.169 For the purposes of the re-written section 225, a person is taken to have authorised such a statement or omission if they vote in favour of a resolution approving, or otherwise approve, the document. [Schedule 3, item 61, subsection 1308(6) of the Credit Act]

4.170 While the rule provides clarity for particular types of authorisations, the circumstances covered by the rule are not exhaustive. As such, it is open for a person to have authorised a document for the purposes of section 225 if they have actually authorised the document in another manner.

4.171 In contrast to the Corporations Act 2001 amendments, the amendments to the Credit Act do not introduce the other provisions about incorporating documents or for notices. These provisions are not required as the types of documents to which they relate under the Corporations Act 2001 are not relevant to the Credit Act.

Application and transitional provisions

Existing AFS licensees

4.172 The amendments apply to existing AFS licensees on and after the commencement day of the amendments. [Schedule 3, item 32, section 1665 of the Corporations Act 2001]

4.173 This ensures that ASIC is able to monitor the controllers of existing AFS licensees and request relevant information, and carry out enforcement action as required. Existing AFS licensees will not be required to provide information to ASIC unless requested.

4.174 The following specific application provisions also apply:

•

information provided in connection with an application under existing provision paragraph 913B(1)(ca) of the Corporations Act 2001 will be subject to the new provision regarding ASIC's power to suspend or cancel a licence where the information provided in relation to the application was false or misleading;

•

the requirement to notify ASIC of a change in control within 30 business days after the entity starts to control, or stops controlling the licensee applies on or after commencement; and

•

the requirements to start providing financial services within 6 months of an AFS licence being granted, and to notify ASIC where such services are not provided, apply to existing licensees. However the 6 month periods for each requirement start on commencement.

[Schedule 3, item 32, section 1665 of the Corporations Act 2001]

AFS licence applications made before commencement

4.175 The amendments apply to AFS licence applications made, but not granted, before commencement. That is, an applicant will be required to provide further information in order to satisfy the new tests that apply from commencement.

4.176 ASIC will work with existing applicants during the transition period to ensure that the applicant is clear on the information that must be provided.

Existing credit licensees

4.177 The amendments apply to existing credit licensees on and after the commencement day of the amendments. [Schedule 3, item 55, section 2 of Schedule 9 to the Credit Act]

4.178 This ensures that ASIC is able to monitor the controllers of existing credit licensees and request relevant information, and carry out enforcement action as required. Existing credit licensees will not be required to provide information to ASIC unless requested.

4.179 The following specific application provisions also apply:

•

information provided in connection with an application under existing provision subsection 37(4) of the Credit Act will be subject to the new provision regarding ASIC's power to suspend or cancel a licence where the information provided in relation to the application was false or misleading;

•

the requirement to notify ASIC of a change in control within 30 business days after the entity starts to control, or stops controlling the licensee applies on or after commencement; and

•

the requirements to start engaging in credit activities within 6 months of an Australian credit licence being granted, and to notify ASIC where such activities are not engaged in, apply applies to existing licensees. However the 6 month periods for each requirement starts on commencement.

[Schedule 3, item 55, section 2 of Schedule 9 to the Credit Act]

Australian credit licence applications made before commencement

4.180 The amendments apply to Australian credit licence applications made, but not granted, before commencement. That is, an applicant will be required to provide further information in order to satisfy the new tests that apply from commencement.

4.181 ASIC will work with existing applicants during the transition period to ensure that the applicant is clear on the information that must be provided.

False and misleading documents

4.182 The amendments to the Corporations Act 2001 and Credit Act in respect of false and misleading documents commence from the day after the Act containing the amendments received Royal Assent.