Explanatory Memorandum(Circulated by authority of the Minister for Financial Services & Regulation the Hon Joe Hockey, MP)
Outline and impact statements
1.1 The Financial Services Reform (Consequential Provisions) Bill provides for the transition to the new regulatory regime for the financial services industry outlined in the proposed Financial Services Reform Act 2001 (proposed FSR Act). The new regime provides for licensing, conduct and disclosure in the financial services industry. It will replace Chapters 7 and 8 of the proposed Corporations Act 2001 (proposed Corporations Act) and the Insurance (Agents and Brokers) Act 1984 (IABA). It will also bring in elements of the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Retirement Savings Account Act 1997 (RSA Act), as well as impacting upon aspects of the Insurance Act 1973 and the Insurance Contracts Act 1984.
1.2 The new regulatory regime for the financial services industry is outlined in greater detail in the Explanatory Memorandum to the Financial Services Reform Bill (FSR Bill).
1.3 The Financial Services Reform (Consequential Provisions) Bill provides for the transition from these existing regulatory regimes to the Financial Services Reform (FSR) regime. The transitional provisions are divided into two categories:
- Those dealing with when the FSR regime begins to apply to different groups of people; and
- Those dealing with how a person moves from any one of the existing regulatory regimes into the FSR regime.
1.4 It also contains other consequential amendments to a range of Commonwealth legislation as a result of the provisions contained in the proposed FSR Act. Those consequential amendments broadly take two forms:
- Primary consequential amendments involving the repeal of provisions which are to be superseded by the FSR regime; and
- Secondary consequential amendments which involve changes in terminology and section references as a result of the proposed FSR Act.
1.5 This Explanatory Memorandum only addresses the more significant consequential amendments individually, while noting the general approach taken in relation to other consequential amendments.
1.6 A Regulatory Impact Statement (RIS) was prepared for the FSR Bill and is outlined in the Explanatory Memorandum to that Bill. As the Financial Services Reform (Consequential Provisions) Bill deals with machinery and minor matters flowing from the FSR Bill, the Office of Regulation Review has advised that a separate RIS is not required for this Bill.
1.7 As indicated in the Explanatory Memorandum to the FSR Bill, the Australian Securities and Investments Commission (ASIC), as the regulatory body responsible for administering the new regulatory regime, will incur some additional costs in the transition to the new requirements.
2.1 The following abbreviations are used in this Explanatory Memorandum:
|APRA||Australian Prudential Regulation Authority|
|ASIC Act||Australian Securities and Investments Commission Act 1989|
|ASIC||Australian Securities & Investments Commission|
|Criminal Code||Criminal Code contained in the Criminal Code Act 1995|
|FSR||Financial Services Reform|
|FSR Bill||Financial Services Reform Bill 2001|
|IABA||Insurance (Agents and Brokers) Act 1984|
|Insurance Act||Insurance Act 1973|
|Insurance Contracts Act||Insurance Contracts Act 1984|
|ITAA||Income Tax Assessment Act 1936|
|Proposed ASIC Act||Proposed Australian Securities and Investments Commission Act 2001|
|Proposed Corporations Act||Proposed Corporations Act 2001|
|Proposed FSR Act||Proposed Financial Services Reform Act 2001|
|RSA Act||Retirement Savings Account Act 1997|
|RSA||Retirement savings account|
|SIS Act||Superannuation Industry (Supervision) Act 1993|
|TPA||Trade Practices Act 1974|
Amendments to the Australian Securities and Investments Commission Act 2001
3.1 In line with the mirror provisions contained in Parts IVA and V of the Trade Practices Act 1974 (TPA), Subdivisions C, D and E of Division 2 of Part 2 of the Australian Securities and Investments Commission Act 1989 (ASIC Act) currently apply only to corporations in trade or commerce. The Bill proposes to extend the application of these Subdivisions in the proposed Australian Securities and Investment Commission Act 2001 (proposed ASIC Act) so that they will apply to relevant conduct by any person in trade or commerce. It does so by replacing existing references to a corporation in trade or commerce in Subdivisions C, D and E with references to a person in trade or commerce.
3.2 As a consequence of these amendments, the Bill repeals section 12AA and subsection 12AD(2) as well as the definitions of corporation and foreign corporation contained in subsection 12BA(1). It also amends sections 12CB, 12DK, 12DL and 12DM in order to clarify the operation of these provisions.
3.3 The Bill will repeal the definition of Territory in subsection 12BA(1). The proposed FSR Act includes amendments to section 4 that will enable particular provisions of the proposed ASIC Act to be applied in specified circumstances to particular External Territories. It is intended that the amended section 4 will be used to apply Division 2 of Part 2 to the External Territories as required.
3.4 The Bill will clarify the definition of a consumer currently contained in section 12BC. It will clarify that only small businesses will fall within the definition of a consumer in relation to financial services acquired for use in connection with a small business. A small business is defined as one that employs fewer than:
- if it is a manufacturing business - 100 people; or
- otherwise, 20 people.
3.5 This definition of a small business replicates the definition of a small business contained in subsection 761G(12) of the proposed Corporations Act(as inserted by the proposed FSR Act).
3.6 Section 51AC of the TPA was introduced following the insertion of Division 2 of Part 2 into the ASIC Act. This provision extended the unconscionable conduct provisions of the TPA to business transactions involving the supply or acquisition of goods or services valued at up to $1 million by a person or corporation other than a public listed company. This monetary limit has recently been increased to $3 million.
3.7 Proposed section 12CC of the ASIC Act will operate as a mirror provision to section 51AC of the TPA. It will extend the unconscionable conduct provisions of Division 2 of Part 2 to cover transactions involving the supply or acquisition of financial services valued at up to $3 million.
3.8 The current prohibition on misleading or deceptive conduct in relation to financial services contained in section 12DA will be retained (with amendments in the proposed FSR Act). It will operate alongside section 1041H of the proposed Corporations Act.
3.9 Section 12DA has been retained as the definition of a financial service that will be contained in section 12BAB of the proposed ASIC Act is broader than that which will be contained in the Division 4 of Part 7.1 of the proposed Corporations Act.
3.10 The Bill amends subsection 12DN(1) by replacing current references to securities with references to financial products. These amendments reflect amendments to subsection 12DC contained in the proposed FSR Act that extended the application of this section to encompass financial products that involve interests in land (as defined in proposed subsection 12BAA) rather than simply securities that involve interests in land.
3.11 The Bill will amend paragraph 12GB(1)(f) to increase the maximum penalty that may be imposed by the Court where offences under section 12GB have been established to 2,000 penalty units (currently $210,000) in relation to an individual and 10,000 penalty units (currently $1,100,000) in relation to a body corporate.
3.12 A person who contravenes Division 2 of Part 2 may be required to pay a fine and compensate those who have suffered loss or damage as a result of the contravention. Where the person who has contravened the Division has insufficient financial resources for both, proposed section 12GCA will require the Court to give preference to compensating those who have suffered loss or damage.
3.13 The new section is not directed at allowing the Court to waive or reduce the fine where it considers that the defendant does not have sufficient financial resources, thereby allowing the defendant to avoid punishment. The Court may still impose a fine. The provision allows the Court to order that a person who has suffered loss or damage will be compensated before a fine will be paid into consolidated revenue. Where a fine is not paid, proceedings for enforcement and recovery may be commenced under section 12GC.
3.14 Alternatively, it would be open to the Court to make an additional order under proposed sections 12GLA or 12GLB. For example, the Court may make a community service or adverse publicity order where it feels that a defendants financial resources would prevent a fine from being recovered.
3.15 Proposed section 12GCA will protect consumers of financial services by providing a remedy where they have suffered loss or damage because of a contravention of the Division.
3.16 The Bill will repeal section 12GE, which currently allows the Court to make orders requiring a person that has contravened a provision of Subdivision D to disclose information within their possession or to publish an advertisement as specified in the order. In place of section 12GE, the Bill inserts new sections 12GLA and 12GLB dealing with punitive and non-punitive orders.
3.17 Section 12GLA will enable the Court to make a non-punitive order in relation to a person who has engaged in contravening conduct. A non-punitive order includes a community service order, a probation order, an order requiring the disclosure of information and an order requiring an advertisement to be published.
3.18 Section 12GLB will enable the Court to make punitive orders requiring adverse publicity against a person who is guilty of an offence under section 12GB. An adverse publicity order may require a person to disclose information that they have in their possession or have access to. A person who is guilty of an offence under section 12GB may also be required to publish, at their own expense, an advertisement publicising the fact that they have breached Division 2 of Part 2, along with details of any remedial action they have been required to undertake.
3.19 The Bill will amend section 12GF to allow a person who has suffered loss or damage as a consequence of a contravention of Subdivision C to seek damages under section 12GF. Currently, a contravention of the unconscionable conduct provisions of Division 2 of Part 2 will only give rise to an action under sections 12GD (injunctive relief) or 12GM (other orders).
3.20 In effect, section 12GM currently makes provision for a compensatory order similar in nature to an action for damages. Subsection 12GM(7) contains a non-exhaustive list of orders the Court may make under section 12GM, including an order that a person in contravention of the Division pay the person who suffered loss or damage the amount of the loss or damage (paragraph 12GM(7)(e)). The proposed amendment to section 12GF clarifies that damages are available for a contravention of Subdivision C.
3.21 The Bill will amend subsection 12GM(3), which prescribes the conditions that ASIC must satisfy before it may commence a representative action on behalf of a person or persons who have suffered loss or damage as a consequence of conduct that contravenes Division 2 of Part 2 of the Division.
3.22 The amendment will remove the current requirement for ASIC to commence legal action under sections 12GB or 12GC before it may commence a representative action under section 12GM. ASIC will still be required to obtain the prior written consent of the person or persons on behalf of whom it proposes to commence proceedings under section 12GM.
3.23 The Bill repeals the current section 12GO. In its place it inserts a new section 12GO that will allow ASIC to intervene in private proceedings instituted under Division 2 of Part 2. The Commission may only intervene with the leave of the Court. Where it does intervene, ASIC will become a party to the proceedings and, as such, the Court may make an order of costs against it.
3.24 The new section 12GO will, subject to the Court, allow ASIC to intervene in cases that raise issues of public interest that have not been fully addressed by the parties. Intervention by ASIC will also allow the Court to make a more balanced judgement in cases that have a significant impact on the community at large.
3.25 The Bill will amend sections 12GF and 12GM to extend the applicable limitation periods within which a person must commence an action under these sections from three years to six years after the day on which the cause of the action that relates to the conduct occurred.
3.26 The Bill will amend the offence provisions throughout the ASIC Act (including offences against Subdivision D of Division 2 of Part 2). These amendments are necessary to make the ASIC Act compliant with the Commonwealth Criminal Code.
3.27 New section 4A states that Chapter 2 of the Criminal Code applies to all offences against the Act.
3.28 The Bill makes minor technical changes to paragraph (a) of the definition of member in subsection 5(1) and the definition of misleading representations in section 12BB.
3.29 The Bill also corrects a typographical error in paragraph 12GM(2)(a).
Transitional provisions relating to Financial Services Reform Act
4.1 Item 223 of Schedule 1 to the Bill will insert a new Part 10.2 into the proposed Corporations Act containing provisions relating to the transition to the proposed FSR Act. These transitional provisions are divided into two different categories.
4.2 The first category is provisions that deal with when the FSR regime begins to apply to different people. For example, in many circumstances these provisions would allow existing participants to choose when during the two-year transitional period the FSR regime begins to apply to them by opting in. Detailed provisions dealing with this issue are contained in the Bill; they are subsequently referred to as the phase in transitional provisions.
4.3 The second category of transitional provisions are those that deal with how a person moves from their existing regulatory regime (if any) into the FSR regime. Relevant issues here are, for example, the extent and way in which conduct done under a former regime is recognised under the FSR regime. The Bill does not set out the specific rules dealing with these situations but instead provides for regulation making powers and powers for ASIC to make such rules.
4.4 These transitional provisions are divided into three categories, reflecting the three key areas of the proposed FSR Act that are subject to phasing in arrangements:
- Licensing of financial markets and clearing and settlement facilities (Parts 7.2-7.5 of the proposed FSR Act);
- Licensing, conduct and disclosure of financial service providers (Parts 7.6-7.8 of the proposed FSR Act); and
- Product Disclosure (Part 7.9 of the proposed FSR Act).
4.5 Other provisions in the proposed FSR Act will apply immediately on commencement, subject to any regulations or ASIC determinations.
4.6 Proposed Subdivision A contains interpretative and other preliminary matters associated with proposed Part 10.2.
4.7 Proposed subsection 1410(1) defines a number of terms used throughout proposed Part 10.2. Of note, associated provisions is defined so that in relation to particular provisions of an Act it includes a range of other provisions in that Act that are necessary for their operation. These include regulations or other instruments, interpretative provisions, provisions that impose liability and any other provisions that affect their operation.
4.8 Proposed subsection 1410(2) and the definition of class in subsection (1) provide that regulations may specify what a class of financial products is for the purposes of a provision in which that concept is used.
4.9 Proposed subsection 1410(3) clarifies that where the transitional provisions preserve the operation of a provision that has been repealed in relation to a particular person, thing or matter that preserved provision only continues to have the effect, if any, that it had previously. That is, this subsection clarifies that the fact that a provision has been preserved in relation to a particular person should not, of itself, be thought to imply that that provision has any particular effect or extends the operation that the provision previously had.
4.10 The specific provisions addressing the time at which particular categories of financial markets will move into the new regulatory regime are contained in Subdivision B of proposed Part 10.2.
4.11 Currently, there are seven categories of authorised stock and futures markets. However, the proposed FSR Act includes only one set of provisions for the regulation of financial markets (Parts 7.2, 7.4 and 7.5).
4.12 Each of the categories of authorised stock and futures market under the current law is addressed separately in the transitional provisions. These are:
- Markets being operated immediately prior to commencement by the Australian Stock Exchange Limited, and bodies corporate covered by approvals in force under subsections 769(2) or 1126(2) of the current law (see proposed sections 1413 to 1416);
- Exempt stock markets and exempt futures markets (other than those which do not have an identifiable operator) (see proposed section 1418);
- Exempt stock markets and exempt futures markets which do not have one identifiable operator (see proposed section 1419);
- Stock markets of approved securities organisations (see proposed section 1420);
- Special stock markets for unquoted interests in a registered scheme (see proposed section 1421); and
- Other markets which are operated immediately before commencement but are not unauthorised stock or futures markets under the current law (see proposed section 1422).
4.13 Proposed section 1411 provides interpretative assistance in determining whether a market is being operated immediately before the 'FSR commencement'. This provision clarifies that just because trading is not actually occurring immediately before the commencement (for example, because of a routine temporary closure of the market) this not a reason to conclude that it is not being operated at that time.
4.14 Subdivision B also includes proposed section 1412 which addresses markets that have not started to operate by the 'FSR commencement'. It is anticipated that this provision will be particularly relevant to those exchanges which are approved by the Minister under the current law but have not commenced operation at that time.
4.15 In general terms, the effect of the provisions is to require:
- The Minister to issue an Australian market licence with effect from 'FSR commencement' to the main existing markets which are operational at that time (proposed section 1413);
- The Australian market licence issued to the main existing markets will reflect the financial products in relation to which they are currently entitled to provide services (see proposed subsections 1413(2) and (4));
- The provisions relating to the content of operating rules and written procedures and Division 3 of Part 7.5 (compensation arrangements other than the National Guarantee Fund) are excluded from application during the transition period (and the comparable provisions of the current law applied) (see proposed sections 1414 and 1415);
- The operators of other authorised markets to seek and obtain a new licence, or conceivably an exemption, under the proposed FSR Act by the end of the transition period (at most, 2 years)(see proposed sections 1418, 1420 and 1421);
- Until that point, they are regulated under the current law;
- There are, however, limitations on varying the services provided during the transitional period; and
- The operators of other markets which were being operated immediately before commencement (but were not unauthorised stock or futures markets) to seek and obtain a new licence under the proposed FSR Act within 2 years (see proposed section 1422);
- A similar transition period applies in relation to currently unregulated services which may be provided by the main markets which will be regulated under the FSR regime (see proposed section 1417).
4.16 As indicated above, special provision is made for the participants of exempt stock and futures markets, which do not have an identifiable single operator (see proposed section 1419). In brief, after the commencement of the proposed FSR Act and the appropriate transition period, they will be regulated under as financial service providers (if their conduct is such as to trigger the requirements for such a licence).
4.17 The transitional provisions are complicated by:
- The number of categories of currently authorised markets; and
- The change from the emphasis in the current law on approval of a body corporate as a stock or futures exchange (which then operates one or more stock or futures markets) to a focus on the market which is to be the subject of the licence (and the capacities of the operator to fulfil its obligations in relation to that market).
4.18 Extensive regulation making powers are included in the specific transitional provisions in Subdivision B (see proposed section 1416 and subsections 1417(3), 1418(5), 1419(5), 1420(5), 1421(5), 1422(3)). Additional regulation making powers are included in Division 2 - 'Other transitional provisions'. The aim of these powers is to assist in a smooth transition into the new regulatory scheme.
4.19 The specific provisions addressing the time at which particular categories of clearing and settlement facilities will move into the new regulatory regime are contained in Subdivision C of proposed Part 10.2
4.20 There are two categories of approved clearing houses under the current law:
- The securities clearing house approved under section 779B; and
- Any futures clearing house which was being operated by a body corporate in accordance with an approval under section 1131 of the current law.
4.21 In contrast, the proposed FSR Act includes only one set of provisions for the regulation of clearing and settlement facilities - Parts 7.3 and 7.4.
4.22 In general terms, the effect of the transitional provisions is to require:
- The Minister to issue an Australian CS facility licence with effect from 'FSR commencement' to the 'securities clearing house' and those futures clearing houses approved under section 1131 which are operational at that time (see proposed sections 1425 to 1427);
- The Australian CS facility licence issued to these entities will reflect the financial products in relation to which they are currently entitled to provide services;
- The provisions relating to the contents of operating rules and written procedures are excluded from application during the transition period (see proposed section 1426(2)); and
- The operators of other clearing and settlement facilities which were being operated immediately before commencement (but were not required to be approved under the current law) to seek and obtain a new licence under the proposed FSR Act within 2 years (see proposed section 1429);
- There are, however, limitations on varying the services provided during the transitional period (see proposed paragraph 1429(2)(d));
- A similar transition period applies in relation to any currently unregulated services which may be provided by approved clearing houses which will be regulated under the FSR regime (see proposed section 1428).
4.23 Proposed section 1423 provides interpretative assistance in determining whether a clearing and settlement facility is being operated immediately before the 'FSR commencement'. This provision clarifies that just because services were not actually being provided immediately before the commencement (for example, because of a routine temporary closure of the facility) this not a reason to conclude that it is not being operated at that time.
4.24 Subdivision C also includes proposed section 1424 which addresses facilities that have not started to operate by the 'FSR commencement'. It is anticipated that this provision will be particularly relevant to any clearing houses which are approved by the Minister under the current law but have not commenced operation by that time.
4.25 Extensive regulation making powers is included in the specific transitional provisions in Subdivision C (see proposed section 1427 and subsections 1428(3) and 1429(3)). Additional regulation making powers are included in Division 2 - 'Other transitional provisions' (see proposed section 1444). The aim of these provisions is to assist in a smooth transition into the new regulatory scheme.
4.26 Proposed Subdivision D provides for when Parts 7.6-7.8 of the proposed FSR Act will begin to apply to a person who carries on a financial services business.
4.27 The general approach is that:
- All current financial service providers will have up to two years after commencement to obtain a new licence for their existing activities. During this time any existing regulatory regime will continue to apply to those people and their representatives;
- New financial service providers who begin business after commencement or existing providers who enter into a new area of business after commencement will need to have an Australian financial services licence covering those activities; and
- Many existing participants will be automatically entitled to an Australian financial services license covering their existing activities (called a streamlined licence) which they can obtain at any time during two years following commencement.
4.28 This approach reflects the rationale that those people who are currently engaging in a particular type of financial services business that will, under the proposed FSR Act, require a financial services licence should be given up to two years to make the necessary changes that will allow them to comply with the requirements of the FSR regime and to obtain a financial services licence.
4.29 Proposed section 1430 defines who are existing financial services providers (regulated principals), what their pre-commencement activities are (regulated activities) and which provisions (if any) prior to commencement regulated these activities (relevant old legislation).
4.30 These existing participants are holders of: dealers licences, investment advisers licences, futures brokers licences and futures advisers licences under the proposed Corporations Act as well as insurance brokers, bodies regulated by APRA, foreign insurance agents and foreign exchange dealers. There is also provision for regulations to add to these categories of people (item 9 of the table in proposed section 1430).
4.31 Item 9 of the table in proposed section FSL1 includes within the category of regulated principal any other person who prior to commencement carried on activities that after commencement would require them to have a financial services licence. This is intended to ensure that all existing participants who are not currently subject to any existing regulatory regime or are exempt from such a regime gain the benefit of the two-year transitional period.
4.32 However, this does not apply where the person in carrying on those activities was contravening a requirement of a pre-commencement regime (proposed subsection 1430(2)). Therefore, a person who was carrying on a business of dealing in securities without the necessary licence prior to commencement would not gain the benefit of the two-year transitional period.
4.33 Where a person is in more than one of these categories, Subdivision D applies to them separately in relation to each category (proposed subsection 1430(3)). This could result in a person having to comply with the FSR regime in relation to some of their activities and at the same time having to comply with a former regulatory regime (if any) in relation to other activities.
4.34 Proposed section 1431 ensures that Parts 7.6 to 7.8, other than Subdivisions A and B of Division 4 and Division 5, of the proposed FSR Act do not apply to regulated principals and their regulated activities during the transitional period. This ensures that they are not subject to the obligation to obtain an Australian financial services licence during this period. However, this ceases to apply to a person when they are granted a financial services licence covering those activities, are or would be covered by an exemption from holding such a licence or cease to be a regulated principal (for example, because their securities dealers licence is revoked).
4.35 The exclusion of Subdivisions A and B of Division 4 and Division 5 ensures that those provisions dealing with applying for and being granted a licence and with authorising representatives do apply to a person during their transitional period. If this were not the case, they would be unable to apply for and be granted a licence during this period.
4.36 Proposed subsection 1431(2) deals with how Division 7 of Part 7.6 applies to a person who is still in their transitional period. It is intended to ensure that a person can do any of the things provided for in that Division prior to actually becoming a licensee, with the result that those things do not take effect until their licence is granted. Therefore, a person currently carrying on a financial services business who applies for a licence can, for example, give authorisations to those people who they will need to authorise before they are actually granted their licence. This could be used by a financial services provider to remove the possibility that there could be a gap between when they are granted their licence and when they can authorise their representatives. Otherwise, there could be a period of time when those representative were unable to provide services on behalf of the licensee. It will allow for a seamless transition from an existing regime to the FSR regime.
4.37 Proposed subsection 1431(3) provides that where an exemption or licence that a regulated principal acquires during the transitional period under subsection (1) covers only part of a regulated principals activities, that principal continues to be exempt from Parts 7.6-7.8 in relation to the remainder of their regulated activities.
4.38 Proposed section 1432 provides that for a regulated principal, their previous regulatory regime (the relevant old legislation as set out in 1430, which generally also include any associated provisions) continues to apply until they become subject to Parts 7.6-7.8 (see proposed subsection 1432(2)). These provisions would include provisions allowing the principal to appoint and remove representatives. This previous regime continues to apply not only to the regulated principal but also, where necessary, to other people (see proposed paragraph 1432(1)(b)). This ensures that where obligations are placed on other people in relation to the regulated principal, those other people will still be subject to these obligations.
4.39 Proposed section 1433 provides the mechanism for some existing licensees to automatically obtain a licence covering their existing activities. The purpose of this mechanism is to provide a simpler and more appropriate method for those existing participants who wish only to continue to engage in their existing activities to obtain a licence without going through the entire licensing process.
4.40 A person who obtains such a licence and wishes to then extend the financial services that they can provide, would have to apply for a variation to the conditions on their licence in the usual manner.
4.41 This avenue is only available to those existing participants who are already subject to a consumer protection licensing regime, those who are currently not but are, for example, prudentially regulated or are not subject to any regulation at all must obtain a licence using the normal process. It also does not include people who are exempted participants under proposed section 1419.
4.42 There is provision for regulations to exclude certain classes of people from obtaining a streamlined licence (proposed subparagraph 1433(1)(a)(ii) and subsection 1433(3)). This will allow categories of people to be excluded by regulations if it is appropriate that their applications be subject to scrutiny by ASIC.
4.43 Applications for streamlined licences must include a statement by the licensee in which they state that they will comply with their obligations as a financial services licensee (proposed paragraph 1433(2)(b)). The purpose of this requirement is to ensure that those applying for streamlined licences appreciate that although they are entitled to such a licence, it will entail a change in the obligations to which they are subject.
4.44 In issuing a streamlined licence ASIC does not have any discretion and must grant the licence if it is made in accordance with proposed section 913A (proposed paragraph 1433(2)(c)). ASIC must impose a condition on the licence specifying the financial services that the licensee can provide and these must be as close a possible to regulated activities of the applicant (see paragraph 1433(2)(d)). ASIC can, however, at the time of issue, or at a subsequent time, impose additional conditions on the licence in the normal manner.
4.45 Proposed section 1434 will give insurance agents who represent more than one principal (multi-agents as defined in proposed subsection 1434(1)) the option of applying for a special type of financial services licence (called a qualified licence) during the two year transitional period.
4.46 In order to be eligible for such a licence a person must have been a multi-agent immediately prior to commencement of the proposed FSR Act and apply for the licence either while they are still an agent for one of their insurers or within six months of ceasing to be an agent for any one of those insurers (proposed subsection 1434(2)).
4.47 This qualified licence will not require the applicant to comply with paragraphs 912A(e) or (f) of the proposed FSR Act either at the time the licence is issued or subsequently (proposed paragraph 1434(2)(d) and subparagraph 1434(3)(a)(i)). These provisions require a licensee to maintain the competence to provide financial services and to ensure that their representatives are adequately trained and competent to provide the financial services.
4.48 Qualified licences will expire at the end of the two-year transitional period. A person who held such a licence would then have to apply for a normal licence which would require them to meet the competency standards.
4.49 A qualified licence will only cover dealing and providing advice in relation to risk insurance and investment life insurance products (proposed paragraph 1434(2)(e)) and cannot be extended to other products (proposed paragraph 1434(3)(b)). In addition, the Financial Services Guide provided by these licensees and their authorised representatives would have to disclose the fact that they have a qualified licence and do not have to meet competency standards (proposed subparagraph 1434(3)(a)(ii)).
4.50 The purpose of qualified licences is to facilitate the transition for multi-agents who decide that they want to continue providing financial services under the FSR regime not as an agent but as a principal. A qualified licence will provide these agents with the necessary time to meet the competency requirements normally imposed on licensees.
4.51 Proposed section 1435 deals with applications for licences made during the transitional period. The purpose of this provision is to clarify that ASIC can take into account certain factors when considering such applications. Specifically, it provides that where the applicant, or a related body corporate of the applicant, is currently providing financial services that are the same as or are similar to those to which the application relates, ASIC may consider the conduct and experience of that body when determining whether or not to grant the applicant a licence. For example, ASIC could (if it wished) then rely on this previous experience and conduct in determining that it has no reason to believe that the applicant will not fulfil its obligations as a licensee.
4.52 ASIC may, however, take any other factors into account when considering such an application. This provision is intended only to clarify and highlight particular factors, which ASIC may choose to take into account and in no way limits other factors which ASIC may want to consider (proposed subsection 1435(3)).
4.53 However, this proposed section does not apply to an application for a streamlined licence as ASIC has not discretion in determining whether or not to grant a streamlined licence.
4.54 This provision will be of particular use where a corporate group wants to re-structure in such a way that different bodies will hold licences but the overall scope of the financial services offered by the group remains unchanged. In such circumstances the various bodies would be ineligible for streamlining under proposed section 1433, but proposed section 1435 enables ASIC to consider their previous activities in granting them licenses. It will also be of use where people wish to obtain a licence for activities which prior to the FSR regime do not require any form of licence or approval. Again, in these circumstances they would not be eligible for a streamlined licence.
4.55 Proposed section 1436 deals with the treatment of representatives of financial service providers during the transitional period.
4.56 The general approach is that in the transitional period a representative (the agent) of a financial service provider (the principal) will be able to continue to act on behalf of that principal until the principal transitions into the FSR regime. However, once the principal moves into the FSR regime, their representatives will cease to be covered by any relevant old legislation and will also have to comply with the FSR regime. A principal may then need to authorise their former representatives if those representatives are to continue to act on behalf of the principal.
4.57 A representative is any agent of a regulated principal and can include employees or directors of the principal (proposed subsection 1436(1)).
4.58 For any such representative, Parts 7.6-7.8 do not apply to that representative (proposed subsection 1436(2)) in relation to those activities to which those provisions also do not apply to the representatives principal and for which the representative acts as an agent of the principal. Similarly, relevant old legislation that apply to the representatives principal and which relate to activities for which the representative acts for or on behalf of the principal also apply to that representative (proposed subsection 1436(3)).
4.59 ASIC will have the power to make exemptions and modifications to the provisions in proposed Subdivision D (proposed section 1437). These powers have been included to ensure that ASIC is able to modify the application of provisions in this subdivision where they would otherwise produce an undesirable result. It may, for example, be necessary to apply certain provisions differently in relation to specific categories of people in order to achieve an outcome that is consistent with the overall objective of these provisions. The inclusion of such powers is particularly desirable in the context of the very wide range of people who may be subject to the FSR licensing provisions and the different circumstances which might apply to them.
4.60 The exemption and modification powers apply to all provisions in proposed Subdivision D and any provisions that make up a former regime which may continue to apply to a person in the transitional period under this subdivision (proposed subsection 1437(1)).
4.61 ASICs power under this provision extends to exempting people from provisions and modifying their effect in relation to people. This can include extending the two year transitional period (proposed paragraph 1437(3)(a)). However, it is envisaged that this will occur only in very limited situations such as where circumstances beyond the control of the relevant person necessitate the extension of their transitional period. Exemptions and modifications cannot result in the application of provisions to people to whom that they would not otherwise apply (proposed paragraph 1437(3)(a)).
4.62 Exemptions and modifications can be made subject to conditions that can be enforced by a Court on the application of ASIC.
4.63 Modifications and declarations must be in writing and be notified in the Gazette. In order for a person to be convicted of an offence due to the effect of an exemption or modification, ASIC must have notified the person concerned in writing or the declaration must have been made available on the Internet by ASIC. This ensures that people are not subject to prosecution for offences that they could not have been aware of.
4.64 The general approach to the application of Part 7.9 is:
- For new products, Part 7.9 will apply from commencement;
- For existing products, Part 7.9 will not apply for a period of up to two years. The product issuer can elect when during this period Part 7.9 begins to apply; and
- A limited number of provisions in Part 7.9 will apply immediately on commencement to all products.
4.65 Proposed subsection 1438(1) defines the products to which this subdivision applies. These are all financial products other than financial products which are in a class first issued by a product issuer after FSR commencement. As discussed in paragraph 4.8, regulations may deal with the precise meaning of class of financial products. Therefore, where a product issuer continues to offer products of a type that they offered prior to commencement, these are included in these transitional arrangements. However, where they issue products in a particular class for the first time after commencement, then they will be subject to Part 7.9 immediately.
4.66 Proposed subsection 1438(2) defines those provisions in Part 7.9 which are the new product disclosure provisions. Those provisions are all the provisions of Part 7.9 other than a small number related to: the provision of information to existing holders of superannuation and retirement savings account (RSA) products, dealing with money, confirmation of transactions, cooling-off periods, short selling and contracting out of Part 7.9. These are all provisions which can apply immediately on commencement without requiring the significant alterations needed to justify a transitional period.
4.67 Proposed subsection 1438(3) provides that the new product disclosure provisions do not apply to existing financial products for a period of up to two years beginning on commencement of the proposed FSR Act and ending when the product issuer lodges a notification with ASIC indicating that they wish to opt in in relation to that product (that is, they want all the new product disclosure provisions to begin to apply to that financial product) (proposed paragraph 1438(3)(b)). The date specified in such a notice must be at least 28 days after the date on which the notice is lodged (proposed subparagraph 1438(3)(b)(ii)).
4.68 Product issuers may lodge an opt in notice prior to commencement and they can decide to dispense with the transitional period entirely if they wish. They can do this by lodging an opt in notice specifying commencement as the opt in date (proposed subsection 1438(4)).
4.69 To provide product issuers with flexibility in deciding when to opt in this notification can be amended or revoked up to 28 days before the time it begins to apply. Such a variation or revocation must be lodged in writing with ASIC (proposed subsection 1438(5)).
4.70 ASIC may make determinations setting out the steps which a product issuer who has opted in must take to notify people that they have opted in (proposed subsection 1438(6)). These determinations may specify different requirements for different classes of financial products and are subject to disallowance (proposed subsection 1438(7)).
4.71 ASIC must then take reasonable steps to ensure that information about such opt in notices and any subsequent variations or revocations is available at their offices and on the Internet for the duration of the transitional period (proposed subsection 1438(8)). This will ensure that information about what regime a particular financial product is subject to will be publicly available.
4.72 Proposed section 1439 deals with when a person may be liable for an offence against or based on a provision of Part 7.9 of the proposed FSR Act during the transitional period.
4.73 Where Part 7.9 applies to a financial product because the relevant product issuer has lodged an opt in notice then for an offence against or based on proposed Part 7.9 the prosecution must prove one of two additional elements, either:
- The defendant knew or was reckless as to whether the relevant product issuer had opted in in relation to that product (proposed paragraph 1439(1)(c)); or
- The defendant did not know and was not reckless about the opting in arrangements for that product, but the conduct would still have contravened a provision of the former regime (if any) that applied to that product (proposed paragraph 1439(1)(d)).
4.74 The purpose of this provision is to ensure that people who do not know and have not been reckless about whether or not the proposed Part 7.9 applies to a financial product are not convicted of offences against the new regime. However, this does not apply where the conduct would also have contravened the former regime. The prosecution effectively has a choice of which situation it will attempt to prove. The result is that where the defendant did not know and was not reckless about whether an opt in had taken place and continued to comply with regime that used to apply, they will not be guilty of an offence under proposed Part 7.9 during the transitional period.
4.75 During the transitional period, while a financial product is not subject to the FSR regime in Part 7.9, the existing regime (if any) for that product continues to apply (proposed section 1440). These regimes are any relevant old legislation and their associated provisions which imposed disclosure requirements in relation to those products.
4.76 When a product issuer has opted in in relation to a financial product, Part 7.9 of the FSR regime will apply to that product. This has the effect of then applying Part 7.9 not just to the product issuer but also to any other person on whom those provisions apply to (for example by placing obligations, rights or liabilities on them). This includes all regulated persons as defined in section 1011B of the proposed FSR Act. However, during the transitional period, many people will not fall within the definition of regulated person as they will still be subject to their existing regime. To overcome this difficulty proposed section 1441 provides that regulated principals and their representatives must comply with Part 7.9 as if they were regulated persons. Therefore, a person who in their transitional period and has not yet obtained an Australian financial services licence will still have to comply Part 7.9 in relation to new products or those products for which the product issuer has opted in.
4.77 ASIC has the power to make exemptions and modifications to the provisions in Subdivision E (see proposed section 1442). These powers have been included to ensure that ASIC is able to modify the application of provisions in this subdivision where they would otherwise produce an undesirable result. It may, for example, be necessary to apply certain provisions differently in relation to specific categories of people or products in order to achieve an outcome that is consistent with the overall objective of this subdivision. The inclusion of such powers is particularly desirable in the context of the very wide range of financial products that are subject to the product disclosure provisions in the proposed FSR Act and the range of people who will be affected by the application of these provisions.
4.78 The exemption and modification powers in proposed section 1442 are based on those applying to Subdivision D (see paragraphs 4.59 to 4.63 above).
4.79 Proposed Division 2 provides the mechanism for dealing with issues related to how a person moves from their existing regime (if any) to the FSR regime as discussed above in paragraph 4.3. It is proposed that matters of this nature will be able to dealt with either by regulations or through determinations made by ASIC.
4.80 While it is envisaged that significant transitional matters will be dealt with by regulation prior to the commencement of the new regime, there is still considerable scope for transitional issues to emerge subsequently. This is due to the wide ambit of the FSR regime and the range of existing regimes that are being replaced by it. These provisions will ensure that ASIC is able to respond in an appropriate and timely manner to particular transitional issues that emerge during the transitional period.
4.81 In addition, many of these issues may be confined to individuals or particular classes of individuals who may face a particular issue or difficulty in transitioning into the FSR regime. Such issues which are confined to a limited group of people are more efficiently and appropriately dealt with in determinations made by ASIC than by regulations.
4.82 Generally regulations under proposed section 1444 may deal with transitional, saving or application matters related to the transition from a former regime to the FSR regime. In particular, these regulations may deal with the fact that because of the phase in transitional provisions, different parts of the new regime may apply to different people at different times. This is intended to deal with situations where a number of people interact with each other when some of them are subject to the new regime and others are subject to existing regimes. Similar situations may arise where a single person has to comply with some aspects of the new regime (for example, Part 7.9 relating to product disclosure) and aspects of an old regime (parts of the pre-FSR Corporations Act because the person has not yet gained a financial services licence).
4.83 Regulations made under proposed section 1444 cannot, however, override the provisions in Division 1 relating to the phasing-in of the transitional arrangements or regulations and determinations made under provisions of Division 1. Sufficient flexibility in the application of those provisions is provided for in Division 1 through a number of regulation making powers and, in some cases, ASIC exemption and modification powers. However, regulations under this section could add to or deal with additional matters similar to the subject matter in Division 1 provided they were not inconsistent with it.
4.84 Proposed subsection 1444(3) clarifies the flexible nature of these regulations by providing that they may deal with transitional issues in a number of ways, including by specifying rules or applying provisions of Commonwealth laws including repealed laws.
4.85 Proposed subsection 1444(4) allows the regulations to provide that certain things or instruments continue to have effect after the commencement of the proposed FSR Act, subject to any specified modifications. In addition, the regulations can provide for the identification of these things and instruments, the purpose for which they continue to have effect and any modifications to be determined by a particular person. This provision is necessary to ensure that a range of things and instruments (for example, exemptions and modifications by ASIC) can be easily preserved without a need for them to be individually redone or remade. Proposed subsection 1444(5) ensures that the individual identification and modification of these things or instruments can be done by a specified individual and does not have to be done by regulation. Otherwise, it might be necessary for regulations to specify a significant degree of detail that would be cumbersome and might considerably reduce the speed with which transitional issues can be addressed.
4.86 Regulations made under these provisions can be retrospective (proposed subsection 1444(6)). Although it is not envisaged that this be done frequently, the ability to do this is necessary in cases where a transitional issue or difficulty might only become apparent after a particular event. In these situations it may be necessary for regulations to be retrospective in order for them to be able to effectively remedy the issue.
4.87 Proposed section 1445 allows for ASIC to make determinations dealing with transitional issues. Subject to the following matters, these determinations have the same scope and may deal with issues in the same manner as regulations made under proposed section 1444.
4.88 Determinations are subject to disallowance (proposed subsection 1445(2)). This is appropriate because of the significant potential scope and subject matter of determinations and will ensure that they are subject to an appropriate level of scrutiny.
4.89 Determinations will be able to override inconsistent regulations made under propose section 1444 but not where the regulations specifically provide that they are to have effect despite any determinations.
Consequential amendments to other Commonwealth legislation
5.1 The Bill will repeal provisions currently contained in the existing regulatory framework that will be replaced by the new licensing, conduct and disclosure regime in the proposed FSR Act.
5.2 These provisions are contained in the SIS Act, the RSA Act, IABA, the Insurance Act 1973 and the Insurance Contracts Act 1984.
5.3 The Bill repeals Parts 18 and 20 as well as most of Part 19 (other than sections 151, 152, 154 and 155) of the SIS Act. These provisions will be replaced by Parts 7.9 and 7.10 of the proposed Corporations Act (as inserted by the proposed FSR Act). The Bill will also repeal or make consequential amendments to definitions and other provisions in the SIS Act that refer to those provisions that will be repealed by this Bill.
5.4 The replacement of misconduct and disclosure provisions currently contained in Parts 18 to 20 of the SIS Actwith those proposed in Chapter 7 of the proposed Corporations Act requires consequential amendments to the provisions of Part 5 of the SIS Act, which deals with complying fund status.
5.5 Under the current arrangements, superannuation entities may be granted complying fund status if the relevant trustee did not contravene the SIS Act or the SIS Regulations in relation to the entity in respect of the year of income (or the trustee contravened the Act or the Regulations but did not fail the relevant culpability test).
5.6 The Bill will amend Part 5 so that superannuation entities may be granted complying fund status if the relevant trustee does not contravene a regulatory provision (or contravenes a regulatory provision but does not fail the relevant culpability test). The term regulatory provision in relation to a superannuation entity will be defined in proposed new section 38A of the SIS Act as a provision of the SIS Act or the SIS Regulations, a provision of the proposed Financial Sector (Collection of Data) Act 2001, and specified offence provisions that will be contained in Parts 7.9 and 7.10 of the proposed Corporations Act.
5.7 The proposed Superannuation Legislation Amendment (Choice of Superannuation Funds) Ac 2001 will make a number of amendments to provisions of the SIS Act that will be replaced by the new arrangements in the proposed FSR Act. For this reason the Bill will include provisions to repeal those provisions of the Superannuation Legislation Amendment (Choice of Superannuation Funds) Act 2001 that will no longer be required following enactment of the proposed FSR Act.
5.8 The Bill will repeal sections 45 and 51 as well as Divisions 4, 5, 6 and 7 of Part 5 of the RSA Act. It will also repeal Part 7 (apart from sections 74 and 78, which relate to improper conduct in the provision of RSAs). The repealed provisions will be replaced by Parts 7.9 and 7.10 of the proposed Corporations Act. The Bill will also repeal or amend other provisions in the RSA Act that refer to those provisions that will be repealed by this Bill.
5.9 Section 182 of the RSA Act enables the Regulator to provide a written direction to an RSA institution not to accept any contributions made to RSAs by a specified employer. The Regulator must not give such a direction unless the RSA institution has contravened the RSA Act or the RSA Regulations on one or more occasions and the Regulator is also satisfied that the seriousness or frequency of the contraventions warrants the giving of the direction.
5.10 In line with proposed amendments to Part 5 of the SIS Act, the Bill will amend paragraph 182(2)(a) and subsection 182(4) of the RSA Act to insert references to the contravention of a regulatory provision. The concept of a regulatory provision in relation to an RSA institution will be defined in proposed subsection 182(1A) as a provision of the RSA Act or RSA Regulations, a provision of the proposed Financial Sector (Collection of Data) Act 2001 and specific offence provisions that will be contained in Parts 7.9 or 7.10 of the proposed Corporations Act.
5.11 The Bill will repeal the Insurance (Agents and Brokers) Act 1984 in its entirety. Following the enactment of the proposed FSR Act, insurance agents and brokers will each be subject to regulation under the licensing, conduct and disclosure regime that will be contained in Chapter 7 of the proposed Corporations Act.
5.12 The Bill will repeal section 113 of the Insurance Act 1973, which requires insurers to comply with any relevant codes of practice that have been approved by ASIC. Following enactment of the proposed FSR Act, all financial services licensees, as well as product issuers that are not licensees, will be required to provide retail clients with access to internal and external dispute resolution schemes that are approved by ASIC.
5.13 In addition, section 1101A of the proposed CorporationsAct will enable ASIC to approve codes of conduct relating to financial services licensees and issuers of financial products that are not licensees.
5.14 The Bill will repeal sections 64, 64A and 64B of the Insurance Contracts Act 1984, which deal with the provision of cooling-off periods in relation to consumer credit insurance and certain contracts of life insurance. Following the proposed FSR Acts enactment, these provisions will be replaced by Division 5 of Part 7.9 of the proposed Corporations Act.
5.15 The Bill will also repeal section 71A, which contains requirements governing disclosure in relation to consumer credit insurance and other contracts of insurance of a kind prescribed in the relevant regulations. These provisions will be replaced by the disclosure requirements that will be contained in Part 7.9 of the proposed CorporationsAct.
5.16 Finally, the Bill will repeal section 73, which imposes disclosure obligations on suppliers in relation to contracts of insurance arranged in connection with the supply of goods and services.
5.17 Following the enactment of the proposed FSR Act, the activity of arranging contracts of insurance will fall within the definition of a financial service contained in Division 4 of Part 7.1 of the proposed Corporations Act. This is because proposed section 766C provides that the definition of dealing in relation to a contract of insurance that is a financial product includes arranging for a person to apply for or acquire the contract of insurance that is a financial product.
5.18 As a consequence, the activity of arranging contracts of insurance in connection with the supply of goods and services will become subject to regulation under Chapter 7 of the proposed Corporations Act.
5.19 With the repeal of IABA and the coverage of marine insurance brokers by regulatory regime in the proposed FSR Act, it is necessary to repeal sections 59 and 60 of the Marine Insurance Act 1909 to avoid unnecessary duplication of regulation.
5.20 Amendments to the Administrative Decisions (Judicial Review) Act 1977 will ensure that:
- decisions of the Securities Exchanges Guarantee Corporation under Part 7.5 (compensation arrangements); and
- decisions by the Minister under Division 1 of Part 7.4 (the 15 per cent voting power limitation on prescribed market and clearing and settlement facility licensees)
are not subject to review under that Act.
5.21 The enactment of the new regulatory regime in the proposed FSR Act will have important implications for other Commonwealth legislation that contains references to current Corporations Law concepts and definitions that will replaced under the new framework (such as securities dealer or exempt special stock market).
5.22 The Bill therefore inserts new definitions in a number of Commonwealth statutes where current definitions and concepts will become redundant following the enactment of the proposed FSR Act. It also replaces current cross-references in other Commonwealth legislation to provisions in existing regulatory frameworks governing the superannuation, RSA and insurance industries that will be repealed following the proposed FSR Acts enactment with new cross-references to replacement regulatory provisions. The objective of these consequential amendments is to maintain the current effect of the existing provisions.
Amendments to the Corporations Act 2001 consequential to income tax remittance provisions
6.1 Proposed items 219 to 222 of Schedule 1 to the Bill will amend provisions of the proposed Corporations Act, which refer to remittance provisions of the income tax law, to make necessary amendments consequential to the introduction of the Division 1AAA of Part VI of the Income Tax Assessment Act 1936 (ITAA) (enacted by Taxation Laws Amendment Act (No.3) 1998). The amendments insert references to sections 220AAE, 220AAM and 220AAR of the Income Tax Assessment Act 1936 (the Division 1AAA remittance provisions) into each of sections 443BA, 459E, 588F and 588FGA of the proposed Corporations Act.
6.2 The amendments commence to apply from the date of commencement of the Corporations Act.
6.3 The Taxation Laws Amendment Act (No. 3) 1998 introduced new rules for the remittance of amounts to the Commissioner of Taxation, collected from 1 July 1998 to 30 June 2000 under the pay as you earn (PAYE), prescribed payments system (PPS) and the reportable payments system (RPS) collection systems. The specific provisions are sections 220AAE, 220AAM and 220AAR of the ITAA. Four necessary consequential amendments to the Corporations Law were not made as part of the amendments.
6.4 The provisions of the Corporations Law that were not consequentially amended are subsection 443BA(1) (certain tax liabilities) and sections 459E (creditor may serve statutory demand on company), 588F (certain taxation liabilities to be taken as debts) and 588FGA (directors to indemnify Commissioner of Taxation if certain payments set aside). The Corporations Law is being repealed as part of the process for the introduction of the proposed Corporations Act. This means that the amendments may now only be made to the equivalent provisions of the proposed Corporations Act.
6.5 Subsection 443BA(1) of the proposed Corporations Act provides that an administrator of a company is liable to pay to the Commissioner of Taxation amounts that are payable under a remittance provisions. These remittance provisions are defined in subsection 443BA(2) to be certain withholding provisions of the ITAA. Subsection 443BA(2) of the Corporations Act 2001 is amended to also refer to the remittance provisions in Division 1AAA of Part VI of the ITAA, sections 220AAE, 220AAM and 220AAR (see proposed item 219).
6.6 The amendment to section 443BA will be prospective in order that no retrospective liability is imposed on administrators. It is expected that most administrators would have made the necessary payments to the Commissioner in discharging their duties as adminstrators. Situations where there may have been a failure by an administrator to meet obligations to pay amounts withheld from 1 July 1998 to 30 June 2000, prior to the commencement of the Corprations Act 2001, are a separate issue that is not addressed by these amendments.
6.7 Section 459E of the proposed Corporations Act provides that a creditor may serve a statutory demand on a company relating to a debt. Section 588F of the proposed Corporations Act provides that a companys liability under a remittance provision to pay the Commissioner of Taxation an amount equal to a deduction from a payment made by the company, is a debt incurred when the deduction was made. Subsections 459E(5) and 588F(2) are clarifying provisions for the avoidance of doubt that list specific provisions to which the rules are to apply, including income tax remittance provisions. Subsections 459E(5) and 588F(2) of the Corporations Act 2001 are amended to also refer to the remittance provisions in Division 1AAA of Part VI of the ITAA (see proposed items 220 and 221).
6.8 As the lists of remittance provisions provided by sections 459E and 588F are not exclusive, the rules the application of which is clarified would apply in the absence of the references. The present amendments will reinstate the clarification of the law from the commencment of the proposed Corporations Act.
6.9 Section 588FGA of the proposed Corporations Act provides that the directors of a company are to indemnify the Commissioner if a Court makes an order under section 588F because of the payment of an amount under certain remittance provisions of the ITAA. Subsection 588FGA(1) of the proposed Corporations Act is amended to also refer to the remittance provisions in Division 1AAA of Part VI of the ITAA. The amendment to section 588FGA will be prospective only in order that no retrospective liability to indemnify the Commissioner is imposed on directors (see proposed item 222).