Corporations Amendment Regulations 2010 (No. 4) (89 of 2010)

Schedule 1   Amendments

[11]   After regulation 7.8.08

insert

7.8.08A Limit of margin lending facility taken to be increased

(1) For paragraph 985E (3) (a) of the Act, the limit of a margin lending facility is taken to be increased, despite subsection 985E (2) of the Act, if:

(a) the increase is a result of a contribution of further secured property or transferred securities that occurs without the prior knowledge or agreement of the provider; and

(b) the provider permits the increase to continue; and

(c) the increase is no more than 5% of the current limit of the margin lending facility (within the meaning given by subsection 761EA (11) of the Act).

(2) If the limit of a margin lending facility is taken to be increased in the circumstances mentioned in subregulation (1), subsection 985E (1) of the Act is modified by omitting ‘before the critical day:’ and inserting ‘after the critical day:’.

Note Paragraph 992C (1) (c) of the Act provides that the regulations may provide that Part 7.8 of the Act applies as if specified provisions were omitted, modified or varied as specified in the regulations.

(3) For subregulation (1), if:

(a) more than one contribution of further secured property or transferred securities under the margin lending facility occurs on a day; and

(b) each of the contributions is taken to increase the limit of the facility; and

(c) either:

(i) the cumulative increase is no more than 5% of the current limit of the margin lending facility; or

(ii) if the cumulative increase is more than 5% of the current limit of the margin lending facility, the provider ensures that the increases are reduced so that the cumulative increase becomes no more than 5% of the current limit of the margin lending facility;

the increases are taken to be one increase for this regulation.

Increase prior to assessment only to occur once

(4) Subregulation (5) applies if:

(a) the limit of a margin lending facility is taken to be increased in the circumstances mentioned in subregulation (1); and

(b) an assessment has not yet been made in accordance with section 985F of the Act.

(5) If the limit of the margin lending facility would be taken to increase further in accordance with subregulation (1):

(a) the limit is taken not to be further increased until:

(i) an assessment has been made in accordance with section 985F of the Act; and

(ii) it is assessed that the facility will not be unsuitable for the client if the limit is increased; and

(b) the provider must ensure that the increase does not continue unless paragraph (a) permits it.

If facility assessed as unsuitable

(6) If:

(a) the limit of a margin lending facility is taken to be increased in the circumstances mentioned in subregulation (1); and

(b) the assessment made in accordance with section 985F of the Act assesses that the facility is unsuitable for the client because of the increased limit;

the limit is taken to be reduced to the limit of the margin lending facility before the increase, and the provider must ensure that the limit is reduced within 90 days of the day the assessment is made.

Facility not unsuitable for subsection 985K (4) of the Act

(7) For subsection 985K (4) of the Act, a margin lending facility is taken not to be unsuitable if:

(a) the limit of the margin lending facility is taken to be increased in the circumstances mentioned in subregulation (1); and

(b) the assessment made in accordance with section 985F of the Act assesses that the facility:

(i) is not unsuitable for the client; or

(ii) is unsuitable for the client because of the increased limit; and

(c) in the case of subparagraph (b) (ii), the provider ensures that the limit is reduced, within 90 days of the day the assessment is made, to the limit of the margin lending facility before the increase.

7.8.08B Exemption from requirement to make unsuitability assessment

(1) For paragraph 992C (1) (a) of the Act, a person is exempt from the requirement in paragraph 985E (1) (c) of the Act to make an assessment if the margin lending facility mentioned in paragraph 985E (1) (a) or (b) of the Act is a facility mentioned in subregulation (2):

(a) in respect of the full amount of the loan, including any interest, fees and charges; and

(b) in relation to which the client has not taken out a loan to fund the secured property contributed by the client for establishing the margin lending facility.

(2) For subregulation (1), the facility is a standard margin lending facility (within the meaning given by subsection 761EA (2) of the Act) under the terms of which:

(a) the credit provided must be applied wholly:

(i) to acquire one or more marketable securities, or a beneficial interest in one or more marketable securities; or

(ii) to repay another credit facility, under the terms of which the credit provided was applied wholly to acquire one or more marketable securities, or a beneficial interest in one or more marketable securities; and

(b) the secured property mentioned in paragraphs (c) and (d) of that subsection:

(i) consists wholly of one or more marketable securities, or a beneficial interest in one or more marketable securities; or

(ii) consists:

(A) partly of one or more marketable securities, or a beneficial interest in one or more marketable securities; and

(B) partly of cash given to the provider and held in trust for the client for the sole purpose of servicing obligations under the facility; and

(c) the liability of the client to the provider is limited to the rights relating to the secured property.

7.8.09 Reasonable inquiries etc about retail client: inquiries

(1) For paragraph 985G (1) (c) of the Act, the following inquiries about a client are prescribed in relation to a margin lending facility, or a margin lending facility whose limit is proposed to be increased, within the meaning of subsection 761EA (1) of the Act:

(a) reasonable inquiries as to whether the client has taken out a loan to fund the secured property or transferred securities contributed by the client for establishing the margin lending facility;

Note This is sometimes referred to as ‘double gearing’.

(b) if a loan to fund the secured property or transferred securities contributed by the client for establishing the margin lending facility has been taken out - reasonable inquiries as to whether the security for the loan includes the primary residential property of the client;

(c) if there is a guarantor for the margin lending facility - reasonable inquiries as to whether the guarantor has been appropriately informed of, and warned about, the risks and possible consequences of providing the guarantee;

(d) reasonable inquiries as to the amount of any other debt incurred by the client;

(e) any other matter that ASIC has specified in a legislative instrument for subregulation (2).

(2) ASIC may specify in a legislative instrument any matter ASIC considers to be relevant for the purpose of establishing whether the margin lending facility, or the margin lending facility with the increased limit, is unsuitable for the client.

7.8.09A Modification of section 985G of the Act

For paragraph 992C (1) (c) of the Act, Part 7.8 of the Act applies as if section 985G of the Act were modified by inserting after subsection (2) the following subsection:

‘(2A) The regulations may provide that ASIC may specify in a legislative instrument matters ASIC considers to be relevant for the purposes of paragraph 985G (1) (c) of the Act.’

7.8.10 Circumstances in which margin lending facility is unsuitable

For paragraph 985H (2) (b) of the Act, a margin lending facility, or a margin lending facility whose limit is proposed to be increased, within the meaning of subsection 761EA (1) of the Act is unsuitable for a retail client if the client:

(a) is, on an ongoing basis, unable to be contacted by any of the usual means of communication; and

(b) has not appointed an agent to act on the client’s behalf.

7.8.10A Margin lending facility taken not to be unsuitable

For subsection 985K (4) of the Act, a margin lending facility is taken not to be unsuitable:

(a) if:

(i) an assessment of unsuitability was undertaken in accordance with the Act; and

(ii) the assessment reasonably concluded that the margin lending facility is not unsuitable; or

(b) if a person is exempt under regulation 7.8.08B from the requirement to make an assessment of unsuitability in relation to the margin lending facility.