Financial Services Reform Act 2001 (122 of 2001)
Schedule 1 Financial Services and Markets
Part 1 Main amendments
Corporations Act 2001
1 Chapter 7 - Part 7.2 - Division 3
Division 3 - Regulation of market licensees
Subdivision A - Licensee’s obligations
792A General obligations
A market licensee must:
(a) to the extent that it is reasonably practicable to do so, do all things necessary to ensure that the market is a fair, orderly and transparent market; and
(b) comply with the conditions on the licence; and
(c) have adequate arrangements (whether they involve a self-regulatory structure or the appointment of an independent person or related entity) for supervising the market, including arrangements for:
(i) handling conflicts between the commercial interests of the licensee and the need for the licensee to ensure that the market operates in the way mentioned in paragraph (a); and
(ii) monitoring the conduct of participants on or in relation to the market; and
(iii) enforcing compliance with the market’s operating rules; and
(d) have sufficient resources (including financial, technological and human resources) to operate the market properly and for the required supervisory arrangements to be provided; and
(e) if section 881A requires there to be compensation arrangements in relation to the market that are approved in accordance with Division 3 of Part 7.5 - ensure that there are such approved compensation arrangements in relation to the market; and
(f) if the licensee is a foreign body corporate - be registered under Division 2 of Part 5B.2; and
(g) if the licence was granted under subsection 795B(2) (overseas markets) - both:
(i) remain authorised to operate a financial market in the foreign country in which the licensee’s principal place of business is located; and
(ii) get the Minister’s approval under section 792H before that principal place of business becomes located in any other foreign country; and
(h) if the licensee, or a holding company of the licensee, is a widely held market body (within the meaning of Division 1 of Part 7.4) - take all reasonable steps to ensure that an unacceptable control situation (within the meaning of that Division) does not exist in relation to the body; and
(i) take all reasonable steps to ensure that no disqualified individual becomes, or remains, involved in the licensee (see Division 2 of Part 7.4).
792B Obligation to notify ASIC of certain matters
(1) A market licensee must give written notice to ASIC, as soon as practicable, if it becomes aware that it may no longer be able to meet, or has breached, an obligation under section 792A. If ASIC considers it appropriate to do so, ASIC may give the Minister advice about the matter.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) A market licensee must give written notice to ASIC, as soon as practicable, as required by the following paragraphs:
(a) if the licensee provides a new class of financial service incidental to the operation of the market, the licensee must give notice that includes details of the new class;
(b) if the licensee takes any kind of disciplinary action against a participant in the market, the licensee must give notice that includes:
(i) the participant’s name; and
(ii) the reason for and nature of the action taken;
(c) if the licensee has reason to suspect that a person has committed, is committing, or is about to commit a significant contravention of the market’s operating rules or this Act, the licensee must give notice that includes:
(i) the person’s name; and
(ii) details of the contravention or impending contravention; and
(iii) the licensee’s reasons for that belief.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(3) If a market licensee becomes aware of:
(a) a matter that the licensee considers has adversely affected, is adversely affecting, or may adversely affect the ability of a participant in the market, who is a financial services licensee, to meet the participant’s obligations as a financial services licensee; or
(b) a matter, concerning a participant in the market who is a financial services licensee, that is of a kind prescribed by regulations made for the purposes of this paragraph;
the market licensee must give a written report to ASIC on the matter and send a copy of it to the participant.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4) A market licensee whose licence was granted under subsection 795B(2) (overseas markets) must, as soon as practicable, give written notice to ASIC if:
(a) the licensee ceases to be authorised to operate a financial market in the foreign country in which the licensee’s principal place of business is located; or
(b) there is a significant change to the regulatory regime applying in relation to the market in the foreign country in which the licensee’s principal place of business is located.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(5) As soon as practicable after:
(a) a person becomes or ceases to be a director, secretary or executive officer of a market licensee or of a holding company of a market licensee (including when a person changes from one of those positions to another); or
(b) a market licensee becomes aware that a person has come to have, or has ceased to have, more than 15% of the voting power in the licensee or in a holding company of the licensee;
the licensee must give written notice of this to ASIC. The notice must include such other information about the matter as is prescribed by regulations made for the purposes of this subsection.
Note 1: To the extent that the licensee is required to give the notice and information under any other provision of this Act, the licensee may comply with this subsection by doing so. It need not provide the same information twice.
Note 2: Failure to comply with this subsection is an offence (see subsection 1311(1)).
792C Giving ASIC information about a listed disclosing entity
(1) If a market licensee makes information about a listed disclosing entity available to participants in the market (whether or not the licensee also makes the information available to anyone else), the licensee must give ASIC the same information as soon as practicable.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) However, the licensee is not required to give ASIC any information of a kind that is excluded by the regulations.
(3) ASIC may require the information to be given in a particular form.
792D Obligation to assist ASIC
(1) A market licensee must give such assistance to ASIC, or a person authorised by ASIC, as ASIC or the authorised person reasonably requests in relation to the performance of ASIC’s functions.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) Such assistance may include showing ASIC the licensee’s books or giving ASIC other information.
792E Obligation to give ASIC access to market facilities
A market licensee must give a person authorised by ASIC such reasonable access to the market’s facilities as the person requests for any of the purposes of this Chapter.
Note: Failure to comply with this section is an offence (see subsection 1311(1)).
792F Annual report
(1) A market licensee must, within 3 months after the end of its financial year, give ASIC an annual report on the extent to which the licensee complied with its obligations as a market licensee under this Chapter.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) The licensee must ensure that the annual report is accompanied by any information and statements prescribed by regulations made for the purposes of this subsection.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(3) The licensee must also ensure that the annual report is accompanied by any audit report that the Minister requires under subsection (4).
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4) The Minister may, by giving written notice to a market licensee, require the licensee to obtain an audit report on the annual report and on any information or statements accompanying it. The Minister must nominate to prepare the audit report:
(a) ASIC; or
(b) a specified person or body that is suitably qualified.
(5) ASIC must give the annual report and accompanying material to the Minister.
792G Obligations to notify people about clearing and settlement arrangements in certain circumstances
(1) If, in relation to a category of transactions, being all transactions or a class of transactions effected through a licensed market, the market licensee:
(a) does not have any clearing and settlement arrangements for transactions in that category; or
(b) has clearing and settlement arrangements for transactions in that category, but they are not arrangements with the operator of a clearing and settlement facility for the clearing and settlement of such transactions through the facility;
the market licensee must, before a person becomes a participant in the market, give the person written advice:
(c) if paragraph (a) applies - that the licensee does not have any clearing and settlement arrangements for transactions in that category, and that it is the responsibility of the parties to such transactions to make their own arrangements for the clearing and settlement of such transactions; or
(d) if paragraph (b) applies - setting out particulars of the clearing and settlement arrangements for transactions in that category.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) Within a reasonable time before a market licensee ceases, in relation to a category of transactions, being all transactions or a class of transactions effected through a licensed market, to have clearing and settlement arrangements (the terminating arrangements ) with the operator of a particular clearing and settlement facility for the clearing and settlement of such transactions through the facility, the market licensee must give the participants in the market written advice:
(a) if the terminating arrangements are not being replaced by any other clearing and settlement arrangements - that the licensee will no longer have clearing and settlement arrangements for that category of transactions, and that it will be the responsibility of the parties to such transactions to make their own arrangements for the clearing and settlement of such transactions; or
(b) if the terminating arrangements are being replaced by new clearing and settlement arrangements - setting out particulars of the new arrangements.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
792H Change of country by foreign licensee
(1) In the case of a licence granted under subsection 795B(2), the Minister may approve the location of the licensee’s principal place of business in a new country only if:
(a) the new country is not Australia; and
(b) the operation of the market in that country will be subject to requirements and supervision that are sufficiently equivalent, in relation to the degree of investor protection and market integrity they achieve, to the requirements and supervision to which financial markets are subject under this Act in relation to those matters.
(2) If, in relation to a licence granted under subsection 795B(2), the licensee’s principal place of business changes to become a place in Australia:
(a) the licence ceases to be in force from the time of the change; and
(b) if the licensee wishes the market to continue to be licensed, the licensee may apply for the grant of a new licence under subsection 795B(1); and
(c) the application must be assessed in accordance with Subdivision A of Division 4, subject to such modifications (if any) of that Subdivision as are set out in regulations made for the purposes of this paragraph.
(3) An application referred to in paragraph (2)(b) may be made in advance of the change of location of the principal place of business, and a decision on the application may be made before that time. However, any licence granted pursuant to the application does not come into force until the change occurs.
792I Making information about compensation arrangements publicly available
A market licensee must take reasonable steps to ensure that information about the compensation arrangements that are in place under Part 7.5 is available to the public free of charge.
Note: Failure to comply with this section is an offence (see subsection 1311(1)).
Subdivision B - The market’s operating rules and procedures
793A Content of the operating rules and procedures
(1) The operating rules of a licensed market must deal with the matters prescribed by regulations made for the purposes of this subsection.
(2) The regulations may also prescribe matters in respect of which a licensed market must have written procedures.
(3) However, subsections (1) and (2) do not apply if the licensee is also authorised to operate the market in the foreign country in which its principal place of business is located and the licence was granted under subsection 795B(2) (overseas markets).
(4) In a subsection (3) case, ASIC may determine, by giving written notice to the licensee, matters in respect of which the licensed market must have written procedures.
793B Legal effect of operating rules
The operating rules (other than listing rules) of a licensed market have effect as a contract under seal:
(a) between the licensee and each participant in the market; and
(b) between a participant and each other participant;
under which each of those persons agrees to observe the operating rules to the extent that they apply to the person and to engage in conduct that the person is required by the operating rules to engage in.
793C Enforcement of operating rules
(1) If a person who is under an obligation to comply with or enforce any of a licensed market’s operating rules fails to meet that obligation, an application to the Court may be made by:
(a) ASIC; or
(b) the licensee; or
(c) the operator of a clearing and settlement facility with which the licensee has clearing and settlement arrangements; or
(d) a person aggrieved by the failure.
(2) After giving an opportunity to be heard to the applicant and the person against whom the order is sought, the Court may make an order giving directions to:
(a) the person against whom the order is sought; or
(b) if that person is a body corporate - the directors of the body corporate;
about compliance with, or enforcement of, the operating rules.
(3) For the purposes of this section, a body corporate that is, with its acquiescence, included in the official list of a licensed market, or an associate of such a body corporate, is taken to be under an obligation to comply with the operating rules of that market to the extent to which those rules purport to apply to the body corporate or associate.
(4) For the purposes of this section, if a disclosing entity that is an undertaking to which interests in a registered scheme relate is, with the responsible entity’s acquiescence, included in the official list of a licensed market, the responsible entity, or an associate of the responsible entity, is taken to be under an obligation to comply with the operating rules of that market to the extent to which those rules purport to apply to the responsible entity or associate.
(5) For the purposes of this section, if a body corporate fails to comply with or enforce provisions of the operating rules of a licensed market, a person who holds financial products of the body corporate that are able to be traded on the market is taken to be a person aggrieved by the failure.
(6) There may be other circumstances in which a person may be aggrieved by a failure for the purposes of this section.
793D Changing the operating rules
Licensed markets other than subsection 795B(2) markets
(1) As soon as practicable after a change is made to the operating rules of a licensed market, other than a market licensed under subsection 795B(2) (overseas markets), the licensee must lodge with ASIC written notice of the change. The notice must:
(a) set out the text of the change; and
(b) specify the date on which the change was made; and
(c) contain an explanation of the purpose of the change.
(2) If no notice is lodged as required by subsection (1) with ASIC within 21 days after the change is made, the change ceases to have effect at the end of that period.
Subsection 795B(2) markets
(3) As soon as practicable after a change is made to the operating rules of a market the operation of which is licensed under subsection 795B(2) (overseas markets), the licensee must lodge with ASIC written notice of the change. The notice must:
(a) set out the text of the change; and
(b) specify the date on which the change was made; and
(c) contain an explanation of the purpose of the change.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
793E Disallowance of changes to operating rules
(1) This section does not apply in respect of an Australian market licence granted under subsection 795B(2) (overseas markets).
(2) As soon as practicable after receiving a notice under section 793D from a market licensee, ASIC must send a copy of the notice to the Minister.
(3) Within 28 days after ASIC receives the notice from the licensee, the Minister may disallow all or a specified part of the change to the operating rules.
(4) In deciding whether to do so, the Minister must have regard to the consistency of the change with the licensee’s obligations under this Part (including in particular the obligation mentioned in paragraph 792A(a)).
Note: The Minister must also have regard to the matters in section 798A.
(5) As soon as practicable after all or a part of a change is disallowed, ASIC must give notice of the disallowance to the licensee. The change ceases to have effect, to the extent of the disallowance, when the licensee receives the notice.
Subdivision C - Powers of the Minister and ASIC
794A Minister’s power to give directions
(1) If the Minister considers that a market licensee is not complying with its obligations as a market licensee under this Chapter, the Minister may give the licensee a written direction to do specified things that the Minister believes will promote compliance by the licensee with those obligations.
(2) The licensee must comply with the direction.
(3) If the licensee fails to comply with the direction, ASIC may apply to the Court for, and the Court may make, an order that the licensee comply with the direction.
(4) The Minister may vary or revoke a direction at any time by giving written notice to the licensee.
794B Minister’s power to require special report
(1) The Minister may give a market licensee a written notice requiring the licensee to give ASIC a special report on specified matters. ASIC must give the report to the Minister.
(2) The notice may also require the licensee to give ASIC an audit report on the special report. The Minister must nominate to prepare the audit report:
(a) ASIC; or
(b) a specified person or body that is suitably qualified.
(3) The licensee must give the special report, and audit report (if any), to ASIC within the time required by the notice.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
794C ASIC to assess licensee’s compliance
(1) ASIC may do an assessment of how well a market licensee is complying with any or all of its obligations as a market licensee under this Chapter. In doing the assessment, ASIC may take account of any information and reports that it thinks appropriate, including information and reports from an overseas regulatory authority.
(2) In respect of the obligation in paragraph 792A(c), ASIC must do such an assessment at least once a year for each market licensee.
(3) As soon as practicable after doing an assessment under this section, ASIC must give a written report on the assessment to the licensee and to the Minister.
(4) If an assessment, or part of an assessment, relates to any other person’s affairs to a material extent, ASIC may, at the person’s request or of its own motion, give the person a copy of the written report on the assessment or the relevant part of the report.
(5) If an assessment, or part of an assessment, relates to a serious contravention of a law of the Commonwealth or of a State or Territory, ASIC may give a copy of the written report on the assessment, or the relevant part of the report, to:
(a) the Australian Federal Police; or
(b) the National Crime Authority; or
(c) the Director of Public Prosecutions; or
(d) an agency prescribed by regulations made for the purposes of this paragraph.
(6) Either the Minister or ASIC may cause the written report on an assessment, or part of the report on an assessment, to be printed and published.
794D ASIC’s power to give directions
(1) If ASIC is of the opinion that it is necessary, or in the public interest, to protect people dealing in a financial product or class of financial products by:
(a) giving a direction to a market licensee to suspend dealings in the financial product or class of financial products; or
(b) giving some other direction in relation to those dealings;
ASIC may give written advice to the licensee of that opinion and the reasons for it.
Example: Under paragraph (b), ASIC could give a direction to limit the kinds of dealings that are allowed in the financial product or class of financial products or to require a participant in the market to act in a specified manner in relation to dealings in the financial product or class of financial products.
(2) If, after receiving ASIC’s advice and reasons, the licensee does not take:
(a) in the case of a proposed direction to suspend dealings in the financial products - action to prevent such dealings; or
(b) in any other case - such other action as in ASIC’s view is adequate to address the situation raised in the advice;
and ASIC still considers that it is appropriate to give the direction to the licensee, ASIC may give the licensee the written direction with a statement setting out its reasons for making the direction.
(3) The direction has effect for the period specified in it (which may be up to 21 days). During that period, the licensee must comply with the direction and must not allow any dealings to take place contrary to it.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4) If the licensee fails to comply with the direction, ASIC may apply to the Court for, and the Court may make, an order that the licensee comply with the direction.
(5) As soon as practicable after making or varying (see subsection (7)) a direction, ASIC must:
(a) give a copy of the direction or variation to the operator of each clearing and settlement facility with which the market licensee has clearing and settlement arrangements for transactions effected through the market; and
(b) give a written report to the Minister setting out ASIC’s reasons for making the direction or variation; and
(c) give a copy of the report to the licensee.
(6) If, at any time after the licensee receives ASIC’s advice under subsection (1), the licensee requests in writing that ASIC refer the matter to the Minister, ASIC must do so immediately. In that event, the Minister may, if he or she considers it appropriate, require ASIC not to make, or to revoke, the direction. ASIC must immediately comply with such a requirement.
(7) ASIC may vary a direction by giving written notice to the licensee if ASIC is of the opinion that the variation is necessary, or in the public interest, to protect people dealing in a financial product or class of financial products.
(8) ASIC may revoke a direction by giving written notice to the licensee. ASIC must also give written notice of the revocation to the operator of each clearing and settlement facility with which the market licensee has clearing and settlement arrangements for transactions effected through the market.
794E Additional directions to clearing and settlement facilities
(1) If ASIC gives a direction under section 794D, it may also give a written direction to the operator of each clearing and settlement facility with which the market licensee has clearing and settlement arrangements for transactions effected through the market:
(a) prohibiting the operator from acting in a manner inconsistent with the section 794D direction; and
(b) requiring the operator to do all that the operator is reasonably capable of doing to give effect to the section 794D direction.
(2) The operator must comply with the direction given to it under this section.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(3) If the operator fails to comply with the direction, ASIC may apply to the Court for, and the Court may make, an order that the operator comply with the direction.