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 7.3 - Division 2
Division 2 - Regulation of CS facility licensees
Subdivision A - Licensee’s obligations
821A General obligations
A CS facility licensee must:
(aa) to the extent that it is reasonably practicable to do so:
(i) comply with standards determined under section 827D; and
(ii) do all other things necessary to reduce systemic risk; and
(a) to the extent that it is reasonably practicable to do so, do all things necessary to ensure that the facility’s services are provided in a fair and effective way; 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 facility, including arrangements for:
(i) handling conflicts between the commercial interests of the licensee and the need for the licensee to ensure that the facility’s services are provided in a fair and effective way; and
(ii) enforcing compliance with the facility’s operating rules; and
(d) have sufficient resources (including financial, technological and human resources) to operate the facility properly and for the required supervisory arrangements to be provided; and
(e) if the licensee is a foreign body corporate - be registered under Division 2 of Part 5B.2; and
(f) if the licence was granted under subsection 824B(2) (overseas clearing and settlement facilities) - both:
(i) remain authorised to operate a clearing and settlement facility in the foreign country in which the licensee’s principal place of business is located; and
(ii) get the Minister’s approval under section 821F before that principal place of business becomes located in any other foreign country; and
(g) 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
(h) take all reasonable steps to ensure that no disqualified individual becomes, or remains, involved in the licensee (see Division 2 of Part 7.4).
821B Obligation to notify ASIC of certain matters
(1) A CS facility 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 821A. 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 CS facility 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 facility, 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 facility, 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 facility’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) A CS facility licensee whose licence was granted under subsection 824B(2) (overseas clearing and settlement facilities) must, as soon as practicable, give written notice to ASIC if:
(a) the licensee ceases to be authorised to operate a clearing and settlement facility 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 facility 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)).
(4) As soon as practicable after:
(a) a person becomes or ceases to be a director, secretary or executive officer of a CS facility licensee or of a holding company of a CS facility licensee (including when a person changes from one of those positions to another); or
(b) a CS facility 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: Failure to comply with this subsection is an offence (see subsection 1311(1)).
Note 2: 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.
821BA Obligation to notify Reserve Bank of certain matters
(1) A CS facility licensee must give written notice to the Reserve Bank of Australia (the Reserve Bank ), as soon as practicable, if:
(a) the licensee becomes aware that it has failed to comply with standards determined under section 827D, or is likely to fail to comply with such standards; or
(b) the licensee becomes aware that it may no longer be able to meet, or has breached, its obligation under subparagraph 821A(aa)(ii).
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) If the Reserve Bank considers it appropriate to do so, the Reserve Bank may give the Minister advice about the matter.
821C Obligation to assist
ASIC
(1) A CS facility 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.
Reserve Bank
(3) A CS facility licensee must give such assistance to the Reserve Bank of Australia (the Reserve Bank ), or a person authorised by the Reserve Bank, as the Reserve Bank or the authorised person reasonably requests in relation to the performance of the Reserve Bank’s functions under this Part.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4) Such assistance may include showing the Reserve Bank the licensee’s books or giving the Reserve Bank other information.
821D Obligation to give ASIC access to the facility
A CS facility licensee must give a person authorised by ASIC such reasonable access to the facility as the person requests for any of the purposes of this Chapter.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
821E Annual report
(1) A CS facility 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 CS facility 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 CS facility 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.
821F Change of country by foreign licensee
(1) In the case of a licence granted under subsection 824B(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 facility in that country will be subject to requirements and supervision that are sufficiently equivalent, in relation to the degree of protection from systemic risk and the level of effectiveness and fairness of services they achieve, to the requirements and supervision to which clearing and settlement facilities are subject under this Act in relation to those matters.
(2) If, in relation to a licence granted under subsection 824B(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 facility to continue to be licensed, the licensee may apply for the grant of a new licence under subsection 824B(1); and
(c) the application must be assessed in accordance with Subdivision A of Division 3, 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.
Subdivision B - The facility’s operating rules and procedures
822A Content of the operating rules and procedures
(1) The operating rules of a licensed CS facility 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 CS facility must have written procedures.
(3) However, subsections (1) and (2) do not apply if the licensee is also authorised to operate the facility in the foreign country in which its principal place of business is located and the licence was granted under subsection 824B(2) (overseas clearing and settlement facilities).
(4) In a subsection (3) case, ASIC may determine, by giving written notice to the licensee, matters in respect of which the licensed CS facility must have written procedures.
822B Legal effect of operating rules
The operating rules of a licensed CS facility have effect as a contract under seal:
(a) between the licensee and each issuer of financial products in respect of which the facility provides its services; and
(b) between the licensee and each participant in the facility; and
(c) between each issuer of financial products in respect of which the facility provides its services and each participant in the facility; and
(d) between a participant in the facility and each other participant in the facility;
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.
822C Enforcement of operating rules
(1) If a person who is under an obligation to comply with or enforce any of a licensed CS facility’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 financial market with which the facility has arrangements to provide services for transactions effected through the market; 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.
822D Changing the operating rules
Licensed CS facilities other than subsection 824B(2) facilities
(1) As soon as practicable after a change is made to the operating rules of a licensed CS facility, other than a facility licensed under subsection 824B(2) (overseas clearing and settlement facilities), 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 with ASIC, as required by subsection (1), within 21 days after the change is made, the change ceases to have effect at the end of that period.
Subsection 824B(2) facilities
(3) As soon as practicable after a change is made to the operating rules of a clearing and settlement facility the operation of which is licensed under subsection 824B(2) (overseas clearing and settlement facilities), 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)).
822E Disallowance of changes to operating rules
(1) This section does not apply in respect of an Australian CS facility licence granted under subsection 824B(2) (overseas clearing and settlement facilities).
(2) As soon as practicable after receiving a notice under section 822D from a CS facility 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 obligations mentioned in paragraphs 821A(aa) and (a)).
Note: The Minister must also have regard to the matters in section 827A.
(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 , ASIC and the Reserve Bank in relation to licensees
823A Minister’s power to give directions
(1) If the Minister considers that a CS facility licensee is not complying with its obligations as a CS facility 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.
823B Minister’s power to require special report
(1) The Minister may give a CS facility 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 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)).
823C ASIC to assess licensee’s compliance
(1) ASIC may do an assessment of how well a CS facility licensee is complying with its obligations as a CS facility licensee under this Chapter (other than its obligation under paragraph 821A(aa)). 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 821A(c), ASIC must do such an assessment at least once a year for each CS facility licensee.
(3) As soon as practicable after doing an assessment under this section, ASIC must give a written report on the assessment to the Minister and a copy of the written report to the Reserve Bank of Australia.
(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.
823CA Reserve Bank to assess licensee’s compliance
(1) At least once each year, the Reserve Bank of Australia (the Reserve Bank ) must do an assessment of how well each CS facility licensee is complying with its obligation under paragraph 821A(aa). In doing the assessment, the Reserve Bank may take account of any information and reports that it thinks appropriate, including information and reports from an overseas regulatory authority.
(2) As soon as practicable after doing an assessment under this section, the Reserve Bank must give a written report on the assessment to the Minister and a copy of the written report to ASIC.
(3) If an assessment, or part of an assessment, relates to any other person’s affairs to a material extent, the Reserve Bank 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.
(4) 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, the Reserve Bank 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.
(5) Either the Minister or the Reserve Bank may cause the written report on an assessment, or part of the report on an assessment, to be printed and published.
823D Directions power - protecting dealings in financial products and ensuring fair and effective provision of services by CS facilities
(1) If ASIC:
(a) considers that it is necessary, or in the public interest, to protect people dealing in a financial product or class of financial products; or
(b) considers that a CS facility licensee has not done all things reasonably practicable to ensure the facility’s services are provided in a fair and effective way;
ASIC may give the licensee written advice that it intends to give the licensee a specified direction under this section. The advice must include the reasons for ASIC’s intention to give the direction.
(2) As soon as practicable after giving the advice to the licensee, ASIC must give notice of the advice to the operator of each financial market with which the facility has arrangements to provide services for transactions effected through the market.
(3) For the purpose of remedying the matter mentioned in subsection (1), ASIC may give the following directions to the licensee under this section:
(a) a direction not to provide the licensee’s services in relation to any transactions, of which the licensee receives notice after the direction takes effect, that relate to a specified financial product or class of financial products;
(b) any other direction concerning dealings with transactions that relate to a specified financial product or class of financial products.
(4) If, after receiving ASIC’s advice and reasons:
(a) the licensee does not take steps that in ASIC’s view are adequate to address the situation; and
(b) ASIC still considers that it is appropriate to give the direction to the licensee;
ASIC may give the licensee the direction, in writing, with a statement setting out the reasons for giving the direction.
(5) The direction has effect until the earlier of the following times:
(a) the time ASIC revokes the direction in accordance with subsection (10);
(b) the end of the period (which may be up to 21 days) specified in the direction as the period during which the direction is effective ends.
While the direction has effect, the licensee must comply with the direction and must not provide any services contrary to it.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(6) 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.
(7) As soon as practicable after making or varying (see subsection (9)) a direction, ASIC must:
(a) give a copy of the direction or variation to:
(i) if the direction relates to a specified financial product - the issuer of that product; and
(ii) each of the operators mentioned in subsection (2); 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.
(8) 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.
(9) ASIC may vary a direction by giving written notice to the licensee.
(10) ASIC may revoke a direction by giving written notice to the licensee. ASIC must also give written notice of the revocation to each of the operators mentioned in subsection (2).
823E Directions power - reduction of systemic risk
(1) If ASIC considers that a CS facility licensee has not done all things reasonably practicable to reduce systemic risk in the provision of the facility’s services, ASIC may give the licensee a direction, in writing, to take:
(a) specified measures to comply with the whole or a part of a standard determined under section 827D; or
(b) any other action that ASIC considers will reduce systemic risk in the provision of the facility’s services.
(2) The direction may deal with the time by which, or period during which, it is to be complied with. The time or period must be reasonable.
(3) The licensee must comply with the direction.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(3A) 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) ASIC may vary the direction by giving written notice to the licensee.
(5) The direction has effect until ASIC revokes it by giving written notice to the licensee.
(6) ASIC may revoke the direction if, at the time of revocation, it considers that the direction is no longer necessary or appropriate.
(7) Before giving, varying or revoking the direction, ASIC must consult the Reserve Bank of Australia. However, a failure to consult the Reserve Bank of Australia does not invalidate the direction, variation or revocation.
(8) The Reserve Bank of Australia may at any time request ASIC to make a direction under this section. However, ASIC is not required to comply with the request.