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 7.1 - Division 3
Division 3 - What is a financial product?
Subdivision A - Preliminary
762A Overview of approach to defining what a financial product is
General definition
(1) Subdivision B sets out a general definition of financial product . Subject to subsections (2) and (3), a facility is a financial product if it falls within that definition.
Specific inclusions
(2) Subdivision C identifies, or provides for the identification of, kinds of facilities that, subject to subsection (3), are financial products (whether or not they are within the general definition).
Overriding exclusions
(3) Subdivision D identifies, or provides for the identification of, kinds of facilities that are not financial products. These facilities are not financial products:
(a) even if they are within the general definition; and
(b) even if they are within a class of facilities identified as mentioned in subsection (2).
762B What if a financial product is part of a broader facility?
If a financial product is a component of a facility that also has other components, this Chapter, in applying to the financial product, only applies in relation to the facility to the extent it consists of the component that is the financial product.
Note: So, e.g., Part 7.9 does not require disclosures to be made in relation to those other components.
762C Meaning of facility
In this Division:
facility includes:
(a) intangible property; or
(b) an arrangement or a term of an arrangement (including a term that is implied by law or that is required by law to be included); or
(c) a combination of intangible property and an arrangement or term of an arrangement.
Note: 2 or more arrangements may be taken to constitute a single arrangement - see section 761B.
Subdivision B - The general definition
763A General definition of financial product
(1) For the purposes of this Chapter, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a) makes a financial investment (see section 763B);
(b) manages financial risk (see section 763C);
(c) makes non-cash payments (see section 763D).
This has effect subject to section 763E.
(2) For the purposes of this Chapter, a particular facility that is of a kind through which people commonly make financial investments, manage financial risks or make non-cash payments is a financial product even if that facility is acquired by a particular person for some other purpose.
(3) A facility does not cease to be a financial product merely because:
(a) the facility has been acquired by a person other than the person to whom it was originally issued; and
(b) that person, in acquiring the product, was not making a financial investment or managing a financial risk.
763B When a person makes a financial investment
For the purposes of this Chapter, a person (the investor) makes a financial investment if:
(a) the investor gives money or money’s worth (the contribution ) to another person and any of the following apply:
(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;
(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);
(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated); and
(b) the investor has no day-to-day control over the use of the contribution to generate the return or benefit.
Note 1: Examples of actions that constitute making a financial investment under this subsection are:
(a) a person paying money to a company for the issue to the person of sharesin the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company); or
(b) a person contributing money to acquire interests in a registered scheme from the responsible entity of the scheme (the scheme uses the money to generate financial or other benefits for the person and the person, as a member of the scheme, does not have day-to-day control over the operation of the scheme).
Note 2: Examples of actions that do not constitute making a financial investment under this subsection are:
(a) a person purchasing real property or bullion (while the property or bullion may generate a return for the person, it is not a return generated by the use of the purchase money by another person); or
(b) a person giving money to a financial services licenseewho is to use it to purchase shares for the person (while the purchase of the shares will be a financial investment made by the person, the mere act of giving the money to the licensee will not of itself constitute making a financial investment).
763C When a person manages financial risk
For the purposes of this Chapter, a person manages financial risk if they:
(a) manage the financial consequences to them of particular circumstances happening; or
(b) avoid or limit the financial consequences of fluctuations in, or in the value of, receipts or costs (including prices and interest rates).
Note 1: Examples of actions that constitute managing a financial risk are:
(a) taking out insurance; or
(b) hedging a liability by acquiring a futures contract or entering into a currency swap.
Note 2: An example of an action that does not constitute managing a financial risk is employing a security firm (while that is a way of managing the risk that thefts will happen, it is not a way of managing the financial consequences if thefts do occur).
763D When a person makes non-cash payments
(1) For the purposes of this Chapter, a person makes non-cash payments if they make payments, or cause payments to be made, otherwise than by the physical delivery of Australian or foreigncurrency in the form of notes and/or coins.
Note: Examples of actions that constitute making non-cash payments are:
(a) making payments by means of a facility for direct debit of a deposit account; or
(b) making payments by means of a facility for the use of cheques; or
(c) making payments by means ofa purchased payment facility within the meaning of thePayment Systems (Regulation) Act 1998, such as a smart card; or
(d) making payments by means of traveller’s cheques (whether denominated in Australian or foreign currency).
(2) For the purposes of this Chapter, the following are not making non-cash payments , even if they might otherwise be covered by subsection (1):
(a) making payments by means of a facility in relation to which one of the following applies:
(i) there is only one person to whom payments can be made by means of the facility;
(ii) the facility is, or is of a kind,specified in the regulations as being a facility that is not to be covered by this section because of restrictions relating to the number of people to whom payments can be made by means of the facility, or relating to the number of persons who can use the facility to make payments;
(b) making payments by means of:
(i) a letter of credit from a financial institution; or
(ii) a cheque drawn by a financial institution on itself; or
(iii) a guarantee given by a financial institution.
763E What if a financial product is only incidental?
(1) If:
(a) something (the incidental product ) that, but for this section, would be a financial product because of this Subdivision is:
(i) an incidental component of a facility that also has other components; or
(ii) a facility that is incidental to one or more other facilities; and
(b) it is reasonable to assume that the main purpose of:
(i) if subparagraph (a)(i) applies - the facility referred to in that subparagraph, when considered as a whole; or
(ii) if subparagraph (a)(ii) applies - the incidental product, and the other facilities referred to in that subparagraph, when considered as a whole;
is not a financial product purpose;
the incidental product is not a financial product because of this Subdivision (however, it may still be a financial product because of Subdivision C).
(2) In this section:
financial product purpose means a purpose of:
(a) making a financial investment; or
(b) managing financial risk; or
(c) making non-cash payments.
Subdivision C - Specific inclusions
764A Specific things that are financial products (subject to Subdivision D)
(1) Subject to Subdivision D, the following are financial products for the purposes of this Chapter:
(a) a security;
(b) any of the following in relation to a registered scheme:
(i) an interest in the scheme;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
(ba) any of the following in relation to a managed investment scheme that is not a registered scheme, other than a scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied:
(i) an interest in the scheme;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
(c) a derivative;
(d) a contract of insurance that is not a life policy, or a sinking fund policy, within the meaning of theLife Insurance Act 1995, but not including such a contract of insurance:
(i) to the extent that it provides for a benefit to be provided by an association of employees that is an organisation within the meaning of theWorkplace Relations Act 1996for a member of the organisation or a dependant of a member; or
(ii) to the extent that it provides for benefits, pensions or payments described in paragraph 11(3)(c) of theLife Insurance Act 1995; or
(iii) to the extent that it provides for the provision of a funeral benefit; or
(iv) issued by an employer to an employee of the employer;
(e) a life policy, or a sinking fund policy, within the meaning of theLife Insurance Act 1995, that is a contract of insurance, but not including such a policy:
(i) to the extent that it provides for a benefit to be provided by an association of employees that is an organisation within the meaning of theWorkplace Relations Act 1996for a member of the organisation or a dependant of a member; or
(ii) to the extent that it provides for benefits, pensions or payments described in paragraph 11(3)(c) of theLife Insurance Act 1995; or
(iii) to the extent that it provides for the provision of a funeral benefit; or
(iv) issued by an employer to an employee of the employer;
(f) a life policy, or a sinking fund policy, within the meaning of theLife Insurance Act 1995, that is not a contract of insurance, but not including such a policy:
(i) to the extent that it provides for a benefit to be provided by an association of employees that is an organisation within the meaning of theWorkplace Relations Act 1996for a member of the organisation or a dependant of a member; or
(ii) to the extent that it provides for benefits, pensions or payments described in paragraph 11(3)(c) of theLife Insurance Act 1995; or
(iii) to the extent that it provides for the provision of a funeral benefit; or
(iv) issued by an employer to an employee of the employer;
(g) a superannuation interest within the meaning of theSuperannuation Industry (Supervision) Act 1993;
(h) an RSA (retirement savings account) within the meaning of theRetirement Savings Accounts Act 1997;
(i) any deposit-taking facility made available by an ADI (within the meaning of theBanking Act 1959)in the course of its banking business (within the meaning of that Act), other than an RSA (RSAs are covered by paragraph (h));
(j) a debenture, stock or bond issued or proposed to be issued by a government;
(k) a foreign exchange contract that is not:
(i) a derivative (derivatives are covered by paragraph (c)); or
(ii) a contract to exchange one currency (whether Australian or not) for another that is to be settled immediately;
(m) anything declared by the regulations to be a financial product for the purposes of this section.
Note: Even though something is expressly excluded from one of these paragraphs, it may still be a financial product (subject to Subdivision D) either because:
(a) it is covered by another of these paragraphs; or
(b) it is covered by the general definition in Subdivision B.
(2) For the purpose of paragraphs (1)(d), (e) and (f), contract of insurance includes:
(a) a contract that would ordinarily be regarded as a contract of insurance even if some of its provisions are not by way of insurance; and
(b) a contract that includes provisions of insurance in so far as those provisions are concerned, even if the contract would not ordinarily be regarded as a contract of insurance.
Subdivision D - Specific exclusions
765A Specific things that are not financial products
(1) Despite anything in Subdivision B or Subdivision C, the following are not financial products for the purposes of this Chapter:
(a) an excluded security;
(b) an undertaking by a body corporate to pay money to a related body corporate;
(c) health insurance provided as part of a health insurance business (as defined in subsection 67(4) of theNational Health Act 1953);
(d) insurance provided by the Commonwealth;
(e) State insurance or Northern Territory insurance, including insurance entered into by:
(i) a State or the Northern Territory; and
(ii) some other insurer;
as joint insurers;
(f) insurance entered into by the Export Finance and Insurance Corporation, other than a short-term insurance contract within the meaning of theExport Finance and Insurance Corporation Act 1991;
(g) reinsurance;
(h) any of the following:
(i) a credit facility within the meaning of the regulations;
(ii) a facility for making non-cash payments (see section 763D), if payments made using the facility will all be debited to a credit facility covered by subparagraph (i);
(i) a facility:
(i) that is an approved RTGS system within the meaning of thePayment Systems and Netting Act 1998; or
(ii) for the transmission and reconciliation of non-cash payments (see section 763D), and the establishment of final positions, for settlement through an approved RTGS system within the meaning of thePayment Systems and Netting Act 1998;
(j) a facility that is a designated payment system for the purposes of thePayment Systems (Regulation) Act 1998;
(k) a facility for the exchange and settlement of non-cash payments (see section 763D) between providers of non-cash payment facilities;
(l) a facility that is:
(i) a financial market; or
(ii) a clearing and settlement facility; or
(iii) a payment system operated as part of a clearing and settlement facility;
(m) a contract to exchange one currency (whether Australian or not) for another that is to be settled immediately;
(n) so much of an arrangement as is not a derivative because of paragraph 761D(3)(a);
(p) an arrangement that is not a derivative because of subsection 761D(4);
(q) an interest in a superannuation fund of a kind prescribed by regulations made for the purposes of this paragraph;
(r) any of the following:
(i) an interest in something that is not a managed investment scheme because of paragraph (c), (e), (f), (k), (l) or (m) of the definition of managed investment scheme in section 9;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
(s) any of the following in relation to a managed investment scheme (whether or not operated in this jurisdiction) in relation to which none of paragraphs 601ED(1)(a), (b) and (c) are satisfied and that is not a registered scheme:
(i) an interest in the scheme;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
(t) a deposit-taking facility that is, or is used for, State banking;
(u) a benefit provided by an association of employees that is an organisation within the meaning of theWorkplace Relations Act 1996for a member of the organisation or a dependant of a member;
(v) either of the following:
(i) a contract of insurance; or
(ii) a life policy or a sinking fund policy, within the meaning of theLife Insurance Act 1995, that is not a contract of insurance;
issued by an employer to an employee of the employer;
(w) a funeral benefit;
(x) physical equipment or physical infrastructure by which something else that is a financial product is provided;
(y) a facility, interest or other thing declared by regulations made for the purposes of this subsection not to be a financial product;
(z) a facility, interest or other thing declared by ASIC under subsection (2) not to be a financial product.
(2) ASIC may declare that a specified facility, interest or other thing is not a financial product for the purposes of this Chapter. The declaration must be in writing and ASIC must publish notice of it in theGazette.