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 7.8 - Division 2
Division 2 - Dealing with clients’ money
Subdivision A - Money other than loans
981A Money to which Subdivision applies
(1) This Subdivision applies (subject to subsections (2), (3) and (4)) to money paid to a financial services licensee (the licensee ) in the following circumstances:
(a) the money is paid in connection with:
(i) a financial service that has been provided, or that will or may be provided, to a person (the client ); or
(ii) a financial product held by a person (the client ); and
(b) the money is paid:
(i) by the client; or
(ii) by a person acting on behalf of the client; or
(iii) to the licensee in the licensee’s capacity as a person acting on behalf of the client.
(2) This Subdivision does not apply to money paid as mentioned in subsection (1) to the extent that:
(a) the money is paid by way of remuneration payable to the licensee, or the licensee is entitled to deduct such remuneration from the money; or
(b) the money is paid:
(i) to reimburse the licensee for payments made to acquire, or acquire an increased interest in, a financial product; or
(ii) to discharge a liability incurred by the licensee in respect of the acquisition of a financial product or an increased interest in a financial product, or to indemnify the licensee in respect of such a liability; or
(c) the money is paid to acquire, or acquire an increased interest in, a financial product from the licensee, whether by way of issue or sale by the licensee; or
(d) Subdivision B (loan money) applies to the money.
Note: Money excluded by paragraph (c) is covered by section 1017E.
(3) If a person pays money to a financial services licensee in order for it to be deposited to the credit of a deposit product held by the person or another person with the licensee, that payment does not constitute money to which this Subdivision applies.
(4) The regulations may:
(a) exempt money paid in specified circumstances from some or all of the provisions of this Subdivision; or
(b) declare that this Subdivision applies in relation to money paid in specified circumstances as if specified provisions of this Subdivision were omitted, modified or varied as set out in the regulations.
(5) An exemption in regulations made for the purposes of paragraph (4)(a) may be made subject to conditions specified in, or imposed in accordance with, the regulations. The regulations may provide for consequences of a contravention of a condition.
981B Obligation to pay money into an account
(1) The licensee must ensure that money to which this Subdivision applies is paid into an account that satisfies these requirements:
(a) the account is:
(i) with an Australian ADI; or
(ii) of a kind prescribed by regulations made for the purposes of this paragraph;
and is designated as an account for the purposes of this section of this Act; and
(b) the only money paid into the account is:
(i) money to which this Subdivision applies (which may be money paid by, on behalf or, or for the benefit of, several different clients); or
(ii) interest on the amount from time to time standing to the credit of the account; or
(iii) interest, or other similar payments, on an investment made in accordance with regulations referred to in section 981C, or the proceeds of the realisation of such an investment; or
(iv) other money permitted to be paid into the account by the regulations; and
(c) if regulations made for the purposes of this paragraph impose additional requirements - the requirements so imposed by the regulations; and
(d) if the licence conditions of the licensee’s licence impose additional requirements - the requirements so imposed by the licence conditions.
The money must be paid into such an account on the day it is received by the licensee, or on the next business day.
(2) The licensee may, for the purposes of this section, maintain a single account or 2 or more accounts.
981C Regulations may deal with various matters relating to accounts maintained for the purposes of section 981B
The regulations may deal with all or any of the following in relation to accounts, or a class of accounts, maintained for the purposes of section 981B:
(a) the circumstances in which payments may be made out of an account (including the circumstances in which money may be withdrawn and invested, and the kinds of investment that may be made);
(b) the minimum balance to be maintained in an account;
(c) how interest on an account is to be dealt with;
(d) how interest or other earnings on an investment of money withdrawn from an account, or the proceeds of the realisation of such an investment, are to be dealt with.
981D Money related to derivatives may be used for general margining etc. purposes
Despite anything in regulations made for the purposes of section 981C, if:
(a) the financial service referred to in subparagraph 981A(1)(a)(i)is or relates to a dealing in a derivative; or
(b) the financial product referred to in subparagraph 981A(1)(a)(ii) is a derivative;
the money concerned may also be used for the purpose of meeting obligations incurred by the licensee in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client).
981E Protection of money from attachment etc.
(1) This section applies to:
(a) money to which this Subdivision applies that has been paid to the licensee, both while it is in an account maintained for the purposes of section 981B and before and after it is paid into such an account; and
(b) other money in such an account as permitted by paragraph 981B(1)(b); and
(c) investments made in accordance with regulations made for the purposes of section 981C.
(2) Money and investments to which this section applies are not capable:
(a) of being attached or otherwise taken in execution; or
(b) of being made subject to a set-off, charge or charging order, or to any process of a similar nature;
except at the suit of a person who is otherwise entitled to the money or investment.
981F Regulations may deal with how money to be dealt with if licensee ceases to be licensed etc.
The regulations may include provisions dealing with how money in an account maintained for the purposes of section 981B, or an investment of such money, is to be dealt with if:
(a) the licensee ceases to be a financial services licensee; or
(b) the licensee becomes insolvent, within the meaning of the regulations; or
(c) the licensee merges with another financial services licensee; or
(d) the licensee ceases to carry on some or all of the activities authorised by their licence.
981G Account provider not liable merely because of licensee’s contravention
Nothing in this Subdivision, or in regulations made for the purposes of this Subdivision, makes the body (not being the licensee) that the account is with under paragraph 981B(1)(a) subject to any liability merely because of a failure by the licensee to comply with any of the provisions of this Subdivision or those regulations.
981H Money to which Subdivision applies taken to be held in trust
(1) Subject to subsections (2) and (3), money to which this Subdivision applies that is paid to the licensee:
(a) by the client; or
(b) by a person acting on behalf of the client; or
(c) in the licensee’s capacity as a person acting on behalf of the client;
is taken to be held in trust by the licensee for the benefit of the client.
(2) Subsection (1) does not apply to money that the licensee and the client agree in writing is not held in trust by the licensee for the benefit of the client.
(3) The regulations may:
(a) provide that subsection (1) does not apply in relation to money in specified circumstances; and
(b) provide for matters relating to the taking of money to be held in trust (including, for example, terms on which the money is taken to be held in trust and circumstances in which it is no longer taken to be held in trust).
Subdivision B - Loan money
982A Money to which this Subdivision applies
(1) Subject to subsection (2), this Subdivision applies to money paid to a financial services licensee (the licensee ) by way of a loan from a person (the client ) in connection with activities authorised by the licensee’s licence.
(2) If a person pays money to a financial services licensee:
(a) in order for it to be deposited to the credit of a deposit product held by the person or another person with the licensee; or
(b) on condition that it is to be repaid to the person by the licensee, as a debt, pursuant to the terms of a debenture or other financial product issued by the licensee;
that payment does not constitute money to which this Subdivision applies.
982B Obligation to pay money into an account
(1) The licensee must ensure that money to which this Subdivision applies is paid into an account that satisfies these requirements:
(a) the account is:
(i) with an Australian ADI; or
(ii) of a kind prescribed by regulations made for the purposes of this paragraph;
and is designated as an account for the purposes of this section of this Act; and
(b) the only money paid into the account is:
(i) money to which this Subdivision applies (which may be money lent by several different persons); or
(ii) interest on the amount from time to time standing to the credit of the account.
The money must be paid into such an account on the day it is received by the licensee, or on the next business day.
(2) The licensee may, for the purposes of this section, maintain a single account or 2 or more accounts.
982C Licensee to give client statement setting out terms of loan etc.
Obligation to give client a statement
(1) The licensee must, in accordance with the regulations, give the client a statement setting out:
(a) the terms and conditions on which the loan is made and accepted; and
(b) the purpose for which, and the manner in which, the licensee is to use the money.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
Obligation to keep money in account until receive acknowledgment of receipt of statement
(2) The licensee must not take money out of the account before the client has given the licensee a written acknowledgment that the client has received the statement required by subsection (1).
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
982D Permitted use of loan
The licensee must only use the money:
(a) for the purpose, and in the manner, set out in the statement given under section 982C; or
(b) for another purpose, or in another manner, agreed on in writing by the licensee and the client after the licensee gave the client the statement.
Note: Failure to comply with this section is an offence (see subsection 1311(1)).
Subdivision C - Powers of Court
983A Court may freeze certain accounts
(1) The Court may, by order, restrain dealings in respect of specified accounts with financial institutions that a person holds or maintains (whether in Australia or elsewhere), subject to such terms and conditions as the Court imposes, if subsection (2) or (3) applies in relation to the person.
(2) This subsection applies to a person if, on application by ASIC, the Court is satisfied that the person holds, or has at any time held, an Australian financial services licence and that:
(a) there are reasonable grounds for believing that there is a deficiency in an account maintained by the person for the purposes of section 981B or 982B, whether the account is maintained in this jurisdiction or elsewhere; or
(b) there has been undue delay, or unreasonable refusal, on the person’s part in paying, applying or accounting for money as provided for by this Division, by a condition of the licence, or by the operating rules of a licensed market or a licensed CS facility in which the person is or has been a participant; or
(c) without limiting the generality of paragraph (a) or (b), the person has contravened section 981B or 982B.
(3) This subsection applies to a person if, on application by ASIC, the Court is satisfied that the person holds, or has at any time held, an Australian financial services licence and that:
(a) the licence has been revoked or suspended; or
(b) the person is incapable, through mental or physical incapacity, of managing his or her affairs; or
(c) the person no longer carries on a financial services business; or
(d) the person has died.
983B Interim order freezing accounts
(1) Before considering an application under section 983A, the Court may, if it considers it desirable to do so, grant an interim order that is an order of the kind applied for and is expressed to apply until the application is determined.
(2) The Court must not require ASIC or any other person, as a condition of granting an order under subsection (1), to give an undertaking as to damages.
983C Duty of person to whom order directed to make full disclosure
If an order made under section 983A is directed to a financial institution, the institution must:
(a) disclose to ASIC every account kept at the institution in the name of the person to whom the order relates, and any account that the institution reasonably suspects is held or kept at the institution for the benefit of that person; and
(b) permit ASIC to make a copy of, or to take an extract from, any account of the person to whom the order relates or any of the institution’s books relating to that person.
Note: Failure to comply with this section is an offence (see subsection 1311(1)).
983D Further orders and directions
(1) If an order is made under section 983A or 983B, the Court may, on application by ASIC or a person whom the order affects, make a further order that does one or more of the following:
(a) deals with such ancillary matters as the Court thinks necessary or desirable;
(b) directs that specified amounts in an account affected by the first-mentioned order be paid to ASIC or a person nominated by ASIC;
(c) varies or discharges the first-mentioned order or an order under this section.
(2) An order under this section may be made subject to such terms and conditions as the Court imposes.
983E Power of Court to make order relating to payment of money
(1) An order made under section 983D may include directions to a person to whom money is ordered to be paid directing that the person:
(a) must pay the money into a separate account; or
(b) is authorised to prepare a scheme for distributing the money to persons who claim, within 6 months after the person receives the money, to be entitled to the money and satisfy the person that they are so entitled; or
(c) if the money received is insufficient to pay all proved claims, may, despite any rule of law or equity to the contrary, apportion the money among the claimants in proportion to their proved claims and show in the scheme how the money is so apportioned.
(2) If a person prepares a scheme for a distribution of money under subsection (1), the person must apply to the Court for approval of the scheme and for directions in respect of it.
(3) The Court may, in relation to money held in a separate account under subsection (1), give such directions as the Court thinks fit as to:
(a) the persons to whom that money is to be paid, and in what amounts the whole or any portion of that money is to be paid; and
(b) the payment of the balance of the money (if any) remaining in the account.