Explanatory Memorandum(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)
1.1 The Financial Services Reform Bill (FSR Bill) is the culmination of an extensive reform program examining current regulatory requirements applying to the financial services industry. In particular, the draft Bill provides the legislative response to a number of recommendations of the Financial System Inquiry (FSI).
1.2 The FSI was a comprehensive stocktake of Australias financial system structure and regulation. The broad policy direction for what were known as the CLERP 6 reforms, now contained in the FSR Bill, is consistent with the findings of the FSI.
1.3 The FSI found that financial system regulation was piecemeal and varied, and was determined according to the particular industry and the product being provided. This was seen as inefficient, as giving rise to opportunities for regulatory arbitrage, and in some cases leading to regulatory overlap and confusion.
1.4 To address these deficiencies, the FSI proposed that there be a single licensing regime for financial sales, advice and dealings in relation to financial products, consistent and comparable financial product disclosure, and a single authorisation procedure for financial exchanges and clearing and settlement facilities.
1.5 The FSR Bill implements these proposals, and will put in place a competitively neutral regulatory system which benefits participants in the industry by providing more uniform regulation, reducing administrative and compliance costs, and removing unnecessary distinctions between products. In addition, it will give consumers a more consistent framework of consumer protection in which to make their financial decisions. The Bill will therefore facilitate innovation and promote business, while at the same time ensuring adequate levels of consumer protection and market integrity.
1.6 The proposed regulatory framework covers a wide range of financial products including securities, derivatives, general and life insurance, superannuation, deposit accounts and means of payment facilities. The requirements will apply to the activities of existing financial intermediaries such as insurance agents and brokers, securities advisers and dealers, and futures brokers, as well as any other person carrying on a financial services business.
1.7 The FSR Bill will also put in place a simplified authorisation process for market operators and clearing and settlement facilities. The new regulatory regime provides a flexible and adaptable framework that encourages innovation and competition in markets and clearing and settlement facilities.
1.8 An extensive public consultation process has been engaged in to produce the FSR Bill through the release of:
- a position paper, Financial Markets and Investment Products, in December 1997;
- a Consultation Paper, Financial Products, Service Providers and Markets - An Integrated Framework, in March 1999; and
- an exposure draft FSR Bill and accompanying commentary, in February 2000.
1.9 These consultations provided valuable feedback on the reform proposals, and were integral to the development of the FSR Bill.