Explanatory StatementIssued by the Parliamentary Secretary to the Treasurer
Corporations Act 2001
Section 1364 of the Corporations Act 2001 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.
The purpose of the Regulations is to support the reforms to the regulation of the financial services industry which are included in the Financial Services Reform Act 2001 and associated legislation.
The Corporations Agreement, reached by State, Northern Territory and Commonwealth Ministers who had responsibilities in relation to corporate regulation, formed the political compact on which the national companies and securities scheme, which operated from 1 January 1991 to 14 July 2001, was based. That scheme was superseded by a new legislative scheme which commenced on 15 July 2001. The new scheme is based on Commonwealth legislation enacted with the assistance of relevant power referred by the States. It is envisaged that a new Agreement, reflecting the changed constitutional basis of the relevant law, will be signed but meanwhile the Commonwealth, States and the Northern Territory consider themselves bound by the proposed new agreement.
Both the current and proposed new Agreements require that the Commonwealth consult members of the Ministerial Council for Corporations before making amendments to the Corporations Regulations. The responsible Ministers of the States and the Northern Territory on the Ministerial Council for Corporations have been consulted about the draft regulations.
The Financial Services Reform Act 2001 amends the Act and other relevant legislation, and will provide:
- 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.
- clarify where a person is not to be considered to be providing a financial service - for example, where they pass on information provided by another;
- provide for exemptions from the disclosure and other requirements of the Act (or for modified application) where the impact is inappropriate - for example, in relation to travellers' cheques and surety bonds;
- clarify the requirements for confirmation of transactions, socially responsible disclosure and ongoing management charges;
- make a number of technical amendments; and
- assist in the transition to the new regime.
Details of the Regulations are set out in the Attachment.
Regulations 1, 2 and 3, and Schedule 1 of the regulations commence immediately after Item 1 of Schedule 1 of the Financial Services Reform Act 2001 commences. Item 1 of Schedule 1 of the Financial Services Reform Act 2001 has been proclaimed to commence on 11 March 2002.
Schedule 2 commences on the commencement of the Family Law Legislation Amendment (Superannuation) Act 2001.
|2||Definitions and concepts of general relevance|
|3||Limits on involvement with markets and clearing and settlement facility licensees|
|4||The National Guarantee Fund|
|5||Licensing of providers of financial services|
|6||Financial services disclosure|
|7||Other provisions relating to conduct connected with financial products and financial services|
|8||Financial product disclosure|
|10||Miscellaneous and Schedule 2|
|ASIC||Australian Securities and Investments Commission|
|ASIC Act||Australian Securities and Investments Commission Act 2001|
|Consequential Provisions Act||Financial Services Reform (Consequential Provisions) Act 2001|
|Corporations Act||Corporations Act 2001|
|FSR Act||Financial Services Reform Act 2001|
|I(AB) Act||Insurance (Agents and Brokers) Act 1984|
|Insurance Contracts Act||Insurance Contracts Act 1984|
|RSA Act||Retirement Savings Accounts Act 1997|
|RSA Regulation||Retirement Savings Accounts Regulations 1997|
|SIS Act||Superannuation Industry (Supervision) Act 1993|
|SIS Regulations||Superannuation Industry (Supervision) Regulations 1997|
The Financial Services Reform Act 2001 (the FSR Act) is the culmination of an extensive reform program examining current regulatory requirements applying to the financial services industry. In particular, the FSR Act provides the legislative response to a number of recommendations of the Financial System Inquiry (the Wallis Committee).
The Financial System Inquiry was a comprehensive stocktake of Australia's financial system structure and -regulation. The broad policy direction for what were known as the CLERP 6 reforms, now contained in the FSR Act, is consistent with the findings of the Financial System Inquiry.
The Financial System Inquiry 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.
To address these deficiencies, the Financial System Inquiry 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.
The FSR Act implements these proposals, and puts 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 FSR Act will therefore facilitate innovation and promote business, while at the same time ensuring adequate levels of consumer protection and market integrity.
The 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.
The FSR Act will also put in place a simplified authorisation process for the operators of financial markets 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.
The first group of regulations necessary for the commencement of the FSR Act were made on 8 October 200 1.
- the Corporations Amendment Regulations 2001 (No. 4) - Statutory Rules 2001 No. 319;
- the Corporations (Fees) Amendment Regulations 2001 (No. 1) - Statutory Rules 2001 No. 320;
- the Australian Securities and Investments Commission Amendment Regulations 2001 (No. 1) Statutory Rules 2001 No. 317.
On 18 December 200 1, the first instalment of the second stage of the draft regulations to support the FSR Act was released. On 17 January 2002, further draft regulations to support the FSR Act were released for public consultation.
An informal body, the Financial Services Reform Implementation Consultative Committee, had been established to provide industry feed-back on the draft regulations. The Committee considered the draft second stage regulations. In addition, the draft regulations were put on the Treasury website for public comment.
About 70 submissions on the draft regulations were received from members of the Committee and the general public and, to the extent possible, taken into account in the formulation of the regulations. The submissions were important in bringing forward concerns about policy issues, inadvertent application of the provisions and technical problems.
The regulations are entitled the Corporations Amendment Regulations 2002 (No. 2) (regulation 1).
As indicated above, regulations 1, 2 and 3 and Schedule 1 are to commence immediately after Item 1 of Schedule 1 to the FSR Act commences (Regulation 2) - 11 March 2002. Schedule 2 is to commence on the commencement of the Family Law Legislation Amendment (Superannuation) Act 2001.
The balance of this attachment provides further details of the amendments to the Corporations Regulations (Schedules 1 and 2 of the regulations).
It does not reflect the order of the regulations, instead grouping them by subject.
The FSR Act omits Chapters 7 and 8 of the Corporations Act and inserts a new Chapter 7 in their place.
There are therefore a number of occasions in this Explanatory Statement when references are made to the relevant provision of the current Corporations Act and to the comparable provision in that Act after the FSR Act has commenced.
To avoid confusion, when comparing such provisions, a reference to a provision in the current Corporations Act is phrased 'section x of the old Corporations Act', and a reference to the Corporations Act as amended by the FSR Act as 'section y of the new Corporations Act'.
However, where neither 'the old Corporations Act' nor 'the new Corporations Act' is used, the section referred to is from the 'new Corporations Act'.
The definition of 'warrant' is intended to encompass hybrid warrants that are securities because the warrant gives the holder an equitable right or interest in a share or debenture (see paragraph (c) of the definition of 'security in section 761 A of the new Corporations Act) and warrants that are derivatives under section 761 D of that Act.
A warrant that is a security will be exempted from the fundraising provisions of the Act (Chapter 6D) (see regulation 6D.5.01) and the product disclosure provisions of the Act (Part 7.9) will apply to all warrants (see regulation 7.9.07A).
Regulation 6D.5.01 will exempt a warrant that is a security from all the provisions of Chapter 6D of the Act (see paragraph 742(1)(b) of the new Corporations Act).
Subregulation 1.0.05A(1) has been amended so that the definition of 'lodge with ASIC' in section 761 A is extended to references to that expression contained in Part 10.2 of the new Corporations Act.
Regulation 7.1.03A allows credit unions and building societies to impose a short notification period of one week on withdrawals or transfers from term deposit accounts, to enable those accounts to remain within the definition of a 'basic deposit product' and thus avoid the full intensity of the FSR regime.
This regulation clarifies what is a 'kind' of financial product for the purposes of the definition 'custodial arrangement' in subsection 10121A(1). Where a product is an interest in a managed investment scheme, all interests in the same scheme constitute a 'kind' of product. For other products, all the products issued by that person or a related body corporate constitute a 'kind' of product.
Regulation 7.1.07 defines and exempts a surety bond from the definition of a financial product. A surety bond is an arrangement where one party undertakes to make a payment or perform some sort of obligation on behalf of the other party. They are generally required as part of other arrangements between the second party and a third party and provide protection to the third party in the event that the second party is unable to perform the obligation or make the payment themselves. Under these arrangements the second party always remains liable to compensate the first party for any payment made or action done under the surety bond. A financial product will only be exempt under this regulation where it is not one of the specific inclusions listed in section 764A of the new Corporations Act.
This regulation clarifies that certain aspects of some rental agreements do not constitute a financial product. The situations in question are ones where a person has the choice to pay different amounts when renting something (a car, for example) in order to vary the amount that they may to have to pay in the event of an accident or other similar circumstance. The regulation is intended to exclude these types of arrangements both where they are a part of the original rental or leasing agreement as well as where they are a separate agreement.
Regulation 7.1.08A sets out in subregulation (1) a number of documents that although prepared in accordance with the Corporations Act are not exempt from the definition of financial product advice. These are:
- Product disclosure statements that contain personal advice about any product or general advice about a product other than the product to which the statement relates;
- Financial Services Guides that contain personal advice;
- Documents or statements that might be exempt just because they comply with requirements of section 1018A of the Act;
- A record of advice mentioned in subsection 946B(3A).
The purpose of the regulation is to clarify that product disclosure statements and financial services guides that contain personal advice are not exempt from the requirements applying to the giving of personal advice. The regulation also clarifies that advertisements described in section 1018A are not exempt documents.
Subregulation 7.1.08A(2) ensures that certain documents that are required under provisions of the Corporations Act outside Chapter 7 are exempt from the definition of financial product advice. These are: disclosure documents (such as prospectuses prepared in accordance with Chapter 6D), bidder's statements and target's statements (required by Chapter 6). This reflects the fact that the content of these documents and liability relating to them is already dealt with elsewhere in the Corporations Act.
Subregulation 7.1.08A(3) ensures that disclosure documents under pre-FSR regimes are also exempt documents. These documents may continue to be in use during the transitional period until the relevant product issuers 'opt-in' to the FSR regime.
Subregulations 7.1.10(1) and (4) currently provide that TNS Clearing Pty Limited, in performing its central counterparty role, is not operating a clearing and settlement facility.
These subregulations have been omitted in the light of advice received regarding proposed developments in this industry.
Paragraph 7.1.14(2)(d) provides that an insurance product that provides cover for an at fault driver and is provided at no extra cost in conjunction with compulsory third party insurance is a wholesale product. However, there will still be some disclosure requirements for these products - see regulation 7.9.14B.
This amendment provides that the statement from a potential insured can only be given prior to the product being issued and must be given to the insurer.
It also provides that this statement can only be used to satisfy the requirements of paragraph 7.1.17(1)(a), rather than paragraph 7.1.17(1)(b).
Regulation 7.1.22 makes arrangements about the value of derivatives. Paragraph 7.1.22(2)(a) provides that the amount applicable in relation to a single derivative was $100,000. The prescribed amount in paragraph 7.1.22(2)(a) has been increased to $500,000.
Regulation 7.1.30 provides that a person is taken not to be providing a financial service to another person, if they only give advice relating to the manner in which voting rights attaching to securities or interests in managed investment schemes may or should be exercised.
The exemption does not apply unless the advice is not intended or could not reasonably be regarded as being intended to influence a decision in relation to financial products (other than a decision about voting). Also, the advice cannot concern voting that is related to a dealing in financial products.
The note to the regulation provides that the exemption is not applicable to advice that is intended to influence the decision to acquire securities in another company.
Regulation 7.1.32 sets down the circumstances in which passing on documents that contain financial product advice will not, of itself, be taken to be the provision of financial product advice for the purposes of the Act. In particular, a person (person 1) will not be taken to be providing financial product advice where person 1 provides a service that consists only of passing on, publishing, distributing or otherwise disseminating a document provided by another person (person 2) that contains -financial product advice, so long as person 2 does not act on behalf of person 1.
Person 1 must not hold a financial services licence that authorises the provision of financial product advice. In addition, person 1 should not exercise control over the document provided by person 2 (such as selecting or modifying its content), nor should person 1 do anything that would suggest to a reasonable person that person 1 provided, endorsed or otherwise assumed responsibility for the financial product advice contained in the document.
It is not considered, that this 'exemption' should apply where, for example, a person reads from a prepared script - such conduct is better dealt with under the clerks and cashiers exemption contained in subsection 766A(3) of the new Corporations Act.
Regulation 7.1.33 provides that advice provided to a person relating to the structuring of remuneration packages for that person's employees does not constitute financial product advice.
Subsection 766C(7) provides that the regulations may prescribe conduct that is taken not to be dealing in a financial product.
Corporations Regulation 7.1.34 provides that conduct that amounts to the enforcement of rights by a person under a credit facility where the person is acting as an attorney under a power of attorney is not dealing in a financial product.
Regulation 7.4.01 currently prescribes Australian Stock Exchange Limited, ASX Settlement and Transfer Corporation Pty Limited, SFE Corporation Limited and SFE Clearing Corporation Pty Limited as bodies that are subject to the 15% share ownership limitation.
Following the restructure of the SFE group which resulted in the main futures market being transferred to Sydney Futures Exchange Limited, this body has also been prescribed in regulation 7.4.01.
Subparagraph 7.5.24(1)(d)(ii) currently addresses two types of suspension, namely suspension by a participating market licensee (7.5.24(1)(d)(ii)(A)) and suspension under the ASTC operating rules (7.5.24(1)(d)(ii)(B)). However, the words "and that suspension has not been removed" qualify only the suspension under the ASTC operating rules.
Subparagraph 7.5.24(1)(d)(ii) has been amended so that the words "and that suspension has not been removed" qualify a suspension by a participating exchange and a suspension under the ASTC operating rules. This is in line with subparagraph 951 (1)(aa)(ii) of the old Corporations Act.
Subparagraph 7.5.25(1)(d)(ii) currently address two types of suspension namely, suspension by the participating market licensee and suspension under the ASTC operating rules. However, the current situation, as contained in subparagraph 951 (1)(a)(ii) of the Corporations Act, only addresses one suspension, namely suspension by the participating exchange.
Subparagraph 7.5.25 (1)(d)(ii) has been amended to bring it into line with subparagraph 951 (1)(a)(ii) of the old Corporations A et.
Currently, subparagraphs 7.5.26(1)(d)(ii) and 7.5.27(1)(d)(ii) address two types of suspension, namely suspension by a participating market licensee and suspension under the ASTC operating rules. However, the words "and that suspension has not been removed" qualifies only the suspension under the ASTC operating rules.
Subparagraphs 7.5.26(1)(d)(ii) and 7.5.27(1)(d)(ii) have been amended so that the words "and that suspension has not been removed" qualifies both types of suspensions. This is in line with subparagraph 952(1)(a)(ii) of the old Corporations Act.
The amendments to regulations 7.5.46, 7.5.52 and 7.5.68 ensure that these regulations accurately reflect the nexus with Australia requirements as contained in sections 954U, 954ZB and 966A of the Corporations Law.
Subregulation 7.5.71 (1) provides a cap on the amount of compensation that can be paid out for claims in respect of insolvent participants.
The amendment to regulation 7.5.71 provides that the cap on the amount of compensation that can be paid out for claims in respect of insolvent participants is identical to the capped amount currently provided in section 968 of the old Corporations Act.
Subregulation 7.5.75(2) provides that the SEGC may reduce the amount of compensation payable to a claimant where the claimant has assigned any of its rights and remedies to a third party and has received a benefit for doing so.
The amendments to regulation 7.5.75 clarify that the SECG can reduce the amount of compensation payable to a claimant where the claimant has assigned any of its rights or remedies to a third party and has received a benefit (whether or not from the person to whom the rights or remedies were assigned) for doing so.
Section 891A provides a mechanism by which the Minister may authorise the payment out of the National Guarantee Fund of a proportion of that fund so that the relevant clearing and settlement facilities would instead make their own clearing house support arrangements, rather than calling on the National Guarantee Fund. The National Guarantee Fund would continue to be available in relation to investor protection claims.
The amendments made to the Corporations Regulations on 8 October 2001 prescribed the ASX Settlement and Transfer Corporation Pty Limited as a body corporate to which such a payment could be made.
The amendment to regulation 7.5.85 adds the Options Clearing House Pty Ltd.
Cross-references in subregulation 7.5.09(2), 7.5.30(5)(c) has been corrected, and a minor change made to subregulation 7.5.30(5)(a).
Miscellaneous-minor corrections have been made to Schedule 2, Form 719A.
Need for a financial services licence: general
Paragraph 7.6.01 (1)(e) has been amended to limit the exemption it contains to one where the person doing the referring is not a representative of the licensee (or of a related body corporate of the licensee) to whom the client is being referred.
The situation where the person doing the referring is a representative of the licensee (or a related body corporate of the licensee) to whom the client is being referred is dealt with by a new exemption in paragraph 7.6.01 (1)(ea). This new exemption does not require any additional disclosure as the Financial Services Guide provided to the client in these circumstances will adequately disclose information about the remuneration the referrer may receive.
Amendments have also been made to clarify exactly what conduct is being exempted and to provide that disclosure of benefits in subparagraph 7.6.01 (e)(iv) does not have to be in writing, it will only have to be provided in the same manner as the information that constitutes the referral.
Subregulation 7.6.01(4) ensures that the person to whom the client is being referred can also be a regulated principal who is within their transition period. This is necessary to make sure these exemptions operate properly during the transition period.
Service not described-regulation 7.6.01(3)
A minor amendment has been made to subregulation 7.6.01(3) to provide that subregulation (1) is not intended to affect the determination of whether the provision of a service that is not described by that paragraph is, or is not, the provision of a financial service.
Regulation 7.6.01A prescribes travellers' cheques for the purposes of paragraph 911B(1)(c)(iv) of the new Corporations Act.
This is consistent with the treatment of non-cash payment facilities (including travellers' cheques) in other areas of the Corporations Regulations, for example, regulation 7.7.02.
Regulation 7.6.04 imposes various conditions on Australian financial services licences.
Paragraph 7.6.04(1)(e) requires notification to ASIC within 10 business days after a change in certain particulars entered in the register of authorised representatives of financial services licensees.
The amendment to this-paragraph enables a financial services licensee to make arrangements with a body corporate which it has appointed as its authorised representative, to make the required lodgements with ASIC when the body corporate appoints an individual as an authorised representative on behalf of the licensee.
Under paragraph 7.6.04(1)(ca), a financial services licensee must ensure that those of its authorised representatives which can make sub-authorisations, are aware of the notification requirements in subsections 916F(1) and (3) of the new Corporations Act.
Paragraph 7.6.04(1)(e) requires a financial services licensee or a body corporate that is an authorised representative to make specified inquiries regarding the person's identity and whether the person has been allocated an ASIC number as an authorised representative.
Under paragraph 7.6.04(1)(f), a financial services licensee or a body corporate authorised representative, when lodging a document concerning an authorised representative with ASIC, must refer in the document to any ASIC number allocated to the authorised representative.
Paragraph 7.6.04(1)(i) imposes a licence condition that requires a financial services licensee to notify ASIC where there is a change in control of the licensee.
'Change in control' is defined in paragraph 7.6.04(2)(a) to include any transaction or series of transactions within a 12 month period resulting in a person (either alone or together with associates) having control of the licensee. In turn there is a definition of 'control', in relation to a financial services licensee, in paragraph 7.6.04(2)(b). Determining control depends on various factors, including voting power, shareholding, capacity to control the board and capacity to determine the outcome about financial and operating policies.
Paragraph 7.6.04(1)(j) imposes a licence condition that a financial services licensee must, on the request of any person, make available for inspection a copy of its financial services licence within a reasonable time.
The term, 'general financial advice', has been replaced with 'general advice' in subregulation 7.7.01 (1). This is more consistent with the terminology used in the regulations and the new Corporations Act.
Subregulations 7.7.01(3) and (4) provide that documents, information or statements that are given under section 940C in electronic form should as far as practicable be given in a way that will allow the recipient to maintain a copy of them so that they can be accessed in the future. Documents or statements that are given electronically must also be clearly identifiable from other information so that the recipient of the information is not confused, for example, about what information is and is not part of a financial services guide.
Regulation 7.9.02B provides similar requirements to the giving of statements under section 1015C.
Regulation 7.7.05A provides that, for the purposes of paragraph 942C(2)(m) of the new Corporations Act, a Financial Services Guide given by an authorised representative must contain the number allocated by ASIC to the authorised representative. This requirement is in addition to other requirements relating to the content of Financial Services Guides given by authorised representatives set out in regulations 7.7.06 and 7.7.07.
Regulation 7.8.01 sets out the requirements of the account which money received under section 981B of the
Act is required to be paid into.
Subregulation 7.8.01 (1) has been amended to clarify the situation that an authorised deposit-taking institution is not prevented from paying money into an account held by itself.
Subregulation 7.8.02(6) sets out the minimum balance requirements for accounts required to be maintained under section 981B of the new Corporations Act. This subregulation has been amended along the lines of subsections 26(3), (3A) and (3B) of the Insurance (Agents and Brokers) Act 1984.
Subregulations 7.8.08(14) and (15) require a licensee to do certain thing if the risk to which a contract of insurance or proposed contract of insurance relates has not been accepted.
Paragraphs 7.8.08(14)(a) and (15)(a) have been amended to provide that the licensee must give notice to the insured or intending insured, in a form (if any) approved by ASIC, of the extent to which the risk has not been accepted.
Subregulation 7.8.09(1A) makes clear that the reporting requirements set out in regulation 7.8.09 do not apply to dealings by a financial services licensee in derivatives on behalf of other people. The reporting requirements in relation to dealings in derivatives are set out in regulation 7.8.10.
Subparagraphs 7.8.12(2)(c)(ii) to (vi) apply to a financial services licensee who is a partner in a firm and duplicate the details in subparagraphs 7.8.12(2)(b)(iii) to (v) which apply to a financial services licensee who is not a partner in a firm.
The subparagraphs extend the transactions, particulars of which the financial services licensee who is a partner in a firm must provide in the required financial records.
Subregulation 7.8.20(5) sets out the requirements for the keeping of records relating to financial product transactions entered into by a financial services licensee on their own behalf. Subparagraph (a)(v) requires that a licensee keep records of the source of the funds used to effect the financial products transaction.
Subparagraph (a)(v) has been amended to require a licensee to keep records of financial products used to effect the financial products transaction.
Minor improvements in wording have been made to subregulations 7.8.01 (1) and 7.8.01(5), and regulation 7.8.20.
Amendments to the specified regulations reflect the incorporation of annuity products to the more detailed information requirements under disclosure obligations relating to superannuation products (see below).
Amendments to the definition of ongoing management charge in subregulation 7.9.01 (1) seek to exclude charges in relation to the provision of additional services provided by the product issuer on request from the product holder. However, services provided by third parties paid for by commission are included in the ongoing management charge.
The amendment provides a definition of withdrawal benefits in terms of the SIS Regulations.
Amendments to regulation 7.9.02 clarify that the acquisition of an interest in a sub-plan, whether or not a person already holds an interest in a different sub-plan in the same superannuation fund constitutes the issue of a financial product.
Regulation 7.9.02A allows for a product disclosure statement to be provided in any way that is agreed to by the person receiving it or their agent, subject to other provisions of the Act or regulations. This is in line with the requirements for giving a Financial Services Guide in subparagraph 940C(1)(a)(iii) of the new Corporations Act.
The rationale for these amendments is included in the explanation of the amendments to subregulations 7.7.01(3) and (4) (above).
An unintended consequence of the interaction of sections 1012F and 1016A of the new Corporations Act and the Corporations Regulations is that the issue of certain types of superannuation products are not subject to application form requirements.
The regulations seek to remove those affected issues of superannuation products from the operation of section 1012F of the Act to ensure that they are subject to the operation of section 1016A.
An alternative set of regulations effect the delayed provision of a product disclosure statement in relation to those superannuation products by amending the obligation to provide a product disclosure statement under section 1012B of the Act.
Modifications relating to application forms and Product disclosure statements for standard employer-sponsor arrangements - relevant superannuation entities - regulation 7.9.06A; Schedule 10A, Parts 3 & 4; Schedule 10A, Items 6.1 to 6.3:
Regulation 7.9.06A and amendments to Part 6 of Schedule 10A are intended to ensure that requirements for an application form to be received before a superannuation product can be issued are consistent with the requirements currently operating under the Superannuation
Regulation 7.9.06A provides a definition for relevant superannuation entities for the purposes of section 1016A of the new Corporations Act, thereby ensuring that the section is applied in a manner consistent with that of section 153 of the SIS Act. This replaces the operation of Part 3 of Schedule A which has subsequently been omitted.
Modifications to Part 6 remove drafting errors and the improper application of certain requirements to RSA products.
Amendments to include regulation 7.9.06B and Part 17.2 of Schedule 10A detail the application form and product disclosure statement requirements in respect of exempt public sector superannuation schemes. Corporations Amendment Regulations 2001 (No. 4) did not continue the operation of disclosure requirements from that specified by the regulation 3.09A of the Superannuation Industry (Supervision) Regulations 1994.
Regulation 6D.5.01 exempts a warrant that is a security (see the definition of warrant in subregulation 1.0.02(1)) from the provisions of Chapter 6D of the Corporations Act (the fundraising provisions). Regulation 7.9.07A provides that the Part 7.9 disclosure regime will apply to all warrants.
Where a financial product that is entered into, or acquired on, a financial market is a warrant, regulation 7.9.07A will exempt a financial services licensee from the effect of subsection 761E(6)(c) and (d) (under which the licensee may be deemed to be the issuer of the financial product). Regulation 7.9.07A will thus provide relief for financial services licensees (for example, brokers) from the obligation to prepare a product disclosure statement in relation to a warrant.
Under the regulation, the warrant issuer will be the 'responsible person' for the preparation of the product disclosure statement in relation to the warrant under the terms of subsection 1013A(3). The warrant issuer will be the person who determines the terms of the warrant, ie. the rights and conditions under the warrant, and who will be responsible, under subsection 761E(4), for the obligations owed under the terms of the warrant.
Subregulations 7.9.07A (6) and (7) provide that for the purposes of section 1017B, the responsible person for the product disclosure statement for a financial product that is a warrant (ie. the warrant issuer) may notify the holder of the warrant of a material change or significant event affecting the product by giving the relevant information to the operator of the market on which the holder entered into or acquired the warrant before, or as soon as practicable after, the change or event occurs.
Regulation 7.9.07B modifies the product disclosure statement content requirements of section 1013D in relation to standardised market-traded derivatives (such as derivatives currently known by the terms 'exchange-traded options' and 'futures'), the terms and conditions of which are determined by the market operator and generally made available to the public.
Regulation 7.9.07B, in the case of such derivatives, allows certain information required to be included in a product disclosure statement, such as the significant benefits and risks associated with a derivative or other significant characteristics or features of the product, to be couched in general terms, rather than being specific information relating to particular market-traded derivatives. For example, the information required by paragraphs 1013D(1)(b), (c) and (f) could be general information about the risks and benefits arising from different possible exercise prices, expiry dates and exercise styles of types of market-traded derivatives.
The exemption from providing particular information in a product disclosure statement in relation to particular market-traded derivatives will be subject to the retail client agreeing to the terms and conditions applicable to the financial product or financial products that are the subject of the transaction (see paragraph 7.9.07B(1)(c)).
However, paragraph 7.9.07B(1)(c) is not intended to prevent retail clients allowing a licensee to operate a discretionary account, that is, without the client's specific approval of particular transactions, and to place orders on the client's behalf in relation to, for example, a range of prices or types of derivatives.
A separate regulation, regulation 7.9.72A, provides that for the particular information that is required by paragraph 1013D(1)(d) regarding 'the amount payable', it will be sufficient for the product disclosure statement to clarify the basis on which the amount of liability would be calculated rather than specifying an actual figure. In the case of derivatives where margins are payable, the amount payable for margins will fluctuate during the life of the derivative and it will not be possible to specify the amount of margin calls in advance. The -regulation applies to all financial products (see below), not just derivatives.
Regulations 7.9.07A and 7.9.07B provides that in relation to a financial product that is a warrant or a standardised market-traded derivative, information that it would not be reasonable for a retail client, in considering whether to acquire the product, to expect to find in a product disclosure statement (see section 1013F), would include information relating to the underlying thing (for example, assets, indexes, commodities -see section 761D(1)(c)).
Such information would include information that a market operator is required by law to disclose to the market, including information that is required to be disclosed to the market operator, and also information that the market operator chooses to make generally available to the public in the form of market data or educational material.
Information that the market operator chooses to make generally available to the public could include information published by the market operator in the form of market data in relation to the underlying things over which derivative products are traded on the market, and in relation to the derivative products themselves, and also general educational material relating to both 'underlyings' and to market-traded derivative products. Information that is generally made available to the public by a market operator in relation to financial products in the form of market data and other material could include information published on the market operator's website.
Subregulation 7.9.07C clarifies that the remedy provided under section 1016F for acquiring a financial product under a defective product disclosure statement , ie. for a client to return the product and have the money paid for the product repaid, will not apply to market-traded derivatives that are closed out.
The more detailed information requirements specified for the Product Disclosure Statements of superannuation and RSA products in Division 4 of Part 7.9 of the Corporations Regulations, have been extended to incorporate annuities provided by life insurers and certain registered organisations. These annuity products are similar to superannuation pension products and may be purchased with money from the superannuation system.
To give effect to this extension the terminology in Part 7.9, Division 4 and associated Schedules 10B and 10C of the existing Corporations Regulations is amended to pen-nit these existing provisions to apply to annuity products.
The definition of annuity products is based on standards prescribed under the Superannuation
Amendments to regulation 7.9.11 differentiate the detailed information requirements for allocated annuities (that is, those defined under SIS Regulation 1.05(4)) from those of other forms of annuity. This is consistent with the existing arrangements under the Corporations Regulations which provide different detailed information requirements for products issued by capital guaranteed superannuation funds and RSA from other superannuation products.
In satisfying the detailed information requirements for product disclosure statements in relation to annuity products persons should still have regard to the operation of sections 1013D, E & F of the Act.
Amendments to the disclosure of ongoing management charge figures within a product disclosure statement have been made to clarify the requirements for the presentation of ongoing management charges, improve information content and reduce potential over disclosure where a financial product includes multiple identified investment strategies.
The ongoing management charge will be required in relation to the fund or product, and include a breakdown into investment management and non-investment management expenses. A dollar value representation of the ongoing management charge (the converted amount) will be required in relation to the overall fund or product and an example of how that amount is derived provided. This will allow prospective retail clients to determine approximate dollar value representations in relation to ongoing management charges, while reducing the potential for the display of a large amount of numbers which may reduce effective disclosure.
In addition, where a product issuer provides a large array of identified investment strategies, if they were required to disclose the ongoing management charge for each strategy an inordinate number of ongoing management charge figures would be provided within a single document. They could result in a cumbersome table of figures which again would inhibit effective disclosure.
The amendments to Schedule 10B Item 8.2 and regulation allow the responsible person to provide details of the ongoing management charge in relation to investment strategies by another means. For a product disclosure statement, the person may instead include the range for the ongoing management charges where there exists multiple investment strategies under the product. However, to ensure all information relevant to an investment decision by the retail client is provided, the responsible person will be subject to a further obligation to provide a statement in relation to the ongoing management charge for particular investment strategies upon request and for no charge (see subregulation 7.9.12(2)). This will also ensure where a client is provided with a product disclosure statement detailing only a range for the ongoing management charges for an entity which will be consistent with another retail client who is provided with a product disclosure statement that details ongoing management charges for each identified investment strategy.
The terminology used in the amendments for defining the ongoing management charge calculation has been modified to cope with the extended application of the detailed information requirements to include annuity products.
This expanded application has included amendment of the term 'net assets of the fund'. It is expected that in calculating ongoing management charges for a superannuation fund that the phrase is a reference to the net assets of the fund. However, where the product is not issued by a superannuation fund, for example an allocated annuity product issued by a life insurer 'net assets' refers to the net assets of the held against which the product is issued or using an alternative term the net asset backing of the product or product class.
The amendments to these subparagraphs clarify the eligible application requirements which apply for the purposes of the regulation.
This regulation clarifies the application of section 10121A to superannuation products by specifically stating that a direction or request to follow an investment strategy mentioned in paragraph 52(4)(a) of the Superannuation Industry (Supervision) Act 1993 is within the concept of an 'instruction' in section 1012IA.
This regulation provides for product disclosure for at fault drivers (as defined in paragraph 7.11.14(2)(d)). Although generally this type of insurance product is treated as wholesale, this regulation ensures that recipients receive a minimum level of disclosure about the product that will enable them to fully understand the benefits that it offers. This information may be of use in determining whether or not to acquire other financial products which provide for similar cover. Other obligations in Part 7.9 will not apply to these products.
The regulation requires the giving of a statement as soon as reasonably practicable after the issue of the product unless the product holder has already received the statement or the product issuer believes on reasonable grounds that this is the case. The statement must contain a subset of the information that is contained in a product disclosure statement (that is the information mentioned in paragraphs 1013D(1)(a) and (b) of the Act) and like a product disclosure statement must be given in accordance with section 1015C. It is an offence to fail to provide this statement, the penalty is 50 penalty units.
Regulation 7.9.14C concerns the obligation in paragraph 1013D(1)(l) of the new Corporations Act for issuers of products with an investment component to disclose the extent to which labour standards or environmental, social or ethical considerations are taken into account in the selection, retention or realisation of an investment.
This regulation clarifies that it is for the particular product issuer to select the considerations that it wishes to take into account in investment decision-making, and to then disclose against those considerations.
Product issuers will need to consider which, if any, of those considerations they regard as 'environmental, social or ethical considerations'.
They will also need to consider whether they will be regarding any standards taken into account in the selection, retention or realisation of an investment as 'labour standards'.
This approach emphasises that it is for each product issuer to determine those considerations, if any, that they will be regarding as 'environmental, social or ethical considerations'; as well as those standards, if any, that they will be considering to be 'labour standards'.
It will ensure that product issuers have the flexibility to consider the widest range of matters that could be considered to be labour standards or environmental, social or ethical considerations; and to then determine which of those matters will factored into their investment decision-making processes.
However, product issuers will have the option of stating in their product disclosure statement that they do not take these matters into account for the purpose of investment decision-making.
Regulation 7.0.14C clarifies that the obligation to disclose 'the extent to which' socially responsible considerations are taken into account, includes an obligation to disclose if these matters are not taken into account at all. Product issuers that take these matters into account 'to no extent' will therefore need to disclose this in their product disclosure statements. No further disclosure obligations will apply to them under regulation 7.9.14C.
Where a product issuer does claim to incorporate socially responsible considerations into their investment decision-making processes, two further disclosure obligations will apply.
First, a product issuer will need to outline in their product disclosure statement those matters that they will be considering as labour standards or environmental, social or ethical considerations when it comes to making decisions about the investment.
Second, a product issuer will need to provide an explanation of the extent to which those matters are taken into account in the selection, retention or realisation of an investment. This is intended to provide retail clients with an outline of the extent to which the considerations selected by a product issuer feed into and impact on the process of making decisions about the investment.
The disclosure of information under these two requirements is governed by the test in subsection 1013D(l). This test obliges product issuers to disclose information only to the extent that a person would reasonably require for the purpose of making a decision, as a retail client, whether to acquire the financial product. It is this test that will determine the extent to which methodologies need to be disclosed in the product disclosure statement. It was not considered necessary to further elaborate upon the level of disclosure of methodologies. It is envisaged that competitive and marketing pressures across product issuers will further drive the disclosure of these matters.
The phrase relating to pooled superannuation trusts in relation to sub-plans was unnecessary due to the nature of pooled superannuation trusts.
An amendment to subregulation 7.9.32 removes a duplication of requirements within the regulations.
The amendments to regulation 7.9.48 permit disclosure of information in relation to complaints to include matters over a broader range of circumstances and legislative provisions. This is appropriate as complaints may now extend to matters under the Corporations Act and Regulations.
This regulation amend an incorrect reference to modification power under the Act for the operation of the regulation.
Regulation 7.9.61A provides for situations where it is not possible for a product provider to issue or transfer a financial product, and it is also not possible to return the money paid to acquire that product, for example, because the applicant cannot be identified. It also covers situations where an attempted return of the application money has failed.
In these situations, regulation 7.9.61A clarifies that the application money may be taken out of a trust account to be transferred to the Australian Securities and Investments Commission (ASIC). A product provider will need to transfer the unclaimed application money to ASIC in compliance with subsection 1017E(4) of Act, so that it can be dealt with as unclaimed property under Part 9.7 of the Corporations Act.
Part 9.7 provides for ASIC to make payments to persons who claim to be entitled to unclaimed money. Regulation 7.9.61A therefore requires a product provider to provide ASIC with any information in their possession that could help ASIC to assess such a claim.
Regulation 7.9.61B applies to insurance products and is intended to cover the situation where a cover note is issued to a person prior to the product itself being issued. In this situation the regulation allows the money paid by the person to be removed from a section 1017E account as long as before the cover note expires, either the product for which the money was paid is issued or the money is returned.
This regulation provides that where a payment is made by a cheque then the money is not paid to the product provider until the cheque is honoured. This ensures that agents of product providers who receive cheques on their behalf can send those cheques to the product provider and they do not have to immediately deposit the cheque in an account that complies with section 1017E.
Regulation 7.9.61D provides that subsection 1017F(5A) does not apply in certain situations where a person has become a member of a superannuation fund in accordance with various statutory requirements. This ensures that where such a fund provides a facility for confirming transactions, those members cannot 'opt out' of the use of such a facility. Otherwise funds would be unable to rely on facilities to confirm transactions as members might opt out or refuse to agree to their use. However, to ensure that such facilities are -reasonably accessible, this exemption only applies if the facility can be accessed either by phone, writing or another method that the responsible person knows (or reasonably believes) that product holder is able to access (a corporate intranet that was available to all members could be an example of such a method).
This amendment clarifies that the required circumstances for the removal of confirmation requirements in relation to superannuation and RSA products only relate to the period when a product holder ceases to hold a product.
The amendment to subregulation 7.9.62(2) clarifies to whom the RSA provider is not obliged to provide information in relation to cooling-off in the given circumstances.
Subregulations 7.9.62(3) and (4) create a number of exemptions from the requirement to provide confirmations. They exempt:
- The debiting of fees or charges (including fees or charges applicable as a result of another transaction).
- The debiting of charges or duties on deposits and withdrawals that are payable under State, Territory or Commonwealth law.
- Debits or credits to basic deposit products where the holder is given a half yearly statement that contains the information about the transaction required by section 1017D.
- Any other transaction required or authorised by a State, Territory or Commonwealth law.
- Additional contributions to any product where the holder has previously agreed to the timing and amount, or method of calculating the amount, of that contribution. This would apply regardless of when the agreement was entered into (as opposed to paragraph 1017F(4)(a) of the new Corporations Act which only applies to agreements entered into at the time of acquisition of the product). These regulations do not specify the person with whom the agreement must be made, so the exemption would include transactions where the holder entered the agreement with a person other than the product issuer, for example, an employee entering an agreement with an employer regarding regular contributions to a superannuation product.
- Additional acquisitions of managed investment products where the holder has previously agreed to the timing and amount, or method of calculating the amount, of that acquisition and the holder already holds or has agreed to acquire interests in the same registered scheme.
- Superannuation guarantee charges - the Australian Taxation Office will provide confirmation of those transactions.
- The acceptance or settlement of a claim relating to an insurance contract.
- The generating by a financial product of a financial return or other benefit for the holder of that product or the payment of such a return or benefit to the holder where the method of the payment has been agreed in advance. However, where the payment is by way of a contribution or deposit to another financial product, that may constitute a separate transaction in relation to that product.
It has been unnecessary to exempt some regular events that occur in relation to financial products as they are not within the definition of a 'transaction' and so do not require confirmation under section 1017F. Examples of these include changes in the name or address of the holder of a product and the making of regular payments towards the cost of a financial product (for example, payment of monthly instalments for an insurance product).
Regulation 7.9.63A modifies subsection 1017F(2) to provide for who must confirm certain transactions.
Generally, where a licensee acts on behalf of the holder of a product in a transaction, that transaction must be confirmed by the licensee (subregulation (2)). So, for example, secondary acquisitions and disposals of securities would be confirmed by the broker acting on behalf of the buyer or seller of those securities.
This does not apply to a transaction which is the issue of a financial product which must generally be confirmed by the issuer. The exception to this is the issues of a derivative (other than a warrant) which must be confirmed by the licensee (if there is one) acting on behalf the holder. If there is no such licensee or the derivative is a warrant then the issuer must confirm the transaction.
Similarly, sales pursuant to an offer to which section 1012C applies and which are not confirmed by a licensee under subregulation (2) must be confirmed by the seller of the product (subregulation (4)). The same situation applies to disposals which where they are not confirmed by a licensee but are disposals to the issuer of the product (such as redemption of an interest in a registered scheme) must be confirmed by the issuer (subregulation (5)).
Transactions other than disposals or issues which occur while the holder holds the product must be confirmed by the issuer (subregulation (6)).
Regulation 7.9.63B provides additional requirements for the content of a confirmation. It is generally based on subsection 842(3) of the old Corporations Act. Regulation 7.9.63C provides for special requirements for confirmations of multiple transactions and is based on the relevant parts of the previous regulation 7.4.01A.
Regulation 7.9.63D has been included to ensure that where a client for the purposes of the cooling-off provisions under sections 1019A and B of the new Corporations Act is subject to a further obligation under the Corporations Regulations in relation to the exercise of a right of return that timely information in relation to the applicable cooling-off regime is provided.
This regulation clarifies what can constitute a facility for the confirmation of transactions. In particular, it is intended that this regulation clarifies that a mechanism that involves the holder requesting the confirmation from the responsible person or their representative (for example, by phoning a call centre or electronically over the internet) is an acceptable facility. However, facilities that would require the holder to ask another person to request the confirmation from the responsible person (for example, if the holder had to ask a licensee who could then ask the responsible person in order to obtain the confirmation) does not constitute such a facility.
Amendment to this paragraph permits additional contributions, which may have been agreed, but that are not mandatory under an existing contract to occur without being subject to the cooling-off requirements.
Amendments to paragraph 7.9.64(1)(f) provide that the cooling-off provisions are not to apply in circumstances related to successor funds and eligible rollover funds. These exclusions are consistent with the existing operation of cooling-off provisions under section 170 of the SIS Act and SIS Regulation 3.13.
Regulation 7.9.64 has been amended to remove a drafting error. Only the issue or sale of a risk insurance product that is of less than 12 months duration and is a renewal of an existing product on the same terms and conditions will be exempt from the cooling-off provisions. It was always the intention only to exclude the renewal of short-term contracts of insurance on the same terms and conditions, such as those renewable monthly in relation to mobile phones.
The exclusion of managed investment products that are to be subject to quotation on a financial market has been made to address concerns that the cooling-off provisions may unduly affect market operations, including potential delays to the quotation process.
The application of alternative cooling-off provisions in relation to certain financial products that are currently excluded from operation of sections 1019A and 1019B of the new Corporations Act will be subject to ongoing consideration. Such financial products may include managed investment products that are to be quoted on a financial market and non-liquid managed investment products.
The amendment removes an incorrect reference to RSA products as the concept of standard employersponsored members does not appear under the Retirement Savings Account Act 1997.
The amendments to subregulation 7.9.66(1) have been made to reflect the preservation requirements under Part 6 of the SIS Regulations. That is, since the commencement of those preservation requirements any contributions, apart from unrestricted benefits that may be rolled into the superannuation or RSA product, constitute preserved benefits that must remain within the superannuation system. Accordingly, the obligation on the client to nominate a superannuation entity or RSA into which benefits are to be transferred has been applied to those preserved benefits.
Subregulation (2) seeks to clarify the interaction of the operation of the nomination requirements and the exercise of the right of return. The initial notification by the client of the exercise of the right of return should be performed in the 14-day period described under section 1019B of the new Corporations Act. The nomination by the client for the transfer of benefits must be provided within 1 month thereafter (subregulation (3)). On receipt of the nomination for the transfer of benefits the exercise of the right of return is completed, and the allocation price is calculated on that date. However, if the nomination for the transfer of benefits has not been provided within that time the right of return lapses.
Further, if the nomination provided by the client is unable to be completed and a further superannuation or RSA product issued, then the initial product issuer may transfer the client's benefits to an eligible rollover fund. This replaces that mechanism available under subregulation 7.9.67(9).
The amendment to paragraph 7.9.87(8)(b) attends to circumstances where risk products (such as life insurance) are issued until the premium is no longer paid, in which case the insurance coverage lapses, or until a certain age or other event occurs.
As the amendments to 7.9.66 and 7.9.68 include the default mechanism for the nomination process related to superannuation and RSA products, the facility has been removed from this regulation.
The amendments made to regulation 7.9.68 address a series of legislative and operational concerns with the application cooling-off provisions to standard employer-sponsor arrangements.
The intent of this regulation is to ensure a right of return is available to a person, in this instance a standard employer-sponsor, who will be making a decision in relation to the acquisition of a superannuation or RSA product.
The amendments to subregulation (1) clarify the ability for a standard employer-sponsor to exercise a right of return relate to the first instance in which they apply for the issue of a superannuation or RSA product on behalf of an employee.
In recognition of the preservation requirements applying under the SIS regulations a nomination process for the transfer of monies to another superannuation entity or RSA that are to be returned in relation to contributions by the standard-employer sponsor (similar in operation to that applied in regulation 7.9.66 - see above).
However, it has been necessary to address the potential situation where prior to the exercise of a right of return by the standard employer-sponsor, the subject standard employer-sponsored member may initiate their own voluntary contribution to the fund on the basis of the standard employersponsors arrangements. These contributions may include a rollover or transfer from another fund. In relation to those monies, the product issuer will be subject to an obligation to return the monies as directed by the standard employer-sponsored member (subject to preservation requirements). This obligation is consistent with requirements under the operation of existing section 171 of the SIS Act in relation to the return of monies subject to the direction of persons who have paid the monies rather than simply the applicant for the issue of the product.
The purpose of amendments to the subregulation is to clarify that product issuers acting under the operation of the cooling-off provisions of the Corporations Act do not contravene the terms of any existing contract or legal relationship governing the issue and redemption of a financial product.
The original form of the subregulation acted to require that the product issuer provide the stated information as part of the application form attached to the product disclosure statement. However, the intention is to require that the client provide the stated information when completing the application form to request the issue of the financial product. The amendments made to subregulation (1) give effect to that intention.
Regulation 7.9.80 clarifies the types of short selling permitted in OTC ('over the counter') fixed interest markets. It is based on the form of exemption developed in consultation with industry by ASIC in its 1996 Background Report on Short Selling in OTC Fixed Interest Markets.
This regulation will allow government bonds, and corporate bonds and debentures where the amount on issue exceeds $100 million in value, to be short sold without contravention of the prohibition against short selling in section 1020B of the new Corporations Act. The $100 million requirement will help to ensure sufficient liquidity, as more bonds or debentures on issue would be expected to reduce the likelihood of a failure to deliver.
To qualify for this exemption, a short seller will need to be acting as principal and entitled to use a licensed clearing and settlement facility. Austraclear or RITS are included separately because they may not become licensed until sometime during the transitional period for the reforms.
A short seller will also need to have reasonable grounds for believing that arrangements can be put in place before the time for delivery to enable the bonds or debentures to be unconditionally vested in the purchaser by the time for delivery. This is a relaxation of the requirement for an exemption in paragraph 1020B(4)(d) of the new Corporations Act, which requires firm arrangements to be in place before the time of the sale.
The regulations are intended to replicate the effect of the requirements under Division 2.7A of the SIS Regulations and Division 2.8 of the RSA Regulations.
The definitions of 'lost member' and 'lost RSA holder' are included in Regulation 7.9.01 by reference to the SIS and RSA regulations respectively.
The modifications to the operation of section 1017C of the new Corporations Act, make references to the 'responsible person' apply appropriately to reflect the nature of the operations of superannuation entities and issuers of retirement savings accounts.
Minor changes of wording have been made to regulation 7.9.01 (definition of 'charge', 'direct amount charge', 'net earnings rate'), paragraph 7.9.19(b), paragraph 7.9.20(1) (d), paragraph 7.9.26(1)(g), paragraph 7.9.26(1)(i), regulation 7.9.28, the heading of Part 7.9, subdivision 5.4, subregulation 7.9.30(1), subparagraph 7.9.30(1)(a)(i), the heading of regulation 7.9.66 and regulation 7.9.71.
Amendments have been made to several provisions to address incorrect references associated within different regulations (paragraphs 7.9.42(1)(g) and 7.9.45(2)(e), and subparagraph 7.9.45(2)(f)(1)).
The amendments correct referencing errors.
This amendment corrects a sequencing error in the modification to section 1012D of the new Corporations Act.
The amendments made are intended to rectify an error in the terminology for referencing the reporting period under section 1017D of the new Corporations Act.
Further, the amendments to the definitions contained in subsection (16) will provide longer term consistency for those terms between the Corporations Regulations and the SIS and RSA Regulations.
An amendment to this item provides for the consistent reporting of effective rates for net interest in periodic statements.
The amendments qualify the operation of 'the provision.
The amendment to item 12.2 of Schedule 10A provides a transitional measure to allow for the operation to the item where a product disclosure statement is not available.
The amendments ensure that the product disclosure statement need only include information in relation to benefit protection standards under the SIS and RSA Regulations if appropriate to the nature of the product.
This paragraph has been amended to ensure that a percentage figure will only be given where it is not practicable to provide a fixed amount.
Subregulations 10.2.25(2), 10.2.26(2) and 10.2.27(2) operate so that if a claim comes within the scope of paragraph (1) of those regulations then Divisions 6 to 9 of Part 7.10 of the current, Corporations Act continue to apply.
These subregulations have been amended so that in addition to Divisions 6 to 9 of Part 7.10, Division 1 also continues to apply. This is seen as a necessary amendment as Division 1 contains a number of definitions that are essential to a consideration of the claims divisions in Divisions 6 to 9.
New regulation 10.2.29A has been added to Division 9. This regulation clarifies which provisions apply to a claim that has been made after commencement of the relevant provisions of the FSR Act but it has not been withdrawn before the end of the transitional period.
This amendment to regulation 10.2.38 and the table it contains ensure that sections 1266 and 1267 of the old Corporations Act continue to apply futures brokers during their transitional period and that section 1267 of the old Corporations Act continues to apply to futures advisers during their transitional period.
This regulation allows ASIC to ensure that conditions on licences take effect from a point in time later than when they are actually imposed. This flexibility would, for example, allow the licensee whose licence is having conditions imposed or varied sufficient time to make any necessary changes to their business before the new conditions came into effect.
This regulation ensures that offers of a product that were made prior to Division 2 of Part 7.9 applying to the product are (where appropriate) included in the issues and sales which are disregarded under subsection 1012E(9).
The amendments to these regulations provide the people to whom they apply with the option of either complying with the relevant parts of the old Corporations Act or complying with the relevant
provisions of the new Corporations Act (Subdivision A of Division 2 of Part 7.8) in relation to the money mentioned in those regulations.
Paragraph (c) of subregulation 10.2.74(3) is omitted to clarify that all derivatives traded on a market will be considered to be of the same class as all other derivatives that are traded on a market and all derivatives traded off-market will be considered to be of the same class as all other derivatives traded off-market during the transition period.
Regulation 10.2.74(9A) ensures that non-cash payments related to deposit products (as defined) will be given the same treatment with respect to product disclosure under the transitional provisions as has been provided for deposit products (see subregulation 10.2.74(9)). This treatment will be provided for new non-cash payment products after commencement-if they are associated with existing products such as deposit products, as well as for existing non-cash payment products related to deposit products.
Regulation 10.2.78 has been amended so that it clearly deals with situations where the person who is making or accepting an offer does not have to be the person to whom the product will be issued. A similar amendment has been made to regulation 10.2.82.
The effect of paragraphs (c) and (d) duplicates regulation 10.2.52. They have been omitted. In addition, paragraph (e) has been omitted as it does not operate correctly. It has been replaced with a new regulation (regulation 10.2.52A).
These amendments are intended to clarify that if there is a dispute resolution scheme in existence during the two year period after commencement of the relevant provisions of the FSR Act that only covers some of a person's activities (ie. some of the products that they provide services for), then subject to the other requirements of regulation 10.2.87 that person must be a member of it.
These amendments add a number of provisions to the list in subregulation, 10.2.90(2). This clarifies that ASIC is not prevented from taking conduct that arose prior to the commencement of the FSR Act (11 March 2002) or during a person's transitional period into account in exercising its discretion under these provisions. The amendments also clarify that this regulation only deals with powers in Part 7.6 of the new Corporations Act.
These regulations make the necessary amendments to Division 18 of Part 10.2 of the regulations so that it applies to banning orders made under Part 8.3 of the old Corporations Act, as well as banning orders made under Part 7.3 of the old Corporations Act.
This regulation ensures that where ASIC would have had certain powers (like suspension or cancellation) in relation to a licence that a person held under the old Corporations Act, ASIC has corresponding powers to take action in relation to an Australian Financial Services Licence that a person subsequently holds.
For example, if a person engages in conduct when they held a dealer's licence under the old Corporations Act that would have allowed ASIC to cancel that licence and the person is then granted an Australian Financial Services Licence covering the same activities before ASIC becomes aware of that conduct then this regulation ensures that ASIC could cancel that person's Australian Financial Services Licence.
Regulation 10.2.120A provides for certain SIS Regulations that are to be omitted to be operable during the 2year transitional period. This will permit persons who have not opted into the FSR regime to continue operations on the basis of existing SIS Regulations.
Regulation 10.2.120B provides for certain RSA Regulations that are to be omitted to be operable during the 2year transitional period. This will permit people who have not opted into the FSR regime to continue operations on the basis of existing SIS Regulations.
This regulation ensures that subsection 601ED(2) of the new Corporations Act applies appropriately to issues of interests in managed investment schemes that occurred prior to new Division 2 of Part 7.9 applying to the interest.
Under the FSR transitional arrangements contained in new Part 10.2, certain provisions of the old Corporations Act as well any associated provisions (such as definitions) and any applicable regulations continue to apply despite their repeal to certain people during the FSR transitional period (two years from commencement of the relevant provisions of the FSR Act).
The regulations in Divisions 29-33 are necessary to ensure that these preserved provisions of the old Corporations Act and Regulations operate appropriately during the FSR transitional period.
These modifications are partly necessary because financial markets and CS facilities will transition to the new licensing regime contained in Parts 7.2 to 7.5 of the new Corporations Act at the time of the commencement of the relevant provisions of the FSR Act. As a consequence, references in the old Corporations Act to 'exchanges' and 'clearing houses' etc must be up-dated to refer to 'licensed markets/market licensees' and 'licensed CS facilities/CS facility licensees'. Without these amendments, these provisions of the old Corporations Act will not operate properly during the transition periods that will apply to regulated principals after the commencement of the relevant provisions of the FSR Act.
Modifications are also necessary because certain provisions of the old Corporations Act deal with situations in which one dealer or broker interacts with another dealer or broker. Amendments are necessary to ensure that these provisions will still operate in relation to a 'regulated principal' where the other person has already transitioned to the new licensing regime, and is no longer a dealer or broker but a 'financial services licensee'.
These regulations deal with those aspects of Chapters 7 and 8 of the old Corporations Act that are being preserved under the FSR transitional arrangements. Regulations of a similar nature in Division 24A deal with the continued operation of provisions of the Insurance (Agents and Brokers) Act 1984 that are being preserved despite their repeal.
Regulation 10.2.194 provides a conversion of terms and provisions that are currently used in certain instruments into the equivalent terminology and provisions under the new Corporations Act.
This regulation ensures that a licence granted under section 913B, but according to the modifications in section 1433, can be suspended or cancelled in the same way as a licence to which section 1433 did not apply by making the necessary modifications to the application of subsections 913B(2) and (3).
This regulation clarifies that if a holder of a qualified licence (see section 1434) applies for an ordinary licence then ASIC may, if it wishes, when considering that second application only have regard to the matters in paragraphs 912A(1)(e) and (f). These are the matters that ASIC could not consider in the granting of the qualified licence.
This regulation addresses a number of anomalies in the application of section 992AA of the Act (prohibition on hawking of managed investments). It ensures that at all times one of either section 992AA or section 736 of the old Corporations Act applies to the hawking of those interests.
This regulation ensures that the references in section 992A to product disclosure statements include references to pre-FSR disclosure documents. This is necessary-during the transitional period. Where there is no relevant pre-FSR disclosure document the requirements in that section relating to a product disclosure statement do not apply (subregulation (3)).
This regulation continues the operation of regulations 7.3.04, 7.3.06 and 7.3.07 of the old Corporations Regulations after a person ceases to be regulated under the old Corporations Act and moves into the FSR regime. This enables the keeping, use and return of a security bond to be dealt with appropriately.
This regulation provides a transitional mechanism in relation to existing disclosure documents (for example, prospectuses for managed investment products). As the cooling-off provisions under the operation of sections 1019A & B of the Act have effect from 11 March 2002, existing disclosure documents might be considered misleading as they may not reflect the change to the legislation.
However, if information in relation to the cooling-off regime were supplied with a confirmation of the issue of a financial product to the product holder the initial disclosure document would not be considered misleading. Alternatively, the product issuer may take steps to amend the existing disclosure document to ensure that it is not misleading.
Regulation 10.2.201 provides that the telephone monitoring provisions will only apply to takeover bids that commence on or after the commencement of the Financial Services Reform Act 2001 (11 March 2002). This will allow takeover bids that are currently in progress to proceed unaffected by the change to the Corporations Act.
This regulation ensures that where the financial product referred to in paragraph 949A(2)(c) is not a product to which Division 2 of Part 7.9 yet applies, the reference to 'Product Disclosure Statement' in this paragraph instead refers to the existing disclosure document for that product or that the requirement does not apply where there is no such existing document.
This regulation ensures that the reference in paragraph 1017E(1)(b) to a Product Disclosure Statement includes a disclosure document (as defined in section 9). This is necessary where section 1017E might apply to a financial product to which Division 2 of Part 7.9 does not yet apply.
This regulation clarifies that after FSR commencement the old Corporations Act applies as if paragraph 869(1)(b) were omitted.
Division 42 provides that the amendments to the SIS Act and Regulations and the RSA Act and Regulations in relation to amendments to the Family Law Act 1975 will operate during the FSR transitional period from the date of commencement of those amendments. This has been necessary as the operation of section 1440 of the Financial Services Reform (Consequential Provisions) Act 2001 would not have allowed the amendments to operate.
It is expected that all amendments mentioned would be consistent with the operation of the SIS Act and RSA Act in force immediately before commencement of the FSR Act.
Regulations 10.2.206 and 207 ensure that where disclosure obligations for superannuation and RSA products are subject to a defined reporting period under existing legislation that the reporting period may be retained in the transition to reporting obligations under the Corporations Act and Regulations.
Regulations 10.2.208 and 10.2.209 provide that sections 1017D (periodic statements) and 1017F (confirmation of transactions) do not apply to basic deposit products that are 'passbook' accounts which were originally issued prior to commencement of the relevant provisions of the FSR Act. Due to the nature of these products and the existing arrangements in place for those that have already been issued, compliance with these requirements would not be possible. However, such products issued after commencement of the relevant provisions of the FSR Act will have to comply.
The regulations also make a number of amendments to correct technical errors and typographical mistakes in a number of regulations in Part 10.2: regulations 10.2.28, 29, 30, 33, 37, 41, 46, 50, 52, 70, 71, 74, 78, 79, 82, 90, 101 and the heading of Division 14.
A note is to be inserted in regulation 10.2.46 for clarification.
A definition of 'old Corporations Regulations' has been inserted in regulation 10.2.02
Regulation 7.10.01 excludes non-public offer superannuation from the definition of Division 3 financial product from the application of the insider trading provisions. This is consistent with the current approach in the SIS Act.
Regulation 9.12.01 replicates a regulation in force under the old Corporations Act which provides that the prohibition against insider trading does not apply to certain transactions - for example, a director obtaining a share qualification.
Regulation 6.5.01 will clarify the definition of wholesale holder thereby reducing the potential for unintended application of the telephone monitoring provisions.
Paragraph 648J(4)(a) of the Corporations Act provides that the regulations may prescribe a value for securities held by a person in order to determine whether a person is a wholesale holder or a retail holder of those securities. The definition and the means of valuation stated in the regulation are consistent with other definitions of a wholesale client within the new Corporations Act and associated regulations (section 761 G and regulation 7.1.19)
In addition, exclusions have been made to ensure that the telephone conversations to directors and executive officers of a bidder or target are not required to be recorded just because they may hold a parcel of securities. Such persons are likely to possess a degree of knowledge in relation to a takeover bid that would allow them to assess whether advice is misleading and deceptive and thus they do not need the protection afforded by the provisions. Further, the recording of telephone advice to those persons may otherwise inhibit the flow of commercial information.
Similarly, it would be inappropriate to record telephone conversations with the authorised representative of a financial services licensee (for example, a corporate advisor) who is in the employ of or acting on behalf of bidder or target where the telephone conversion relates to the discharging of their duties to the bidder or target. Such persons are participants in wholesale market acting on a professional basis.
SCHEDULE 2 AMENDMENT COMMENCING ON COMMENCEMENT OF THE FAMILY LAW LEGISLATION AMENDMENT (SUPERVISION) ACT 2001
These regulations detail the product disclosure requirements for superannuation and retirement savings account products to account for changes made under the Family Law Legislation Amendment (Superannuation) Act 2001. These disclosure requirements are consistent with amendments made to the SIS Regulations and amendments to the RSA Regulations.
The application of the provisions and definitions are to be found in regulations 7.9.84-85.
Due to the distinction between a non-member spouse and member of a superannuation fund or retirement savings account it has been necessary to modify the definition of the issue of superannuation and retirement savings account products under section 761 of the new Corporations Act This is to ensure that once a person becomes entitled to benefits as a non-member spouse under a payment split they are issued with a financial product.
As the entitlement of the non-member spouse may be provided by a number of means that are outside the control of the trustee of the superannuation fund or retirement savings account provider, the obligation to provide a Product disclosure statement at or before the issue has been removed. A product disclosure statement is to be provided at the same time as a payment split notice. The obligation to provide a product disclosure statement has been further limited in relation to superannuation funds such that a trustee need only provide a product disclosure statement where a non-member spouse may become a member of that fund.
The initial disclosure of a non-member spouse's benefit entitlement is provided by a specific statement provided by the product issuer at the time a payment split notice is provided. By not requiring person specific information to be contained in a product disclosure statement, the product disclosure statement remains a generic document. The information requirements are consistent with those contained in the recent SIS Regulation amendments.
Periodic and ongoing reporting requirements under the Corporations Regulations are consistent with the requirements under the SIS regulations and RSA regulations. The information requirements for periodic reports detailed under section 1017D of the new Corporations Act and associated regulations have been modified accordingly.
The cooling-off provisions of Part 7,9 of the new Corporations Act will not apply to acquisition of a superannuation or RSA product for a non-member spouse in relation to a payment split notice. The acquisition has occurred through circumstances outside the product issuer's control and a non-member spouse is automatically provided with the ability to transfer their benefit.
However, should a non-member spouse subsequently become a member of a superannuation fund or hold an account in an RSA the cooling-off provision will apply. In those circumstances, the non-member spouse will hold a different financial product that has been acquired subsequent to consideration of a product disclosure statement. Consistent with other persons acquiring similar financial products a right of return is provided.
Transitional arrangements are addressed in Division 42, Regulation 10.2.205.
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).