Financial Services Reform Act 2001 (122 of 2001)

Schedule 1   Financial Services and Markets

Part 1   Main amendments

Corporations Act 2001

1   Chapter 7 - Part 7.1 - Division 4

Division 4 - When does a person provide a financial service?

766A When does a person provide a financial service ?

(1) For the purposes of this Chapter, subject to paragraph (2)(b), a person provides a financial service if they:

(a) provide financial product advice (see section 766B); or

(b) deal in a financial product (see section 766C); or

(c) make a market for a financial product (see section 766D); or

(d) operate a registered scheme; or

(e) provide a custodial or depository service (see section 766E); or

(f) engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.

(2) The regulations may set out:

(a) the circumstances in which persons facilitating the provision of a financial service (for example, by publishing information) are taken also to provide that service; or

(b) the circumstances in which persons are taken to provide, or are taken not to provide, a financial service.

(3) To avoid doubt, a person’s conduct is not the provision of a financial service if it is done in the course of work of a kind ordinarily done by clerks or cashiers.

(4) For the purposes of this section, a person is not operating a registered scheme merely because:

(a) they are acting as an agent or employee of another person; or

(b) they are taking steps to wind up the scheme.

766B Meaning of financial product advice

(1) For the purposes of this Chapter, financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or

(b) could reasonably be regarded as being intended to have such an influence.

However, the provision or giving of an exempt document or statement is not to be taken to be a provision of financial product advice.

(2) There are 2 types of financial product advice: personal advice and general advice.

(3) For the purposes of this Chapter, personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:

(a) the provider of the advice has considered one or more of the person’s objectives, financial situation and needs; or

(b) a reasonable person might expect the provider to have considered one or more of those matters.

(4) For the purposes of this Chapter, general advice is financial product advice that is not personal advice.

(5) The following advice is not financial product advice:

(a) advice given by a lawyer in his or her professional capacity, about matters of law, legal interpretation or the application of the law to any facts;

(b) except as may be prescribed by the regulations - any other advice given by a lawyer in the ordinary course of activities as a lawyer, that is reasonably regarded as a necessary part of those activities;

(c) except as may be prescribed by the regulations - advice given by a tax agent registered under Part VIIA of theIncome Tax Assessment Act 1936, that is given in the ordinary course of activities as such an agent and that is reasonably regarded as a necessary part of those activities.

(6) If:

(a) in response to a request made by a person (the inquirer ) to another person (the provider ), the provider tells the inquirer the cost, or an estimate of the likely cost, of a financial product (for example, an insurance product); and

(b) that cost or estimate is worked out, or said by the provider to be worked out, by reference to a valuation of an item (for example, a house or car to which an insurance policy would relate), being a valuation that the provider suggests or recommends to the inquirer;

the acts of telling the inquirer the cost, or estimated cost, and suggesting or recommending the valuation, do not, of themselves, constitute the making of a recommendation (or the provision of any other kind of financial product advice) relating to the financial product.

(7) If:

(a) in response to a request made by a person (the inquirer ) to another person (the provider ), the provider tells the inquirer information about:

(i) the cost of a financial product; or

(ii) the rate of return on a financial product; or

(iii) any other matter identified in regulations made for the purposes of this subparagraph; and

(b) the request could also have been complied with (but was not also so complied with) by telling the inquirer equivalent information about one or more other financial products;

the act of telling the inquirer the information does not, of itself, constitute the making of a recommendation (or the provision of any other kind of financial product advice) in relation to the financial product referred to in paragraph (a).

(8) Subsections (5), (6) and (7) are not intended to affect, in any way, the determination of whether situations not covered by those subsections do, or do not, constitute the provision of financial product advice.

(9) In this section:

exempt document or statement means:

(a) a document prepared, or a statement given, in accordance with requirements of this Chapter, other than:

(i) a Statement of Advice; or

(ii) a document or statement of a kind prescribed by regulations made for the purposes of this subparagraph; or

(b) any other document or statement of a kind prescribed by regulations made for the purposes of this paragraph.

766C Meaning of dealing

(1) For the purposes of this Chapter, the following conduct (whether engaged in as principal or agent) constitutes dealing in a financial product:

(a) applying for or acquiring a financial product;

(b) issuing a financial product;

(c) in relation to securities or managed investment interests - underwriting the securities or interests;

(d) varying a financial product;

(e) disposing of a financial product.

(2) Arranging for a person to engage in conduct referred to in subsection (1) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.

(3) A person is taken not to deal in a financial product if the person deals in the product on their own behalf (whether directly or through an agent or other representative), unless:

(a) the person is an issuer of financial products; and

(b) the dealing is in relation to one or more of those products.

(3A) For the purposes of subsection (3), a person (the agent ) who deals in a product as an agent or representative of another person (the principal ) is not taken to deal in the product on the agent’s own behalf, even if that dealing, when considered as a dealing by the principal, is a dealing by the principal on the principal’s own behalf.

(4) Also, a transaction entered into by a person who is, or who encompasses or constitutes in whole or in part, any of the following entities:

(a) a government or local government authority;

(b) a public authority or instrumentality or agency of the Crown;

(c) a body corporate or an unincorporated body;

is taken not to be dealing in a financial product by that person if the transaction relates only to:

(d) securities of that entity; or

(e) if the entity is a government - debentures, stocks or bonds issued or proposed to be issued by that government.

(5) Paragraph (4)(c) does not apply if the entity:

(a) carries on a business of investment in securities, interests in land or other investments; and

(b) in the course of carrying on that business, invests funds subscribed, whether directly or indirectly, after an offer or invitation to the public (within the meaning of section 82) made on terms that the funds subscribed would be invested.

(6) A transaction entered into by a sub-underwriter of an issue of securities that relates only to the sub-underwriting is taken not to be dealing in a financial product.

(7) The regulations may prescribe conduct that is taken not to be dealing in a financial product.

766D Meaning of makes a market for a financial product

(1) For the purposes of this Chapter, a person makes a market for a financial product if:

(a) either through a facility, at a place or otherwise, the person regularly states the prices at which they propose to acquire or dispose of financial products on their own behalf; and

(b) other persons have a reasonable expectation that they will be able to regularly effect transactions at the stated prices; and

(c) the actions of the person do not, or would not if they happened through a facility or at a place, constitute operating a financial market because of the effect of paragraph 767A(2)(a).

(2) Paragraph (1)(a) does not apply to a person stating prices at which they propose to acquire or dispose of financial products if:

(a) the person is the issuer of the products; and

(b) the products are superannuation products, managed investment products or financial products referred to in paragraph 764A(1)(ba) (which relates to unregistered managed investment schemes).

766E Meaning of provide a custodial or depository service

(1) For the purposes of this Chapter, a person (the provider ) provides a custodial or depository service to another person (the client ) if, under an arrangement between the provider and the client, or between the provider and another person with whom the client has an arrangement, (whether or not there are also other parties to any such arrangement), a financial product, or a beneficial interest in a financial product, is held by the provider in trust for, or on behalf of, the client or another person nominated by the client.

(2) The following provisions apply in relation to a custodial or depository service:

(a) subject to paragraph (b), for the purposes of this Chapter, the time at which a custodial or depository service is provided is the time when the financial product or beneficial interest concerned is first held by the provider as mentioned in subsection (1);

(b) for the purposes of Part 7.6, and of any other provisions of this Act prescribed by regulations made for the purposes of this paragraph, the continued holding of the financial product or beneficial interest concerned by the provider as mentioned in subsection (1) also constitutes the provision of a custodial or depository service.

Note: Because of paragraph (a) (subject to regulations made for the purposes of paragraph (b)), the requirements of Part 7.7 relating to financial services disclosure need only be complied with before the product or interest is first held by the provider. However, because of paragraph (b), the provider will be subject to the licensing and related requirements of Part 7.6 for so long as they continue to hold the product or interest.

(3) However, the following conduct does not constitute providing a custodial or depository service :

(a) the operation of a clearing and settlement facility;

(b) the operation of a registered scheme, or the holding ofthe assets of a registered scheme;

(c) the operation of a regulated superannuation fund, an approved deposit fund or a pooled superannuation trust (within the meaning of theSuperannuation Industry (Supervision) Act 1993);

(d) the provision of services to a related body corporate;

(e) any other conduct of a kind prescribed by regulations made for the purposes of this paragraph.