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Financial Sector Reform (Consequential Amendments) Bill 1998
Bills Digest No.236 1997-98
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any of ficial legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Financial Sector Reform (Consequential Amendments) Bill 1998
Commencement: Unless otherwise stated below, the significant amendments commence on the commencement of the Australian Prudential Regulation Authority Act 1998 . That Act commences on the earlier of 6 months after Royal Assent and a day to be fixed by proclamation.
â¢ Amen d the terminology used in numerous Acts to make that terminology consistent with the amended legislation governing the financial system
â¢ Give the Australian Securities Investment Commission (formerly the Australian Securities Commission) the function of consumer protection in respect of financial services and remove that role from the Australian Competition and Consumer Commission.
This Bill forms part of a package of financial sector reform Bills introduced as a consequence of the Finan cial System Inquiry (although this Bill was introduced at a later date than those Bills).(1)
The general background to this Bill is the content of the Financial System Inquiry Final Report (Wallis Report). A summary and critique of the Wallis Report can be found in the Parliamentary Library’s Research Paper No.16 of 1996-97, The Wallis Report on the Australian Financial System: summary and critique , by Phil Hanratty.
The Wallis Report recommended the establishment of a single agency, the Corporations and Financial Services Commission (CFSC), to provide Commonwealth regulation of corporations, financial market integrity and consumer protection. It further recommended that the body should combine the existing market integrity, corporations and consumer protection roles of the Australian Securities Commission, the Insurance and Superannuation Commission and the Australian Payments System Council. The Government followed this recommendation but has called the new body the Australian Securities and Investment Commission (ASIC).
Recommendation 3 of the Wallis Report provides:
The CFSC should administer all consumer protection laws for financial services.
While the economy wide reach of the powers of the Australian Competition and Consumer Commission (ACCC) should be retained in law (subject to Recommendation 4), the CFSC should have sole responsibility for administering consumer protection regulation within its jurisdiction over the finance sector. For this purpose, consumer protection provisions comparable to those in the Trade Practices Act 1974 should be included in the CFSC’s legislation.(2)
The members of the Wallis inquiry felt that the coexistence of the ACCC’s and CFSC’s roles would create a potential for regulatory duplication in the financial system and that this would lead to additional compliance costs, uncertainty and risk of inconsistency.
The inquiry canvassed the concern that a specialist regulator may develop a shared interest in the industry being regulated (‘regulator capture’), but took the view that given the wide reach of responsibilities proposed for the CFSC, the risk of that occurrence was not substantial.
This Schedule amends 53 different Acts to replace the terms used in these Acts to make them consistent with the terms used in the package of legislation which i mplements the changes to the regulation of the financial system. Most significantly, all references to the term ‘bank’ are replaced with references to ‘approved deposit-taking institution’ and references to the Insurance and Superannuation Commission are replaced by references to ASIC.
Schedule 2 - Unconscionable conduct and consumer protection in relation to the supply of financial services
This Schedule inserts, into Division 2 of Part 2 of the Australian Securities Commission Act 1989 , the consumer protection provisions of Parts IVA and V and some of the enforcement provisions of Part VI of the Trade Practices Act 1974 (TPA). The ASIC will be limited in its consumer protection role to conduct in respect of ‘financial services’.
The amendments take the form of 9 subdivisions. It is appropriate to comment on some of those subdivisions.
Subdivision B - Interpretation
A ‘financial service’ is a service that consists of providing a financial product or a service that is supplied in relation to a financial product.
A ‘financial product’ means:
â¢ a facility for taking money on deposit made available in the course of conducting a banking business within the meaning of the Banking Act 1959
â¢ a security
â¢ a futures contract
â¢ a contract of insurance within the m eaning of the Life Insurance Act 1959
â¢ a retirement savings account within the meaning of the Retirement Savings Accounts Act 1997
â¢ a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993 .
A foreign exchange con tract is expressly excluded from the definition and, in accordance with the Wallis recommendations, consumer protection in respect of the provision of credit will not be the responsibility of ASIC, at this stage.(3) Consumer credit is regulated by the Uniform Consumer Credit Code and consumer protection in respect of credit will continue to be provided by the TPA.
Where a transaction involves both a credit product and a financial product, and a claim is being brought by a private citizen, it will be a case of pleading a breach of both the ASC Act and the TPA in respect of the appropriate parts of the business dealing. Where each of the two regulators may potentially bring an action in respect of the business dealings which involve both a credit product and a financial product, both regulators are empowered to delegate its powers and functions to a staff member of the other regulator to allow him or her to pursue the matter (see below).
Subdivision C - Unconscionable conduct
Proposed new sections 12CA and 12CB replicate sections 51AA and 51AB of the TPA, respectively, but limit the prohibitions to conduct engaged in in respect of financial services. New section 12CA prohibits corporations engaging in unconscionable conduct, within the meaning of the common law. New Section 12CB prohibits unconscionable conduct (to be determined having regard to a number of factors) in respect of financial services which are acquired for personal, domestic or household use.
The new unconscionable conduct provision (inserted by the Trade Practices Amendment (Fair Trading) Act 1998 ) of the TPA (section 51AC) are not included in the FSRCA Bill. This is the small business provision which prohibits corporations engaging in unconscionable conduct in respect of the supply or possible supply of goods and services where the price of the goods or services does not exceed $1,000,000.
This is a curious omission. A person will be still be entitled to rely on section 51AC in respect of unconscionable conduct which relates to a financial service, so that there is no ‘gap’ in the rights available to an aggrieved person, but from the viewpo int of drafting consistency, section 51AC should be replicated in the ASC Act.
The only explanation is that at this stage new section 51AC is not operative. However it is expected it will become operative from 1 July 1998.
Item 26 excludes the operation of the sections 51AA and 51AB of the TPA in respect of financial services.
Subdivision D - Consumer protection
The most significant provision of this subdivision is proposed section 12DA which restates section 52 of the TPA in respect of financial services. This new section will prohibit corporations, in trade or commerce, from engaging in conduct in relation to financial services which is misleading or deceptive or likely to mislead or deceive.
Item 27 inserts new section 51AF into the TPA. That section excludes the application of Part V (consumer protection) to the supply or possible supply of financial services.
Subdivision E - Conditions and warranties in consumer transactions
Proposed new section 12ED operates to insert into every contract for the supply of financial services by a corporation to a consumer a warranty that:
â¢ the services will be rendered with due care and skill, and
â¢ any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied.
Under that same provision, if the consumer makes known the particular purpose for which the services are required or the result that he or she desires to achieve, there is an implied warranty that the services are reasonably fit for that purpose or might reasonably be expected to achieve that result.
The provision replicates section 74 of the TPA but is confined to financial services.
Subdivision G - Enforcement and remedies
This subdivision restates the significant enforcement and remedy provis ions contained in Part VI of the TPA.
Proposed new section 12GB imposes a penalty where a person contravenes proposed subdivision D or E. However, subdivision E contains no provisions which are capable of being contravened, i.e. it contains no prohibitions and does not mandate a particular conduct. As mentioned above, subdivision E implies into every contract for the supply of financial services by a corporation to a consumer in the course of business, that the services will be rendered with due care and skill. If the consumer makes known any particular purpose for which the services are required, there is an implied warranty that the services will be reasonably fit for that purpose.
A failure to supply financial services with due care and skill will result in the ‘consumer’ being entitled to bring a private action based on a breach of a term of the contract between it and the supplier.
The combination of items 18 and 19 of Schedule 2 will result in the ASIC being able to delegate any or all of its powers or functions to a member of staff of the ACCC with the agreement of the Chairperson of the ACCC. Correspondingly, item 25 permits the ACCC to delegate any of its functions and powers in relation to unconscionable conduct, consumer protection and enforcement to a staff member of the ASIC, with the agreement of the chairperson of the ASIC.
This Schedule contains further amendments as a result of the change in terminology from ‘bank’ to ‘approved deposit-taking institution’.
1. Australian Prudential Regulation Authority Bill 1998
Authorised Deposit-Taking Institution Supervisory Levy Imposition Bill 1998
Authorised Non-Operating Holding companies Supervisory Levy Imposition bill 1998
Supervisory Levy Imposition Bill 1998
Superannuation Supervisory Levy Imposition Bill 1998
Retirement Saving Account Providers Supervisory Levy Imposition Bill 1998
Life Insurance Supervisory Levy Imposition Bill 1998
General Insurance Supervisory Levy Imposition Bill 1998
Financial Institutions Supervisory Levies Collection Bill 1998
Financial Sector Reform (Amendments and Transitional Provisions) Bill 1998
Payments Systems (Regulation) Bill 1998
Financial Sector (Shareholdings) Bill 1998
2. Financial System Inquiry, Financial System Inquiry Final Report , (Mr S Wallis, Chairman), Canberra, March 1997, p. 248.
3. Recommendation 6.
25 June 1998
Bills Digest Service
Information and Research Services
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