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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
FINANCIAL SERVICES REFORM (CONSEQUENTIAL PROVISIONS) BILL 2001
SUPPLEMENTARY EXPLANATORY MEMORANDUM
Amendments and New Clauses to be Moved on Behalf of the Government
(Circulated by authority of the Minister for Financial Services and Regulation,
the Hon Joe Hockey, MP)
Table of Contents
1. Outline..................................................................................................................................... 1
2. Abbreviations........................................................................................................................... 2
3. Notes on amendments.............................................................................................................. 3
1.1 The proposed Financial Services Reform (Consequential Provisions) Act 2001 (the proposed FSR(CP) Act) provides for the transition to the new regulatory regime for the financial services industry outlined in the proposed Financial Services Reform Act 2001 (proposed FSR Act).
1.2 The proposed FSR Act is the culmination of an extensive reform program examining current regulatory requirements applying to the financial services industry. In particular, the proposed Act provides the legislative response to a number of recommendations of the Financial System Inquiry (FSI).
1.3 The FSI 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 proposed FSR Act, is consistent with the findings of the FSI.
1.4 The new regulatory regime for the financial services industry is outlined in greater detail in the Explanatory Memorandum to the Financial Services Reform Bill (FSR Bill).
1.5 The amendments proposed to be moved by the Government further refine a number of the provisions in the proposed FSR(CP) Act and correct some minor technical or drafting errors. This Explanatory Memorandum provides commentary on the refinements, but does not address in detail the minor corrections.
Financial impact Statement
1.5 The proposed amendments have no financial impact.
Regulation Impact Statement
1.6 The Office of Regulation Review has advised that a Regulation Impact Statement is not required .
2.1 The following abbreviations are used in this Explanatory Memorandum:
ADIs Authorised deposit-taking institutions
APRA Australian Prudential Regulation Authority
ASIC Act Australian Securities and Investments Commission Act 2001
ASIC Australian Securities & Investments Commission
CAMAC Corporations and Markets Advisory Committee
CASAC Companies and Securities Advisory Committee
Corporations Act Corporations Act 2001
CS facility Clearing and Settlement facility
DPB Declared Professional Body
ED securities Enhanced disclosure securities
FSG Financial Services Guide
FSR Bill Financial Services Reform Bill 2001
FSR(CP) Bill Financial Services Reform (Consequential Provisions) Bill 2001
NGF National Guarantee Fund
PDS Product Disclosure Statement
Proposed FSR Act Proposed Financial Services Reform Act 2001
RBA Act Reserve Bank Act 1959
RSA Act Retirement Savings Accounts Act 1997
RSA Retirement savings account
SEGC Securities Exchanges Guarantee Corporation
SIS Act Superannuation Industry (Supervision) Act 1993
SOA Statement of Advice
SPDS Supplementary Product Disclosure Statement
Notes on amendments
Financial Services Reform (Consequential Provisions) Bill 2001
Commencement provisions and Schedule 2
3.1 The proposed FSR(CP) Act will make a number of amendments to the RSA Act and the SIS Act. These two Acts will also being amended by the proposed Financial Sector (Collection of Data - Consequential and Transitional Provisions) Act 2001.
3.2 It was initially envisaged that the proposed Financial Sector (Collection of Data - Consequential and Transitional Provisions) Act would commence before the proposed FSR(CP) Act. However, it has been necessary to insert a new Schedule 2 and new commencement provisions to deal with the possibility that the proposed FSR(CP) Act may commence prior to the proposed Financial Sector (Collection of Data - Consequential and Transitional Provisions) Act (item 23).
3.3 Items 1 and 2 will ensure that if the proposed Financial Sector (Collection of Data - Consequential and Transitional Provisions) Act commences before the proposed FSR(CP) Act, the initial commencement provisions will operate as intended, and the alternative provisions contained in the new Schedule 2 will not be required.
3.4 However, if the proposed FSR(CP) Act commences before the proposed Financial Sector (Collection of Data - Consequential and Transitional Provisions) Act, most of the amendments to the SIS and RSA Acts in Schedule 2 will come into effect at the time of the commencement of the proposed FSR(CP) Act. When the proposed Financial Sector (Collection of Data - Consequential and Transitional Provisions) Act commences, the overlapping amendments contained in this Bill will not commence, but other items in Schedule 2 will come into effect, most importantly by adding ‘a provision of the Financial Sector (Collection of Data) Act 2001 ’ to the list of regulation provisions in proposed section 38A of the SIS Act and the amended section 182 of the RSA Act.
Transitional provisions relating to existing clearing and settlement facilities - sections 1424A and 1425
3.5 Items 9 and 10 make technical amendments to the transitional provisions governing existing clearing and settlement facilities.
3.6 Proposed new section 1424A will address the situation where a clearing and settlement facility is, as at the date of commencement of the reforms, providing services that were previously unregulated (for example, in relation to options contracts) and also had approval to provide services which were regulated (for example, as a clearing house for a futures exchange), but had not commenced providing the latter.
3.7 The proposed amendments will also clarify that a licence under Part 7.3, issued with effect from commencement, covers only the previously regulated activities but does not prevent the previously unregulated activities being carried on during the transitional period (amendment of proposed subparagraph 1425(2)(b)(iii)).
Treatment of representatives - Subdivision D
3.8 Item 15 inserts a new subsection (1A) into proposed section 1436. This amendment will ensure that where a person who is a representative within proposed subsection (1) is also a licensee, then proposed section 1436 does not apply to them as a representative.
3.9 Item 16 inserts a proposed section 1436A. This proposed new section deals with transitional arrangements for insurance agents. It provides that where a person is an insurance agent (as defined in proposed subsection 1436A(2)) then in relation to their activities as an agent of an insurer, their transitional period continues until the earlier of the end of two years after FSR commencement, the time at which the agent ceases to be an agent, the time at which the agent is granted a financial services licence in respect of those activities or the time at which the agent chooses to opt in to the FSR regime by lodging a written notice with ASIC.
3.10 During this transitional period the provisions of the Insurance (Agents and Brokers) Act 1984 apply in relation the agent, their principal and the activities covered by the agreement between them.
3.11 The effect of this amendment is that an insurance agent generally does not have to comply with the FSR regime when one of their principals obtains a licence until the end of two-year transitional period.
3.12 Proposed subsection 1436A(7) provides that regulations may apply or disapply and make modifications to the relevant old and new legislation for these agents, principals and the activities covered by their agreements.
3.13 Proposed subsection 1436A(8) clarifies the effect of the application of the FSR regime to existing agreements between insurance agents and their principals. It makes clear that where the agent engages in conduct (before the FSR regime begins to apply in relation to the activities of that agent and principal) that creates a right to a commission, brokerage or other form of remuneration, then the application of FSR by itself does not terminate that right.
3.14 Proposed subsection 1436A(9) makes it clear that subsection (8) does not affect the determination of other rights under such agreements between agents and their principals.
3.15 Consequential amendments are made by items 17 and 18 to proposed sections 1437 and 1441.
Deferred application of certain provisions - Subdivision E
3.16 Item 19 defers the application of proposed section 992A (prohibition on hawking of certain financial products) until the earlier of a day fixed by proclamation or the end of 6 months from FSR commencement (proposed section 1442A). This requires a consequential amendment to proposed section 1431 by item 13. Regulations may provide for relevant provisions to be preserved during this period of time (proposed subsection 1442A(2)).
3.17 Item 19 also provides for the deferred application of provisions of the Bill related to cooling-off and confirmation of transactions as well as other provisions specified by regulation (proposed subsection 1442B(4)). These provisions do not apply to a financial product (other than a financial product in a class of products that are first issued by a person after commencement of FSR) until the earlier of a date fixed by Proclamation or the date when the rest of proposed Part 7.9 begins to apply to the financial product in accordance with proposed section 1438 (the date when the product issuer opts in for that product).
3.18 During this period existing relevant provisions that provide for cooling-off continue to apply to the product (proposed subsection 1442B(3)).
3.19 Regulations may affect the application of these preserved provisions or those provisions whose application has been deferred (proposed subsection 1442B(5)).
3.20 Amendments to the Australian Securities and Investments Commission Act 2001
Definition of a ‘member’ - subsection 5(1)
3.21 As currently drafted, item 10 of the FSR(CP) Bill proposes to omit ‘a Division’ from the definition of a ‘member’ in subsection 5(1) of the ASIC Act.
3.22 Item 3 omits this proposed amendment so as to retain the current reference to ‘a Division’ in the definition of a ‘member’ in subsection 5(1).
Unsolicited credit and debit cards - section 12DL
3.23 Section 12DL of the ASIC Act contains a prohibition against sending to a person a debit card that allows access to an account that is a financial product except in accordance with subsection 12DL(2) (as well as allowing a credit card to be used as a debit card other than in accordance with a request in writing by the cardholder).
3.24 Items 4, 5 and 6 extend the application of section 12DL to cover credit cards that are part of, or provide access to, a facility that is a financial product.
3.25 Proposed section 12BAA of the ASIC Act will extend the ambit of Division 2 of Part 2 of the ASIC Act to encompass credit facilities (as defined in regulations made pursuant to proposed paragraph 12BAA(7)(k)). It is therefore appropriate that ASIC should be responsible for the full range of consumer protection provisions in relation to credit cards that form part of, or provide access to, credit facilities that would fall within the definition of a ‘financial product’ and hence within the Commission’s general responsibilities.
3.26 Items 21 and 22 makes consequential amendments to sections 51AF, 63A and 75AZA of the Trade Practices Act 1974 (TPA). These amendments are necessary to ensure that the relevant mirror provisions in sections 63A and 75AZP will not apply in relation to debit or credit cards that provide access to facilities that are financial products. The relevant TPA provisions will continue to apply to the unsolicited provision of debit and credit cards that are part of or provide access to facilities or accounts that do not fall within the definition of a financial product in proposed new section 12BAA of the ASIC Act.
Jurisdiction of courts - Section 12GJ and 12GK
3.27 At present, section 12GJ of the ASIC Act confers jurisdiction on the Federal Court in relation to any matter arising under Division 2 of Part 2 or Part 3 in its application to Division 2 of Part 2 in which a civil proceeding may be instituted under Subdivision G of Part 3 as so applying. It also confers federal jurisdiction on the several courts of the States (within the limits of their several jurisdictions) and (subject to the Constitution) the several courts of the Territories.
3.28 However the conferral of federal jurisdiction is currently limited to matters arising under Division 2 of Part 2 (and not Part 3 in its application to Division 2 of Part 2). In addition, it only applies in relation to civil proceedings initiated by a person other than ASIC or the Minister.
3.29 Item 7 amends subsection 12GJ(2) to vest federal jurisdiction on the several courts of the States and Territories in relation to matters arising under Division 2 of Part 2 as well as Part 3 in its application in relation to Division 2 of Part 2 and remove current restriction on matters instituted by the Minister or ASIC. This amendment will provide the Minister and ASIC with the option of initiating civil proceedings in the several courts of the States and Territories (within the limits of their several jurisdictions and subject to the Constitution) in relation to matters arising under Division 2 of Part 2 and Part 3 in its application to Division 2 of Part 2.
3.30 It is also proposed to make consequential amendments to section 12GK of the ASIC Act.
3.31 Amendments to the Superannuation Industry (Supervision) Act 1993
Regulator may direct trustees not to accept certain employer contributions - section 63
3.32 The proposed FSR(CP) Act will repeal Parts 18 and 20 as well as most of Part 19 (other than sections 151, 152, 154 and 155) of the SIS Act. These provisions will be replaced by similar provisions in proposed Parts 7.9 and 7.10 of the Corporations Act (as inserted by the proposed FSR Act). The proposed FSR(CP) Act will also repeal or make consequential amendments to definitions and other provisions in the SIS Act that contain references to those provisions of the SIS Act that will be repealed by this Bill, including to contraventions of these provisions.
3.33 Item 20 replaces the current reference in subsection 63(3) of the SIS Act to a contravention of a provision of the SIS Act with a new reference to a contravention of a ‘regulatory provision’ (as defined in proposed section 38A of the SIS Act).
3.34 This will ensure that the regulator will be able to direct a trustee to cease accepting employer contributions if the trustee contravened one or more of the provisions of the Corporations Act that will apply in place of an equivalent provision of the SIS Act following the commencement of the proposed FSR Act.
3.35 It is also proposed to make consequential amendments to subsections 63(5) and (6) of the SIS Act.