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Financial Services Reform (Consequential Provisions) Bill 2002

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2002

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

SENATE

FINANCIAL SERVICES REFORM (CONSEQUENTIAL PROVISIONS) BILL 2002

SUPPLEMENTARY EXPLANATORY MEMORANDUM

(Circulated by authority of the Parliamentary Secretary to the Treasurer,

Senator the Hon Ian Campbell)



Table of Contents

Financial Services Reform (Consequential Provisions) Bill 2002 .................................................... 1

Outline............................................................................................................................................... 1

Regulatory impact statement............................................................................................................... 1

Financial Impact Statement................................................................................................................. 1

Notes on clauses ................................................................................................................................. 2

Clause 2:  Commencement................................................................................................................. 2

Schedule 2 — Amendments to the Corporations Act 2001................................................................ 2

 



1

Financial Services Reform (Consequential Provisions) Bill 2002

Outline

1.1     This Bill makes amendments to Commonwealth legislation that are consequential to the Financial Services Reform Act 2001 .  This Bill:

(a)     clarifies the operation of the anti-hawking provisions in section 992A of the Corporations Act 2001 ;

(b)     adds interests in unregistered managed investment schemes and debentures, stocks or bonds that are issued or proposed to be issued by a government to the definition of a Division 3 financial product in section 1042A of the Corporations Act 2001 ;

(c)     extends the ambit of the insider trading exceptions in sections 1043H to 1043J of the Corporations Act 2001 ; and

(d)     corrects a drafting error in the definition of a financial services civil penalty provision in section 1317DA of the Corporations Act 2001 .

Regulatory impact statement

The Office of Regulation Review has advised that a Regulatory Impact Statement is not required for this Bill.

Financial Impact Statement

This Bill does not have any financial impact.



2

Notes on clauses

Clause 2:  Commencement

2.1     Clause 2 provides that each provision of the Bill will commence as set out in the table.  Schedule 2 will commence immediately after the commencement of the Financial Services Reform Act 2001 , which has been proclaimed to commence on 11 March 2002.

Schedule 2 — Amendments to the Corporations Act 2001

Item 2

2.2     Item 2 would clarify that subsection 992A(3) applies only in relation to offers to issue or sell relevant financial products that are made in the course of, or because of, an unsolicited telephone call to another person.  The proposed amendment would also introduce a regulation-making power that could be used to extend the application of subsection 992A(3) to unsolicited contact made in another manner.

Item 3

2.3     Item 3 would limit the application of the offence provisions in subsection 992A(1) and 992A(3) to offers of relevant financial products that are made to retail clients.  This proposed amendment would bring the anti-hawking provisions in section 992A into line with those in sections 736 and 992A, which do not apply to offers that are not made to retail clients.

Item 4

2.4     The insider trading provisions in Division 3 of Part 7.10 of the Corporations Act will apply in relation to certain transactions in ‘Division 3 financial products’.  The definition of a Division 3 financial product is contained in section 1042A.

2.5     Item 4 would add interests in unregistered managed investment schemes (schemes that are not required to be registered under subsection 601ED(2)) as well as debentures, stocks and bonds issued or proposed to be issued by a government to the definition of a Division 3 financial product.

2.6     These financial products are currently subject to the insider trading provisions in Part 7.11 of the Corporations Act.  The proposed amendment would ensure that they remain subject to these provisions following the commencement of the Financial Services Reform Act .

Item 5

2.7     Item 5 would extend the ambit of the exception in section 1043H of the Corporations Act for a natural person’s knowledge of their own intentions or activities.  This section currently states that a natural person does not contravene subsection 1043A(1) when he or she enters into a transaction or agreement in relation to financial products issued by another person merely because the person is aware that he or she proposes to enter into, or has previously entered into, one or more transactions or agreements in relation to financial products issued by that other person (the second person).  The exception does not apply in relation to financial products issued by third persons.

2.8     The proposed amendment would extend the scope of this exception in two ways.  Firstly, it would extend the scope of the exception to include a person’s awareness that he or she has previously proposed to enter into transactions or agreements in relation to relevant financial products.  Secondly, it would extend the scope of the exception to encompass a natural person’s awareness that he or she proposes to enter into, or has previously entered into, one or more transactions or agreements in relation to financial products issued by the second person or a third person.

2.9     The revised exception would not apply to transactions or agreements in relation to financial products that are issued exclusively by the relevant natural person.  However it would apply in relation to transactions or agreements in relation to derivatives where the natural person and another person are each taken to have issued the product.

2.10   The proposed amendment is intended to ensure that the exception covers a situation in which a natural person may offer to enter into a transaction or agreement in relation to a relevant financial product as principal with another counterpart (for example by offering a firm) but the counterparty chooses not to accept the offer.

2.11   The proposed amendment is also intended to ensure that a natural person would not contravene subsection 1043A(1) by entering into a transaction or agreement in relation to a financial product issued by another person (for example, the acquisition of a derivative), merely because the person is aware of his or her own trading activities as a principal in relation to a related financial product issued by a third person (for example, an underlying financial product in relation to which the price or value of the derivative is determined).

Items 6 and 7

2.12   Items 6 and 7 make similar amendments to the exceptions contained in sections 1043I and 1043J.

Item 8

2.13   Item 8 corrects a drafting error in the definition of a financial services civil penalty provision in section 1317DA of the Corporations Act.

2.14   The proposed amendment will ensure that the offence provisions in subsections 674(2) and 675(2) fall within the definition of a financial services civil penalty provision rather than the definition of a corporation/scheme civil penalty provision.  This amendment would bring the treatment of these two subsections into line with the other market misconduct provisions contained in the Financial Services Reform Act .