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CORPORATIONS AMENDMENT REGULATIONS 2002 (NO. 3) 2002 NO. 41
EXPLANATORY STATEMENTStatutory Rules 2002 No. 41
Issued by the Parliamentary Secretary to the Treasurer
Corporations Act 2001
Corporations Amendment Regulations 2002 (No. 3)
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 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.
The Regulations:
• adjust the meaning of credit facilities (which are excluded from the definition of financial product, for the purposes of the new regulatory regime) so that debentures and basic bank deposit products are not also excluded (pages 4 and 5);
• provide a mechanism to address significant conflicts of interest between the role of the Australian Stock Exchange as a supervisor of its own market and its commercial interests (pages 6 to 9);
• provide for an exemption from the requirement to hold a financial services licence for offshore service providers that deal in financial products on behalf of clients when the dealing is arranged by a financial services licensee (page 10);
• provide an exemption from the requirement to hold a financial services licence and the requirements relating to financial product disclosure (on conditions) for the media (pages 10 and 12);
• outline the interaction between the accounts that are required to be kept by licensees and product providers under the Act (page 14);
• widen the scope of the 'own trading' exception to the prohibition on insider trading to ensure that it deals adequately with derivatives transactions (page 25);
• make numerous minor, technical and transitional amendments.
Details of the Regulations are set out in the Attachment.
Regulations 1, 2 and 3, and Schedule 1 of the Regulations commence at 12.02 am on 11 March 2002, immediately after the commencement of the relevant provisions of the Financial Services Reform Act 2001, the Corporations Regulations Amendment 2001 (No. 4) (Statutory Rules 2001 No. 319) and Schedule 1 to the Corporations Regulations Amendment 2002 (No. 2). These amendments are necessary for commencement of the new legislative regime, on 11 March 2002.
Schedule 2, on the other hand, commences at 12.01 am on the day on which the Family Law Legislation Amendment (Superannuation) Act 2001 commences and immediately after the commencement of Schedule 2 to the Corporations Regulations Amendment 2002 (No. 2). It contains amendments to the Corporations Regulations 2001 which are only required on commencement of the Family Law Legislation Amendment (Superannuation) Act 2001.
ATTACHMENT
1. INTRODUCTION
Overview - Financial Services Reform Act 2001
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.
First stage of the regulations
The first group of regulations necessary for the commencement of the FSR Act were made on 8 October 2001.
They are:
• 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.
Second stage of the regulations
The regulations which constitute the second stage were made on 14 February 2002 following a consultation period commencing in December.
They are:
• Corporations Amendment Regulations 2002 (No. 2);
• Retirement Savings Accounts Amendment Regulations 2002 (No. 1);
• Insurance (Agents and Brokers) Repeal Regulations 2002;
• Superannuation Industry (Supervision) Amendment Regulations 2002 (No. 1);
• Life Insurance Amendment Regulations 2002 (No. 1);
• Insurance Contracts Amendment Regulations 2002 (No. 1).
Third stage of the regulations
Further regulations are necessary to complete the regulatory framework for commencement. These have been made in the light of the consideration which has been able to be given to the many submissions received in response to the release of the draft regulations in December 2001 and January 2002, particularly at the end of the public exposure period (31 January) and since that date.
Title, Format and commencement of the Regulations (regulations 1-2)
The regulations are entitled the Corporations Amendment Regulations 2002 (No. 3) (Regulation 1).
Regulations 1, 2 and 3, and Schedule 1 of the Regulations commence at 12.02 am on 11 March 2002, immediately after the commencement of the relevant provisions of the Financial Services Reform Act 2001, the Corporations Regulations Amendment 2001 (No. 4) (Statutory Rules 2001 No. 319) and Schedule 1 to the Corporations Regulations Amendment 2002 (No. 2). These amendments are necessary for commencement of the new legislative regime, on 11 March 2002. (Subregulation 2(1)).
Schedule 2, on the other hand, commences at 12.01 am on the day on which the Family Law Legislation Amendment (Superannuation) Act 2001 commences and immediately after the commencement of Schedule 2 to the Corporations Regulations Amendment 2002 (No. 2). It contains amendments to the Corporations Regulations 2001 which are only required on commencement of the Family Law Legislation Amendment (Superannuation) Act 2001. (Subregulation 2(2)).
Format of the Explanatory Statement
The balance of this attachment provides further details of the amendments to the Corporations Regulations.
The explanation of the amendments are by subject, rather than necessarily in the order in which they appear in the Regulations.
The subjects are:
1. Definitions and concepts of general relevance
2. Financial markets
3. Clearing and settlement facilities
4. Licensing of financial services providers
5. Financial services disclosure
6. Other provisions relating to conduct etc connected with financial products and financial services, other than financial services disclosure
7. Financial product disclosure and other provisions relating to issue and sale of financial products
8. Transitional
9. Miscellaneous other amendments (including Schedule 2)
References to provisions in the Corporations Act 2001
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 following abbreviations are used:
| ASIC
|
Australian
Securities and Investments Commission
|
| Corporations
Act
|
Corporations
Act 2001
|
| FSR
Act
|
Financial
Services Reform Act 2001
|
| FSR
commencement
|
11
March 2002, when the major reforms included in the FSR Act commence
|
| SIS
Regulations
|
Superannuation
Industry (Supervision) Regulations 1997
|
1. DEFINITIONS AND CONCEPTS OF GENERAL RELEVANCE
Definition of warrant - subregulation 1.0.02(1)
Subregulation 1.0.02 (1) inserts a replacement definition of warrant to make clear that the definition captures both a warrant that is a derivative under the new Corporations Act and a warrant that is treated under the Act as a security because it confers on the holder of the warrant a legal or beneficial right or interest in a share in a body or in a debenture of a body.
Lodgment with ASIC - regulation 1.0.05
Minor amendments to the wording of regulation 1.0.05 have been made.
Self managed superannuation funds - regulation 7.1.03B
Regulation 7.1.03B defines self managed superannuation funds to have the same meaning as in the Superannuation Industry (Supervision) Act 1993.
Meaning of class of financial product in paragraph 1017F(4)(d) - regulation 7.1.04B
This regulation clarifies that in paragraph 1017F(4)(d), an interest in a managed investment scheme is in the same 'class' as another financial product if they are both interests in the same scheme. This ensures, for example, that amendments to the constitutions of schemes fall within the exemption in paragraph 1017F(4)(d).
Confirmation of transactions - regulation 7.1.04C
By providing that the definition of 'class' for superannuation products relates to the superannuation fund, events such as a variation in the constitution of a fund will not be subject to disclosure requirements under section 1017F (confirmation of transactions). However, such events may still be captured by the operation of section 1017B of the new Corporations Act (Ongoing Disclosure of Material Changes and Significant Events).
Issue - regulation 7.1.04D
Regulation 7.1.04D provides that each party to a financial product that is a derivative and is traded through certain facilities is taken to be the issuer of the product. The regulation is necessary because the new Corporations Act does not identify the issuer of these products.
Treatment of certain financial products which are also credit facilities - amendment to regulation 7.1.06 and regulation 7.1.06A
Regulation 7.1.06 previously had the effect that no credit facility (as defined in that regulation) was a financial product. However, there are a number of investment products which are either mentioned in section 764A or fall within the definition of financial product through paragraph 763A(1)(a) that could also be within the definition of credit facility. These include debentures and basic deposit products. Although these products are facilities for making a financial investment, they are potentially also credit facilities. For example, a debenture is a facility for making an investment from the perspective of the person acquiring the debenture but from the issuer's point of view they are basically a form of credit. Therefore, these facilities may not currently be financial products within the meaning of the Act.
The amendment to regulation 7.1.06 provides that where a financial product is one of a number of the specific inclusions in section 764A or is an investment product as defined in paragraph 763A(1)(a) then it is not a credit facility and, thus, not exempt from the definition of a financial product. This qualification to the definition of a credit facility would only apply to the general part of the definition of credit facility in paragraph 7.1.06(1)(a), the specific inclusions mentioned in the other paragraphs of that subregulation would continue to be credit facilities in all cases.
While such products are included in the definition of financial product to ensure that the investment element is appropriately regulated, it is not intended to regulate the credit element. Regulation 7.1.06A sets out a number of exemptions that would achieve this aim.
Subregulation 7.1.06A(2) provides that for these products the person who is the 'credit provider' under the definition of credit in subregulation 7.1.06(3) is not the issuer of the product, the person who is the 'debtor' is the issuer. This ensures that for this class of financial products, the person who is providing credit is never the issuer of the product and would not, therefore, need to provide any form of disclosure under Part 7.9 for that product. For example, for a basic deposit product this clarifies that it is the bank or other financial institution which is the product issuer, not the customer who deposits money into the product.
Paragraph 7.1.06A(3)(a) provides that advice provided to the debtor is not the provision of a financial service. Therefore, advice about one of these financial products from the perspective of it providing credit is not financial product advice. For example, advice to a debenture issuer about a debenture would not be the provision of a financial service. However, advice to the acquirer of the debenture would be the provision of a financial service. Similarly, paragraph 7.1.06A(3)(b) provides that dealing in one of these financial products by the credit provider is not the provision of a financial service. Therefore, although it is proposed that these products would now be within the definition of 'financial product', none of the obligations relating to product disclosure or licensing would apply to the 'credit provider' in these arrangements.
Therefore, while the Act would apply appropriately to any financial products which are investment products, it would not apply licensing or product disclosure obligations on parties to financial products who were providers of credit.
Exempt Documents - amendments to regulation 7.1.08A
These amendments clarify that under paragraph 7.1.08A(1)(a) a product disclosure statement cannot be an exempt document or statement if it contains any personal advice (whether or not it is advice for a product to which the product disclosure statement relates).
Proposed subregulation 7.1.08A(1) provides that a product disclosure statement for a product also relates to another product if that product can be acquired through a custodial arrangement (as defined in section 10121A) that arises through the acquisition of the first product to which the product disclosure statement relates. Therefore, product disclosure statements can contain general advice about such products.
Amendments to paragraphs 7.1.08A(2)(a)-(c) also provide that the documents mentioned in these paragraphs are not exempt if they contain personal advice.
Activities conducted by accountants - amendments to regulation 7.1.29
Regulation 7.1.29, which relates to activities conducted by accountants, has been amended. The effect of the amendments is be to replace references to 'qualified accountant' (which was based on section 88B of the Corporations Act) with references to 'recognised accountant'. The changes provide greater flexibility in that ASIC is able to determine in writing, by notice published in the Gazette, whether a person, or a person within a specified class, is a 'recognised accountant' for the purposes of the regulation.
Handling insurance claims - regulation 7.1.33
Paragraph 7.6.01 (1)(j) of the Corporations Regulations provides an exemption from licensing for persons who provide a financial service to an insurer that consists only of either or both of the handling of claims and the settlement of claims in relation to an insurance product.
This paragraph has been deleted and replaced with regulation 7.1.33. The regulation provides that financial product advice or dealing in relation to the handling or settlement of insurance claims is not a financial service.
There is a note to the regulation which sets out the types of conduct intended to be captured by the regulation.
Subregulation 7.1.33(3) provides that for the purposes of regulation 7.1.33, an insurance product includes a self-insurance arrangement through which a person manages a financial risk.
Allocation of funds available for investment - regulation 7.1.33A
Regulation 7.1.33A provides that a financial services licence is not required for a financial service that consists only of broad asset allocation advice. The intention is to exclude advice in relation to, for example, shares in general, but not to exclude advice in relation to shares in a particular body.
General advice - regulation 7.1.33B
Regulation 7.1.33B applies when a product issuer prepares general advice in relation to a financial product or class of financial products which is given to a financial services licensee whose financial services licence covers the provision of the advice to another person.
Subregulation 7.1.33B(2) states that the product issuer is taken not to provide the financial service.
Subregulation 7.1.33B(3) states that the financial services licensee is taken to provide the financial service.
2. FINANCIAL MARKETS
Potential conflict situations - regulation 7.2.16
Introduction
Subsection 798E(1) of the new Corporations Act provides that the regulations may make provision in relation to the rules and procedures that are to apply in the case of conflicts, or potential conflicts, between the commercial interests of the licensee and the need for the licensee to ensure that the market operates in the way mentioned in paragraph 792A(a).
The primary obligation to supervise its market, and to address conflicts and potential conflicts between the commercial interests of the licensee and the need for the licensee to ensure that it operates a fair, orderly and transparent market, is on the market licensee (paragraph 792A(c)).
Thus the power in section 798E is only appropriately used in cases where a specific and significant conflict or potential conflict has arisen. Its proposed use should not be seen as a reflection on the mechanisms which the Australian Stock Exchange Limited has put in place to address publicly voiced concerns about the conflict between its commercial interests and its supervisory role. Sufficient time has not yet elapsed to make a judgment of those mechanisms. Instead, the regulation should be viewed as ensuring confidence by both the listed entities and the public in the integrity of supervision of the listing rules where situations of 'specific and significant' conflicts or potential conflicts have arisen - for example, it would be open for the listed operator of a derivatives market in direct competition with an ASX subsidiary to apply under the proposed regulation if it were concerned that information about proposed plans for expansion (which would be required to be disclosed to the ASX under the continuous disclosure obligation) could conceivably be used to thwart those plans.
Regulation 7.2.16 identifies when such a conflict, or potential conflict is taken to arise and empower ASIC, instead of the licensee, to make decisions and to take action under the market's operating rules in relation to such a conflict or potential conflict. It also empowers ASIC to require the licensee to take action under the market's operating rules in relation to such a conflict or potential conflict.
Subregulation 7.2.16(1)
Subregulation 7.2.16(1) requires that the conflict or potential conflict be specific and significant and be between the commercial interests of the Australian Stock Exchange Limited (ASX) in dealing with a body (the competitor) that operates a business in competition with the ASX, a subsidiary of the ASX, a joint venture to which the ASX is a party or a joint venture to which a subsidiary of the ASX is a party, and its role as supervisor of the market.
Subregulations 7.2.16(2) and (3)
The competitor initiates the mechanism by an application to ASIC (subregulation 7.2.16(2)). ASIC is then required (subregulation 7.2.16(3)):
• to consider whether the conflict or potential conflict situation as described in subregulation 7.2.16(1) exists;
• to consider whether, having regard to ASX's obligation to have arrangements for handling such conflicts (subparagraph 792A(c)(i)), the conflict or potential conflict would be dealt with more appropriately and efficiently by other means;
- this recognises the other mechanisms which the ASX has in place to address conflicts of interests and which are expected to continue;
- it is for ASIC to consider whether taking over the decision-making role in a particular situation would be appropriate (in the light of the statutory regime, and the effectiveness of the other means available to address the particular conflict or potential conflict) and efficient;
• to decide whether to make decisions and take action (or to require ASX to take action on ASIC's behalf) as requested.
- the wording of the regulation allows ASIC to make decisions and take action (or require ASX to do so) in relation to a narrower area than the competitor initially requested.
If ASIC decides not to take action, then the ASX and the competitor are notified and the ASX would continue to supervise the competitor's compliance with the listing rules, as normal.
Subregulation 7.2.16(4)
If ASIC chooses to take action, it may consult with ASX and the competitor to identify the relevant listing rules of the market operated by ASX (paragraph 7.2.16(4)(a)), and must, as soon as practicable, decide the extent of its role, having regard to the factors listed in subparagraphs 7.2.16(4)(b)(i) to (iv). It is expected that ASIC would ordinarily consult ASX and the competitor on this issue. The power extends to the power to grant a waiver and impose conditions on the waiver.
It is expected that ASIC would be a substitute for the ASX in making decisions under the listing rules and only minor amendments to the rules to accommodate such a role in the longer term are likely. However, concern has been expressed that ASIC would be empowered by the regulation to make a new set of listing rules (which were inconsistent with those applying to other entities) for the competitor. This concern is addressed in subparagraphs 7.2.16(4)(b)(i) and (ii).
Subregulation 7.2.16(5)
The ASX and the competitor must be notified of ASIC's decisions (subregulation 7.2.16(5)).
Subregulation 7.2.16(6)
If ASIC decides to make decisions and take action (or require ASX to take action on ASIC's behalf), the decisions made and actions taken have effect despite anything in the listing rules, and have effect as if they were decisions made and actions taken under the listing rules (subregulation 7.2.16(6)).
The purpose of this is to ensure that ASIC's decisions and actions (and ASX's, when pursuant to an ASIC requirement under this regulation) would form part of the contract between the ASX and the competitor as a listed entity and be enforceable through the usual means.
In addition, it should be noted that Corporations Regulation 7.2.020) requires the inclusion in the rules of obligations on listed entities that are necessary to comply with regulations made under section 798E.
Subregulations 7.2.16(7) to (10)
Subregulations 7.2.16(7) to (10) provide a mechanism by which ASIC can require the ASX to amend its listing rules if the conflict situation is expected to exist for a period longer than 3 months. This does not imply that ASIC would take longer than 3 months to make any of the decisions referred to above. In fact, it would appear inappropriate to set time limits for ASIC to make decisions under its role, given the variety of circumstances it would cover.
Subregulations 7.2.16(11) to (12)
Subregulation 7.2.16(11) empowers ASIC to review a particular conflict or potential conflict and decide at some later time that it should again take action. (It would need to be the same conflict or potential conflict to use this subregulation.) ASIC must then notify ASX and the competitor of its decision as soon as practicable (regulation 7.2.16(12)).
Subregulation 7.2.16(13)
The ASX is required to give ASIC the information and documentation it needs to make decisions and take action under this regulation and to establish the administrative and procedural arrangements necessary (subregulation 7.2.16(13)).
Subregulation 7.2.16(14) to (15)
The competitor may decide that it no longer wants ASIC to take this role. Subregulations 7.2.16(14) and (15) address this situation. This would mean that the ASX again took the supervisory role, and the review avenues available within the ASX structure would again apply.
Fees
Fees are payable in relation to these functions - amendments to the Fees Regulations and paragraph 4(1)(1), and subsections 6(5) and 7(1) of the Corporations (Fees) Act 2001 refer. They are payable by the market licensee, ie the operator of the relevant market, who is presumably collecting a listing fee from the listed entity.
Confidentiality; ASIC's liability for damages
Sections 127 and 246 of the Australian Securities and Investments Commission Act 1989 apply in relation to confidentiality and ASIC's liability for damages in these circumstances, as they do in relation to its other functions.
3. CLEARING AND SETTLEMENT FACILITIES
Annual report of CS facility licensee - amendment to paragraph 7.3.04(b)
The amendment to subregulation 7.3.04(b) remedies an incorrect cross-reference.
4. LICENSING OF PROVIDERS OF FINANCIAL SERVICES
Licensing of trustees of pooled superannuation trusts - paragraph 7.6.01(1)(c)
Existing paragraph 7.6.01 (1)(c), which provides an exemption from licensing for trustees of pooled superannuation trusts in circumstances where the pooled superannuation trust is used for investing the assets of a regulated superannuation fund, has been replaced. The exemption is conditional upon the regulated superannuation fund having a certain minimum level of assets at the date of its first investment in the pooled superannuation trust.
The paragraph clarifies that the date of this first investment, for the purposes of determining whether the minimum asset levels have been met, may be before or after the commencement of the Financial Services Reform Act 2001.
Proposed subregulation 7.6.01(5) is also relevant in this connection.
Certain dealings in superannuation products - paragraph 7.6.01(1)(h), paragraphs 7.6.01(1)(ha), (hb) and (he)
Paragraph 7.6.01 (1)(h) provides that a financial services licence is not required for arranging for contributions to be paid into a superannuation fund, successor fund or retirement savings account. The paragraph has been amended to provide that a financial services licence is not needed where an employer sponsor pays contributions on behalf of an employee, or where a trustee of a superannuation fund or a retirement savings account provider pay the benefits of a member or retirement savings account product holder into a superannuation product or retirement savings account product.
Paragraphs 7.6.01 (1)(ha) and (hb) extend the exemption to cover situations where benefits are paid out of one fund and into another (for example, an eligible roll-over fund or successor fund).
Paragraph 7.6.01 (1)(he) covers employer-sponsors arranging for the issue of a superannuation product to an employee.
Sub-custodians - paragraph 7.6.01(1)(k)
Paragraph 7.6.01 (1)(k) provides an exemption from the requirement to hold a financial services licence for sub-custodians when their master custodian holds a financial services licence which authorises the master custodian to provide a custodial or depository service.
Non-cash payments systems - paragraph 7.6.01(1)(l)
Paragraph 7.6.01 (1)(l) states that a person who provides a financial service in the ordinary course of a nonfinancial services business that consists only of advising or arranging to deal in relation to a non-cash payments facility does not a require a financial services licence.
There is a note to the regulation which provides an example of the conduct which is intended to fall within the regulation.
Foreign exchange and derivatives as principals - paragraph 7.6.01(1)(m)
Regulation 7.6.01 (1)(m) provides that a person is not required to hold a financial services licence where the person deals in derivatives or foreign exchange contracts on their own behalf for the purpose of managing a financial risk that arises in the ordinary course of a business when the person does not deal in derivatives or foreign exchange contracts as a significant part of the person's business.
The exemption does not extend to conduct which amounts to making a market for derivatives or foreign exchange contracts.
There are two examples of the intended application of this paragraph.
Offshore Service Providers - paragraph 7.6.01(1)(n)
Paragraph 7.6. 01 (1)(n) provides an exemption from the requirement to hold a financial services licence where a person not in this jurisdiction deals in a financial product for a person in this jurisdiction and the service has been arranged by a financial services licensee.
General advice by product issuers in the media - paragraph 7.6.01(1)(o), subregulation 7.6.01(7)
Paragraph 7.6.01 (1)(o) provides that a product issuer does not need to hold a financial services licence where the product issuer gives general advice in the media as long as a warning relating to the advice is also provided (see subparagraph 7.6.01 (1)(o)(iv)).
The term 'media' is defined in subregulation 7.6.01(7).
Certain workers' compensation insurers - paragraph 7.6.01(1)(p)
Under the new Corporations Act, workers compensation insurance is a financial product (see paragraph 764A(1)(d)). For the purposes of the Act, workers compensation insurance is treated as being acquired or issued to a person as a wholesale client (see Corporations Regulations paragraphs 7.1.11(2)(b), 7.1.13(2)(b), 7.1.14(2)(c), 7.1.15(2)(b), 7.1.16(2)(b), 7,1,17(2)(b)).
The effect of this treatment of workers compensation insurance as wholesale is to exempt workers compensation insurance from the product disclosure requirements in Part 7.9 of the Act.
However, it appears that licensed WorkCover insurers will still be required to hold an Australian financial services licence under Part 7.6 of the Act. These insurers do not fall within the exemption for APRAregulated bodies contained in paragraph 911A(2)(g) as they are exempt from APRA licensing.
Some States and Territories, such as New South Wales, require insurers wishing to offer workers compensation insurance under State or Territory legislation to be licensed. There would be a duplication of licensing where those insurers that are licensed under such regimes would be required to also hold an Australian financial services licence covering the same activities.
Paragraph 7.6.01 (1)(p) provided an exemption from the requirement to hold a financial services licence where a person is licensed under the law of a State or Territory to provide a service that relates to workers compensation insurance entered into for the purposes of a law of the State or Territory.
This exemption reflects the existing arrangements for insurers who are licensed under State or Territory laws in both the Insurance Act 1973 and the Insurance Contracts Act 1984.
An example of the services covered by this paragraph are the activities of a licensed insurer under the Workers Compensation Act 1987 of New South Wales.
A licensed insurer requires a financial services licence to the extent that the licensed insurer provides a financial service in respect of a non-workers compensation product or a non-workers compensation component of a product.
Variation or disposal of a financial product by the product issuer under the terms of the product -paragraph 7.6.01(1)(q)
Paragraph 7.6.01 (1)(q) provides an exemption from the requirement to hold a financial services licence when a product issuer varies a financial product or disposes of a financial product under the terms of the financial product. This paragraph is intended to cover situations such as exercising a right of force majeure, varying an insurance product for breach of the duty of disclosure, misrepresentation or misstatement of age under subsections 29(4) and 30(2) of the Insurance Contracts Act 1984, or terminating a superannuation fund member's interest on transfer to a successor fund or eligible rollover fund as permitted under the Superannuation Industry (Supervision) Act 1993.
Transitional relief for debenture issuers - paragraph 7.6.01(1)(r) and subregulation 7.6.01(6)
This paragraph provides that a dealing (or arranging for a dealing) in a debenture by the issuer of that debenture is not the provision of a financial service. This exemption also extends to a legal or equitable right or interest in a debenture or an option to acquire, by way of issue or transfer, a debenture or a legal or equitable right or interest in a debenture. This relief ceases at the end of two years after the FSR commencement. This transitional period for debenture issuers provides time for further consideration of the appropriate regulatory regime for the issuing of debentures and, in particular, would provide an opportunity for assessing the adequacy of the current requirements for trust deeds that apply to the issuing of debentures. It replicates the effect of subsection 68(3) of the old Corporations Act.
Licensing of trustees of pooled superannuation trusts - subregulation 7.6.01(5)
Paragraphs 7.6.01 (b) and (c) set out circumstances in which the trustee of a pooled superannuation trust will not require a licence where the pooled superannuation trust is used to invest the assets of a regulated superannuation fund. The paragraphs provide that the regulated superannuation funds that invest in the pooled superannuation trust must have a certain minimum level of assets.
Subregulation 7.6.01(5) provides that where more than one regulated superannuation fund invests in a pooled superannuation trust, all of those regulated superannuation funds must meet the minimum asset requirements of either paragraph 7.6.01 (b) or (c).
Need for a financial services licence: financial product advice provided by the media regulation 7.6.01B
Paragraphs 911A(2)(ea), (eb) and (ec) of the Act provide exemptions from licensing for the media (such as publishers and proprietors of newspapers, operators of information services, and persons who make available to the public sound, video or data recordings). Under subsection 911A(5), the regulations may provide that the exemptions in paragraphs 911A(2)(ea), (eb) and (ec) apply subject to conditions.
Regulation 7.6.01B places conditions on these exemptions. Subregulation(1) requires disclosure of certain matters where financial product advice is provided by the media, to the extent that those matters would reasonably be expected to influence, or be capable of influencing, the provision of the financial product advice. In particular, remuneration received by a person covered by the exemptions in the Act, or a representative (defined in section 910A of the Act) of such person must be disclosed.
Disclosure of pecuniary or other interests is also required if the person who provides the financial product advice, or an associate of the provider, would be likely to obtain a material financial benefit or avoid a material financial loss if the advice is acted upon. This is essentially aimed at requiring disclosure of financial conflicts of interest of a substantial nature. The expressions "associate", "material financial benefit" and "material financial loss" are defined in subregulation (7).
Subregulation (2) provides that the disclosure required under subregulation (1) must be made in a way that would bring it adequately to the attention of a reasonable person, and be easy for a reasonable person to understand.
Subregulation (3) provides that the disclosure requirements in subregulation (1) do not apply where the person subject to the exemptions in the Act, and the person's representatives, comply with an industry code of practice or the Statement of Principles laid down by the Australian Press Council, or are subject to an internal policy (which may include a code of ethics or editorial guidelines), so long as that code, Statement of Principles or internal policy contains requirements relating to how financial conflicts of interest are dealt with, or measures to prevent such conflicts arising.
Essentially, subregulation (3) recognises that much of the media already has in place rules relating to conflicts of interest regarding financial matters. They are permitted to rely on these rules, as a substitute for meeting the disclosure requirements in subregulation (1).
ASIC may monitor the content of codes, guidelines etc. established by the media to deal with financial conflicts of interest, to ensure that reliance on self-regulation remains appropriate.
Subregulation (4) provides that the disclosure requirements in subregulation (1) do not apply in the case of newspapers, periodicals, transmissions made by means of information services, sound, video or data recordings whose principal purpose is to report and comment on the news. "Information service" is defined in subsection 911A(6) of the Act to include a broadcasting service, an interactive or broadcast videotext or teletext service, or an online database service.
Subregulation (4) also provides that the disclosure requirements in subregulation (1) do not apply in relation to paid advertising, so long as it is clearly distinguishable from other material.
Subregulation (5) provides that transmissions provided as part of a subscription broadcasting service, as defined in the Broadcasting Services Act 1992, are considered to be transmissions generally available to the public.
Subregulation (6) clarifies and extends the definition of "information service" in subsection 911A(6) of the Act to include broadcasting and datacasting services as defined in the Broadcasting Services Act 1992, and services provided by the Internet.
Subregulation (7) provides definitions of "associate", "internal policy", "material financial benefit" and "material financial loss" for the purposes of the proposed regulation.
Notification of adverse change to financial position - paragraph 7.6.04(1)(a)
Paragraph 7.6.04(1)(a) provides that an Australian financial services licence is subject to a condition that, if any event occurs that may make an adverse change to the financial position of the financial services licensee, the licensee must provide ASIC with a notice setting out particulars of the event not later than the end of the first business day after the day on which the licensee becomes aware of the event.
This paragraph has been amended to require the licensee to lodge a notice with ASIC as soon as practicable, and in any case not later than three business days after the licensee becomes aware of the event. This timeframe is consistent with the notification requirements in section 912D of the Act.
5. FINANCIAL SERVICES DISCLOSURE
How documents, information and statements are to be given - regulation 7.7.01
This amendment to regulation 7.7.01 corrects a number of technical errors in sub-regulation 7.7.01 (1). Subregulation 7.7.01 incorrectly includes a reference to subsection 946B(3) of the new Corporations Act.
The amendment also removes incorrect references to the form in which information is required to be given in subsections 941C(5) and 946B(3).
Definition of public forum - subregulation 7.7.02(2)
Subsection 941C(4) of the Act states that a financial services guide is not required when general advice is provided in a public forum. Subsection 941C(4A) of the Act states that the regulation may define public forum for the purposes of subsection 941C(4).
Subregulation 7.7.02(2) states that an event or broadcast is a public forum if any person is permitted to attend the event or view or hear the broadcast. For an event that can be attended, the event must be attended by more than 10 retail clients or retail clients the number of which could not reasonably be ascertained before the event commenced.
There are a number of examples provided. The note to the regulation states that if general advice is given in a public forum, the requirements of subsection 941C(5) of the Act must be complied with.
6. OTHER PROVISIONS RELATING TO CONDUCT ETC CONNECTED WITH FINANCIAL PRODUCTS AND FINANCIAL SERVICES, OTHER THAN FINANCIAL SERVICES DISCLOSURE
Money required to be paid into an account under the operating rules of a licensed financial market - subregulation 7.8.01(4A)
Paragraph 981B(1)(c) of the Act requires that a financial services licensee must ensure that money to which Subdivision A of Division 2 of Part 7.8 applies is paid into an account that satisfies the requirements imposed by the regulations.
Subparagraph 981B(1)(b)(iv) of the Act states that the regulations may permit other money to be paid into an account to which section 981B of the Act relates.
Subregulation 7.8.01(4A) states that if the financial services licensee is required by the operating rules of a licensed financial market to pay an amount into an account to which section 981B of the Act relates, then that amount may be paid into the account.
Special provisions relating to money received for calling margins - paragraph 7.8.01(5)(c), subregulations 7.8.01(8), (9) and (10)
Subregulation 7.8.01(5) requires a financial services licensee to operate an account maintained for section 981B of the Act as a trust account. Where a licensee is required to call margins from clients under the operating rules of a licensed financial market, the licensee will operate either a client segregated account or a trust account in accordance with the operating rules of the licensed financial market (paragraph 7.8.01(5)(c) and subregulation 7.8.01(8)).
Subregulation 7.8.01(8)(b) states that where the account is operated outside Australia and the law in force in the jurisdiction where it is maintained requires it to be designated in some other way, then the account must be designated in that way.
Subregulation 7.8.01(9) states that if an account is operated in accordance with subregulation 7.8.01(8), then all money received by the financial services licensee may be paid into that account. This is intended to allow financial services licensees to operate one account rather than two.
Subregulation 7.8.01 (10) states that nothing in subregulation 7.8.01(8) is intended to affect the operation of section 981E of the Act. Section 981E deals with protection of money from attachment.
Interaction between sections 981B and 1017E of the Act - subregulation 7.8.01(6) and (7)
Subregulation 7.8.01(6) states that money received under section 1017E of the Act is money that may be paid into an account to which section 981B relates.
Subregulation 7.8.01(7) states that if money received under section 1017E is paid into an account under subregulation 7.8.01(6), then Subdivision A of Division 2 of Part 7.8 applies to the money. An equivalent provision is found in subregulation 7.9.08(4).
Withdrawals from account - paragraph 7.8.02(1)(f)
Subregulation 7.8.02(1) deals with the circumstances in which payments may be made out of an account. Paragraph 7.8.02(1)(f) states that money may be withdrawn from an account for paying to the financial services licensee to which the financial services licensee is entitled pursuant to the operating rules of a licensed market.
Withdrawal and payment to another financial services licensee - subregulation 7.8.02(1A)
Subregulation 7.8.02(1 A) deals with withdrawal of money and payment to another financial services licensee. When a financial services licensee (the paying licensee) withdraws money from an account maintained for section 98 1 B of the Act and pays it to another financial services licensee (the receiving licensee), the paying licensee is required to notify the receiving licensee that the money has been withdrawn from an account maintained for section 981B of the Act. The receiving licensee is required, not later than the day the payment is received, to pay the money into an account maintained for section 98 1 B of the Act. This subregulation substantially reproduces section 1209(5A) of the old Corporations Act.
Permissible investments - subregulation 7.8.02(4)
Paragraph 981A(4)(a) of the Act provides that the regulations may exempt money paid in specified circumstances from some or all of the provisions of Subdivision A of Division 2 of Part 7.8 of the Act.
Subregulation 7.8.02(4) provides that subregulation 7.8.02(3) does not apply to money to which subregulation 7.8.01(4) applies.
Interest on accounts - subregulation 7.8.02(7)
Subregulation 7.8.02(7) provides that if money is held in an account maintained for section 981B of the Act, the licensee is entitled to the interest on the account and the interest is not required to be paid into the account, provided the licensee discloses to the client that the licensee is keeping the interest.
Money to which Subdivision A of Division 2 of Part 7.8 of the Act applies taken to be held in trust: risk accepted by the insurer - subregulation 7.8.05(4)
Regulation 7.8.05 applies to money received in relation to an insurance product when the risk in relation to the insurance product has been accepted by the insurer.
Subregulation 7.8.05(4) states that if such money is held in an account maintained for section 981B of the Act, the financial services licensee is entitled to the interest on the account and the interest is not required to be paid into the account. This continues current industry practice.
Debts of financial services licensee in relation to premiums etc - subregulation 7.8.08(18)
Subsection 1364(2) of the Act provides that regulations may prescribe penalties not exceeding 50 penalty units for contraventions of the regulations. Subregulation 7.8.08(18) prescribes a penalty of 2 years imprisonment. The penalty in subregulation 7.8.08(18) has been amended to 10 penalty units.
Reporting in relation to money to which Subdivision A or B of Division 2 of Part 7.8 applies or property to which Division 3 of Part 7.8 applies and reporting in relation to dealings in derivatives - regulations 7.8.09 and 7.8.10
These two regulations have been deleted. Consultation with key stakeholders has revealed that these regulations impose significant compliance burdens on industry with no corresponding consumer protection benefit.
Dealings involving employees of licensees - subregulation 7.8.21(1A)
Subregulation 7.8.21(1A) provides that subsection 991F(2) does not have effect in relation to a licensee that gives credit in good faith to a person employed by the licensee, or by another person that is related to the licensee, to enable the person to acquire an insurance product in relation to a credit facility provided by the licensee to the person employed by the licensee or another person that is related to the licensee.
Mortgage insurance is provided as an example.
Prohibition of hawking of certain financial products - regulations 7.8.22, 7.8.23, 7.8.24 and 7.8.25
Hours
Regulation 7.8.22 provides that for the purposes of paragraph 992A(3)(a) of the Act, the prescribed hours are from 8 am until 9 pm on a day in the State or Territory in which the person to whom the offer is made is located, excluding Christmas Day, Good Friday and Easter Sunday. These hours reflect the hours developed by the Ministerial Council on Consumer Affairs. A reproduction of this can be found in the Code of Practice of the Australian Direct Marketing Association.
Application of right of return
Regulation 7.8.23 provides a requirement of the exercise of the right to return in relation to a superannuation product or an retirement savings account product. Where a product issued to the holder of the product as a result of a transfer between superannuation entities or retirement savings accounts, and the money to be repaid includes restricted non-preserved benefits or preserved benefits, the holder of the product must nominate a superannuation fund, approved deposit fund or retirement savings account into which the money representing restricted non-preserved benefits or preserved benefits is to be repaid. This regulation replicates Corporations Regulation 7.9.66 which applies in relation to cooling off periods.
Regulation 7.8.24 deals with when the right of return does not apply. This regulation substantially replicates current Corporations Regulation 7.9.64 which deals with which financial products the cooling-off period does not apply to.
Regulation 7.8.25 states that if a financial product is subject to a distribution, the amount that would otherwise be repaid on the exercise of the right of return may be reduced by the amount of the distribution.
7. FINANCIAL PRODUCT DISCLOSURE AND OTHER PROVISIONS RELATING TO ISSUE AND SALE OF FINANCIAL PRODUCTS
Application forms - amendments to regulations 7.9.06 and 7.9.07
The omission of regulation 7.9.06 and amendment to regulation 7.9.07 reflect changes in referencing and format made in earlier amendments in relation to application forms requirements for superannuation and retirement savings account products.
Exception to provision of remedy for defective product disclosure statement - regulation 7.9.07C
The regulation inserts the phrase 'the operating rules of a licensed financial market' in place of 'the rules of a licensed market' in regulation 7.9.07C to make the language of the regulation consistent with terms adopted elsewhere in the Act and the Regulations.
Interaction between sections 981B and 1017E - subregulation 7.9.08(3)
Subregulation 7.9.08(3) states that if money received under section 1017E of the Act is paid into an account under subregulation 7.8.01(6), then Subdivision A of Division 2 of Part 7.8 applies to the money. This clarifies the status of money in an account maintained for section 98 1 B of the Act and retains current industry practice.
Money which may be paid into an account maintained for section 1017E of the Act subregulation 7.9.08(4)
Subregulation 7.9.08(4) allows the product provider to pay other money into an account maintained for section 1017E of the Act provided that money to which section 1017E applies is identified and held in accordance with all other provisions of section 1017E.
Interest on section 1017E accounts - regulation 7.9.08A
This regulation modified section 1017E to provide that a product provider can keep the interest on money in a section 1017E account (and that the interest does not have be paid into the account) as long as they have disclosed this to the person who paid the money.
Crediting of payments before money is received - regulation 7.9.08B
This regulation modifies section 1017E so that it applies not just to money received by a product provider but also to money paid by a product provider into a section 1017E account on the expectation that the product provider would receive a payment from a person. These modifications have been made to accommodate industry practice (resulting from the way in which various payment systems operate) that involves a product provider on receipt of information from a potential acquirer of a product paying an equivalent amount of their own money into a section 1017E account and then reimbursing themselves from the money they subsequently receive. However, at all times after the product provider has received money from a person, there is an amount equivalent to this in a section 1017E account.
Regulation 7.9.08B deals with these types of arrangements by providing that section 1017E also applies to a product provider's money in these circumstances. This money can then be paid into a section 1017E account and the same restrictions apply to the way in which must be held and dealt with. These restrictions apply as if the money had been paid by the person who is expected to pay the money rather than by the product provider. Section 1017E then does not apply to the actual money subsequently received by the product provider which they can then use to reimburse themselves for the money paid into the section 1017E account.
Subregulation 7.9.08B(3) provides that money which is the subject of regulation 7.9.08B can be removed from a section 1017E account if the product provider becomes aware, or has reasonable grounds to believe, that the client's money will not be paid. So, in any situation where the product provider does not actually receive the money they expected to receive, they are able to recover the money which they deposited in the section 1017E account.
Remedy for defective product disclosure statement - amendment to regulation 7.9.14
Regulation 7.9.14 has been amended so that it corresponds with regulations 7.9.66 and 7.9.68 in terms of consistency of terminology and the operation of nomination requirements associated with the exercise of a right of return for superannuation and retirement savings account products. The nomination requirements follow the interaction of preservation requirements under the Superannuation Industry (Supervision) Regulations 1994 and cooling-off provisions introduced by the new Corporations Act.
Application of section 1012E to interests in unregistered managed investment schemes regulation 7.9.16A
This regulation applies section 1012E to interests in unregistered managed investment schemes.
Confirming transactions involving superannuation products - regulation 7.9.61D
The amendments correct referencing errors.
Self managed superannuation funds - amendments to regulation 7.9.62 and regulation 7.9.63H
The amendments contained in these regulations provide that self managed superannuation funds not be subject to:
• the confirmation requirements under section 1017F of the Act; and
• the dispute resolution mechanism requirements under section 1017G of the Act.
These changes have been made in recognition of the legislative requirements related to the structure of self managed superannuation funds and practical operational concerns. It should also be noted that self managed superannuation funds are not subject to cooling-off provisions under the Act under the exemption given to non-public superannuation funds in regulation 7.9.64.
Confirmation of transactions - subregulation 7.9.63B(7)
A minor amendment to the wording of this subregulation has been made - substituting 'on-market' for 'in the ordinary course of business of a licensed market'.
Details of information to be provided in confirmation - regulations 7.9.63F and 7.9.63G
These two regulations are intended to clarify that in a confirmation for an acquisition or a disposal, only the total amount payable by or to the holder needs to be included in the confirmation. This addresses a concern that otherwise, section 1017F could require a very detailed breakdown and description of the amounts paid by or to holder.
Cooling-off provisions - listed managed investment products - amendment to regulation 7.9.64(1)(h)
Amendments to paragraph 7.9.64(1)(h) clarify that the cooling-off provisions do not apply to listed managed investment products either in relation to an initial public offering or to the sale or issue of interests to existing managed investment schemes.
Cooling-off provisions - Notification of exercise of right of return - risk insurance products regulation 7.9.64A
Regulation 7.9.64A broadens the ways in which a person may notify a responsible person of the exercise of a right of return in relation to risk insurance products. This extension follows consideration of existing commercial practices and the nature of the products. The amendment is also consistent with other disclosure requirements under the new Corporations Act. In particular, it is noted that such products are not subject to the operation of application from requirements under section 1016A. of the Act.
Cooling-off - short term risk insurance products - amendment to regulation 7.9.65
The amendments clarify that the cooling-off provisions cease to apply in relation to short term insurance contracts either once an insured event commences or the prescribed cooling-off period is finished.
Cooling-off provisions - responsible person - amendments to regulations 7.9.66, 7.9.67 & 7.9.68
The amendments ensure consistency between terminology in regulations 7.9.66, 7.9.67 & 7.9.68 and the obligations that apply to responsible persons under the operation of the cooling-off provisions of the new Corporations Act.
Cooling-off provisions - superannuation & retirement savings account products - amendment to regulation 7.9.66
Regulation 7.9.66 reinstates an obligation on a responsible person associated with the right of return of a superannuation or retirement savings account product. This obligation was inadvertently removed in previous regulations.
Cooling-off provisions - standard employer-sponsors - amendment to regulation 7.9.68
The amendments to regulation 7.9.68 clarify the operation of the nomination requirements. They ensure that a standard employer-sponsor has the ability to direct the transfer of contributions made by them, subject to the preservation requirements under the SIS Regulations. Similarly, any contributions made by the standard employer-sponsored member are to be transferred subject to the direction of the member and preservation requirements.
8. TRANSITIONAL REGULATIONS
References to transition period - regulation 10.2.02A
Regulation 10.2.02A provides that a reference in the regulations to a transition period includes a transition period that has been extended under section 1437 of the new Corporations Act.
References in the regulations to the application of Division 2 of Part 7.9 - regulation 10.2.02B
This regulation is intended to clarify the meaning of references in the regulations to whether or not Division 2 of Part 7.9 applies to a financial product. It clarifies that these references are only meant to deal with whether or not a financial product is subject to the transitional arrangements under Part 10.2 (in these situations a product is not subject to Division 2 of Part 7.9 of the Act). In determining whether or not Division 2 of Part 7.9 applies to a product other factors such as whether that Division would ever require the giving of a product disclosure statement for that product (potentially not if it is only ever issued to wholesale clients) should not be taken into account.
Proposed markets - regulation 10.2.02C
Regulation 10.2.02C identifies "proposed markets". The purpose of the regulation is to specify markets that have not started to operate by the commencement of the relevant provisions of the FSR Act (11 March 2002) but have indicated that they intend to do so shortly after that time. The markets that are identified in the regulation will, so long as they start to operate within six months after 11 March 2002, be able to benefit from the transitional arrangements provided in Part 10.2 of the new Corporations Act.
Regulated principals and regulated activities - amendments to regulation 10.2.38 - table, after item 6
Under section 1430 of the new Corporations Act, licensees under the old Corporations Act and registered brokers and foreign insurance agents under Insurance (Agents and Brokers) Act 1984 whose licence/registration was suspended either before, on or after 11 March 2002 would not be a regulated principal under the new Corporations Act and would therefore not receive the benefit of the transition period to the new regime. It is considered that the transition provisions should be extended to these entities.
Regulation 10.2.38 extends ' the transition provisions to licensees under the old Corporations Act and registered brokers and foreign insurance agents under the Insurance (Agents and Brokers) Act 1984 whose licence/registration was suspended either before, on or after 11 March 2002.
Transitional arrangements for citing of licence numbers - regulation 10.2.44A
This regulation provides transitional relief for the citing of licence numbers in product disclosure statements (as may be required by section 912F). Where a person prepares copies of a product disclosure statement (by having them printed, for example) and does not have a financial services licence at that time, then those product disclosure statements are not required to contain their licence number after they are granted a licence. However, this provision ceases to operate at the end of two years after the FSR commencement so at that time all product disclosure statements will be fully subject to section 912F.
Modification of pre-FSR authority - regulation 10.2.47A
As a result of the Part 10.2 and section 913B of the new Corporations Act, regulated principals may be granted a licence that covers some only of their regulated activities.
When an Australian financial services licence is granted under the new Corporations Act or a regulated principal starts to be covered by an exemption under subsection 911A(2) of the new Corporations Act in respect of some only of their regulated activities, the old licence/authorisation ceases to cover the relevant part of the regulated principal's activity covered by the Australian financial services licence.
The relevant old legislation continues to apply in respect of the licensee's remaining regulated activities, and the regulated principal continues to have the benefit of the transition period arrangements, including those outlined in section 1431 of the new Corporations Act.
Regulation 10.2.47A allows ASIC to vary the old authority to take account of the new licence granted under the Act or the fact that the licensee was exempt from the requirement to hold a financial services licence. By clarifying the effect of the old licence/authorisation, any confusion that may arise where a regulated principal holds more than one licence/authorisation is reduced.
Transitional arrangements for superannuation products and section 10121A - regulation 10.2.50A
Regulation 10.2.50A provides that for superannuation products that involve a custodial arrangement within the meaning of section 10121A (that is, superannuation products that give the holder an ability to make choices about underlying investments where such acquisitions are 'a regulated acquisition' within the meaning of section 10121A), that section does not apply to the custodial arrangement until two years after the FSR commencement.
This transitional relief for superannuation products recognises that in many cases compliance with section 10121A may involve significant changes from current practice and that additional time is needed to further consider and implement these changes.
Offers that do not need disclosure - amendments to regulation 10.2.52A
These amendments are intended to clarify the operation of regulation 10.2.52A, so that it is clear that issues and sales arising from offers of products made prior to Division 2 of Part 7.9 applying to those products can, where appropriate (that is, where they comply with the relevant conditions in subsection 1012E(9)), be disregarded under that subsection.
Transitional arrangements for advertising of financial products - regulation 10.2.73A
This regulation provides that where a product issuer has lodged a notice with ASIC indicating a date in the future when they want to 'opt in' to the product disclosure provisions of Part 7.9 for that product, then for up to three months prior to that date, the provisions dealing with advertising in Division 4 of Part 7.9 can (at the discretion of the product issuer) apply to that product and section 734 of the old Corporations Act ceases to apply.
Freezing accounts - regulation 10.2.73B
Regulation 10.2.73B provides the Court with power to make orders under subsection 983A(1) of the new Corporations Act after 11 March 2002 in relation to persons that had held a licence under Chapter 7 or 8 of the old Corporations Act where that licence has been revoked or suspended (whether before or after the commencement of the Financial Services Reform Act 2001).
Transitional arrangements for registered schemes - amendments to regulation 10.2.74
Subregulation 10.2.74(2A) clarifies that in any case where a financial product is an interest in a registered scheme, it is in the same class as another interest in that registered scheme. An amendment to subregulation 10.2.74(2) ensures that it could operate in conjunction with this new provision.
Financial products in the same class - subregulation 10.2.74(11)
Subregulation 10.2.74(11) ensures that transitional relief from the product disclosure requirements of the new Corporations Act is specifically extended to warrants. The term 'warrant' is defined in subregulation 1.0.02(1).
References to financial services licensee - amendments to regulation 10.2.75
This amendment to regulation 10.2.75 clarifies that, during the transition period, a reference to an authorised representative in Part 7.9 includes a representative of a regulated principal.
References to issue of product - amendment to regulation 10.2.77
This amendment rectifies a problem with the existing regulation 10.2.77. The amendment ensures that the correct effect is achieved, that is, that where an offer to issue a product has been made prior to the FSR commencement, then financial products in the same class as that product gain the benefit of the transitional period.
Reference to Product Disclosure Statement - amendment to regulation 10.2.79
This amendment adds subparagraph 1012D(2)(b)(ii) to the list in regulation 10.2.79 of provisions in which references to a product disclosure statement are taken to include a reference to a disclosure document under Chapter 6D. The purpose of this is to ensure that in determining whether a person has access to all the information that a product disclosure statement is required to contain, information the person has received through a disclosure document under Chapter 6D can be taken into account.
Prohibitions under old Corporations Act - regulations 10.2.94A and 10.2.94B
Regulations 10.2.94A and 10.2.94B provides for the continuing effect under the new Corporations Act of prohibitions under sections 827(1)(d) and 1192(1)(d) of the old Corporations Act, made before and after FSR commencement.
Liability of responsible person: general rules - amendments to regulation 10.2.102
During the transition period, as regulated principals move at different times to the new licensing regime, there is potential in some instances for a reduction in the liability of principals for their representatives. This potential reduction in liability may occur where representatives act for multiple principals, some of which operate under old legislation and some of which operate under the new Corporations Act.
In order to minimise any reduction in liability, regulation 10.2.102 has been amended. This amendment to regulation 10.2.102 ensures that where a person is a representative of more than one principal - one of which is a principal who has transitioned into the new (FSR) legislative regime and one of which is a principal who has not yet done so - then as the starting point where a principal issues, varies or transfers a product as a result of the representative's conduct, that principal is liable. Regulation 10.2.102 has also been amended to make a minor technical correction to Note (c).
Disqualifications made under Insurance (Agents and Brokers) Act 1984 - regulations 10.2.119B and 10.2.119C
Regulations 10.2.119B and 10.2.119C provides for the continuing effect under the new law of disqualifications under sub-sections 25(5) and 31H(5) of the Insurance (Agents and Brokers) Act.
Continuation of SIS Regulations during transition period ~ amendment to regulation 10.2.120B
The amendment to regulation 10.2.120B provides that SIS regulation 3.10 continues to apply in relation to superannuation products during the transition period.
Solvency and insolvency - regulation 10.2.122
The purpose of the regulation is to reinstate the definitions of solvency and insolvency as they appeared in subsections 95A(1) and (2) of the old Corporations Act.
When a managed investment scheme must be registered - regulation 10.2.124
This amendment clarifies the reference in 10.2.124(b)(i) to issues made after 12 March 2000 that would not need disclosure to investors under Part 6D.2 of the old Corporations Act if the scheme were registered.
Transitional matters under other legislation - regulation 10.2.135A
Regulation 10.2.135A provides that references in Commonwealth legislation to authorised foreign exchange dealers include references to persons holding an Australian financial services licence, where that licence permits the holder to buy and sell foreign currency.
This regulation is required because on the commencement of the FSR Act, persons who buy and sell foreign currency, and whose activities constitute the carrying on of a financial services business, will be required to obtain an Australian financial services licence. Currently, persons who buy and sell foreign currency require the authority of the Reserve Bank of Australia under the Banking (Foreign Exchange) Regulations, but the power of the Reserve Bank to authorise these activities will cease when the FSR Act commences.
However, authorities granted by the Reserve Bank to foreign exchange dealers will continue in effect until such time as the authority holder obtains an Australian financial services licence, ceases to buy and sell foreign currency, or the two-year transitional period to the new licensing regime expires, whichever occurs first. Thus at any point in time during the transitional period there may be some people who hold an authority from the Reserve Bank and others who hold an Australian financial services licence in respect of buying and selling foreign currency.
Professional investors - amendment to regulation 10.2.138
This amendment to regulation 10.2.138 deletes sub-regulation 10.2.138(4). Sub-regulation 10.2.138(4) extends the period during which a person is taken to be a professional investor to include the transition period for that person as modified under section 1437.
The effect of this sub-regulation is, however, preserved in new regulation 10.2.02A.
Two minor technical amendments have also been made to sub-regulation (3)(a) and sub-regulation (3)(b) to clarify their intent.
Hawking interest in managed investment scheme - regulation 10.2.197
This amendment to sub-regulation 10.2.197(3) clarifies that the sub-regulation applies to interests in a managed investment scheme.
Heading to Regulation 10.2.198 - amendment
The heading to regulation 10.2.198 has been corrected.
Disclosure documents - cooling off period - regulation 10.2.200
This amendment to regulation 10.2.200 clarifies the circumstances in which issuers of financial products who have issued disclosure documents prior to FSR commencement are not civilly or criminally liable in relation to information about the cooling off regime applying after FSR commencement.
Reporting periods - amendments to regulations 10.2.206 & 10.2.207
Amendments to regulations 10.2.206 and 10.2.207 allow a product issuer to maintain the reporting period it currently applies to an existing financial product during the transition to the disclosure requirements under the Corporations Act. The transition to periodic reporting obligations under section 1017D should not require the product issuer to 'predetermine' the reporting period.
Similarly, the transfer of fund information reporting requirements in relation to superannuation products to regulations under section 1017DA of the new Corporations Act does not require a change to the existing fund reporting period from that provided under the SIS Regulations.
Agreements with unlicensed persons - transitional arrangements - regulation 10.2.210
Part 7.6, Division 11 of the new Corporations Act deals with agreements with unlicensed persons relating to the provision of financial services. Under section 924A, where a client enters into an agreement with a non-licensee, the client may rescind the agreement.
Regulation 10.2.210 apply section 924A to agreements that are entered into, but not completed, before the non-licensee becomes subject to the new law.
Arrangements for Lloyd's - regulation 10.2.211
Regulation 10.2.211 provides that subsection 911A(1) of the Act does not apply to a financial service that is provided by a Lloyd's underwriting member or a listed Lloyd's syndicate in relation to which the Lloyd's underwriting member or listed Lloyd's syndicate is regulated by APRA at any time within 2 years after the FSR commencement.
The regulation is intended to relieve Lloyd's members and syndicates (both existing and new) from the application of the licensing provisions (Part 7.6 of the Act) for the transitional period. During the transitional period, a long-term arrangement will be established.
Transitional application of subsection 992AA(2) - regulation 10.2.212
This regulation provides that references in subsection 992AA(2) to a financial services licensee includes regulated principals during their transition period.
Minor or technical changes - amendments to regulations 10.2.71, 10.2.146, 10.2.148, 10.2.15 1, 10.2.156, 10.2.169
These amendments make a number of minor or technical changes. These include clarifying the type of market referred to in a number of these regulations and other changes related to terminology.
9. MISCELLANEOUS OTHER AMENDMENTS
Telephone Monitoring during takeovers - amendment to regulation 6.5.01
An amendment has been made to regulation 6.5.01 to remove a drafting error and ensure the appropriate application of the telephone monitoring provisions.
Continuous Disclosure - amendment to regulation 6CA.1.01
This amendment ensures that the situations where disclosure of information under section 675 is not required accurately reflect current ASX listing rule 3.1. In the previous regulation the situations mentioned in paragraphs (a) and (b) of the amendment were alternatives to the situations mentioned in paragraph (c) rather than additional requirements.
Heading of regulation 9.12.01 - amendment
The heading of regulation 9.12.01 has been corrected to omit the reference to Chapter 6D.
Insider Trading - regulations 9.12.02 - 04
Regulations 9.12.02, 9.12.03 and 9.12.04 operate in conjunction with sections 1043H, 10431 and 1043J of the Act. Their purpose is to extend the ambit of the current exceptions for knowledge of a person's own intentions or activities by providing an additional exception from the offence in subsection 1043A(1) in relation to certain transactions.
Under the exceptions in sections 1043H to 1043J, persons to whom the sections apply do not contravene the offence provision in subsection 1043A(1) of the Act by entering into a transaction or agreement in relation to financial products issued by a second person merely because they are aware that they propose to enter into, or have previously entered into, one or more transactions or agreements in relation to financial products issued by the second person.
The regulations operate to extend the scope of these exceptions so that they also encompass a person's awareness that they propose to enter into, or have previously entered into one or more transactions or agreements in relation to financial products issued by another person other than the second person.
The regulations are intended to address concerns that the drafting of the exceptions in sections 1043H to 1043J of the Act does not deal adequately with certain derivative transactions. This is necessary as all derivatives now fall within the definition of a Division 3 financial product in section 1042A and are therefore subject to the insider trading provisions.
Schedule 10A, item 6.1 and 6.2 - Modifications relating to application forms and product disclosure statements for standard employer-sponsor arrangements and successor funds
Amendments to these items address drafting errors.
Schedule 10A, Item 12.2 - Modifications relating to information when member leaves a fund
Due to operational concerns this item has been deleted pending further consideration of the disclosure obligation and requirements necessary for a continuation option for death and disability risk insurance products.
Disclosure requirements still apply in relation to continuation options through the operation of periodic reporting requirements. These are consistent with existing requirements under the SIS Regulations.
Schedule 10A, Items 15, 17.1 and 17.2 - Modifications for confirmation of transactions; modifications relating to application forms for specified superannuation products
These amendment remove referencing errors.
Schedule 10B & 10C, Item 1.2 - Information in product disclosure statement for certain funds; capital guaranteed fund information and RSA information
The amendment require an Australian Business Number to be provided for a superannuation fund.
SCHEDULE 2 - AMENDMENTS COMMENCING ON THE DAY ON WHICH THE FAMILY LAW LEGISLATION AMENDMENT (SUPERANNUATION) ACT 2001 COMMENCES
Benefits to be paid to eligible rollover fund - Regulation 7.9.44
The amendment remove a duplication of disclosure requirements resulting from the operation of certain SIS Regulations during the transitional period and the immediate commencement of regulations made under section 1017DA of the new Corporations Act.
Schedule 10A, item 10.1 - new paragraphs 1017B(5B)(a) & (b), new subsection 1017B(5E) and new subsection 1017B(10)
The paragraphs amend the operation of disclosure requirements for superannuation and retirement savings account products under the new Corporations Act to account for requirements of the Family Law Legislative Amendment (Superannuation) Act 2001.
The amendments remove potential duplications of ongoing disclosure requirements. The effect is that a significant event or material change for the holder of a superannuation or retirement savings account product would not include an action associated with a payment split.