CORPORATIONS AMENDMENT REGULATIONS 2002 (NO. 4) 2002 NO. 53

Commonwealth Numbered Regulations - Explanatory Statements

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CORPORATIONS AMENDMENT REGULATIONS 2002 (NO. 4) 2002 NO. 53

EXPLANATORY STATEMENT

Statutory Rules 2002 No. 53

Issued by the Parliamentary Secretary to the Treasurer

Corporations Act 2001

Corporations Amendment Regulations 2002 (No. 4)

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:

• remove an exemption for factual information provided to members or prospective members of a superannuation fund or to holders or prospective holders of a retirement savings account (see Item 1 of the Attachment);

• provide an exemption from the requirement to provide a Financial Services Guide in relation to telephone inquiries regarding motor vehicle rental (see Item 2 of the Attachment);

• insert transitional arrangements to ensure that the exception contained in section 1043K of the Act will continue to apply in relation to securities dealers, futures brokers and holders of a general authority under regulation 38A of the Banking (Foreign Exchange) Regulations (as well as their representatives) during the period between FSR commencement and the transition of these licence holders to the FSR licensing regime (see Item 3 of the Attachment);

• provide that certain conditions on licensing exemptions do not apply for the transition period (see Item 4 of the Attachment); and

• add markets in futures contracts and securities proposed to be operated by Eurex Deutschland to the list of proposed markets for the purposes of paragraph 1412(1)(b) of the Act (see Item 5 of the Attachment). Details of the Regulations are set out in the Attachment.

Regulations 1, 2 and 3, and Schedule 1 of the Regulations would commence at 12:01 am (in the Australian Capital Territory) on 11 March 2002. Schedule 2 of the Regulations commences at 12:03 am (in the Australian Capital Territory) on 11 March 2002. Schedule 2 amends Corporations Amendment Regulations 2002 (No 2) that commences at 12:02 am (in the Australian Capital Territory) on 11 March 2002. The commencement date is 11 March 2002 to coincide with the commencement of the Financial Services Reform Act 2001.

Item 3 of Schedule 1 is made under section 1444 of the Act. Subsection 1444(6) of the Act states that despite subsection 48(2) of the Acts Interpretation Act 1901, regulations made for the purposes of section 1444 may be expressed to take effect from a date before the regulations are notified in the Gazette.

Items 1 and 2 of Schedule 1 and Schedule 2 are not made under section 1444 of the Act. These Regulations do not disadvantage the rights of a person as at the date of notification or impose liabilities on a person in respect of anything done or omitted to be done before the date of notification (subsection 48(2) Acts Interpretation Act 1901).

ATTACHMENT

SCHEDULE 1 - AMENDMENTS COMMENCING AT 12:01 AM (IN THE AUSTRALIAN CAPITAL TERRITORY) ON 11 MARCH 2002

1. Providing factual information to members or prospective members of a superannuation fund or to holders or prospective holders of a retirement savings account - paragraph 7.6.01(1)(i)

Paragraph 7.6.01 (1)(i) provides that a financial services licence is not required for a financial service that consists only of providing factual information to members or prospective members of a superannuation fund or to holders or prospective holders of a retirement savings account.

This exemption is considered to be of uncertain application as the important tern 'factual information' is not defined. Additionally, this exemption is potentially discriminatory in operation as it is limited to the provision of factual information in relation to superannuation products and retirement savings accounts only.

It is considered more desirable to remove this exemption and allow the Australian Securities and Investments Commission to determine what particular circumstances the provision of purely factual information should not be considered as a financial service.

2. When a Financial Services guide is not required to be given - subregulation 7.7.02(3)

Subsection 941C(8) of the Act provides that the regulations may specify circumstances when a Financial Services Guide does not have to be given to a client.

Subregulation 7.7.02(3) states that a Financial Services Guide does not have to be given to a client when a person (person 1) makes a telephone inquiry in relation to the rental of a vehicle from another person (person 2) and as a result of that inquiry, it becomes apparent to person 2 that an insurance product will be, or is likely to be, issued to person 1. In such a situation, person 2 must make arrangements for a document that is the equivalent of a Financial Services Guide to be given to person 1 not later than the start of the commencement of the process in relation to which the insurance product was entered into.

3. References to financial service licensee - regulation 10.2.20A

Section 1043K of the Corporations Act 2001 provides an exception from the insider trading offence in subsection 1043A(1) in relation to certain transactions by holders of financial services licensees or their representatives. Regulation 10.2.20A contains transitional arrangements to ensure that this exception will continue to apply in relation to securities dealers, futures brokers and holders of a general authority under regulation 38A of the Banking (Foreign Exchange) Regulations (as well as their representatives) during the period between FSR commencement and the transition of these licence holders to the FSR licensing regime.

4. Conditions on licensing exemptions do not apply during transition period - regulation 10.2.40A

Paragraph 1431(1)(c) of the Act provides that the new legislation (defined as the amendments to the Corporations Act made by the Financial Services Reform Act) does not apply to a regulated principal and their regulated activities during the transitional period, but does apply when the regulated principal and their regulated activities start to be covered by an exemption under subsection 911A(2) of the Act.

The effect of this provision is to make persons covered by an exemption subject to the new legislation from the commencement of the Financial Services Reform Act. Some persons will be covered by an exemption that requires some positive action on their part (for example, regulation 7.6.01B, subparagraph 7.6.01(1)(e)(iii), (iv) and 7.6.01(1)(o)(iv)). By operation of subsection 1431(1) of the Act, those person do not have any transition period with which to comply with the requirements set out in the exemptions.

Regulation 10.2.40A gives persons covered by certain exemptions from subsection 911A(1) of the Act, two years to comply with the requirements of the exemptions.

Subregulation 10.2.40A(1) states that paragraphs 911A(2)(ea), (eb) and (ec) of the Act do not apply m relation to a regulated principal and its regulated activities. Subregulation 10.2.40A(2) states that subparagraphs 7.6.01(1)(e)(iii), (iv) and (o)(iv) do not apply to a regulated principal and their regulated activities.

Subregulation 10.2.40A(3) states that if a regulated principal does comply with paragraphs 911A(2)(ea), (eb) and (ec) of the Act or subparagraphs 7.6.01 (1)(e)(iii), (iv) and (o)(iv) the regulated principal is not taken to be covered by an exemption under subsection 911A(2) of the Act.

Subregulation 10.2.40A(4) states that this regulation will cease to apply at the end of the period of 2 years starting on the FSR commencement.

SCHEDULE 2 - AMENDMENT COMMENCING AT 12:03 AM (IN THE AUSTRALIAN CAPITAL TERRITORY) ON 11 MARCH 2002

5. Proposed markets for the purposes of paragraph 1412(1)(b) of the Act - Regulation 10.2.02C

Regulation 10.2.02C identifies proposed markets for the purposes of paragraph 1412(1)(b) of the Act. The amendments to this regulation would add markets in futures contracts and securities proposed to be operated by Eurex Deutschland to the list of proposed markets.