WorldwideFinance Law of Australia
Update on Legislative Developments Affecting Finance Law of Australia
There have been a number of important legislative developments that have affected the areas considered in the book 'Finance Law of Australia' by Sharon Horgan.
This is an update on the important areas of change that affect the book. Currently, the book sets out the current law and the Financial Services Reform Bill 2000.
This Financial Services Reform Bill 2000 has been amended in the Financial Services Reform Bill 2001 ("the Bill") and Financial Services Reform Bill (Consequential and Transitional Provisions) Bill 2001.
The book should be read in view of these legislative developments. All references to the Corporations Law in the book should be read as the Corporations Act 2001. All references to the Australian Securities and Investments Commission Law should be read as the Australian Securities and Investments Commission Act 2001.
Corporations Act 2001
The states have referred powers of registration and regulation of companies to the Commonwealth in order to deal with some of the constitutional difficulties arising in recent caselaw.
Under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 which commenced on 15 July 2001, the Corporations Law will now be the Corporations Act 2001 and the The Australian Securities and Investments Commission Law will be the Australian Securities and Investments Commission Act 2001.
Basically, the Acts are the same as the original Laws except that there are changes in terminology and some changes to reflect the new constitutional arrangements of the legilsation.
Financial Services Reform Bill 2001
Many of the areas in the Financial Services Reform Bill 2001 have already been dealt with in the book 'Finance Law of Australia' in the discussion on the proposed reforms in the Financial Services Reform Bill 2000.
See the discussion on the proposals in the Financial Services Reform Bill 2000 in the chapters on equity, swaps and over-the-counter derivatives products and the duties and liabilities of financial intermediaries in the book.
Financial products
This Bill will regulate a range of existing financial products including:
securities;
(a) derivatives;
(b) superannuation and retirement savings accounts;
(c) general and life insurance;
(d) deposit accounts;
(e) means of payment services such as smart cards and e-cash; and
(f) foreign exchange transactions other than pure money changing business.
Licensing of Financial Markets requirements
The Bill requires a licence to operate a financial market:
(a) where financial products are regularly traded; and
(b) where transactions involve multiple buyers and sellers.
To conduct a financial market, a licensee will have:
(a) adequate arrangements for the supervision of the market;
(b) sufficient resources to conduct the market and provide for supervisory functions;
(c) adequate rules or procedures for the operation of the market, relating to, among other things, access to market facilities, participants' conduct and procedures for dealing with complaints; and
(d) in the case of markets on which the transactions of retail clients are effected, compensation arrangements for the benefit of those participants.
Licensing of Clearing and Settlement Facilities
An operator of a clearing and settlement facility must have a licence and have:
(a) adequate arrangements for the supervision of the facility;
(b) sufficient resources to conduct the facility and to allow for supervision; and
(c) adequate rules or procedures for the operation of the facility.
Markets compensation arrangements
This Bill provides for compensation arrangements to protect participants against loss in certain circumstances in a market transaction.
Licensing of Financial Service Providers
All persons carrying on a financial services business will have a licence under this Bill.
The term 'financial services' includes advising on, dealing in, or making a market in financial products; the sale of the operator's own financial product; operating a managed investment scheme; or providing a custodial or depository service.
A financial service provider will need the following to obtain a licence:
(a) adequate financial resources to perform the proposed activities;
(b) competence, skills and experience to provide the financial services; and
(c) adequate systems for training and supervision of representatives.
Financial services provided to either wholesale or retail clients will be need to be provided by a licensed operator. Licensees who provide finanical services to retail clients will comply with additional obligations for example an obligation to have compensation arrangements for compensating clients for losses suffered.
Financial Service Provider Conduct and Disclosure
Financial service providers when dealing with clients will need to comply with the conduct and disclosure requirements in the Bill including:
(a) giving retail clients a Financial Services Guide;
(b) 'know your client' requirements in relation to retail clients;
(c) disclosing any conflicts of interests to retail clients; and
(d) separation of funds held on behalf of a client and reporting and accounting requirements.
Financial Product Disclosure
When financial product are used, the Bill provides a range of obligations for financial product disclosure including point of sale disclosure through the providing of a Product Disclosure Statement, confirmation of transactions, ongoing disclosure and periodic reporting requirements. Any other material information must be provided to the client by the operator.
The Bill provides a range of obligation upon operators dealing with clients such as handling money from applicants for financial products, alternative dispute resolution mechanisms for product issuers, requirements for advertising in relation to financial products and cooling-off periods for some financial products.
Misconduct
There is a general prohibition on misleading and deceptive conduct in relation to financial products and provision of financial services. Breaches of the market misconduct provisions will attract civil pecuniary penalties.
Transfer of Securities
There are arrangements in the Bill to ensure that electronic transfer of the legal title to securities will not be limited to the SCH as other suitably qualified clearing and settlement facilities will be allowed to transfer legal title to a range of financial products.
There have been some subsequent amendments and new clauses moved on behalf of the government.
Financial Services Reform Bill (Consequential and Transitional Provisions) Bill 2001
This Bill allows for the transition to a new regime for regulation for the financial services industry which has been set out in the proposed Financial Services Reform Act 2001 in two ways:
- allowing a transition to the new Financial Services Reform Bill regime; and
- consequential amendments to the current law to facilitate this newof the regime.
There will be generally a two year transitional period from the commencement of the new regime. Operators whose businesses are currently not regulated will receive the benefit of this two year transitional period. Some clauses of the Bill will come into effect upon commencement.
All new operators and new business of existing operators will have to be licensed and comply from the commencement of the Bill. There will be streamlined licensing for ASIC regulated entities.
All of the requirements in the Bill such as the Financial Services Guide and the Statement of Advice requirements will not need to be complied with until the transitioning entities have completed the two year transition period.
However for existing products, issuers can choose to 'opt in' and comply with the new Product Disclosure Statement requirements at any time during this two year transition period. Any new products issued by an operator will have to comply with the new Product Disclosure Statement obligations upon the Bill coming into operation.
