EXPLANATORY STATEMENT
Select
Legislative Instrument 2007 No. 324
Issued by the authority of the Parliamentary
Secretary to the Treasurer
Corporations
Act 2001
Corporations
Amendment Regulations 2007 (No. 12)
Subsection 1364(1) of the Corporations
Act 2001 (the Act) provides that the Governor‑General may make
regulations, not inconsistent with the Act, prescribing matters required or
permitted by the Act to be prescribed, or necessary or convenient to be
prescribed for carrying out or giving effect to the Act.
The Corporations Amendment Regulations 2007 (No. 12)
(the Regulations) specify that:
•
a financial services licensee must include its licence number whenever
it identifies itself in a Replacement Product Disclosure Statement (PDS);
•
a Record of Advice (ROA) may be used to document personal advice
(instead of the usual Statement of Advice (SOA)), when such personal advice
concerns either small investments or does not make a purchase or sale
recommendation and the adviser does not receive any remuneration for the
provision of the advice;
•
the small investment monetary threshold is set at $15,000;
•
the ROA used in the abovementioned circumstances must contain certain
elements;
•
an authorised representative is exempt, in a limited set of
circumstances, from having to provide its name and contact details in a
Financial Services Guide (FSG);
•
the definition of ‘publication date’ be deleted from the Principal
Regulations because the definition is not used anywhere in the regulations;
•
the definition of ‘defective’ contained in the Principal Regulations
applies to Replacement Product Disclosure Statements (PDSs);
•
regulation 7.9.13A of the Principal Regulations be removed. It amends
section 1016E of the Act and is being removed because it was superseded by
later amendments made to section 1016E;
•
a licensee would not be jointly and severally liable for the conduct of its
authorised representatives where they provide financial services in relation to
certain kinds of financial products;
•
an entity providing general advice is exempt, in a limited set of
circumstances, from the requirement to give the client an FSG; and
•
the particular circumstance for lodgement with the Australian Securities
and Investments Commission (ASIC) of a notice by a responsible person arises when
a change is made to the enhanced fee disclosure table contained in a Statement
(either a PDS or Supplementary PDS).
Details of the proposed Regulations
are set out in the Attachment.
Under
the Corporations Agreement 2002, the State and Territory Governments referred
their constitutional powers with respect to corporate regulation to the
Commonwealth. Under subclauses 506(1) and 507(1) of the Corporations
Agreement, the Commonwealth is required to consult with State and Territory
Ministers of the Ministerial Council for Corporations (the Council) before
making a regulation under the national law. The Commonwealth has consulted the
Council regarding the Regulations and no adverse comments were made.
The Act specifies no other
conditions that need to be satisfied before the power to make the proposed
Regulations may be exercised.
The Regulations are a legislative
instrument for the purposes of the Legislative Instruments Act 2003.
Regulations 1 to 3 and Schedule 1 to
the Regulations commence on the day after the Regulations are registered on the
Federal Register of Legislative Instruments. Schedule 2 commences on the
commencement of items 218 and 219 of Part 3 of Schedule 1 to the Corporations
Legislation Amendment (Simpler Regulatory System) Act 2007. Schedule 3 commences
on 1 July 2008.
ATTACHMENT
Details of the Corporations
Amendment Regulations 2007 (No. 12)
Regulation 1 – Name of
Regulations
This regulation provides that
the title of the Regulations is the Corporations Amendment Regulations 2007
(No. 12).
Regulation 2 – Commencement
This regulation provides that regulations
1 to 3 and Schedule 1 of the Regulations commence on the day after the
Regulations are registered on the Federal Register of Legislative Instruments. Schedule
2 commences on the commencement of items 218 and 219 of Part 3 of Schedule 1 to
the Corporations Legislation Amendment (Simpler Regulatory System) Act 2007.
Schedule 3 commences on 1 July 2008.
Regulation 3 – Amendment of
Corporations Regulations 2001
This regulation provides that the Corporations
Regulations 2001 (Principal Regulations) are amended as set out in Schedules
1, 2 and 3.
Schedule 1 – Amendments
Items [1] and [2] – Paragraphs 7.6.01C(1)(h) and (i)
The Corporations
Legislation Amendment (Simpler Regulatory System) Act 2007 (SRS Act) allows
the use of a Replacement Product Disclosure Statement (PDS) to correct errors
or omissions in a PDS for listed stapled securities. A stapled security
consists of both an interest in a managed investment scheme and a security
which cannot be disposed of separately and must be traded as a single unit. The
two components of the stapled security are an interest in the trust holding the
assets of the entity (an interest in a managed investment scheme) and a share
in the company carrying out the asset management and/or development functions
(a security).
Items 1 and 2 of the Regulations clarify that a financial
services licensee must include its licence number whenever it identifies itself
in a Replacement PDS, as required by subregulation 7.6.01C(1) of the Principal
Regulations and subsection 912F(1) of the Act. A Replacement PDS,
introduced in the SRS Act, is used to correct errors or omissions in a PDS for
listed stapled securities.
Item [3] –Subregulation 7.7.05B(2A)
Item 3 inserts a new subregulation
7.7.05B(2A), in a limited set of circumstances, which exempts authorised
representatives from having to provide their name and contact details in the Financial
Services Guide (FSG).
Some deposit-taking institutions adopt a franchise structure
when operating their business such that the franchisor holds the financial
services licence under which the franchisees then provide financial services.
In order to be able to provide financial services under the
franchisor’s licence, each franchisee is typically appointed as an authorised
representative of the franchisor under subsection 916A(1) of the Act. Further,
bodies corporate which are authorised representatives may sub‑authorise
employees of the franchisee to provide specified financial services under
subsection 916B(3) of the Corporations Act 2001 (the Act).
In some cases, individual employees of the franchisee may be
directly appointed as authorised representatives of the licensee (franchisor).
The Act requires authorised representatives or corporate
authorised representatives to provide an FSG, which includes their individual
details, to any person to whom they are providing a financial service.
As a consequence, each franchisee must produce individualised
FSGs identifying the name and contact details of each individual franchisee, or
where an individual employee has been appointed an authorised representative,
the individual employee.
In contrast, non-franchise banks typically hold a financial
services licence and all employees of the bank’s branches are captured as
representatives under the umbrella of that licence as per subsection 911A(2) of
the Act. The employees are able to provide financial services without the need
to be appointed as an authorised representative. This means that the details
in the FSG of the licensed entity capture all persons providing financial
services and need not be reproduced to include any individual employee’s
details.
The subregulation provides an exemption from the requirement
to provide individualised FSGs for each franchisee that is a corporate
authorised representative or each employee of that franchisee. It also exempts each individual
employee from having to provide their name and contact details in the FSG. However,
this exemption is limited to dealing in financial products and the provision of
general advice (it would not extend to the provision of personal advice).
This exemption is subject to the following conditions:
•
the person must either be a corporate authorised representative of a financial services licensed
franchisor or an employee of the franchisee of a financial services
licensed franchisor;
•
the franchisor must be an authorised deposit‑taking institution
and be regulated by the Australian Prudential Regulation Authority (APRA);
•
the franchise agreement must subject the corporate authorised
representative or employee to the policies of the franchisor and require
compliance with any policies made by the franchisor to give effect to the
franchisor’s obligations under its financial services licence; and
•
the standardised FSG produced by the franchisor must clearly explain
that the franchisor takes responsibility for the services provided by the
franchisee or employee.
Item [4] – Regulation 7.7.08C
Item 4 inserts a new Division 2B titled
Record of small investment advice.
The Act defines the circumstances in
which personal advice is provided to a client. The provision of personal
advice triggers the requirement in the Act to document that advice in a Statement
of Advice (SOA). The SRS Act introduced a threshold into the SOA requirements,
so that a full SOA is only be required if the advice given is in relation to an
investment amount that is above a certain monetary threshold. Instead of a
full SOA in this situation, the adviser is permitted to provide a Record of
Advice (ROA) to the client. Advice below the monetary threshold is known as
‘small investment advice’.
Subsection 946AA(4) of the SRS Act
requires the providing entity to keep a record of the small investment advice
in a ROA. The new regulation 7.7.08C sets out the matters that an ROA is required to include,
being:
•
brief particulars of the recommendations made to the client, and the
basis on which the recommendations are made;
•
brief particulars of the information required by subsections 947D(2) and
(3) of the Act if the advice recommends replacement of one financial product
with another. These subsections primarily require disclosure in relation to
charges, pecuniary interests and significant costs; and
•
the information required by paragraphs 947B(2)(d) and (e) or paragraphs
947C(2)(e) and (f) of the Act as if an SOA were given to the client. These
paragraphs require information about any remuneration or other benefits that
the providers set out in the paragraphs are to receive that might reasonably be
expected to be or have been capable of influencing the providing entity in giving
the advice. They also require information about any other interests or
associations or relationships of the providing entity or associate that might
reasonably be expected to be or have been capable of influencing the providing
entity in giving the advice.
Item [5] –Regulation
7.7.09A
Item 5 inserts a new
regulation which sets the small investment advice monetary threshold at $15,000.
The small investment advice provision permits an exemption from the
requirement to provide an SOA when providing personal advice where the value of
the investment to which the advice relates does not exceed the threshold of
$15,000.
The new regulation also
sets out the financial products to which the threshold relates and the method
for calculating the threshold in relation to those products. Different methods
are required for calculating the threshold in relation to financial products
with different characteristics, for example, the requirement to make future
payments or ongoing commitments.
The threshold for
financial products with determinable, finite investment commitments is worked
out, in conjunction with the requirements of subsection
946AA(2) of the Act, as the amount of the total investment that is committed by
the investor if the advice is taken in relation to the financial products set
out in subregulation 7.7.09A(2).
The threshold for
financial products with ongoing financial commitments is worked out, in
conjunction with the requirements of subsection 946AA(2) of the Act, as the
amount of the initial investment and any other amounts that are committed to by
the investor if the advice is taken in relation to the financial products in subregulation
7.7.09A(5).
Where the commitments
are ongoing and not finite, the value of the commitments is calculated for the
12 months from the time the advice is required to have been given.
The threshold for small
investment advice related to the disposal of any of the financial products set
out in paragraphs 7.7.09(2)(a) to (f) is calculated to include the total value
of all financial investments that would be disposed of by the client if the
advice were to be accepted by the client. The threshold in relation to the
disposal of any of the financial products in 7.7.09(5)(a) to (c) is calculated to
include both the value of the total divestment and any other amounts reasonably
related to the divestment that are expended if the advice is taken.
Where the total value
of the investment (as per subsection 946AA(2) of the Act) to which the advice
relates is not reasonably ascertainable, the value is deemed to exceed the
threshold amount and therefore the exemption does not apply. Where an
investment is jointly held, the threshold applies to the total value to which
the advice pertains.
The regulation also sets
out when the ROA must be given. The ROA is required to be given to the client
when or as soon as practicable after the advice is provided, and in any event
before the providing entity provides the client with any further financial
service that arises out of or is connected with that advice.
If the ROA is not
provided at the time the advice is provided, the client needs to be given at
the time a statement containing:
•
the information required by paragraphs 947B(2)(d) and (e) or paragraphs
947C(2)(e) and (f) of the Act which primarily relate to remuneration or
benefits, and information about relationships and associations capable of
influencing the advice given; and
•
the information required by section 947D of the Act (if applicable)
relating to additional information when the advice recommends the replacement
of one product with another.
Where a client
expressly requests a further financial service to be provided immediately, or
by a specified time, and the further financial service is related to the
investment advice given to the client, and it is not reasonably practicable to
give an ROA to the client before the further service is provided, then the regulations
set out the requirements for the providing entity to give the client the ROA at
a later time.
Item [6] – Regulation
7.7.10AAA
Item 6 inserts a
regulation that sets out the content requirements for an ROA relied on under
subsections 946B(7)(8) and (9) of the Act where a providing entity provides
personal advice that does not include a recommendation to purchase or sell a
financial product and no remuneration is received by the adviser. The
providing entity is required to keep a record of the advice given in the form
of an ROA.
The ROA is required to
set out:
•
the advice given to the client by the providing entity;
•
brief particulars of the recommendations made and the basis on which the
recommendations are made; and
•
the information that if an SOA were to be given, is required in the
statement by paragraphs 947B(2)(d) and (e) or paragraphs 947C(2)(e) and (f) of
the Act.
Item [7] - Subregulation 7.9.01(1)
Item 7 deletes the definition of ‘publication date’ in
subregulation 7.9.01 (1) of the Principal Regulations, as this definition is
not used anywhere in the Principal Regulations.
Item [8] – Regulation 7.9.07K
This item replaces regulation 7.9.07K with the new
regulation to clarify that the definition of ‘defective’ contained in section
1022A of the Act applies to Replacement PDSs with a slight modification to the
effect that a document to which this regulation applies must not contravene
section 1013A and 1013C of the Act. Section 1013A contains provisions
regulating who is responsible for the preparation of a PDS, and section 1013C
sets out the main content requirements for PDSs.
Item [9] – Regulation 7.9.13A
Item 9 removes regulation 7.9.13A from the Principal
Regulations. This regulation was inserted into the Principal Regulations in
2003 and makes certain modifications to section 1016E of the Act. The Financial
Services Reform Amendment Act 2003 subsequently made further amendments to
section 1016E of the Act which in effect superseded the changes made in
regulation 7.9.13A. This regulation can therefore be removed without affecting
the operation of section 1016E of the Act.
Schedule 2 – Amendments
commencing on the commencement of items 218 and 219 of Part 3 of Schedule 1 to
the SRS Act
Item [1] – Regulation 7.1.04CA
The SRS Act provides that the joint and several liability of
financial services licensees for the conduct of their authorised
representatives does not apply where the authorised representative is cross‑endorsed
in relation to different kinds or sub‑classes of financial product by
each licensee.
Cross-endorsement is the practice whereby insurance
companies consent to insurance agents who act for a number of insurance
companies being the authorised representative of each insurer.
Item 1 of Schedule 2 inserts a new regulation 7.1.04CA to provide
that licensees are not jointly and severally liable for the conduct of their
authorised representatives where they provide financial services in relation to
the following kinds of financial product:
•
motor vehicle insurance;
•
home building insurance;
•
home contents insurance;
•
sickness and accident insurance;
•
consumer credit insurance; and
•
travel insurance.
The conduct relates only to the specific kinds of financial
products contained in the regulation.
Item [2] – Subregulation
7.7.02(2)
Subsection 941C(4) of the Act permits an entity which is
providing general advice not to give the client an FSG where the general advice
is provided to the public, or a section of the public, in the manner prescribed
in the regulations.
Previously, the exemption from providing an FSG for general
advice only applied to public forums. Subregulation 7.7.02 (2) of the Principal
Regulations defines a ‘public forum’.
Item 2 of Schedule 2 replaces subregulation 7.7.02(2) of the
Principal Regulations with a set of prescribed limited circumstances in which
an entity providing general advice is exempt from the requirement to give the
client an FSG. The prescribed circumstances include:
•
providing general advice to the public, or a section of the public, at
any event organised by or for financial services licensees to which retail
clients are invited. For example, giving a public lecture or seminar for
retail clients, including employees of a workplace, is a prescribed
circumstance;
•
a broadcast of general advice to the public, or a section of the public,
that may be viewed or heard by any person. For example, television or radio
broadcasts are prescribed circumstances; and
•
distributing or displaying promotional material that both provides
general advice to the public, or a section of the public, and is available in a
place that is accessible to the public. For example, distributing promotional
material contained in newspapers and magazines are prescribed circumstances.
Schedule 3 – Amendment commencing
on 1 July 2008
Item [1] – Regulation 7.9.16T
Item 1 inserts a new regulation
7.9.16T to clarify a provision introduced in the SRS Act.
Subsection 1015D(2) of the Act requires
a person responsible for the lodgement with ASIC of a notice in relation to a
Statement (either a PDS or Supplementary PDS) to lodge the notice if certain
circumstances occur. Currently, one of the circumstances for lodgement of a
notice is when a change is made to fees and charges set out in the Statement.
This new regulation clarifies that
in fact the particular circumstance for lodgement arises when a change is made
to the fees and costs template required by the enhanced fee disclosures contained
in the Statement, rather than simply the fees and charges set out in the Statement.
The enhanced fee disclosures refer to the requirements for
the disclosure of fees and charges in PDSs for superannuation and managed
investment products. The Fees and Costs template
is a standardised fee template that simplifies the disclosure of fees and costs
and allows for more effective comparison across products. The template is set
out in items 201 and 202 of Schedule 10 to the Corporations Regulations 2001.
Consultation
Significant consultation was undertaken regarding the
development of the Regulations.
Initial proposals for the majority of the items were
consulted on as part of either the Corporate and Financial Services
Regulation Review Consultation Paper (April 2006) or the Corporate and
Financial Services Regulation Review Proposals Paper (November 2006) released
by the Parliamentary Secretary to the Treasurer.
Following these consultations, the Corporations Legislation
Amendment (Simpler Regulatory System) Act 2007 (SRS Act) was enacted in June
2007 with bipartisan support. Its accompanying Explanatory Memorandum
explained that supporting regulations would be required as a consequence of
some of its provisions.
On 19 June 2007, the Parliamentary Joint Committee on
Corporations and Financial Services (PJC) reported on its Inquiry into the
Corporations Legislation Amendment (Simpler Regulatory System) Bill 2007 and
related bills after a one-month public consultation period and a public
hearing. Item 1 of Schedule 3 of the Regulations resulted from the
consultation and discussion in the PJC inquiry. The PJC inquiry noted that
submissions indicated general support for the Record of Advice (ROA) proposals,
with many focusing on the information that ROAs should contain. Items 4, 5 and
6 of Schedule 1 of the Regulations deal with these comments by setting out the
matters that an ROA is required to include.