EXPLANATORY STATEMENT

Select Legislative Instrument 2010 No. 87

Issued by the Authority of the Minister for Financial Services, Superannuation and Corporate Law

Australian Securities and Investments Commission Act 2001

Australian Securities and Investments Commission Amendment Regulations 2010 (No. 2)

The Australian Securities and Investments Commission Act 2001 (the ASIC Act) establishes the Australian Securities and Investments Commission (ASIC) as a statutory body to regulate companies, financial markets and financial services in Australia.  It also contains, among other things, a range of general consumer protection provisions that apply to the provision of financial products as defined in the ASIC Act.

Section 251(1) of the ASIC Act provides that the Governor‑General may make regulations prescribing matters required or permitted by the ASIC Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the ASIC Act.

Recently, the Corporations Act 2001 (the Corporations Act) was amended by the Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 (the Amending Act) for the purpose of regulating certain financial products, including margin lending facilities. A margin lending facility is defined in new section 761EA of the Corporations Act, and relates principally to the provision of credit wholly or partly to acquire one or more financial products (which is also defined in the Corporations Act).

By inserting margin lending facilities into Chapter 7 of the Corporations Act, the Amending Act ensured that the investor protection regime contained in the Corporations Act applies to margin loans.  The regime consists mainly of a range of licensing, conduct and disclosure requirements that apply to providers of financial products and services as defined in the Corporations Act.  Under the previous State and Territory-based consumer credit regime, margin loan borrowers did not benefit from any protection measures specifically tailored to their requirements.

The Australian Securities and Investments Commission Amendment Regulations 2010 (No.    ) (the Amendment Regulations) amend the Australian Securities and Investments Commission Regulations 2001 (the ASIC Regulations) and prescribe that a margin lending facility is a financial product for the purposes of the ASIC Act.  

The Amendment Regulations ensure that the protections which apply to other financial products under the ASIC Act extend to margin loans.  The main provisions which now apply to margin lending facilities prohibit providers of these facilities, among other things, from:

•                engaging in unconscionable conduct generally, or unconscionable conduct within a business transaction;

•                engaging in conduct that is misleading or deceptive or is likely to mislead or deceive;

•                making false or misleading representations;

•                engaging in conduct that is liable to mislead the public as to the nature, characteristics, suitability or purpose of the margin lending facility;

•                engaging in bait advertising or referral selling; and

•                engaging in behaviour that is unduly harassing or coercive.

Details of the Regulations appear in the Attachment.

No public consultation was conducted on the Amendment Regulations, as they are mechanical in nature and ensure that the ASIC Act general consumer protection provisions, which apply to all financial products, also apply to margin lending facilities.

The Act does not specify any conditions that need to be satisfied before the power to make the Regulations may be exercised.

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Regulations will commence on 1 January 2011.

ATTACHMENT

DETAILS OF THE Australian Securities and Investments Commission Amendment Regulations 2010 (No. 2)

Regulation 1 – Name of Regulations

Regulation 1 provides that the name of the Regulations is the Australian Securities and Investments Commission Amendment Regulations 2010 (No. 2).

Regulation 2 – Commencement

Regulation 2 provides that the Regulations commence on 1 January 2011.

Regulation 3 – Amendment of Australian Securities and Investments Commission Regulations 2001

Regulation 3 provides that the Australian Securities and Investments Commission Regulations 2001 are amended as set out in Schedule 1.

Schedule 1 – Amendments

Item [1] – Regulation 2BA

Section 12BAA of the ASIC Act defines financial product, while subsection 12BAA(7) provides a list of specific things which are financial products.  Subsection 12BAA(7)(m) allows the ASIC Regulations to declare other things financial products for the purposes of the ASIC Act.

Item 1 uses the regulation-making power provided to declare margin lending facilities to be a financial product.

By explicitly including margin lending facilities within the definition of a financial product under the ASIC Act, this amendment ensures that the general consumer protection provisions in the ASIC Act apply to margin loans.  As an example, providers of margin lending facilities are prohibited from engaging in conduct that is unconscionable, misleading or deceptive or likely to mislead or deceive.