The Minister for Financial Services and Regulation, Joe Hockey, today unveiled proposed reforms, which further empower Australias consumers of financial services.
The proposed reforms, contained in a consultation paper released today, build on the Government's Corporate Law Economic Reform Program Policy Paper No. 6 (CLERP 6) issued in December 1997 and give effect to a number of recommendations of the Financial System Inquiry.
Submissions on CLERP 6 have been taken into account in developing the consultation paper.
"The papers proposals provide a much better deal for consumers who will receive more useful and comparable information about financial products," the Minister said.
"These proposed reforms are another example of the Howard Governments commitment to consumer sovereignty.
"The reforms are also designed to build a more flexible and responsive regulatory framework for financial services which will promote Australia as a centre for global financial services and contribute to the Governments objectives of creating jobs.
"The reforms will also help the financial sector adapt to change presented by technological developments, globalisation, convergence and increased competition."
Key aspects of the consultation paper are:
- harmonised regulation of all financial products;
- a single licensing framework for financial service providers, replacing requirements now applying to securities dealers, investment advisers, futures advisers and brokers, general and life insurance brokers and foreign exchange dealers;
- minimums standards of conduct for financial service providers dealing with retail clients;
- uniform disclosure obligations for all financial products provided to retail clients; and,
- flexibility for authorisation of market operators and clearing and settlement facilities.
The package provides an integrated regulatory framework for financial products, consistent regulation of functionally similar markets and products and a continuing role for industry codes of conduct.
"We are keen to receive the views of industry and consumers alike on the proposals put forward in the consultation paper", the Minister said. "It is only in this way that we can be sure of getting the legislative framework right."
Comments on the consultation paper should be sent to the Treasury by 16 April 1999.
After the submissions have been taken into account, draft legislation will be issued for a further public comment.
Copies of the paper are available on the Treasury web site and from the AusInfo Bookshops.
Media contact: Matthew Abbott, Ministers office, 0413 07 6213, Departmental contact: Michael Willcock, 02 6263 3974
3 March 1999
08/99
ATTACHMENT A
KEY FEATURES OF THE CONSULTATION PAPER
The paper includes the following initiatives:
Uniform regulation of financial products
- The new regulatory framework will apply to all existing financial products. In particular it will apply to:
- Deposit-taking products;
- Risk insurance (including general insurance) products;
- Credit arrangements that fall outside the scope of the Uniform Consumer Credit Code;
- Means of payment services such as smart cards and e cash; and
- Foreign exchange.
- Flexibility to accommodate new and innovative products will be provided through:
- A broad definition of financial product which will capture products without the need for legislative amendment; and
- The ability to exempt products via regulation or an ASIC exemption power.
Licensing of financial service providers
- Persons seeking to carry on a financial services business will need to obtain a financial service providers licence.
- A licence will be required where services are provided to either wholesale or retail clients. Additional obligations will be placed on licensees who offer services to retail clients.
- Financial services involve providing advice, dealing in or making a market in financial products; selling ones own financial product; operating a managed investment scheme; or providing a custodial or depository service.
- Licences may cover all financial services in relation to all financial products or a subset of services and products.
- Licensees may authorise natural persons or corporate representatives to act on their behalf.
- Authorised representatives will be able to act for more than one licensee with the written consent of each licensee (cross endorsement).
- Proposed transitional licensing arrangements will apply to persons who are currently registered or licensed under banking, insurance, superannuation and Corporations Law regimes.
Financial service provider conduct and disclosure
- Conduct and disclosure obligations will apply to financial service providers who provide retail clients with financial services.
- Financial service providers must give their retail clients a Financial Services Guide.
- Before making a recommendation to an individual client, a financial service provider must conduct a needs analysis and assess a products suitability for that client.
- Financial service providers will be required to disclose any conflicts of interests that may arise in relation to the advice they provide to a client.
- Licensees will be required to separate funds and property held on a clients behalf from their own. The method of separation will not be specified in the Law.
- Where a licensee holds client funds and assets, monthly statements must be given to the client.
- Licensees who hold funds on behalf of clients must keep financial records of transactions and the financial position of their financial services business.
- A prohibition on unconscionable conduct in the provision of financial services will apply.
Financial product disclosure
- An appropriate disclosure regime has been subject to substantial debate and the paper therefore proposes two possible alternatives.
- The first alternative proposes that retail clients be given directed disclosure via a financial product information statement containing, where relevant, specified information including:
- Characteristics, features or nature of the product;
- Expected benefits and risks associated with the product;
- Fees, charges and commissions; and
- Other material information which may reasonably influence a clients decision.
- The second alternative proposes that superannuation and life insurance with an investment component be brought within the fundraising provisions of the Corporations Law. All other financial products will be subject to the financial product information statement requirements outlined above.
- The paper invites comments on these alternatives.
Codes of conduct
- Existing codes of conduct will have a continuing role in the new regulatory framework and industry sectors are encouraged to modify their codes in light of the new framework.
- The role of codes of conduct will be to establish best practice standards for meeting the requirements of the Law.
- ASIC will have powers to approve a code as being consistent with the Law and should be consulted in the development or modification of codes of conduct.
- An approved code should largely be regulated by the industry.
- It will not be mandatory for an industry participant to be a party to a code.
Licensing of financial product markets
- A market operator will be required to obtain a licence from the Minister for a financial product market.
- The criteria to be satisfied to obtain a licence will be broadly expressed and flexible enough to accommodate different market structures.
- Stock and futures exchanges which are authorised at the commencement of the new provisions will be deemed to be licensed as financial product markets.
Licensing of clearing and settlement facilities
- The Minister will be able to licence clearing and settlement facilities.
- However, regulatory responsibility for those clearing and settlement facilities which the Minister considers to be of significance to the payments system and in terms of systemic risk will be transferred to the Payments System Board.
- The criteria to be satisfied will be broadly expressed and flexible enough to accommodate different services.
- Many elements of the regime regulating clearing and settlement facilities will mirror those applying to financial product markets.
- Securities and futures clearing and settlement facilities approved under the Corporations Law at the commencement of the new provisions will be deemed to be licensed under the new regime.
Compensation arrangements
- Compensation arrangements are one aspect of the resource backing of a financial product market and clearing and settlement facility.
- Markets and clearing and settlement facilities on which retail participants trade (directly or through financial service providers) will be required to have compensation arrangements to which those investors have access.
- Financial product markets and clearing and settlement facilities will be entitled to call for contributions by members for compensation arrangements.
- Criteria for the expenditure of (excess) funds in development accounts will be included in the Regulations.
Transfer of securities
- The means of transferring electronically the legal title to securities will not be limited to the Securities Clearing House.
- Other suitably qualified clearing and settlement facilities which are prescribed will be entitled to do this.
- A flexible approach is required to ensure competition in relation to clearing and settlement facilities is fostered.
Misconduct and enforcement
- A general prohibition on misleading and deceptive conduct will apply to dealings in, or the provision of services in relation to, financial products.
- The provisions in the Corporations Law and other applicable legislation will be harmonised to provide a single regime with respect to conduct in relation to financial products.
- The penalty regime in relation to market misconduct will be amended to ensure that it efficiently promotes market integrity and consumer confidence. Breaches of the market misconduct provisions will attract civil pecuniary penalties.
- ASICs enforcement powers will be harmonised and consideration will be given to a general fraud offence in the Corporations Law.
See the full publication Financial Products, Service Providers and Markets - an Integrated Framework on the Treasury web site.