Financial Services Law and Compliance in Australia

Contents......Page 6
Preface......Page 15
List of Abbreviations......Page 16
Table of Statutes......Page 18
Table of Cases......Page 43
1 The financial citizen and the market......Page 58
1.2 Regulating for the financial citizen......Page 64
1.3 The regulatory system......Page 68
1.4 Compliance and literacy......Page 73
2.1 The philosophy and approach to regulation......Page 77
2.3 Regulatory bodies......Page 81
2.3.1 The Reserve Bank of Australia......Page 83
2.3.1.1 RBA and payments systems......Page 84
2.3.2 Australian Prudential Regulatory Authority......Page 85
2.3.2.1 APRA’s objectives......Page 87
2.3.2.3 The impact of the HIH collapse on APRA......Page 88
2.3.2.4 APRA’s approach to regulation......Page 91
2.3.2.5 An independent and accountable APRA?......Page 93
2.3.2.6 APRA, authorised deposit-taking institutions, insurance and superannuation......Page 95
2.3.3 Australian Securities and Investments Commission......Page 98
2.3.3.1 ASIC’s role in consumer protection......Page 101
2.3.3.2 ASIC’s risk-based compliance approach......Page 102
2.3.3.3 The role of ASIC in approving codes......Page 104
2.3.3.4 The powers of ASIC......Page 110
2.4 Coordination of regulators......Page 111
2.4.2 APRA and RBA relations......Page 113
2.5 Financing regulation......Page 114
2.6 State fair trading agencies......Page 115
2.7 Self-regulatory and industry bodies......Page 116
2.7.1 Insurance Council of Australia......Page 118
2.7.2 Australian Bankers' Association......Page 119
2.7.3 Association of Superannuation Funds in Australia......Page 120
2.7.4 Financial Planning Association of Australia......Page 121
2.7.5 Investment and Financial Services Association......Page 122
2.7.6 Mortgage and Finance Association of Australia......Page 123
2.8 Dispute resolution bodies......Page 124
3.1 New concepts for regulatory neutrality......Page 126
3.2 Retail clients and wholesale clients......Page 132
3.3 Providing a financial service......Page 134
3.4 What is a financial product?......Page 139
3.4.1 Facility......Page 140
3.4.2 Makes a financial investment......Page 142
3.4.3 Manages financial risk......Page 143
3.4.4 Makes non-cash payments......Page 144
3.4.5 An incidental financial product......Page 145
3.4.6 Specific things that are financial products......Page 146
3.4.7 Things that are not financial products......Page 151
3.4.8 Bills of exchange and promissory notes......Page 154
3.5 The definition of a .nancial service in the ASIC Act......Page 156
3.6 Issued and issuer......Page 157
3.7 Markets and clearing and settlement facilities......Page 158
3.8 What is a financial market?......Page 159
3.9 Representatives and authorised representatives......Page 160
4.1 The purpose of licensing......Page 161
4.2 Reform of Australian licensing......Page 163
4.3.1 Financial market licences......Page 165
4.3.2 Clearing and settlement licences......Page 168
4.3.3 Australian Financial Services Licence......Page 169
4.3.3.1 Exemptions from holding an AFSL......Page 173
4.3.3.2 Lawyers, accountants, tax advisers and the AFSL......Page 177
4.3.3.3 Obtaining an AFSL......Page 179
4.3.3.4 The obligations of the AFSL licensee......Page 180
4.3.3.5 The licensee’s responsibility for representatives......Page 181
4.4 The content of the AFSL obligations......Page 182
4.4.1 Do those things necessary to provide financial services efficiently, honestly and fairly and manage conflicts of interest......Page 183
4.4.3 Comply with financial services laws; take reasonable steps to ensure that its representatives comply with the financial services laws......Page 185
4.4.4 If not licensed by APRA, have adequate resources to provide the financial service and conduct supervisory arrangements; maintain the competence to provide those services......Page 186
4.4.5 Representatives must be adequately trained and competent......Page 187
4.4.6 A dispute resolution system if financial services are provided to retail clients......Page 189
4.4.8 Compliance......Page 190
4.5 Regulation by APRA......Page 191
4.5.1 Authorised Deposit-taking Institutions......Page 193
4.5.2 Insurance......Page 195
4.5.3 Superannuation......Page 200
4.5.4 Fit and proper......Page 202
4.6 Liability issues in licensing......Page 203
5 The role of disclosure in the distribution of financial products......Page 205
5.1 Financial services disclosure overview......Page 208
5.2 Financial services guide......Page 214
5.3.1 General advice and personal advice......Page 217
5.3.2 When an SOA is not required......Page 218
5.3.3 The content of the SOA......Page 219
5.4 Product disclosure statement......Page 221
5.4.2 When must the PDS be given?......Page 223
5.4.3.2 Products of the same kind already held......Page 225
5.4.3.6 Managed investment schemes and related clients......Page 226
5.4.3.8 Secondary sales of quoted securities......Page 227
5.5 Timing rules......Page 228
5.6 Who must prepare and give the PDS, and to whom?......Page 229
5.6.1 Additional, requested and periodic disclosure......Page 230
5.6.2 The content of the PDS......Page 231
5.6.3 Benefits and risks......Page 233
5.6.4 Costs and commissions......Page 234
5.6.5 Dollar disclosure......Page 237
5.6.6 Soft benefits and preferential remuneration......Page 239
5.6.8 Investment considerations......Page 240
5.6.9 Dispute resolution and cooling-off periods......Page 241
5.6.11 Continuously quoted securities, traded products and enhanced disclosure managed investments......Page 242
5.6.13 The content of the short form PDS......Page 243
5.6.14 The content of the periodic statement......Page 244
5.7.1 FSG and SOA-related offences and civil liability......Page 245
5.7.2 PDS-related offences and civil liability......Page 249
6.1 Information, advice and selling......Page 256
6.1.1 Guarding against the confusion of sales and advice......Page 257
6.1.2 Intermediaries and advice......Page 258
6.1.3 AMP financial planners......Page 259
6.1.4 Fiduciary obligations......Page 261
6.2 Advertising......Page 263
6.3.1 Hawking......Page 268
6.4 Unsolicited buying......Page 270
6.5 Cooling-off......Page 271
6.6 Promotion and sales conduct......Page 272
6.7 Misleading and deceptive conduct......Page 274
6.7.1 FSR disclosure documents and misleading conduct......Page 280
6.7.2 Proving that the conduct is misleading or deceptive or likely to mislead or deceive......Page 281
6.7.3 Context and meaning......Page 284
6.7.4 Silence......Page 286
6.7.5 The Westpoint Information Memorandum......Page 288
6.7.6 Risk and the future......Page 290
6.7.7 Disclaimers and qualifications......Page 292
6.8.1 Corporations Act provisions......Page 293
6.8.2 False representations......Page 295
6.8.3 The Cash King case......Page 296
6.8.4 Further ASIC Act provisions......Page 298
6.9 Implied terms in financial service contracts......Page 301
6.10 Unconscionable conduct......Page 303
6.10.1 General unconscionability......Page 304
6.10.3 Small business unconscionability......Page 305
6.11 Accessorial liability......Page 307
6.12.1 Damages......Page 309
6.12.2 Proportionate liability......Page 312
6.12.3 Additional forms of enforcement and relief......Page 313
6.13 General......Page 315
REMEDIES......Page 317
7.1 Introduction......Page 318
7.2 The ADI......Page 319
7.3 Banking business......Page 320
7.4 Using the terms 'bank' and 'ADI'......Page 322
7.5 APRA authorisation and prudential regulation......Page 324
7.6 Licensing ADIs......Page 330
7.7 Liability issues for APRA in its supervisory role......Page 331
7.9 Protecting deposits......Page 332
7.10 Protecting payments......Page 335
7.10.1 Co-regulation of payments......Page 336
7.11 Non-cash payment facilities......Page 343
7.12 Disclosure......Page 345
7.13 Conduct connected with financial services and products other than disclosure......Page 348
7.14 Banker and customer duties......Page 350
7.15 The contract between the ADI and the retail client......Page 351
7.16 Modification of the contract by the EFT Code and the Code of Banking Practice......Page 353
7.17 The EFT Code......Page 354
7.18 The Code of Banking Practice......Page 357
7.19 Building society and credit union codes of conduct......Page 358
7.20 The Financial Ombudsman Service......Page 359
8.1 From consumer to investor......Page 360
8.2 With whom do people invest? The Western Australian .nance broking scandal......Page 361
8.3 Online investing......Page 364
8.4 In what do people invest?......Page 365
8.5 Regulatory history......Page 368
8.6 Securities......Page 371
8.7 Managed investment schemes......Page 372
8.7.1 Definition......Page 373
8.7.2 The Westpoint Saga and Emu Brewery Litigation......Page 376
8.7.3 Registration......Page 381
8.7.4 Licensing and changing the responsible entity......Page 383
8.7.5 The statutory responsibilities and powers of the responsible entity......Page 386
8.7.6.1 Proscriptive fiduciary obligations......Page 388
8.7.6.3 Equitable duty of care......Page 389
8.7.6.4 Duties governing the exercise of discretion......Page 391
8.7.7 The interaction of statutory and equitable duties of the responsible entity......Page 392
8.7.8 Duties of officers and employees of the responsibility entity......Page 393
8.7.9 Custodians......Page 395
8.7.10 The constitution......Page 396
8.7.11 The compliance plan......Page 398
8.7.12 The compliance committee......Page 401
8.7.13 Members' withdrawal from the scheme......Page 402
8.7.14 Related party transactions......Page 403
8.7.15 Contravention of Corporations Act, Chapter 5C......Page 404
8.7.16 Winding up a registered scheme......Page 405
8.7.17 Deregistration......Page 406
8.8 Financial literacy......Page 407
8.9 Financial Ombudsman Service......Page 408
9.1 What is insurance and what does it do?......Page 409
9.2.1 Marine insurance......Page 410
9.2.2 General and life insurance......Page 411
9.2.3 The insurance crisis......Page 416
9.3.1 The business of insurance......Page 419
9.3.2 The contract of insurance......Page 420
9.3.3 Insurance as a financial product......Page 421
9.4 Authorisation and prudential regulation......Page 423
9.4.1 Authorisation......Page 424
9.4.2 Prudential regulation......Page 427
9.4.3 The collapse of HIH......Page 429
9.5 FSR licensing......Page 431
9.5.1 Providing financial product advice......Page 432
9.5.3 Exemptions from holding an AFSL: Representatives......Page 433
9.6 Advising on and selling insurance......Page 435
9.6.1 Insurance agents......Page 436
9.6.2 Insurance brokers......Page 437
9.8 The doctrine of utmost good faith......Page 439
9.9 Disclosure......Page 443
9.9.1 FSR disclosure......Page 444
9.9.2 Insurance Contracts Act disclosure......Page 447
9.9.2.1 Disclosure by the insured......Page 448
9.9.2.2 Disclosure by the insurer......Page 449
9.10 Claims......Page 453
9.11 General Insurance Code of Practice......Page 455
9.12 External dispute resolution schemes......Page 457
10.1 Financial citizen or debtor?......Page 458
10.2.2 The Uniform Consumer Credit Code system......Page 462
10.2.3 Changing the regulation of consumer credit......Page 465
10.3.1 The legal concept......Page 469
10.3.2 The purpose test......Page 470
10.3.3 Other exclusions......Page 474
10.3.4 Other applications of the Credit Code......Page 475
10.4.1 Mortgage brokers......Page 476
10.4.2 Reverse mortgages and brokers......Page 479
10.5 Disclosure......Page 481
10.5.1 Pre-contractual disclosure......Page 482
10.5.2 Comparison rates......Page 484
10.5.3 Assessing disclosure......Page 485
10.6 Gaining compliance through the civil penalty......Page 486
10.7 Enforcing the credit contract......Page 488
10.8.1 Hardship......Page 490
10.8.2.1 The general approach......Page 491
10.8.2.2 Reviewing interest rates......Page 493
10.8.2.3 Credit card debt......Page 494
10.8.2.4 Ability to pay......Page 497
10.8.2.5 Asset lending......Page 500
10.8.2.6 Guarantors......Page 501
10.8.2.7 Competitors......Page 503
10.8.2.8 Consequences of reopening an unjust contract or unconscionable fees......Page 504
10.8.4 Alternative dispute resolution......Page 505
11.1 From employee to investor......Page 507
11.2 The evolution of superannuation policy......Page 509
11.3 The scope of the superannuation industry......Page 512
11.4 Regulatory framework......Page 514
11.5 What is superannuation?......Page 515
11.5.1 Taxation arrangements......Page 516
11.5.2.1 A superannuation fund......Page 517
11.5.2.3 A complying superannuation fund......Page 518
11.6 Superannuation as a trust......Page 520
11.6.1 The purpose of the fund: The sole purpose test......Page 521
11.6.2 Trustees and statutory restatement of general law of trusts......Page 525
11.7.1 The AFSL licence......Page 531
11.7.2 The APRA licence......Page 533
11.7.3 Licence requirements......Page 534
11.8 Self-managed superannuation funds......Page 538
11.9 Choice of fund......Page 541
11.10 Disputes and dispute resolution......Page 546
11.10.1 Superannuation Complaints Tribunal......Page 547
11.10.1.1 Remedies......Page 550
11.10.1.2 Constitution and governance......Page 551
11.10.1.3 Complaint statistics......Page 552
12.1 Compliance......Page 553
12.2 Enforcement......Page 554
12.2.1 Criminal sanctions......Page 559
12.2.2 Civil penalties......Page 560
12.2.3 Banning orders and disqualification orders......Page 562
12.2.4 Stop orders......Page 565
12.2.5 Enforceable undertakings......Page 567
12.2.6 Cancellation or suspension of licences......Page 571
12.2.7 Specific powers of the court......Page 572
12.4 Compensation and other relief......Page 573
12.4.1 Compensation arrangements for financial services licensees......Page 577
12.4.2 Compensation arrangements for licensed markets......Page 580
12.4.3 Civil action for loss or damage......Page 582
12.4.4 Right of return......Page 584
12.5 Dispute resolution......Page 585
12.6 Approved and statutory external dispute resolution schemes......Page 586
12.6.1 Structure and governance......Page 589
12.6.2 Standing and jurisdiction......Page 591
12.6.3 Procedure......Page 592
12.6.5 Relationship to court system: The legal nature of external dispute resolution schemes......Page 593
12.7 Cooperation between ombudsman bodies: Towards an integrated dispute resolution scheme......Page 595
12.9 When the market fails......Page 597
Index......Page 603