Corporate and Financial Services Regulation Review. Draft Corporations Amendment Regulations and Commentary

Transcription

1 Corporate and Financial Services Regulation Review Draft Corporations Amendment Regulations and Commentary March 2007

2 2 COMMENTARY DRAFT CORPORATIONS AMENDMENT REGULATIONS 2007 (No. ) MARCH 2007 TABLE OF CONTENTS Consultation...4 Introduction...5 Glossary...6 Commentary Repetition of information in a Statement of Advice Issue of disclosure documents when product or advice is rejected Provision of a Financial Services Guide by a third party custodian or administrator Combining a Financial Services Guide and Prospectus Updating Financial Services Guides Standardised Financial Services Guide Treatment of superannuation trustees Treatment of employers Bundled general insurance products Badging of disclosure documents Australian financial services licence holders acting on behalf of others Offshore branches Dollar disclosure for general insurance Incorporation by reference in disclosure documents Exemption from FSR retail client obligations for secondary service providers Oral disclosure Sickness and accident insurance...39

3 3 Miscellaneous amendments...41 Licensing of actuaries...41 Enhanced fee disclosure and investment life insurance products...42 Australian Standard on complaints handling...44 Share and member reporting...45 Correction of legislative errors and anomalies...46

4 4 CONSULTATION Comments Written comments on the paper may be submitted by 23 April 2007 to the following mail, fax or addresses: mail Corporations and Financial Services Regulation Review Corporations and Financial Services Division The Treasury Langton Crescent PARKES ACT 2600 fax Inquiries Inquiries about this paper may be directed to: Regulation Review Project Team Corporations and Financial Services Division The Treasury Ph: Confidentiality It will be assumed that submissions are not confidential and may be made publicly available. If you would like your submission, or any part of it, to be treated as Confidential, please indicate this clearly. A request made under the Freedom of Information Act 1982 (Cth) for a submission marked confidential to be made available will be determined in accordance with that Act.

5 5 INTRODUCTION On 7 April 2006, the Hon Chris Pearce MP, Parliamentary Secretary to the Treasurer, released the Corporate and Financial Services Regulation Review Consultation Paper (Paper) for consultation. The Paper set out ideas for improving a variety of aspects of corporate and financial services regulation, including in relation to financial services regulation, corporate governance, auditor independence, company reporting obligations, collective investments and dealing with regulators. The release of the Paper coincided with the release of the Government response to the Report of the Taskforce on Reducing the Regulatory Burden on Business. This taskforce was appointed by the Prime Minister to identify practical options for alleviating the compliance burden on business from Government regulation. The Paper sought comments from consumer and industry representatives on 56 topics for simplifying and improving aspects of financial services regulation. Over 80 submissions were received from academia and a range of industry and consumer representatives, including professional associations and individual firms and practitioners. On 9 June 2006, the Business Regulation Advisory Group met to consider submissions received on the Paper and provided advice to the Parliamentary Secretary on which topics should be taken forward and in what form. The Parliamentary Secretary announced his plan to progress the reforms in the Corporate and Financial Services Regulation Review Consultation Paper in a press release on 14 August He indicated that there would be three key mechanisms for doing this: the Simpler Regulatory System Bill, focused projects and amendments to regulations. The Simpler Regulatory System Bill is underway. The Corporate and Financial Services Regulation Review Proposals Paper was released for public consultation on 16 November 2006 seeking comment on the reforms it contained. In light of analysis of the responses received, the Bill is currently being developed and further consultation is taking place as necessary. The focused projects are being progressed concurrently. This paper progresses the amendments to regulations and addresses those reforms expected in the press release of 14 August 2006 to be implemented by regulations. There are also three miscellaneous amendments that have been drafted in response to market developments and other reforms together with a series of amendments to correct errors or anomalies appearing in the current Corporations Regulations 2001.

6 6 GLOSSARY Abbreviation Definition Act Corporations Act 2001 AS APRA ASIC AFSL FSG RSA PDS Australian Standard Australian Prudential Regulation Authority Australian Securities and Investments Commission Australian financial services licence Financial Services Guide Retirement Savings Account Product Disclosure Statement Regulations Corporations Amendment Regulations 2007 (No. ) SOA Statement of Advice

7 7 COMMENTARY Notes to the commentary (a) References, numbering and descriptions of particular issues in this commentary relate to the consultation issues as numbered in the Corporate and Financial Services Regulation Review Consultation Paper dated April 2006 (available from the Treasury website at (b) A consolidated set of the proposed Corporations Amendment Regulations 2007 (No. ) can be found on the Treasury website. 1.1 Repetition of information in a Statement of Advice. Comments were sought on whether it is appropriate to provide that information already given to a client in a Statement of Advice does not have to be repeated in a subsequent Statement of Advice for further advice that is provided, and whether any conditions should apply. Commentary See Issue 1.15 below. 1.3 Issue of disclosure documents when product or advice is rejected. Proposed amendment (Schedule 1, Item [16]) Comments were sought on whether the law should specify that if a client clearly rejects a product and/or advice, a Financial Services Guide and a Statement of Advice do not have to be provided in respect of that product and/or advice. Amendment 1 Financial Services Guide (FSG) disclosure [16] After subregulation (5B) (5C) For subsection 941C (8) of the Act, a circumstance in which a Financial Services Guide does not have to be given to a client is that: (a) the financial service consists of an offer to issue or sell a particular financial product; and (b) the client informs the providing entity, in the course of the contact during which the service is provided, that the client does not intend to acquire the financial product; and (c) no issue or sale results from the offer.

8 8 1.3 Issue of disclosure documents when product or advice is rejected (continued) Proposed amendment (Schedule 1, Item [26]) Comments were sought on whether the law should specify that if a client clearly rejects a product and/or advice, a Financial Services Guide and a Statement of Advice do not have to be provided in respect of that product and/or advice. Amendment 2 Statement of Advice (SOA) disclosure [26] Regulation AE, after substituted subsection 946B (2A) (2B) The providing entity does not have to give the client a Statement of Advice for particular advice if: (a) the advice is provided as part of an offer to issue or sell a particular financial product; and (b) the client informs the providing entity in the course of the contact during which the advice is provided that the client does not intend to acquire the financial product; and (c) no issue or sale results from the offer. Commentary Where a financial service provided to a client relates to the issue of a financial product (including personal advice recommending the acquisition of a product), the client must be provided a Financial Services Guide (FSG) and possibly a Statement of Advice (SOA). The client must be provided with these documents in all cases even when the client makes it clear that he or she does not wish to acquire the financial product. Because the client does not wish to acquire the product, it is unlikely that they will read or consider the FSG or SOA, which means the disclosure may be of little benefit. Currently, regulation E of the Corporations Regulations 2001 (regulations) provides that a PDS does not have to be given if the offer of the financial product to which the PDS relates is declined. The proposed amendments would provide similar exemptions from the requirement to provide an FSG and/or an SOA. The proposed amendment relating to the provision of an FSG (draft subregulation (5C)) provides that an FSG does not have to be given to the client in the following circumstances: the financial service provided consists solely of an offer to issue or sell a particular financial product; and the client informs the providing entity, in the course of the contact during which the service is provided, that they do not intend to acquire the financial product recommended; and no issue or sale of the financial product results from the offer. The proposed amendment relating to the provision of an SOA (substituted subsection 946B (2B)) relieves the providing entity from the requirement to provide the client with an SOA in the following circumstances:

9 the advice consists solely of an offer to issue or sell a particular financial product; and 9 the client informs the providing entity, in the course of the contact during which the advice is provided, that they do not intend to acquire the financial product recommended; and no issue or sale of the financial product results from the offer. The factors that must be satisfied before an entity is relieved of the requirement to provide an SOA or FSG are consistent between the two proposed amendments. Request for comment The proposed amendments adopt wording similar to that in substituted sub-paragraph 1012D(9J)(c) (contained in regulation E). Comments are sought as to whether the current wording in substituted sub-paragraph 1012D(9J)(c) (regulation E) together with the wording in draft regulation (5C)(c) or draft substituted paragraph 946B(2B)(c) is workable. Specifically, should paragraph (c) in all amendments be revised to specify that it applies where no issue or sale results during the contact in which the relevant offer to issue or sell is made? 1.4 Provision of a Financial Services Guide by a third party custodian or administrator. Comments were sought on whether it would be appropriate to exempt a third party custodian or administrator of a superannuation fund or managed investment scheme from the Financial Services Guide requirements and, if so, whether any conditions should apply to such an exemption. Commentary Issue 1.4 sought comments on the application of FSG requirements to third party custodians or administrators of superannuation funds or managed investment schemes. By press release in August 2006, the Parliamentary Secretary to the Treasurer indicated that he intended to release draft reforms for public consultation to address this issue. However, submissions received on the issue provided no clear indication of the reform required or what the precise problem was. Some submissions indicated that current laws may already deal with any perceived problem. Specifically, actions of third party custodians or administrators (as described in some submissions) already appear to fall outside the scope of the definition of financial service in the Corporations Act 2001 (the Act). Submissions indicated that the role of third party custodians or administrators is to provide superannuation members with information about the product they are holding or considering holding. Under the Act, such actions may be considered passing on, publishing, distributing or otherwise disseminating a document, which are not a financial service under regulation (b). An argument may also be made that the activities of third party custodians or administrators are not the provision of a financial service pursuant to subsection 766A(3).

10 10 Request for comment Comments are sought on whether there is a need for further amendment in response to the issue raised in Issue 1.4, given the terms of subsection 766A(3) and/or regulation Combining a Financial Services Guide and Prospectus. Proposed amendment (Schedule 1, Item [24]) Comments were sought on whether a provision should be made to allow a Financial Services Guide to be combined with a disclosure document under Chapter 6D, similar to the provision which enables a Financial Services Guide and Product Disclosure Statement to be combined. [24] After regulation A B Modification of Act: Combining a Financial Services Guide and disclosure document For paragraph 951C (1) (c) of the Act, Part 7.7 of the Act applies as if the Act was modified by ing the following section after section 942DA: 942DB Combining Financial Services Guide and disclosure document (1) This section specifies the circumstances in which a Financial Services Guide and a disclosure document may be combined in a single document. (2) A combined Financial Services Guide and disclosure document may be issued as a single document if: (a) the providing entity for the financial service and the offeror of securities issued in relation to that financial service are the same person; and (b) the document is divided into 2 separate parts, comprising: (i) a part identifiable as a Financial Services Guide that satisfies the requirements under the Act for a Financial Services Guide; and (ii) a part that is identifiable as a disclosure document that satisfies the requirements under Chapter 6D of the Act; and (c) the title Combined Financial Services Guide and disclosure document is marked on or near the front of the document, including a reference to the type of disclosure document mentioned in section 705 that the document contains.

11 Combining a Financial Services Guide and Prospectus (continued) Comments were sought on whether a provision should be made to allow a Financial Services Guide to be combined with a disclosure document under Chapter 6D, similar to the provision which enables a Financial Services Guide and Product Disclosure Statement to be combined. (3) A combined Financial Services Guide and disclosure document may be issued as a single document if: (a) the providing entity for the financial service is a representative or a related body corporate of the offeror of securities; and (b) the document is divided into 2 separate parts, comprising: (i) a part identifiable as a Financial Services Guide that satisfies the requirements under the Act for a Financial Services Guide; and (ii) a part that is identifiable as a disclosure document that satisfies the requirements under Chapter 6D of the Act; and (c) the title Combined Financial Services Guide and disclosure document is marked on or near the front of the document, including a reference to the type of disclosure document mentioned in section 705 that the document contains. (3) A combined Financial Services Guide and disclosure document may be issued as a single document if: (a) the providing entity for the financial service is a representative or a related body corporate of the offeror of securities; and (b) the document is divided into 2 separate parts, comprising: (i) a part identifiable as a Financial Services Guide that satisfies the requirements under the Act for a Financial Services Guide; and (ii) a part that is identifiable as a disclosure document that satisfies the requirements under Chapter 6D of the Act; and (c) the title Combined Financial Services Guide and disclosure document is marked on or near the front of the document, including a reference to the type of disclosure document mentioned in section 705 that the document contains. (4) For the single document: (a) the Financial Services Guide and the disclosure document may provide for matters by the use of cross-references to each other rather than by fully setting out material; and (b) if the document includes cross-references: (i) the document as a whole must be worded and presented in a clear, concise and effective manner; and (ii) the use of the cross-references must not have the effect that the document is misleading or deceptive.

12 Combining a Financial Services Guide and Prospectus (continued) Proposed amendment (Schedule 1, Item [23]) Comments were sought on whether a provision should be made to allow a Financial Services Guide to be combined with a disclosure document under Chapter 6D, similar to the provision which enables a Financial Services Guide and Product Disclosure Statement to be combined. [23] Subparagraph A (4) (b) (i) substitute (i) the document as a whole must be worded and presented in a clear, concise and effective manner; and Commentary The proposed amendment seeks to allow an FSG to be combined in a single document with a prospectus, a short form prospectus, a profile statement or an offer information statement (see disclosure documents under section 705 of the Act). The circumstances in which such documents could be combined reflect those in current regulation A which sets out the requirements that must be satisfied before an FSG may be combined with a PDS in a single document. However, it is expected that a combined FSG and disclosure document would be provided to a client in accordance with the timing requirements for an FSG. There is also an amendment to regulation A (new subparagraph A (4) (b) (i)) to clarify the requirement that any combined FSG and PDS must be presented in a clear, concise and effective manner. Request for comment Comments are sought on the number of entities that would rely on this amendment and the frequency with which it would be used. Comments are sought on whether the phrase product issuer is an appropriate label for the entities that would be providing a combined FSG and disclosure document pursuant to this regulation or whether another label would be more appropriate (such as offeror ). 1.6 Updating Financial Services Guides. Proposed amendment (Schedule 1, Item [29]) Comments were sought on whether it is appropriate to remove the requirement to update a Financial Services Guide where the change would relate to information that is not materially adverse, provided there is disclosure on how access can be made to the updated information. Amendment 1 FSG disclosure [29] After regulation in Part 7.7

13 Updating Financial Services Guides (continued) Comments were sought on whether it is appropriate to remove the requirement to update a Financial Services Guide where the change would relate to information that is not materially adverse, provided there is disclosure on how access can be made to the updated information Financial Services Guide exemption from requirement that information be up to date (1) For paragraph 951C (1) (a) of the Act, a providing entity is exempt from the requirement to comply with section 941E in the circumstances mentioned in subregulation (2). (2) The circumstances are: (a) the Financial Services Guide was up to date when it was prepared; and (b) the Financial Services Guide contains a statement that: (i) information contained in the Financial Services Guide may be updated from time to time without the need to notify a person to whom it was given, if the updated information is not materially adverse to the person; and (ii) if a Financial Services Guide is updated, a copy of the updated information may be obtained from the responsible person on request, at no charge; and (c) since the Financial Services Guide was prepared new relevant information has become available, and the omission of the additional information would not be materially adverse to a client. Proposed amendment (Schedule 1, Item [35]) Amendment 2 PDS disclosure [35] After regulation in Part Product Disclosure Statement exemption from requirement that information be up to date (1) For paragraph 1020G (1) (a) of the Act, a responsible person is exempt from the requirement to comply with section 1012J in the circumstances mentioned in subregulation (2).

14 Updating Financial Services Guides (continued) Comments were sought on whether it is appropriate to remove the requirement to update a Financial Services Guide where the change would relate to information that is not materially adverse, provided there is disclosure on how access can be made to the updated information. (2) The circumstances are: (a) the Product Disclosure Statement was up to date when it was prepared; and (b) the Product Disclosure Statement contains a statement that: (i) information contained in the Product Disclosure Statement may be updated from time to time without the need to notify a person to whom it was given, if the updated information is not materially adverse to the person; and (ii) if a Product Disclosure Statement is updated, a copy of the updated information may be obtained from the responsible person on request, at no charge; and (c) since the Product Disclosure Statement was prepared new relevant information has become available, and the omission of the additional information would not be materially adverse to a person. Commentary The Act, in section 941E, currently requires that a PDS or FSG be up to date at the time it is given to a client. Further, if there is a change in circumstances relating to the product or service that would be materially adverse to the client, section 941F of the Act requires the provider to provide an updated PDS or FSG to the client before any financial service is provided. Therefore, financial service providers must update their PDS and FSG (or produce a supplementary PDS or FSG) each time there is any change in circumstances relating to the relevant product or service. This obligation imposes costs on licensees and authorised representatives. The proposed regulation allows product issuers to update their PDS or FSG when a material, rather than any, change affecting the product or service occurs. The FSG or PDS would need to contain a statement informing the client of the possibility that information it contains may change from time to time and not be up to date in the FSG or PDS. The statement would need to specify that details of the updated information may be obtained on request at no charge. ASIC has provided relief from the requirement for PDS information to be up to date in Class Order 03/237 Updated information in product disclosure statements. The proposed amendment seeks to transfer this relief to the regulations and provide similar relief for FSGs, subject to particular conditions.

15 15 Request for comment ASIC Class Order 03/237 requires information in a PDS to be retained by a product issuer for seven years, which departs from the standard five year period in which information must be retained under subsection 1101C(3) of the Act. Comments are sought on whether the proposed amendment should be reformed to include the seven year requirement in which records should be retained or if the requirements in subsection 1101C(3) are adequate. The proposed amendments adopt the concept of information not being materially adverse to a client. Comments are sought on whether the materially adverse concept is understood or if another form of wording would be preferable. 1.7 Standardised Financial Services Guide. Proposed amendment (Schedule 1, Items [21] and [22]) Comments were sought on whether it is appropriate to allow for a standard Financial Services Guide for community-owned branches of banking licensees and individuals that are sub-authorised by authorised representatives. [21] After subregulation B (2) (2A) For paragraph 942C (4) (b) of the Act, the Financial Services Guide in relation to a financial service does not have to include the information in paragraph 942C (2) (a) of the Act, in respect of the person, if: (a) for a franchisee, the person is: (i) a franchisee of the holder of an Australian financial services licence (franchisor); and (ii) a corporate authorised representative of the franchisor; and (b) for an employee, the person is: (i) an employee of a franchisee mentioned in paragraph (a); and (ii) an authorised representative of the franchisor; and (c) the franchisor is: (i) an authorised deposit-taking institution; and (ii) regulated by APRA; and (d) the franchise agreement subjects the individual to the policies of the franchisor and requires compliance by the individual with the policies of the franchisor made to give effect to franchisor s obligations under the Australian financial services licence; and (e) the Financial Services Guide produced by the franchisor explains that the franchisor takes responsibility for the services provided by the individual.

16 Standardised Financial Services Guide (continued) Proposed amendment (Schedule 1, Items [21] and [22]) Comments were sought on whether it is appropriate to allow for a standard Financial Services Guide for community-owned branches of banking licensees and individuals that are sub-authorised by authorised representatives. [22] After subregulation B (3) (4) In this regulation: authorised deposit-taking institution has the same meaning as in the Banking Act Commentary Some deposit-taking institutions, including a number of community banks, 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 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. In some cases, individual employees may be appointed as authorised representatives of the licensee. Further, corporate authorised representatives may sub-authorise employees of the franchisee to provide specified financial services under subsection 916B(3). The Act requires authorised representatives to provide an FSG to any person to whom they are delivering a financial service. As a consequence, individualised FSGs must be produced by each branch identifying the name and contact details of each individual franchise, or where an individual employee has been appointed an authorised representative, the individual employee. Regulation B exempts individuals who are authorised representatives 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. The proposed regulation would provide an exemption from the requirement to provide individualised FSGs for each franchise that is a corporate authorised representative or each employee of that franchise who is an authorised representative. This exemption would be subject to the following conditions: the corporate authorised representative must be the franchisee of a licensed franchisor and the franchisor must be an authorised deposit-taking institution and be regulated by the Australian Prudential Regulation Authority (APRA); and the franchise agreement must subject the corporate authorised representative or individual authorised representative 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 a 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 individual authorised representative.

17 Due to the terms of subsection 916B(6), the effect of the proposed amendment would be that individual employees who have been sub-authorised pursuant to subsection 916B(3) would be bound by the requirements of the regulation as well Treatment of superannuation trustees. Proposed amendment (Schedule 1, Item [14]) Comments were sought as to whether it is appropriate to aggregate funds for wholesale test purposes, where a superannuation fund trustee administers more than one fund. [14] Regulation AB substitute AB Modification of section 761G of the Act: meaning of retail client and wholesale client (1) This regulation is made for the provisions of the Act set out in column 2 of the following table. Column 1 Column 2 Column 3 Item Provisions of Act 1 paragraph 926B (1) (c) Part paragraph 951C (1) (c) Part paragraph 992C (1) (c) Part paragraph 1020G (1) (c) Part 7.9 (2) The Parts of the Act specified in column 3 of the table apply as if section 761G of the Act were modified by ing the following subsections after subsection 761G (5): Bundled general insurance products (5A) The provision of a general insurance product does not constitute the provision of a financial product to a person as a retail client if: (a) the product provides more than one kind of insurance cover or provides insurance cover in relation to more than one kind of asset; and (b) the product predominantly provides insurance cover that would not, under subsection 761G (5), constitute the provision of a financial product to a person as a retail client. (5B) For subsection (5A), ASIC may determine, in writing, that subsection (5A) does not apply to: (a) a particular general insurance product; or (b) a class of general insurance products. (5C) A determination under subsection (5B) must be published in the Gazette.

18 Treatment of superannuation trustees (continued) Proposed amendment (Schedule 1, Item [14]) Comments were sought as to whether it is appropriate to aggregate funds for wholesale test purposes, where a superannuation fund trustee administers more than one fund. (3) For the provisions of the Act set out in column 2 of the table, the Parts of the Act specified in column 3 apply as if section 761G of the Act were modified by ting subsection (6) and ing the following subsection: (6) For the purposes of this Chapter: (a) if a financial product that is provided to a person is a superannuation product or an RSA product, the product is provided to the person as a retail client; and (b) if a financial service (other than the provision of a financial product) that is provided to a person who is not covered by subparagraph (c)(i), (ii) or (iii) relates to a superannuation product or an RSA product, the service is provided to the person as a retail client; and (c) if a financial service (other than the provision of a financial product) that is provided to a person who is: (i) the trustee of at least one superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme (within the meaning of the Superannuation Industry (Supervision) Act 1993) that has net assets of at least $10 million; or (ii) an RSA provider (within the meaning of the Retirement Savings Accounts Act 1997); or (iii) the owner or operator of a business that is not a small business; relates to a superannuation product or an RSA product; that does not constitute the provision of a financial service to the person as a retail client. (4) For the provisions of the Act set out in column 2 of the table, the Parts of the Act specified in column 3 apply as if section 761G of the Act were modified by ing after paragraph 761G (7) (c), the following paragraph: (ca) the financial product, or the financial service, is acquired by a company or trust controlled by a person who meets the requirements of subparagraph (c) (i), (ii) or (iii); Commentary When the trustee of a superannuation fund that has net assets of at least $10 million is provided with a financial service (other than a financial product) that relates to a superannuation product or an RSA product, subparagraph 761G(6)(c)(i) of the Act treats the trustee as a wholesale client. Comments were sought on providing wholesale status to superannuation fund trustees of multiple funds where in aggregate the funds had net assets of at least $10 million. Submissions suggested the principle of subparagraph 761G(6)(c)(i) should only extend to the superannuation fund trustee of multiple entities where at least one entity has net assets of least $10 million.

19 19 The proposed regulation clarifies that a superannuation fund that is trustee of multiple entities will be treated as a wholesale client (when provided a financial service relating to a superannuation product or RSA product) where at least one of its entities has net assets of at least $10 million Treatment of employers. Proposed amendment (Schedule 1, Item [14]) Comments were sought on whether employers operating businesses other than small businesses should be considered to be wholesale clients in respect of the provision to them of financial services relating to superannuation products. [14] Regulation AB substitute AB Modification of section 761G of the Act: meaning of retail client and wholesale client (1) This regulation is made for the provisions of the Act set out in column 2 of the following table. Column 1 Column 2 Column 3 Item Provisions of Act 1 paragraph 926B (1) (c) Part paragraph 951C (1) (c) Part paragraph 992C (1) (c) Part paragraph 1020G (1) (c) Part 7.9 [subregulation (2) has not been reproduced] (3) For the provisions of the Act set out in column 2 of the table, the Parts of the Act specified in column 3 apply as if section 761G of the Act were modified by ting subsection (6) and ing the following subsection: (6) For the purposes of this Chapter: (a) if a financial product that is provided to a person is a superannuation product or an RSA product, the product is provided to the person as a retail client; and (b) if a financial service (other than the provision of a financial product) that is provided to a person who is not covered by subparagraph (c)(i), (ii) or (iii) relates to a superannuation product or an RSA product, the service is provided to the person as a retail client; and

20 Treatment of employers (continued) Comments were sought on whether employers operating businesses other than small businesses should be considered to be wholesale clients in respect of the provision to them of financial services relating to superannuation products. (c) if a financial service (other than the provision of a financial product) that is provided to a person who is: (i) the trustee of at least one superannuation fund, an approved deposit fund, a pooled superannuation trust or a public sector superannuation scheme (within the meaning of the Superannuation Industry (Supervision) Act 1993) that has net assets of at least $10 million; or (ii) an RSA provider (within the meaning of the Retirement Savings Accounts Act 1997); or (iii) the owner or operator of a business that is not a small business; relates to a superannuation product or an RSA product; that does not constitute the provision of a financial service to the person as a retail client. [subregulation (4) has not been reproduced] Commentary Paragraph 761G(6)(b) of the Act provides that a financial service (other than the provision of a financial product) relating to a superannuation product or a retirement savings account (RSA) product is generally provided to a person as a retail client (unless they are referred to in paragraph 761G(6)(c) of the Act). The proposed regulation provides that employers who operate businesses, that are not small businesses (as defined in subsection 761G(12) of the Corporations Act), be treated as wholesale clients when provided a financial service that relates to a superannuation product or an RSA product. Request for comment Comments are sought as to whether the proposed amendment to treat non-small businesses as wholesale in relation to the provision of a financial service relating to superannuation or an RSA product is likely to be effective in view of the requirements for particular retail disclosure in subsection 1016A(3) and section 1012I of the Act.

21 Bundled general insurance products. Proposed amendment (Schedule 1, Item [14]) Comments were sought as to whether it is appropriate to treat bundled general insurance products that are predominantly wholesale as entirely wholesale and, if so, what conditions or protections should apply to ensure that genuinely retail clients are not prejudiced. [14] Regulation AB substitute AB Modification of section 761G of the Act: meaning of retail client and wholesale client (1) This regulation is made for the provisions of the Act set out in column 2 of the following table. Column 1 Column 2 Column 3 Item Provisions of Act 1 paragraph 926B (1) (c) Part paragraph 951C (1) (c) Part paragraph 992C (1) (c) Part paragraph 1020G (1) (c) Part 7.9 (2) The Parts of the Act specified in column 3 of the table apply as if section 761G of the Act were modified by ing the following subsections after subsection 761G (5): Bundled general insurance products (5A) The provision of a general insurance product does not constitute the provision of a financial product to a person as a retail client if: (a) the product provides more than one kind of insurance cover or provides insurance cover in relation to more than one kind of asset; and (b) the product predominantly provides insurance cover that would not, under subsection 761G (5), constitute the provision of a financial product to a person as a retail client. (5B) For subsection (5A), ASIC may determine, in writing, that subsection (5A) does not apply to: (a) a particular general insurance product; or (b) a class of general insurance products. (5C) A determination under subsection (5B) must be published in the Gazette. [subregulation (3) has not been reproduced] [subregulation (4) has not been reproduced]

22 22 Commentary Subsection 761G(5) of the Act provides that certain general insurance products, or services related to the products that are listed in the subsection (and defined in the regulations), will be taken to be provided to a person as a retail client if the person is an individual or the insurance product is to be used in connection with a small business. However, a number of general insurance products are bundled (that is they comprise different types of insurance cover) which may contain both retail and wholesale elements. For example, a motor vehicle insurance policy that is taken out by a business that is not a small business to cover a fleet of motor would be considered to be provided to the consumer as a wholesale client. However, if the relevant policy included insurance cover for the private vehicle of an employee of the business, then that part of the policy would be considered to be provided to the client as a retail client and additional disclosure obligations would need to be met. It has been suggested that, in circumstances where a bundled insurance product is provided to a person predominantly as a wholesale client, with only a minor retail component, then the entire policy should be considered to have been provided to a person as a wholesale client. The proposed regulation seeks to give effect to this suggestion by stating that a provider may treat a client as a wholesale client in respect of the provision of a bundled product if the product predominantly provides insurance cover to a person as a wholesale client. Further, the proposed regulation provides ASIC with the power to determine that the proposed subsection does not apply to a particular general insurance product or class of general insurance products. Any such determination by ASIC would be made in writing and published in the Gazette Badging of disclosure documents. Proposed amendment (Schedule 1, Items [10] and [11]) Comments were sought on whether the issue of badging needs to be clarified and whether conditions should be applied to any exemption from badging being considered the provision of financial product advice. [10] Paragraph (c) substitute (c) the document was provided by another person (person 2), and person 2 has authorised person 1 to provide the service mentioned in paragraphs (a) and (b); and [11] Paragraphs (f) and (g) substitute (f) person 1 does not: (i) select the content of the document; or (ii) modify the content of the document, otherwise than to the extent mentioned in paragraph (g); or (iii) otherwise exercise control over the content of the document; and (g) for subparagraph (f) (ii) person 1 may modify the document only to the extent that a reasonable person would not consider that person 1 provided, endorsed or otherwise assumed responsibility for the financial product advice contained in the document.

23 23 Commentary Badging refers to situations where a person or entity places a logo or a trade mark on a document that has been prepared by another person. For example, a sporting or professional association may place its logo or emblem on a document that has been prepared by the issuer of a financial product (for example, insurance) and distribute the document to its members. The Act contains provisions that exempt from licensing and other obligations people who merely refer a consumer to a product provider (regulation (1)(e)) or who pass on prepared documents (regulation ). However, there is uncertainty as to whether the badging of a document related to a financial product constitutes an implied recommendation, and therefore general advice, such that the person adding the logo or trademark would need to be licensed or appointed as an authorised representative of the product issuer. The proposed regulation clarifies that badging does not constitute general advice so long as the relevant modification is not to such an extent that a reasonable person would consider the person who has placed their logo on the document to have provided, endorsed or otherwise assumed responsibility for any financial product advice in the document. The person placing their logo on the document must also not have exercised any form of control over the content of the document Jurisdictional reach Australian financial services licence holders acting on behalf of others. Proposed amendment (Schedule 1, Item [15]) Comments were sought as to whether it would be appropriate to extend the new licensing exemption and whether any conditions should apply to ensure those on whose behalf the Australian licensee is acting are adequately protected. [15] Regulation AG, ed paragraph 911 (2C) (c) of the Act substitute (c) person 2 is, in relation to the service, a wholesale client; (d) person 2 is acting on someone else s behalf in relation to the service as: (i) a trustee; or (ii) a responsible entity of a registered scheme. Commentary Any person who is located in a foreign jurisdiction who provides financial services to an Australian financial services licensee who is acting on their own behalf is exempt from the need to have a financial services licence under regulation AG. This exemption is on condition that the relevant Australian licensee is not acting as a trustee, responsible entity of an registered managed investment scheme or otherwise acting on someone else s behalf. Should this be the case, then the foreign person would need to hold a financial services licence in respect of the service.

24 24 The proposed regulation amends the conditions imposed by regulation AG(2C) and allows a foreign person to provide services to a financial services licensee who is acting as a trustee or responsible entity but not where the Australian licensee is otherwise acting on someone else s behalf. For a foreign person to qualify for this exemption, the relevant trustee or responsible entity must satisfy the definition of a wholesale client in respect of the provision to them of the particular service. The requirement has been applied to all clients in this situation. Request for comment Comments are sought as to whether it is necessary to limit the exemption in the proposed amendment to dealings with trustees or responsible entities that satisfy the definition of being a wholesale client in respect of the provision to them of the relevant service Jurisdictional reach Offshore branches. Comments were sought on whether the exemptions from licensing and disclosure applying to foreign financial services providers can be extended to offshore branches of Australian financial services licensees. Commentary It has been argued that offshore branches of Australian financial services businesses, such as banks, are subject to Australian financial services regulation. It is claimed that this is a result of the wide definition of when a person is carrying on a financial services business in this jurisdiction in section 911A of the Act. Section 911A is the trigger for the licensing requirements of the Act. Legal advice obtained by Treasury indicates that the phrase this jurisdiction means Australia (including the internal territories) and the external territories (in relation to certain provisions). It does not extend further than that and, as such, where the Act refers to a person who carries on a financial services business in this jurisdiction, the reference is to a person that carries on that business within the geographical borders of Australia. This rule is affected by section 911D of the Act which has the effect that a financial services business is taken to be carried on in this jurisdiction if a person (who may be outside this jurisdiction) engages in conduct intended to induce people in this jurisdiction to use the financial services the person provides. However, so long as an offshore branch does not try to induce individuals located in Australia to acquire their financial services, they will not be affected by this provision. Therefore, it is not thought that any amendment is necessary in response to this consultation issue. Request for comment Comments are sought on this conclusion.

25 Dollar disclosure for general insurance. Proposed amendment (Schedule 1, Item [30]) Proposed amendment (Schedule 1, Item [32]) Comments were sought as to whether specific dollar disclosure requirements should be prescribed for general insurance products. [30] After subregulation C (3) (4) For paragraph 1013D (1) (m) of the Act, for a Product Disclosure Statement that is required in relation to a general insurance product, if information that is required to be stated in dollars and the dollar amount can only be determined: (a) after the responsible person assesses the risk of the insured; or (b) after the insured has nominated desired levels of insurance cover; the responsible person may comply with the requirement to state amounts in dollars by: (c) stating the information as an amount in dollars in the Product Disclosure Statement; or (d) giving to the insured: (i) a document containing the information, as soon as practicable but in any case not later than 5 business days after the responsible person issues the general insurance product; and (ii) a statement in the Product Disclosure Statement that sets the information out in at least 1 of the following formats: (A) a range of amounts in dollars; (B) as a percentage of a matter that is mentioned in the statement; (C) a description. [32] After regulation F FA Transitional arrangements for regulations D, E and F (1) If, on or after the commencing day, a Product Disclosure Statement for a general insurance product complies with the requirements of old sections 1013C and 1013D, then, for the transition period only, the Product Disclosure Statement is taken to be complying with the requirements of new sections 1013C and 1013D.

26 Dollar disclosure for general insurance (continued) Comments were sought as to whether specific dollar disclosure requirements should be prescribed for general insurance products. (2) In this regulation: commencing day means the day this regulation commences. new sections 1013C and 1013D means those sections of the Corporations Act 2001, and any regulations made for the purposes of, or modifying those sections, as in force on and after the commencing day. old sections 1013C and 1013D means those sections of the Corporations Act 2001, and any regulations made for the purposes of, or modifying those sections, as in force immediately before the commencing day. transition period means the period ending on 30 June Note Before the commencement of this regulation, transitional arrangements in similar terms were provided for regulations D, E and F by item 2 of Schedule 5 to the Corporations Amendment Regulations 2005 (No. 5) (SLI 2005 No. 324). Proposed amendment (Schedule 3) Schedule 3 Amendment of Corporations Amendment Regulations 2005 (No. 5) (SLI 2005 No. 324) (regulation 4) [1] Schedule 5, item 2 Commentary Proposed amendment, Schedule 1, Item [30] The dollar disclosure provisions (paragraphs 947B(2)(h), 1013D(1)(m) and subsection 1017D(5A)) of the Act require product issuers, financial services licensees and their authorised representatives to disclose the various costs and benefits of financial products in dollar amounts in SOAs, PDSs and periodic statements. The general insurance industry has experienced practical problems trying to disclose all the costs and benefits of general insurance products, in dollar amounts, in the PDS. The calculation of some general insurance costs and benefits cannot be calculated prior to receiving information regarding the risk of the insured and the choices the insured makes when determining an appropriate level of insurance coverage. For example, an insurer cannot determine the premium that an insured should pay until they have assessed the risk of insuring that person. In addition, choices inherent in most general insurance policies mean that an insurer cannot determine whether an insured will choose to insure, for example, a motor vehicle at market value or at an agreed value.