Commonwealth Consolidated Regulations

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CORPORATIONS REGULATIONS 2001 - REG 7.1.21

Retail clients and wholesale clients: value of income stream financial products

             (1)  This regulation makes arrangements about the value of an income stream financial product.

Note:          Under paragraph 761G(7)(a) of the Act, if a financial product is not, or a financial service provided to a person does not relate to, a general insurance product, a superannuation product or an RSA product, the financial product or financial service is provided to the person as a retail client unless the price for the provision of the financial product, or the value of the financial product to which the financial service relates, equals or exceeds the amount specified in regulations made for the purposes of that paragraph as being applicable in the circumstances.

                   Under paragraph 761G(10)(a) of the Act, the regulations may also deal with how a price or value referred to in that paragraph is to be calculated, either generally or in relation to a specified class of financial products.

                   In general, the 'value' of a product will be the amount that the product is worth once it is issued or acquired by the client. It is anticipated that the test for the value of the product in paragraph 761G(7)(a) of the Act will usually be used to assess a client's status as a retail or wholesale client at or before the time that a financial service (eg financial product advice, disposal of the product) is provided to the client in respect of an existing product.

Value

             (2)  For paragraph 761G(7)(a) of the Act, the amount applicable in relation to an income stream financial product is $500 000.

Working out value: general rule

             (3)  For paragraph 761G(10)(a) of the Act, the value of an income stream product is the amount worked out in accordance with any of the following paragraphs:

                     (a)  if the terms of the income stream financial product provide for the calculation of a commutation value--the commutation value;

                     (b)  if the terms of the income stream financial product do not permit commutation--the minimum commutation amount calculated in accordance with ordinarily accepted actuarial standards;

                     (c)  if the income stream financial product is of a kind in relation to which money stands to the client's credit for the income stream financial product--the amount of money standing to the client's credit.

             (4)  For subregulation (3), in calculating the value of an income stream financial product:

                     (a)  disregard any amount standing to the client's credit in relation to the income stream financial product to the extent that it is to be paid, or was to be paid, out of money lent by:

                              (i)  the person offering the income stream financial product; or

                             (ii)  an associate of that person; and

                     (b)  disregard any amount of fees or charges:

                              (i)  that the product issuer has an actual or accrued right to deduct from the value of the income stream financial product (whether or not the amount has been deducted); or

                             (ii)  that has accrued as at the time that the client's status as a retail or wholesale client is assessed.

             (5)  If it is not reasonably practicable to ascertain an amount in accordance with subregulation (3), the value of the income stream product is an amount calculated as follows:

                     (a)  identify the price for the provision of the income stream;

                     (b)  subtract the total of any amounts paid out of the income stream (including any regular payments and any capital amounts);

                     (c)  subtract an amount representing the reasonable administrative fees or other expenses of the issuer (including any costs or fees relating to the product that were disclosed to the client at or before the time the product was issued);

                     (d)  add interest on:

                              (i)  the amount paid for the income stream financial product; or

                             (ii)  an amount, or a reasonable notional amount, representing the value of the income stream financial product;

                            based on movements in the rate of the All Groups Consumer Price Index number (being the weighted average of the 8 Australian capital cities) published by the Australian Statistician.

Group products

             (6)  If the income stream financial product is a group product covered by subsection 1012H(1) of the Act:

                     (a)  the amount in subregulation (2) is to be used to determine the status of each person who elects, or may elect, to be covered by the income stream financial product; and

                     (b)  subregulation (3) is to be used to determine the value of the income stream financial product to the extent that it stands, or will stand, to the credit of, each person who elects, or may elect, to be covered by the income stream financial product.

Time of assessment

             (7)  If a financial services provider needs to assess the status of a client as either retail or wholesale at a particular time in order to ensure that the client complies with the Act, or for any related purpose, the value of a financial product may be assessed at any time, whether or not a financial service is being provided at that time in relation to that product.

Note:          Subregulation (7) will ensure that a provider of financial services may assess a client's status at any time (for example, the provider may need to ascertain whether a periodic statement must be sent to the client under section 1017D of the Act because the client is a retail client).



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