EXPLANATORY STATEMENT

 

Select Legislative Instrument 2010 No. 331

Issued by the authority of the Parliamentary Secretary to the Treasurer

 

Subject - Australian Securities and Investments Commission Act 2001

Australian Securities and Investments Commission Amendment Regulations 2010 (No. 5)

Section 251 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act) provides, in part, that the Governor‑General may make regulations prescribing matters required or permitted by the ASIC Act to be prescribed by regulations, or necessary or convenient to be prescribed for the carrying out or giving effect to the ASIC Act.

The Regulations amend the Australian Securities and Investments Commission Regulations 2001 (the Principal Regulations) to ensure that the Australian Securities and Investments Commission (ASIC) can take action against parties under the investor protection provisions in the Act.

Subsection 12BAB(1) of the ASIC Act sets out the meaning of the term ‘financial service’ for the purposes of the ASIC Act in relation to unconscionable conduct and other consumer protections in relation to the provision of financial services. That subsection provides a list of conduct where a person is deemed to provide a financial service. That list also allows for further situations to be prescribed in regulations.

Subregulation 2C(1) of the Principal Regulations prescribes one of those additional circumstances in relation to off-market offers for financial products - that is, where a person offers to purchase a financial product (but not through a licensed financial market), from another, who originally purchased the product as a retail client. These offers are generally referred to as unsolicited off-market offers.

However, currently under subregulation 2C(2), an offeror is deemed not to have provided a financial service if they disclose, in a clear and concise written statement, either the market value of each financial product and the total market value of all financial products or a fair estimate of the value, and, ensure that the offer remains open for a minimum of a month but not more than 12 months. This means that where an unsolicited offer is made and such a statement is provided within the time requirements, no financial service is deemed to have been provided.

This outcome compromises ASIC’s ability to take action against parties under the investor protection provisions, for example in cases of unconscionable and misleading and deceptive conduct, as this action is premised on the fact that a person has provided a financial service.

These provisions were originally included to allow for a transitional period for the introduction of Division 5A in Chapter 7 of the Corporations Act 2001 by the Financial Services Reform Amendment Act 2003, which introduced a regulatory regime relating to unsolicited off-market offers. These temporary provisions were due to be repealed along with other related provisions after the completion of the transitional period. However, these provisions were not repealed due to an oversight.

Therefore, the purpose of the Regulations is to remove these provisions and avoid any possible further issues arising.

Details of the Regulations are set out in the Attachment.

Under the Corporations Agreement 2002 (Corporations Agreement), the Commonwealth must consult with and obtain the approval of the Ministerial Council for Corporations before making amendments to certain provisions of the Corporations Regulations. The Council has been consulted about the Regulations as required by the Corporations Agreement.¹ Paragraph 507(1)(f) and subclause 511(2) of the Corporations Agreement provide that approval of the Council and the usual public exposure period are not required for amendments to regulations relating to financial products and services.

 

The Act specifies no other conditions that need to be satisfied before the power to make the Regulations may be exercised.

 

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

ATTACHMENT A

 

Details of the Australian Securities and Investments Commission Regulations 2010 (No. 5)

 

Regulation 1 – Name of Regulations

 

This regulation provides that the name of the Regulations is the Australian Securities and Investments Commission Amendment Regulations 2010 (No. 5).

 

Regulation 2 – Commencement

 

This regulation provides for the Regulations to commence on the commencement of the Corporations Amendment (No.1) Act 2010.

 

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

 

This regulation provides that the Australian Securities and Investments Commission Regulations 2001 (the Principal Regulations) are amended as set out in Schedule 1.

 

Schedule 1 – Amendment

 

Item [1] – Regulation 2C

 

Item 1 substitutea the current regulation 2C with a replacement regulation that removes subregulations 2C(2) and 2C(3) from the provisions. These provisions currently provide that a financial service has not been provided where a person makes an off-market offer to purchase financial products if they disclose either the market value of each financial product and the total market value of all financial products or a fair estimate of the value, and, ensure that the offer remains open for a minimum of a month but not more than 12 months. This exclusion from the definition of financial service removes ASIC’s powers to prosecute a person making such an offer under the ASIC Act investor protection provisions.