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CORPORATIONS AMENDMENT REGULATIONS 2009 (NO. 4) (SLI NO 70 OF 2009)
Issued by authority of the Minister for Superannuation and Corporate Law
Corporations Act 2001
Corporations Amendment Regulations 2009 (No. 4)
Subsection 1364(1) of the Corporations Act 2001 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations, or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.
The purpose of the Regulations is to update the provisions of the Corporations Regulations 2001 (the Principal Regulations) to improve the operation of financial services and market regulatory policy.
Licensed clearing and settlement facilities
Chapter 7 of the Act provides for, among other things, the licensing of clearing and settlement (CS) facilities. The Principal Regulations currently provide that where a financial services licensee is required to call margins from clients under the operating rules of a licensed financial market, the licensee must operate either a client segregated account or a trust account in accordance with the operating rules of the licensed financial market. Segregated accounts and trust accounts are two different means of ensuring that customers' money is kept separate from the financial services licensee’s money.
By specifically referring to licensees who call margins under the rules of a licensed financial market, the Principal Regulations exclude those participants operating under the rules of a licensed CS facility. The amendment allows clients’ moneys to be paid into segregated accounts or trust accounts if those accounts are operated in accordance with the rules of a CS facility. The amendment remedies the previous anomaly with the law which allowed licensees to operate a trust account only where they were required to call margins under the rules of a licensed CS facility.
The amended Principal Regulations clarify that a segregated account or a trust account may be operated in accordance with the operating rules of a licensed financial market or a licensed CS facility.
Minister’s approval of changes to compensation rules
Chapter 7 of the Act provides for compensation regimes for financial markets, including the creation of compensation rules. Licensed markets through which participants provide services for retail clients must have a compensation scheme which complies with Part 7.5 of the Act. A compensation scheme generally satisfies the Act by the establishment of a fidelity fund, but this may occur through other means such as an insurance arrangement, an irrevocable letter of credit or a bank guarantee. Section 892B of the Act provides that money in a fidelity fund that is the source, or a source, of compensation arrangements must be kept in a separate account or invested until applied in paying claims.
The Act establishes a regime allowing the Minister to approve changes to a financial market licensee’s compensation rules. However, section 892B has the potential to make it unclear whether the Minister can approve the removal of monies from the fidelity fund as part of any change to the compensation arrangements.
The Regulations clarify that the removal of money from a fidelity fund is something which the Minister may approve under the Act.
The Regulations also correct references in the Principal Regulations by replacing the phrase ‘licensed financial market’ with ‘licensed market’, to reflect the terminology used in the Act.
Under the Corporations Agreement 2002, the Commonwealth must consult with the Ministerial Council for Corporations before making amendments to certain provisions of the Principal Regulations. The Council were consulted about these amendments, and were notified of the Minister’s decision to dispense with the period of public exposure given the Regulations are minor and technical in nature. No public consultation was undertaken under section 17 of the Legislative Instruments Act 2003 before this instrument was made as it is of a minor machinery nature and does not substantially alter existing arrangements.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003. The Regulations commence on the day after they are registered on the Federal Register of Legislative Instruments.