Commonwealth Numbered Regulations - Explanatory Statements

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CORPORATIONS LAWS AMENDMENT (2014 MEASURES NO. 2) REGULATION 2014 (SLI NO 88 OF 2014)

EXPLANATORY STATEMENT

Select Legislative Instrument No. 88, 2014

Issued by authority of the Treasurer

Corporations Act 2001; Competition and Consumer Act 2010; and the

Australian Securities and Investments Commission Act 2001

Corporations Laws Amendment (2014 Measures No. 2) Regulation 2014

Section 1364(1) of the Corporations Act 2001 (the Corporations Act), section 172 of the Competition and Consumer Act 2010 (the CCA) and section 251(1) of the Australian Securities and Investments Commission Act 2001 (the ASIC Act) each provide that the Governor-General may make regulations prescribing matters required or permitted by the Acts to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Acts.

In addition, regulations may be made pursuant to the provisions of the Corporations Act, the ASIC Act and the CCA detailed in Attachment A.

The Corporations Laws Amendment (2014 Measures No. 2) Regulation 2014 (the Regulation) makes various amendments to the Corporations Regulations 2001, the Competition and Consumer Regulations 2010 and the Australian Securities and Investments Commission Regulations 2001 principally to: 

•                 extend the interim derivative trade reporting arrangements by twelve months;

•                 put in place an ongoing mechanism to prescribe derivative trade repositories that have been determined by the Australian Securities and Investments Commission (ASIC) as satisfying relevant criteria;  

•                 facilitate access for certain European regulatory authorities to information on certain derivative contracts held in Australian licensed derivative trade repositories; and

•                 prescribe new professional standards schemes at the Commonwealth level.

Prescribed derivative trade repositories

Derivatives are generally financial contracts between parties that derive their value from the performance of an underlying asset, index, rate or commodity.  Derivative has the meaning given by section 761D of the Corporations Act.  A derivative trade repository is a facility to which information about derivative transactions, or about positions relating to derivative transactions, can be reported.  

The Regulation provides a twelve month extension to the interim measure that allows derivative trade reporting to a prescribed derivative trade repository, in circumstances where no facility has obtained an Australian derivative licence.  This extension provides certainty and continuity to commercial arrangements between Australian reporting entities and prescribed facilities.

The interim measure, under the Corporations Regulations 2001, prescribes a list of facilities to which Australian reporting entities are able to report to under the ASIC Derivative Transaction Rules (Reporting) 2013.  The prescription expires on 30 June 2014, at which date the interim measure would cease to have effect.  A domestic licence is unlikely to be granted before 30 June 2014.  Significant industry disruption would be caused if the current prescription was allowed to expire without an appropriate framework in place.  

The Regulation also provides an ongoing mechanism to prescribe facilities that, whether or not domestically licensed, have been determined by ASIC as satisfying relevant criteria.  This mechanism will enable ASIC to make determinations that a facility is prescribed for trade reporting purposes, including to facilitate substituted compliance (in this case, allowing foreign entities to rely on derivative trade reporting under a foreign regime - rather than Australia's - in cases where both an Australian and a foreign reporting obligation apply). 

A foreign entity that is a party to a derivative transaction may need to report the transaction under both Australian and foreign trade reporting rules.  Imposing a duplicate reporting requirement in these circumstances may amount to unnecessary regulation and impede cost effective access to foreign derivative markets.    

Schedule 1 of the Regulation was released for direct consultation in May 2014 with:   ASIC; the Australian Financial Markets Association (AFMA) that represents financial market industry participants; and the London Stock Exchange Group (owner of UnaVista Limited, the newly prescribed facility in the Regulation).  A number of issues were raised and have been addressed in Schedule 1 of the Regulation.  

The eight facilities prescribed in the Corporations Regulation 2001 (at paragraphs 7.5A.30(2)(a) to (h)) were previously consulted with during the development of the Corporations Amendment (Derivative Trade Repositories) Regulation 2013. 

The Office of Best Practice Regulation has advised (reference number 16563) that a Regulation Impact Statement for Schedule 1 of the Regulation is not required.  

The Legislative and Governance Forum for Corporations has been consulted in the making of Schedule 1 of the Regulation, as required under the Corporations Agreement 2002.  No adverse views have been expressed.

European regulatory authority access to derivative data

The Regulation would also prescribe a list of European regulatory authorities as entities able to request access to derivative trade data retained in an Australian-licensed derivative trade repository facility.  The prescription of these entities is a first step in facilitating an effective derivative trade data sharing arrangement with the European Union (EU) and a precondition of mutual recognition by the EU of Australian trade reporting.  

This prescription is made under paragraph 904B(2)(d) of the Corporations Act, which provides for persons or bodies to be prescribed in regulation, so they may request a derivative trade repository licensee to provide certain derivative trade data.  

The Regulation enables a prescribed EU regulatory authority to request access to data that they would otherwise have been able to access. 

The Regulation also limits any potential requests from the EU authorities to data that is reportable under the Australian trade reporting regime; and

-        data otherwise having to be reported under the European Union regime, but for mutual regulatory recognition arrangements; or

-        data in respect of an EU underlying asset, index, rate or currency.

Access to trade reported data is a precondition under EU law to the EU giving mutual regulatory recognition of foreign trade reporting regimes.

Mutual regulatory recognition by the EU would allow an entity to rely on derivative trade reporting under the Australian regime - rather than the EU reporting regime - in cases where both an EU reporting regime and the Australian reporting obligation apply. 

As stipulated under subsection 904B(3) of the Corporations Act, regulations must not be made prescribing a person or body for the purpose of requesting access to derivative data unless the Minister is satisfied that there are adequate controls on the use or disclosure of any derivative trade data provided to the person or body.  

The Minister considers there are adequate controls on the use or disclosure of any derivative trade data, as provided under Title VIII of the Regulation (EU) No 648/2012 of the European Parliament and the Council of the European Union dated 4 July 2012. 

Schedule 2 of the Regulation was released for targeted consultation in May 2014 with ASIC, the European Commission, the AFMA, the International Swaps and Derivatives Association and affected derivative trade repositories.  A number of issues were raised and have been addressed in Schedule 2 of the Regulation.  

The Office of Best Practice Regulation has advised (reference number 16195) that a Regulation Impact Statement for Schedule 2 of the Regulation is not required.

The Legislative and Governance Forum for Corporations has been consulted in the making of the amendments, as required under the Corporations Agreement 2002.  No adverse views have been expressed.

Professional standards schemes

Professional Standards legislation in each state and territory operates, where applicable, to limit the civil liability of professionals and others while still maintaining appropriate protection for consumers of professional services through such measures as compulsory insurance cover and complaints procedures. 

Provision is made in the ASIC Act, the Corporations Act, and the CCA for the prescription of state and territory schemes.  The effect of prescription is to limit occupational liability under certain federal legislation in the same way it is limited under relevant state legislation.  

The Regulation amends the Competition and Consumer Regulations 2010, to prescribe the following professional standards schemes:

•                 The Western Australian Bar Association Scheme;

•                 The Victorian Bar Professional Standards Scheme;

•                 The Law Society of Western Australia Scheme; and

•                 The Law Society of NSW Scheme.

The prescription of the schemes has the effect of limiting the occupational liability of members of the schemes relating to an action for contravention of section 18 of the Australian Consumer Law (schedule 2 to the CCA) in the same way as occupational liability is limited under State and Territory laws. 

•                 Section 18 of the Australian Consumer Law (schedule 2 to the CCA) prohibits misleading and deceptive conduct by persons in trade or commerce. 

The Regulation also amends the Australian Securities and Investments Commission Regulations 2001 and the Corporations Regulations 2001 to prescribe the following professional standards schemes:

•                 The Western Australian Bar Association Scheme;

•                 The Victorian Bar Professional Standards Scheme; and

•                 The Law Society of Western Australia Scheme.

The prescription of the schemes has the effect of limiting the occupational liability of members of the schemes relating to an action for contravention of section 12DA of the ASIC Act, or section 1041H of the Corporations Act in the same way as occupational liability is limited under State and Territory laws. 

Section 12DA of the ASIC Act deals with misleading or deceptive conduct in relation to financial services; and part 7.10 of the Corporations Act deals with market misconduct and other misconduct relating to financial products and financial services. 

The Regulation also amends the tables in the Australian Securities and Investments Commission Regulations 2001, Corporations Regulations 2001 and Competition and Consumer Regulations 2010 to renumber the items.  

The Commonwealth has not consulted on this regulation.  The Professional Standards Council seeks the opinion of independent actuarial consultants and calls for public comment on professional standards schemes via public notification in major newspapers circulating throughout the relevant jurisdictions prior to approving schemes.  Further consultation was not considered necessary. 

Details of the Regulation are included in Attachment B.

A statement of the Regulation's compatibility with human rights is set out in Attachment C.

There are no statutory pre-conditions that need to be satisfied before the power to make the Regulation may be exercised.  

The Regulation commences on the day after it is registered.  

ATTACHMENT A

AUTHORISING PROVISIONS

Section 1364(1) of the Corporations Act 2001 (the Act), section 172 of the Competition and Consumer Act 2010 (the CCA) and section 251(1) of the Australian Securities and Investments Commission Act 2001 (the ASIC Act) each provide that the Governor-General may make regulations prescribing matters required or permitted by the Acts to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Acts.

Subsection 901A(6) of the Corporations Act provides that reporting requirements are requirements for information about derivative transactions, or about positions relating to derivative transactions, to be reported to, inter alia, a facility that is (or that is in a class of facilities that is) prescribed by the regulations for the purpose of paragraph 901A(6)(b) in relation to a class of derivatives that includes the derivatives to which the transactions relate.

Subsection 904B(2)(d) of the Corporations Act provides for persons or bodies to be prescribed in regulation to allow them to request a derivative trade repository licensee to provide derivative trade data that is retained in the derivative trade repository.

ATTACHMENT B

Details of the Corporations Laws Amendment (2014 Measures No. 2) Regulation 2014

Section 1 - Name of Regulation

This section provides that the title of the Regulation is the Corporations Laws Amendment (2014 Measures No. 2) Regulation 2014 (the Regulation).

Section 2 - Commencement

This section provides that the Regulation commences the day after it is registered.

Section 3 - Authority

This section provides that the Regulation is made under the Corporations Act 2001 (the Corporations Act), the Competition and Consumer Act 2010 (the CCA) and the Australian Securities and Investments Commission Act 2001 (the ASIC Act).

Section 4 - Schedules

This section provides that each instrument that is specified in a Schedule to the Regulation is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this instrument has effect according to its terms.

Amendments

Schedule 1 - Prescribed trade repositories

Item [1]

Subsection 901A(6) of the Corporations Act provides that reporting requirements are requirements for information about derivative transactions, or about positions relating to derivative transactions, to be reported to, inter alia, a facility that is (or that is in a class of facilities that is) prescribed by the regulations for the purpose of paragraph 901A(6)(b) in relation to a class of derivatives that includes the derivatives to which the transactions relate.

Item 1 of Schedule 1 amends subregulation 7.5A.30(2) by inserting "in relation to a class of derivatives" after "prescribed".

This clarifies that each facility prescribed under subregulation 7.5A.30(2) is prescribed in relation to a class of derivatives for the purposes of subsection 901A(6) of the Corporations Act.

Item [2]

Item 2 of Schedule 1 amends subregulation 7.5A.30(2) by inserting "licensed, authorised or " before "registered".

This clarifies that each facility prescribed under subregulation 7.5A.30(2) must, at a minimum, be licensed, authorised or registered to operate as a derivative trade repository for that class of derivatives under a law of a foreign jurisdiction.

Item [3]

Item 3 of Schedule 1 amends subregulation 7.5A.30(2) by inserting "for that class of derivatives" after "repository".

This clarifies that each facility prescribed under subregulation 7.5A.30(2) is prescribed in relation to the class or classes of derivatives for which the facility is licensed, authorised or registered to operate as a derivative trade repository under a law of a foreign jurisdiction, for the purposes of subsection 901A(6) of the Corporations Act.

Under subregulation 7.5A.30(2), where the licence, authorisation or registration of the facility does not limit or specify the classes of derivatives for which the facility is licensed, authorised or registered, the facility would be considered as being prescribed for all classes.

Item [4] 

Item 4 of Schedule 1 inserts new paragraphs 7.5A.30(2)(i) and 7.5A.30(2)(j) into the Corporations Regulations 2001.

Paragraph 7.5A.30(2)(i) lists UnaVista Limited as a prescribed derivative trade repository in relation to a class of derivatives if UnaVista Limited is licensed, authorised or registered to operate as a derivative trade repository for that class of derivatives under a law of a foreign jurisdiction.

Paragraph 7.5A.30(2)(j) provides that a facility can be determined by ASIC as being a prescribed facility.

Paragraph 7.5A.30(2)(j) enables the prescription of a facility that, whether or not domestically licensed, has been determined by ASIC as satisfying relevant criteria.

Paragraph 7.5A.30(2)(j) will enable ASIC to make determinations, on an ongoing basis, that a facility is prescribed for trade reporting purposes, including to facilitate substituted compliance by allowing trade reporting under a foreign regime rather than Australia's in cases where both an Australian and a foreign reporting obligation apply.

Item [5]

Item 5 of Schedule 1 inserts new subregulations 7.5A.30(2A) and 7.5A.30(2B) into the Corporations Regulations 2001.

Subregulation 7.5A.30(2A) provides that ASIC must not determine a facility under paragraph 7.5A.30(2)(j) unless it is satisfied of the determination criteria at paragraphs 7.5A.30(2A)(a) and 7.5A.30(2A)(b).

Under paragraph 7.5A.30(2A)(a), ASIC is required to be satisfied that either:  

•                 the facility has adopted rules, procedures or processes that substantially implement the CPSS-IOSCO Principles applicable to the regulation of derivative trade repositories; or

•                 the foreign jurisdiction concerned has adopted legislation, policies, standards or practices that substantially implement the CPSS-IOSCO Principles applicable to the regulation of derivative trade repositories.

Paragraph 7.5A.30(2A)(a) does not preclude ASIC from making a determination in circumstances where the foreign jurisdiction has adopted legislation, regulations, policies, standards or practices and the facility has adopted rules, procedures or processes that together substantially implement the CPSS-IOSCO Principles applicable to the regulation of derivative trade repositories.

Under paragraph 7.5A.30(2A)(b), ASIC is also required to be satisfied that adequate arrangements exist for cooperation between ASIC and an appropriate authority that is responsible for licensing, authorising or registering the facility as a derivative trade repository in the foreign jurisdiction.

Subregulation 7.5A.30(2A) does not preclude ASIC from taking into account other matters that it considers relevant in deciding whether to make a determination, including whether ASIC, the Reserve Bank of Australia or the Australian Prudential Regulation Authority has, or will have, adequate access to derivative trade data that has been reported to a prescribed derivative trade repository.

Subregulation 7.5A.30(2B) provides that a determination made by ASIC under paragraph 7.5A.30(2)(j) must be published by ASIC in the Gazette, and also declares that a determination made by ASIC is not a legislative instrument.

Item [6]

Item 6 of Schedule 1 replaces subregulation 7.5A.30(3) with a new subregulation 7.5A.30(3) and inserts new subregulation 7.5A.30(4) into the Corporations Regulations 2001. 

Subregulation 7.5A.30(3) provides a twelve month extension (to 30 June 2015) to the interim measure that allows derivative trade reporting prior to a derivative trade repository facility obtaining a domestic licence.  

The interim measure, provided under the Corporations Regulations 2001, prescribes a list of facilities that Australian reporting entities are able to report to under the derivative trade reporting rules. The prescription was due to expire on 30 June 2014, but will be extended to 30 June 2015.  

The twelve month extension also applies to UnaVista Limited.  

The extension to the interim measure provides certainty and continuity to commercial arrangements between Australian reporting entities and prescribed derivative trade repository facilities.  

Subregulation 7.5A.30(4) defines CPSS-IOSCO Principles as the principles for financial market infrastructures issued in April 2012 by the Committee on Payment and Settlement Systems (the CPSS) and the International Organization of Securities Commissions (the IOSCO), and as supplemented, superseded or modified from time to time by principles, recommendations or standards issued by the CPSS or IOSCO (or a successor of the CPSS or IOSCO).  

Schedule 2 - European regulatory authority access to derivative data

Item [1]

Item 1 of Schedule 2 inserts new subregulation 7.5A.150A, prescribing entities listed in Article 81(3)(a) to (e), (g), (h) and (j) of Regulation (EU) No 648/2012 of the European Parliament and the Council of the European Union, dated 4 July 2012, for the purposes of paragraph 904B(2)(d) of the Corporations Act. The Regulation provides for the following entities to request an Australian derivative trade repository licensee to provide derivative trade data retained in the repository: 

-             The European Securities and Markets Authority;

-             The European Systemic Risk Board;

-             European authorities supervising central counterparties through which reportable transactions were cleared;

-             European authorities supervising the trading venues on which the reportable transactions were executed;

-             Relevant members of the European System of Central Banks;

-             European supervisory authorities appointed under Article 4 of Directive 2004/25/EC of the European stipulates and of the Council on takeover bids;

-             Relevant securities and market authorities in the European Union; and

-             The European agency for the Cooperation of Energy Regulators.

Item 1 of Schedule 2 also inserts new subregulation 7.5A.150B including data access restrictions on the prescribed authorities under regulation 7.5A.150A. This is provided for under subsection 904B(4) of the Corporations Act, which provides that regulations may require that certain information must not be included in derivative trade data provided pursuant to requests, or a class of requests, under subsection 904B(2) of the Corporations Act. 

Subregulation 7.5A.150B(2) provides that the prescribed entities under subregulation 7.5A.150A can only access derivative data if the information is required to be reported under the Australian trade reporting regime, as described under paragraph 7.5A.150B(2)(a), and where subregulation 7.5A.150B(3) or 7.5A.150B(4) applies.

Subregulation 7.5A.150B(3) applies if derivative trade data is required to be reported under the EU trade reporting regime, but for mutual regulatory recognition arrangements, described under paragraphs 7.5A.150A(3)(a), 7.5A.150A(3)(b) and 7.5A.150B(3)(c).

Subregulation 7.5A.150B(4) applies if the information is not covered by subregulation 7.5A.150B(3) and relates to a European Union underlying asset, index, rate or currency.

Schedule 3 - Professional standards schemes

The overarching aim of professional standards schemes and liability caps is to maintain affordable levels of professional indemnity insurance, as well as to improve professional standards and consumer protection. 

Professionals who are members of approved schemes are provided with an incentive (capped liability) to lift their standards and better manage their risks through a requirement to hold adequate levels of insurance and undertake risk management practices and professional development.  Consumers are intended to benefit from schemes because they put downward pressure on insurance premiums, by limiting the liability of professionals and their insurers and, in the event of a claim, the prospects of recovery may be enhanced because the professional is required to hold insurance at levels that they otherwise may not have taken out in the absence of a scheme. 

Generally, civil liability claims against professionals are governed by State law.  All States have specific legislation which governs the prescription of professional standards schemes. 

Each State has established a council to assess and approve State scheme applications.  Each council has common membership and sits simultaneously; subsequently the councils are identified as one entity, the 'Professional Standards Council' (the Council). Occupational associations, for example barristers, make an application to the Council for approval of schemes. Once approved by the Council the schemes are published by the relevant State in their Government Gazette. 

The Regulation amends the Competition and Consumer Regulations 2010, to prescribe the following professional standards schemes:

•                 The Western Australian Bar Association Scheme;

•                 The Victorian Bar Professional Standards Scheme;

•                 The Law Society of Western Australia Scheme; and

•                 The Law Society of NSW Scheme.

The Regulation has the effect of limiting the occupational liability of members of the schemes relating to an action for contravention of section 18 of the Australian Consumer Law (schedule 2 to the CCA).

•                 Section 18 of the Australian Consumer Law (schedule 2 to the CCA) prohibits misleading and deceptive conduct by persons in trade or commerce.

The Regulation also amends the Australian Securities and Investments Commission Regulations 2001 and Corporations Regulations 2001 to prescribe the following professional standards schemes:

•                 The Western Australian Bar Association Scheme;

•                 The Victorian Bar Professional Standards Scheme; and

•                 The Law Society of Western Australia Scheme.

The Regulation has the effect of limiting the occupational liability of members of the schemes relating to an action for contravention of section 12DA of the ASIC Act which deals with misleading or deceptive conduct in relation to financial services and section 1041H of the Corporations Act which deals with market misconduct and other misconduct relating to financial products and financial services.

ATTACHMENT C

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Corporations Laws Amendment (2014 Measures No. 2) Regulation 2014

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The purpose of the Corporations Laws Amendment (2014 Measures No. 2) Regulation 2014 (the Regulation) is to: 

•                 extend interim derivative trade reporting arrangements by twelve months;

•                 put in place a mechanism to allow derivative trade reporting to ASIC-determined foreign derivative trade repositories;

•                 prescribes certain European Union authorities, under paragraph 904B(2)(d) of the Corporations Act 2001, to request access to derivatives data reported to Australian licensed trade repositories, with appropriate data access limits; and

•                 prescribe new professional standards schemes at the Commonwealth level.

Human rights implications

This Legislative Instrument does not engage any of the applicable human rights or freedoms.

A Statement of Compatibility with Human Rights in relation to the derivatives trade reporting regime generally is provided under Chapter 2 of the Explanatory Memorandum to the Corporations Legislation Amendment (Derivatives Transactions) Bill 2012.

Conclusion

This Legislative Instrument is compatible with human rights as it does not raise any human rights issues.

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