Australian Securities and Investments Commission
Corporations Regulations 2001 — Subregulation 7.9.15B(1) — Determination
1. Under subregulation 7.9.15B(1) of the Corporations Regulations 2001 the Australian Securities and Investments Commission determines for the avoidance of doubt that it is not possible to state in a Product Disclosure Statement information to be disclosed in accordance with paragraph 1013D(1)(b) of the Corporations Act 2001 (the Act) as an amount in dollars where the information is the amount of interest payable to a holder of a deposit product and that amount is to be worked out by applying a percentage to the amount standing to the credit of the facility that is the deposit product from time to time.
Note: The application of this determination may be limited. In many circumstances, subsection 1013C(2) and section 1013F of the Act may have the effect that interest as an amount in dollars need not be disclosed in the Product Disclosure Statement. Nonetheless, in those cases, paragraph 1013D(1)(b) of the Act is likely to have the effect that a description of how interest is to be calculated must be included in the Statement.
Interpretation
2. In this instrument deposit product has the meaning given by section 761A of the Act.
Dated this 8th day of December 2004
Signed by Brendan Byrne
as a delegate of the Australian Securities and Investments Commission
Overview
The Australian Securities and Investments Commission Corporations Regulations 2001, amended by the legislative instrument F2007B00381, aims to clarify the disclosure requirements for interest on deposit products within Product Disclosure Statements (PDS). Enacted by the Australian Securities and Investments Commission (ASIC) as a delegate, this regulation responds to the need for precise communication regarding interest calculations in financial products. The regulation specifically addresses the complexity of expressing interest payable on deposit products as a dollar amount in PDS, emphasising that such interest is often determined by applying a percentage to the credit amount of the deposit product. This determination is made to avoid any ambiguity in compliance with the Corporations Act 2001, ensuring that while the exact dollar amount of interest may not be explicitly stated, a clear description of the interest calculation method must still be provided in the PDS. This approach aligns with the overarching policy objective of enhancing transparency and consumer protection in financial dealings.
Scope and Application
The Australian Securities and Investments Commission Corporations Regulations 2001, under subregulation 7.9.15B(1), clarifies the scope and application of the Corporations Act 2001 concerning the disclosure of interest amounts for deposit products in Product Disclosure Statements (PDS). This legislative instrument applies to entities that issue deposit products, such as financial institutions and banks, and mandates that the interest payable on these products cannot be disclosed as a fixed dollar amount in the PDS. Instead, the interest must be described as being calculated by applying a percentage to the credit balance of the deposit facility over time. This provision ensures that PDS provide a clear and accurate method of calculating interest, preventing misleading fixed-rate disclosures. The geographic reach of this regulation is nationwide, applying to all entities within Australia, regardless of state or territory, as it pertains to federal legislation. However, certain exclusions may apply where other sections of the Act, such as subsection 1013C(2) and section 1013F, exempt entities from disclosing a specific dollar amount for interest under particular circumstances, although a description of the interest calculation method must still be included.
Key Provisions
The Australian Securities and Investments Commission (ASIC) has issued a determination under subregulation 7.9.15B(1) of the Corporations Regulations 2001, clarifying that it is not feasible to specify the exact dollar amount of interest payable on a deposit product in a Product Disclosure Statement (PDS). This is because the interest amount is calculated by applying a percentage to the credit balance of the deposit product, which can vary over time (subreg. 7.9.15B(1)). Instead, the PDS must include a description of how the interest is calculated, as mandated by paragraph 1013D(1)(b) of the Corporations Act 2001 (the Act) (s. 1013D(1)(b)). The term 'deposit product' is defined under section 761A of the Act (s. 761A).
The obligations imposed by this determination on financial institutions include ensuring that their PDSs do not attempt to provide a fixed dollar amount for interest payable on deposit products. Instead, they must detail the methodology for calculating interest, such as the applicable percentage and how it is applied to the credit balance (subreg. 7.9.15B(1)). This requirement aims to maintain transparency and prevent misleading representations regarding the interest on deposit products. Financial institutions must also adhere to other provisions of the Act, such as subsection 1013C(2) and section 1013F, which may exempt them from disclosing a specific interest amount in certain scenarios, while still requiring a description of the interest calculation method (s. 1013C(2); s. 1013F).
Failure to comply with the requirements set out in this determination and the Act may result in civil or criminal penalties. The penalties for non-compliance with the Corporations Act can include fines and imprisonment. For corporations, the maximum penalties can be substantial, with fines up to $1.65 million for serious breaches (s. 1311(1)). Individual officers and employees may also face personal fines and imprisonment, depending on the severity of the breach. It is crucial for financial institutions to ensure their PDSs accurately reflect the interest calculation methods as required by law to avoid potential legal consequences.