EXPLANATORY STATEMENT for
ASIC Corporations (Repeal) Instrument 2016/970
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (Repeal) Instrument 2016/970 under paragraph 926A(2)(c) of the Corporations Act 2001 (the Act).
Paragraph 926A(2)(c) provides that ASIC may declare that provisions of Pt 7.6 (except for Divs 4 and 8) apply in relation to a person or class of persons as if specified provisions were omitted, modified or varied as specified.
Under subsection 33(3) of the Acts Interpretation Act 1901 (as in force as at 1 January 2005 and as applicable to the relevant powers because of section 5C of the Act), where an Act confers a power to make, grant or issue any instrument (including rules, regulations or by-laws), the power shall be construed as including a power exercisable in the like manner and subject to the like conditions (if any) to repeal, rescind, revoke, amend, or vary any such instrument.
- Background
Subsection 912B(1) requires a financial services licensee who provides financial services to persons as retail clients to have in place arrangements to compensate those persons for loss or damage suffered because of breaches of obligations under Ch 7 of the Act.
Under s912B(2), the arrangements must:
(a) if the regulations specify requirements that are applicable to all arrangements, satisfy those requirements; or
(b) be approved in writing by ASIC.
Section 912B was introduced by the Financial Services Reform Act 2001 (FSR Act) but did not take immediate effect. Regulation 10.2.44(1) of the Corporations Regulations 2001 (the Regulations) deferred the application of s912B until 11 March 2004, in order to allow the Government time to consult on the issue of compensation arrangements and to finalise regulations under s912B.
ASIC made Class Order [CO 06/495] as a transitional measure to defer the commencement of the operation of s912B to give the Government more time to consult and consider a compensation regime: see reg 7.6.02AA and [CO 06/495]. Regulation 7.6.02AA was due to expire on 30 June 2006 but as a result of amendments to [CO 06/495] the transitional compensation arrangements continued to apply until 30 June 2007.
After a review of possible compensation arrangements and public consultation, the Government inserted a new reg 7.6.02AAA into the Regulations. It commenced on 1 July 2007, at the same time as section 912B. As such, [CO 06/495] did not need to be extended past 30 June 2007, meaning it ceased to have effect after that date.
2. Purpose of the instrument
The purpose of the ASIC Corporations (Repeal) Instrument 2016/970 is to repeal ASIC Class Order [CO 06/495].
ASIC Class Order [CO 06/495] no longer serves a regulatory purpose. ASIC will repeal instruments rather than allow them to sunset so that industry is certain of our intentions and confident that, where instruments are removed, this was our intention.
3. Operation of the instrument
ASIC Corporations (Repeal) Instrument 2016/970 repeals [CO 06/495] as it no longer forms a necessary and useful part of the regulatory framework.
4. Consultation
ASIC did not undertake any specific consultation with stakeholders before ASIC Corporations (Repeal) Instrument 2016/970 was made because it is of a minor and machinery nature.
Overview
The ASIC Corporations (Repeal) Instrument 2016/970 was enacted by the Australian Securities and Investments Commission (ASIC) under the Corporations Act 2001. This instrument repeals ASIC Class Order [CO 06/495], which was previously used as a transitional measure to defer the commencement of the operation of section 912B. Section 912B of the Act, introduced by the Financial Services Reform Act 2001, requires financial services licensees to have in place arrangements to compensate retail clients for losses due to breaches of obligations. The repeal of [CO 06/495] was necessary because it no longer served a regulatory purpose and ASIC's policy is to repeal instruments rather than allow them to sunset, ensuring clarity and certainty for the industry. The instrument was made without specific stakeholder consultation as it is considered minor and of a machinery nature.
Scope and Application
The ASIC Corporations (Repeal) Instrument 2016/970 applies to financial services licensees who provide services to retail clients under the Corporations Act 2001. This legislation is instrumental in ensuring that financial services licensees have appropriate compensation arrangements for losses incurred by retail clients due to breaches of the Act. The repeal of ASIC Class Order [CO 06/495] clarifies the regulatory framework by removing outdated or redundant provisions, thereby maintaining a coherent and effective set of rules for the industry. The instrument does not specify any exclusions or exemptions but effectively streamlines the legislative environment by eliminating superseded or unnecessary regulations. The geographic reach of this Act is national, applying across Australia, as it pertains to the Corporations Act 2001, which has a broad jurisdictional scope.
Key Provisions
The ASIC Corporations (Repeal) Instrument 2016/970, made under the Corporations Act 2001, focuses on the repeal of ASIC Class Order [CO 06/495], which previously deferred the application of section 912B concerning compensation arrangements for retail clients (sections 1-4). Section 912B mandates that financial services licensees must have arrangements in place to compensate retail clients for any loss or damage due to breaches of certain obligations under the Act. These arrangements must either meet the regulatory requirements specified in the Corporations Regulations 2001 or be approved by ASIC. The repeal of [CO 06/495] signifies that the transitional period for these compensation arrangements has ended, and the permanent requirements under section 912B are now in full effect.
Entities governed by the Corporations Act 2001, particularly financial services licensees, are required to ensure they have established adequate compensation arrangements for retail clients as per section 912B. These arrangements must be designed to address any losses or damages resulting from breaches of obligations under Chapter 7 of the Act. Financial services licensees must either adhere to the specific requirements outlined in the Corporations Regulations 2001 or seek ASIC’s approval for their compensation arrangements. Failure to comply with these provisions can result in regulatory scrutiny and potential enforcement actions.
The Act does not explicitly outline specific offences, penalties, or civil/criminal consequences for non-compliance with the repealed [CO 06/495] or section 912B. However, non-compliance with the Corporations Act 2001 or its regulations can lead to various enforcement actions by ASIC. These may include administrative penalties, financial penalties, and, in severe cases, prosecution for civil or criminal offences. The penalties for breaches of the Act can vary significantly depending on the nature and severity of the breach, but they can include substantial fines and, in cases of criminal offences, imprisonment for individuals. The precise penalties are not detailed in the repealed instrument but are governed by the broader regulatory framework established under the Corporations Act 2001.