Banking (Foreign Exchange) Amendment Regulations 2002 (No. 1) 2002 No. 40
EXPLANATORY STATEMENT
Statutory Rules 2002 No. 40
Issued by the Parliamentary Secretary to the Treasurer
Banking Act 1959
Banking (Foreign Exchange) Amendment Regulations 2002 (No. 1)
Section 39 of the Banking Act 1959 provides that the Governor-General may make regulations in accordance with this section, where he considers it expedient to do so, for purposes related to, inter alia, foreign exchange or the foreign exchange resources of Australia.
The purpose of the Regulations is to amend Regulation 5 of the Banking (Foreign Exchange) Regulations to remove the power of the Reserve Bank of Australia (the Reserve Bank) to authorise certain activities relating to foreign currency (including buying and selling). Upon the commencement of the Financial Services Reform Act 2001, persons who buy and sell foreign currency, and whose activities constitute a financial services business, will come under the licensing regime of the Corporations Act 2001.
The amendments to Regulation 5 reflect the transfer of responsibility for authorising/licensing the buying and selling of foreign currency from the Reserve Bank to the Australian Securities and Investments Commission.
However, the Reserve Bank retains a power in substituted subregulations 5(1) to (4A) to direct a person not to engage in the activities mentioned in Regulation 5, so that it may retain control over dealings in foreign currency in order, for example, to enforce financial sanctions against particular countries or persons.
Under the transitional arrangements under Part 10.2 of the Corporations Act 2001, authorities to buy and sell foreign currency granted by the Reserve Bank to persons who will be subject to the new licensing regime will continue in force after the proposed Regulations take effect, until such time as the holder of the authority either obtains an Australian financial services licence, is exempted from the requirement to obtain a licence, ceases buying and selling foreign currency, or the two-year transitional period ends, whichever occurs first.
The Regulations are consequential on the reforms to the regulation of the financial services industry which are included in the Financial Services Reform Act 2001 and associated legislation. The Financial Services Reform Act 2001 amends the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001, and will provide, among other things, a single licensing regime for financial sales, advice and dealings in relation to financial products,
The Regulations commence at the same time as Item 1 of Schedule 1 to the Financial Services Reform Act 2001 commences - that is, the provisions which provide the new financial services regulatory regime. This Item has been proclaimed to commence on 11 March 2002.
Overview
The Banking (Foreign Exchange) Amendment Regulations 2002 (No. 1) were enacted to address the need for regulatory changes within Australia's financial services sector, particularly in relation to foreign exchange activities. This amendment to the Banking (Foreign Exchange) Regulations under the Banking Act 1959 was issued by the Parliamentary Secretary to the Treasurer, reflecting the legislative intent to streamline and modernise the regulatory framework as per the Financial Services Reform Act 2001. The primary objective of these Regulations is to shift the authority over certain foreign currency activities, such as buying and selling, from the Reserve Bank of Australia to the Australian Securities and Investments Commission, thereby aligning with the new licensing regime under the Corporations Act 2001. These amendments ensure a smooth transition by maintaining existing authorities granted by the Reserve Bank until the new licensing regime takes full effect, or until other specified conditions are met.
Scope and Application
The Banking (Foreign Exchange) Amendment Regulations 2002 (No. 1) applies to entities and individuals engaged in the buying and selling of foreign currency in Australia. Specifically, these Regulations amend the Banking (Foreign Exchange) Regulations to align with the broader financial services reforms introduced by the Financial Services Reform Act 2001. With the commencement of these reforms, the responsibility for authorising activities related to foreign currency shifts from the Reserve Bank of Australia to the Australian Securities and Investments Commission. This transition ensures that entities involved in foreign exchange as a financial services business will be subject to the licensing regime under the Corporations Act 2001. The Regulations also provide transitional arrangements, allowing existing authorities granted by the Reserve Bank to remain in effect until the entities either obtain a financial services licence, are exempted from the licensing requirement, cease their foreign exchange activities, or the two-year transitional period expires. The Reserve Bank retains certain powers to direct individuals not to engage in specified activities, thereby maintaining oversight over foreign currency dealings for purposes such as enforcing financial sanctions.
Key Provisions
The Banking (Foreign Exchange) Amendment Regulations 2002 (No. 1) primarily modify Regulation 5 of the Banking (Foreign Exchange) Regulations to align with the financial services reforms introduced by the Financial Services Reform Act 2001. These amendments reflect the shift in regulatory responsibility from the Reserve Bank of Australia (Reserve Bank) to the Australian Securities and Investments Commission (ASIC) for activities involving the buying and selling of foreign currency that constitute a financial services business. The amendments effectively remove the Reserve Bank’s authority to license these activities, which now fall under the licensing regime of the Corporations Act 2001.
In terms of specific obligations, the Regulations impose a transitional arrangement whereby any authorities granted by the Reserve Bank to persons engaged in foreign currency activities will remain valid until the individual either obtains an Australian financial services licence, is exempted from the need to obtain such a licence, ceases engaging in the activity, or the two-year transitional period concludes, whichever happens first. This ensures a smooth transition under the new regulatory framework while maintaining oversight over foreign currency transactions.
The Regulations also maintain the Reserve Bank’s ability to direct individuals not to engage in specified activities under substituted subregulations 5(1) to (4A). This power is retained to enable the Reserve Bank to enforce financial sanctions against particular countries or persons as part of its broader regulatory responsibilities. The Regulations therefore balance the shift in regulatory authority with the Reserve Bank’s ongoing control over significant financial transactions.
Regarding the consequences of non-compliance, while the Regulations themselves do not explicitly outline penalties, breaches of the Corporations Act 2001 or the Australian Securities and Investments Commission Act 2001, which now govern these activities, can result in both civil and criminal penalties. For instance, under the Corporations Act, individuals who engage in financial services activities without the required licence can face significant fines and imprisonment. The exact penalties can vary depending on the nature and severity of the breach, but they underscore the importance of adhering to the new regulatory requirements.