Corporations Amendment Regulation 2012 (No. 8)

Administered by Department of the Treasury

Legislation au F2012L01989 Regulations Not in force Legislative Instrument

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EXPLANATORY STATEMENT

 

Select Legislative Instrument 2012 No. 234

 

Issued by authority of the Minister for Financial Services and Superannuation

Corporations Act 2001

Corporations Amendment Regulation 2012 (No. 8)

The Corporations Act 2001 (the Act) provides for the regulation of corporations, financial markets, and products and services, including in relation to licensing, conduct, financial product advice and disclosure.

Subsection 1364(1) of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The Corporations Amendment Regulation 2012 (No. 8) (the Regulation) amends the Corporations Regulations 2001 (the Principal Regulations).  The amendment is in respect of the provisions in Part 10.18 of the Act, which govern the application of the ban on conflicted remuneration in Division 4 of Part 7.7A of the Act.

Specifically, the amendment to the Principal Regulations provides for the ‘grandfathering’ of conflicted remuneration given by platform operators.

Details of the Regulation are set out in Attachment A.

The Regulation is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

The Act does not specify any conditions that need to be satisfied before the power to make the Regulation may be exercised.

The Government consulted relevant stakeholders before developing this Regulation.  It announced its intentions with respect to the grandfathering of payments made by platform operators on 29 August 2011.  The Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, introduced to the House of Representatives on 24 November 2011, included provisions relating to grandfathering, and the Explanatory Memorandum to the Bill foreshadowed the making of these Regulations.  The Government has noted the submissions of stakeholders, on this aspect of the legislation, made both to the Government in response to the consultation draft Bill, and to the Parliamentary Joint Committee on Corporations and Financial Services in its inquiry into the Bill.  It has conducted targeted consultations with key stakeholders in the financial services industry.

The Regulation commences on the day after it is registered.

Statement of Compatibility with Human Rights

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

Corporations Amendment Regulation 2012 (No. 8)

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 Legislative Instrument is to support the measures introduced by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012, specifically the grandfathering of certain contractual rights with respect to the ban on conflicted remuneration.

Human rights implications

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

Conclusion

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

 


ATTACHMENT A

Details of the Corporations Amendment Regulation 2012 (No. 8)

Section 1 – Name of Regulation

Section 1 provides that the name of the Regulation is the Corporations Amendment Regulation 2012 (No. 8).

Section 2 – Commencement

Section 2 provides that the Regulation commences on the day after it is registered.

Section 3 – Amendment of Corporations Regulations 2001

Section 3 provides that the Corporations Regulations 2001 (the Principal Regulations) are amended as provided for in Schedule 1 to the Regulation.

Schedule 1 – Amendment

Item [1]

Division 4 of Part 7.7A of the Corporations Act 2001 (the Act) provides for a ban on conflicted remuneration.

Conflicted remuneration is defined by section 963A of the Act as any benefit given to a financial services licensee (or a representative of a licensee) that, because of the nature of the benefit or the circumstances in which it is given, could reasonably be expected to influence the choice of financial product recommended, or the financial product advice given, to retail clients by the licensee or representative.  There are certain exclusions from the definition of conflicted remuneration, which are set out in sections 963B to 963D.  Subdivision C of Division 4 provides that licensees and representatives must not accept conflicted remuneration, and employers and product issuers must not give it.  Chapter 2 of the Revised Explanatory Memorandum to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 provides an explanation of the conflicted remuneration provisions.

Part 10.18 of the Act includes transitional provisions relating to the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012, which is the Act which introduces the ban on conflicted remuneration.  Subsection 1528(1) of the Act provides that, subject to subsection 1528(2), the obligations in Division 4 of Part 7.7A do not apply to benefits given to a licensee or representative if:

•                 the benefit is given under an arrangement entered into before the application day; and

•                 the benefit is not given by a platform operator.

Subsection 1528(2) provides that regulations may prescribe circumstances in which the ban on conflicted remuneration applies, or does not apply, to a benefit given to a licensee or representative.

Item [1] inserts regulation 7.7A.16 into the Principal Regulations for the purposes of subsection 1528(2) of the Act.

Regulation 7.7A.16

Regulation 7.7A.16 sets out a circumstance in which a benefit will be ‘grandfathered’ with respect to the ban on conflicted remuneration (that is, a circumstance in which Division 4 of Part 7.7A of the Act does not apply to a benefit).

Subregulation 7.7A.16(2) provides that Division 4 of Part 7.7A does not apply to a benefit given by a platform operator under an arrangement entered into before the application day.  This means that payments made by platform operators under arrangements entered into before the application day may continue to be paid after that day, even if the payment is conflicted remuneration.  In other words, benefits given by a platform operator under existing arrangements are ‘grandfathered’.

In this regulation, ‘application day’ has the meaning given by subsection 1528(4) of the Act.  That subsection provides that the application day is the earlier of 1 July 2013 or the day specified in a notice lodged with the Australian Securities and Investments Commission indicating that the obligations and prohibitions imposed under Part 7.7A of the Act are to apply to a person.  This reflects the transitional arrangements for the Future of Financial Advice reforms, under which compliance becomes mandatory on 1 July 2013, but persons can formally elect to comply with the measures at an earlier date.  The effect of the regulation is that benefits given under an arrangement entered into before a person is bound by the ban on conflicted remuneration are grandfathered with respect to that ban.

In this regulation, ‘platform operator’ has the meaning given by section 1526 of the Act.  A platform operator is defined in that section as a financial services licensee or ‘RSE licensee’ (as defined in the Superannuation Industry (Supervision) Act 1993 (‘SIS Act’)) that offers to be the provider of a custodial arrangement.  ‘Custodial arrangement’ is defined in the existing section 1012IA of the Corporations Act; broadly, it is an arrangement where the client may instruct the platform to acquire certain financial products, and the products are then either held on trust for the client, or the client retains some interest in the product.  Under this definition, it is taken to include arrangements where the client may direct the platform to follow an investment strategy of the kind mentioned in the SIS Act.

Regulation 7.7A.16 implements the same grandfathering arrangements for benefits given by a platform operator as are already in place for benefits given by persons other than platform operators under section 1528 of the Act.  This means that benefits given by any person, including a platform operator, under any arrangement entered into before the application day will not be subject to the ban on conflicted remuneration.  All benefits given under any arrangement entered into on or after the application day will be subject to the ban.

Overview

The Corporations Amendment Regulation 2012 (No. 8) was introduced to amend the Corporations Regulations 2001, addressing the transitional provisions for the ban on conflicted remuneration under the Corporations Act 2001. Enacted by the Parliament of Australia, this regulation was designed to ensure a smooth transition for the financial services industry in compliance with the new legislative measures introduced by the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012. The primary objective of this amendment is to allow existing contractual arrangements to continue without immediate disruption by grandfathering certain conflicted remuneration payments made by platform operators before the application day. This approach aims to provide stability and clarity to stakeholders as they adjust to the new regulatory environment. The regulation was developed after consultations with relevant industry stakeholders and was announced by the Government on 29 August 2011. It was further detailed in the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012, which was introduced to the House of Representatives on 24 November 2011. The Government ensured compatibility with human rights, confirming that the regulation does not engage any applicable rights or freedoms under the international instruments listed in the Human Rights (Parliamentary Scrutiny) Act 2011. The regulation commenced on the day after it was registered, aligning with the transitional arrangements set for 1 July 2013, or an earlier date if specified by a notice lodged with the Australian Securities and Investments Commission.

Scope and Application

The Corporations Amendment Regulation 2012 (No. 8) amends the Corporations Regulations 2001, impacting the application of the ban on conflicted remuneration stipulated in Part 10.18 of the Corporations Act 2001. This regulation applies to all financial services licensees and representatives, including those who are platform operators as defined under section 1526 of the Corporations Act. It ensures that benefits given under arrangements entered into before a specified application day are 'grandfathered' and not subject to the conflicted remuneration ban, regardless of whether they are provided by a platform operator or another entity. The geographic reach of this legislation is national, applying across Australia in accordance with the federal nature of the Corporations Act. The regulation does not specify exclusions or thresholds but focuses on the transitional arrangements for the Future of Financial Advice reforms, with compliance becoming mandatory on 1 July 2013. This regulation extends the application of the Act by providing detailed transitional provisions that ensure certain contractual rights are preserved for existing arrangements.

Key Provisions

The Corporations Amendment Regulation 2012 (No. 8) primarily serves to amend the Corporations Regulations 2001, particularly in relation to the ban on conflicted remuneration under the Corporations Act 2001. Specifically, section 3 of the Regulation amends the Corporations Regulations 2001 to include regulation 7.7A.16. This regulation provides for the 'grandfathering' of certain benefits given by platform operators, meaning that these benefits will not be subject to the ban on conflicted remuneration if they were provided under an arrangement entered into before the application day. This grandfathering provision is consistent with the transitional arrangements for the Future of Financial Advice reforms, which allow for compliance with new obligations to be initiated at an earlier date than the mandatory compliance date of 1 July 2013. The application day, as defined in subsection 1528(4) of the Corporations Act 2001, is the earlier of 1 July 2013 or the day specified in a notice lodged with the Australian Securities and Investments Commission. Under the Regulation, both platform operators and other entities must ensure that any benefits given under existing arrangements, entered into before the application day, are not subject to the conflicted remuneration ban. This includes verifying that the arrangements were indeed in place prior to the application day and confirming that the benefits provided are covered by the grandfathering provision. Furthermore, entities must maintain records and documentation that substantiate compliance with the grandfathering arrangements to demonstrate adherence to the regulatory requirements. Breach of the conflicted remuneration ban can result in significant penalties. Under the Corporations Act 2001, entities found to be in breach of the ban on conflicted remuneration can face substantial civil penalties. For example, section 1317E of the Act stipulates that the penalty for contravening a civil penalty provision is a fine of up to $210,000 for a corporation and up to $42,000 for an individual. Additionally, the courts may order the recovery of any benefit received as a result of the contravention. Furthermore, ongoing non-compliance could lead to further legal actions, including injunctions and the imposition of additional penalties. In summary, the Corporations Amendment Regulation 2012 (No. 8) provides specific transitional arrangements for the ban on conflicted remuneration, ensuring that benefits given by platform operators under existing arrangements are grandfathered. Entities governed by these regulations must ensure compliance by verifying the timing of the arrangements and maintaining appropriate documentation. Failure to adhere to these requirements can result in significant civil penalties, underscoring the importance of careful compliance and record-keeping.

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