EXPLANATORY STATEMENT
Select Legislative Instrument 2010 No. 55
Issued by the authority of the Minister for Financial Services, Superannuation and Corporate Law
Corporations Act 2001
Corporations Amendment Regulations 2010 (No. 2)
Subsection 1364(1) of the Corporations Act 2001 (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 Banking Act 1959 and the Insurance Act 1973 were amended by the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 to put in place the Financial Claims Scheme (FCS). The FCS provides depositors in Australian-incorporated authorised deposit-taking institutions (ADIs) with a guarantee of their deposits to a threshold prescribed by regulations and provides compensation to eligible policy holders with claims against failed general insurers.
The Regulations amend the Corporations Regulations 2001 to require ADIs and general insurers to make certain disclosures to customers in relation to the FCS. By doing so, the Regulations implement the objective of informing investors and clients about the relationship between relevant banking and insurance products and the FCS.
Under the Corporations Agreement 2002, the State and Territory Governments referred their constitutional powers with respect to corporate regulation to the Commonwealth. Under subclauses 506(1) and 507(1) of the Corporations Agreement, the Commonwealth is required to consult with the Ministerial Council for Corporations (the Council) before making a regulation under the national law concerning registered schemes. The Commonwealth has consulted with the Council on the Regulations.
Under subclause 511(2), the Commonwealth is required to advise the Council on the public exposure of regulations concerning registered schemes. The Commonwealth has advised the Council of the public consultation on the Regulations.
Details of the Regulations are set out in the Attachment.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
Regulations 1 to 3 and Schedule 1 to the Regulations commence on 18 April 2010. Schedule 2 to the Regulations commence on 12 October 2011.
Schedule 1 contains a transitional regulation which ensures that relevant paragraphs of the Act do not require disclosure of the FCS in product disclosure statements (PDSs) prior to the commencement of Schedule 2. Schedule 2 provides details of the statements in relation to the FCS which must be included in PDSs at the expiry of the transitional period as well as other FCS disclosure related matters.
ATTACHMENT
Details of the Corporations Amendment Regulations 2010 (No. 2)
Regulation 1 – Name of Regulations
This regulation specifies the name of the Regulations as the Corporations Amendment Regulations 2010 (No. 2).
Regulation 2 – Commencement
This regulation provides that:
• regulations 1 to 3 and Schedule 1 commence on 18 April 2010; and,
• Schedule 2 commences on 12 October 2011.
Regulation 3 – Amendment of Corporations Regulations 2001
This regulation provides that Schedules 1 and 2 amend the Corporations Regulations 2001 (the Principal Regulations).
Schedule 1 ‑ Amendments commencing on 18 April 2010
Item [1] – Regulation 7.9.15CA
Item 1 ensures that paragraphs 1013D(1)(b) and (f) of the Corporations Act 2001 (the Act) do not require authorised deposit-taking institutions (ADIs) and general insurers to disclose details about the Financial Claims Scheme (the FCS) in Product Disclosure Statements (PDSs) in the period between 18 April 2010 and the date the amendments in Schedule 2 commence. Commencement of Schedule 2 on 12 October 2011 provides ADIs and general insurers with appropriate time to update their PDSs and systems in respect of disclosing the FCS.
Item 62 of Schedule 2 of the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Act 2008 provides that PDSs given before 18 April 2010 do not need to contain information about the FCS.
Schedule 2 ‑ Amendments commencing on 12 October 2011
Items [1] and [2] – Subparagraphs 7.7.20A(3)(c)(iii) and 7.7.20A(3)(d)
Items 1 and 2 amend rule 7.7.20A of the Principal Regulations to insert an additional statement to the information that is required to be provided to wholesale clients dealing with certain unauthorised insurers. In particular, such an insurer must provide a statement that the insurer cannot be a declared general insurer for the purpose of the FCS and that if the insurer becomes insolvent the wholesale client will not be covered by the FCS.
Item [3] – Regulation 7.9.07FA
Item 3 substitutes a new rule 7.9.07FA in place of the existing rule in the Principal Regulations.
The effect of the amendment is to add a further precondition that a regulated person must satisfy before obtaining an exemption from providing a PDS under the rule. In particular, if the product is a protected account under the Banking Act 1959 the regulated person must also have informed the client that the account-holder may be entitled to payment under the FCS, payments under the FCS are subject to a limit for each depositor and further information can be obtained from the APRA website or the APRA hotline.
It is not intended to mandate how the above information is provided. Rather, the intent is to provide flexibility to regulated persons to determine the form of communication which best suit the circumstances and needs of the customer.
Some minor and technical amendments have also been made to the existing elements of the substituted rule to improve its readability. These are not intended to affect the operation of the rule.
Item [4] – Regulation 7.9.14D
Item 4 inserts a new rule 7.9.14D into the Principal Regulations that require applicable PDSs issued by ADIs and general insurers to contain further statements regarding the FCS so that relevant consumers are made aware that they may be entitled to payment under the FCS, that the FCS is subject to eligibility criteria or limits as applicable, and that additional information about the FCS can be obtained from APRA.
The further statements which must be contained in the PDSs are:
• If the PDS relates to a protected policy – a statement that: the claimant may be entitled to payment under the FCS; access to the FCS is subject to eligibility criteria; and information about the scheme can be obtained from the APRA website or hotline.
• If the PDS relates to a protected account – a statement that: the account-holder may be entitled to payment under the FCS; payments under the FCS are subject to a limit for each depositor; and information about the FCS can be obtained from the APRA website or hotline.
Items [5] and [6] – Subparagraph 7.9.15(1)(c)(iii) and paragraph 7.9.15(1)(c)
Items 5 and 6 amend rule 7.9.15 of the Principal Regulations to insert an additional statement to the more detailed information that must be included in a PDS that relates to a financial product issued by an unauthorised foreign insurer. In particular, such an insurer must provide a statement that the insurer cannot be a declared general insurer for the purpose of the FCS and that if the insurer becomes insolvent that the person will not be covered by the FCS.
Item [7] – Schedule 10B, Part 1, item 12
Item 7 substitutes a new Schedule 10B, Part 1, item 12 in place of the existing item in the Principal Regulations.
Schedule 10B to the Principal Regulations details the form and content of a PDS for First Home Saver Account (FHSA) products.
The effect of the amendment is to require section 9 of a FHSA PDS to contain a statement that the account-holder may be entitled to payment under the FCS; payments under the FCS are subject to a limit for each depositor; and information about the scheme can be obtained from the APRA website or the APRA hotline.
Item 7 also inserts a requirement into Schedule 10B, Part 1, item 12 of the Principal Regulations that the heading to section 9 of a FHSA PDS must be relevant to its content.