EXPLANATORY STATEMENT
STATUTORY RULES 1988 NO. 263
ISSUED BY THE AUTHORITY OF THE MINISTER OF STATE FOR JUSTICE FOR AND ON BEHALF OF THE ATTORNEY-GENERAL
SECURITIES INDUSTRY REGULATIONS (AMENDMENT)
Section 150 of the Securities Industry Act 1980 (the Act) provides in subsection (1) that the Governor-General may make regulations, not inconsistent with the Act, prescribing all 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. Subsection 150(5) of the Act provides that the power of the Governor-General to make regulations shall be exercised only in accordance with advice that is consistent with resolutions of the Ministerial Council for Companies and Securities (the Council).
2. The Council was established under an agreement between the Commonwealth and the States, executed on 22 December 1978, (the agreement) that provides the framework for a co-operative Commonwealth-State scheme for a uniform system of law and administration in relation to company law and the regulation of the securities industry in the six States and the Australian Capital Territory. The Northern Territory became a party to the agreement in 1986.
3. Under subclause 45(1) of the agreement, the Council may consider a proposal for the amendment of regulations made under the Commonwealth Acts enacted for the purpose of the co-operative companies and securities scheme. Should the Council approve any draft amending regulation which gives effect to such a proposal, the Commonwealth is then required,
under subclause 45(2) of the agreement, to submit the draft regulation to the Federal Executive Council for making by the Governor-General.
4. The Council has resolved that the accompanying regulations should be made under the Act.
5. The purpose of the accompanying regulations is to amend regulation 2 of the Securities Industry Regulations (SIRs) by inserting definitions of ‘franchise’ and ‘mark’.
6. These definitions are relevant to regulation 5A of the SIRs which provides that for the purposes of the definition of ‘prescribed interest’ in subsection 4(1) of the Act, any right to participate, or any interest, as franchisee in a franchise is declared to be an exempt right or interest. The effect of regulation 5A is that any offer to the public of any franchise right or interest is not subject to the licensing provisions of the Act. In the absence of regulation 5A any promoter of a franchise scheme that was a ‘prescribed interest’ would be required to hold a dealers licence under section 43 of the Act.
7. The new definitions in the accompanying regulations will give guidance to the business community as to what arrangements are exempted as franchises.
Overview
The Securities Industry Regulations (Amendment) Statutory Rules 1988, issued under the authority of the Minister of State for Justice on behalf of the Attorney-General, were enacted to address a gap in the Securities Industry Act 1980 by providing clearer definitions of terms such as 'franchise' and'mark'. These regulations were introduced to ensure that the business community has a better understanding of which arrangements are exempted as franchises under the Act, thereby avoiding unnecessary licensing requirements for certain franchise schemes. The Ministerial Council for Companies and Securities, established under an agreement between the Commonwealth and the States, approved the draft amending regulations, which were then submitted to the Federal Executive Council for making by the Governor-General. The policy objective of these regulations is to streamline the regulatory framework and provide clarity for businesses involved in franchise offerings.
Scope and Application
The Securities Industry Regulations (Amendment) Statutory Rules 1988 pertain to the Securities Industry Act 1980, which applies to entities and persons involved in the securities industry across Australia. The Act is part of a cooperative scheme between the Commonwealth and the states and territories for the uniform regulation of company law and the securities industry. The regulations amend the Securities Industry Regulations by inserting definitions for the terms 'franchise' and'mark'. These definitions are pertinent to Regulation 5A, which exempts certain franchise rights and interests from the licensing requirements stipulated in the Securities Industry Act. This amendment ensures that any public offering of franchise rights or interests does not require a dealers licence under the Act. The purpose of these regulations is to provide clarity to the business community regarding the exemptions for franchise arrangements. The regulations apply across all jurisdictions participating in the cooperative scheme, which includes all states and territories of Australia. There are no explicit exclusions or thresholds stated in the explanatory statement, and the application of the Act and these regulations is subject to the resolutions of the Ministerial Council for Companies and Securities.
Key Provisions
The key operative sections of the Securities Industry Regulations (Amendment) provide definitions for the terms "franchise" and "mark" as inserted in regulation 2 of the Securities Industry Regulations (SIRs). According to regulation 5A, these definitions clarify that any right or interest as a franchisee in a franchise is an exempt right or interest, thereby exempting offers of franchise rights or interests from the licensing provisions of the Securities Industry Act 1980 (section 4(1)). These definitions are critical for businesses involved in franchising to understand which arrangements are exempt from the requirement of holding a dealer’s licence under section 43 of the Act.
The Securities Industry Regulations (Amendment) imposes certain obligations on businesses engaging in franchising activities. Specifically, these regulations require that any offer to the public of franchise rights or interests must align with the definitions of "franchise" and "mark" provided in the amended SIRs. This ensures that businesses are aware of which franchising arrangements are exempt from needing a dealer’s licence. Additionally, the amendments necessitate that any promotional activities or offers concerning franchise rights must be conducted in accordance with these definitions to avoid falling under the licensing requirements of the Act.
In the event of a breach of the Securities Industry Regulations (Amendment), there may be significant civil and criminal consequences. While the specific offences and penalties are not detailed in the Explanatory Statement, breaches of securities regulations typically attract substantial fines and, in severe cases, imprisonment. For example, under the Securities Industry Act 1980, a person who contravenes a regulation may face fines up to $1,260,000 for a corporation and $252,000 for an individual, along with potential imprisonment terms. Additionally, the Australian Securities and Investments Commission (ASIC) has the authority to seek court orders for restitution or compensation for any loss or damage caused by the breach.
The regulations also establish a framework for the Council to review and approve any draft amending regulations, ensuring that any changes align with the broader objectives of the Securities Industry Act 1980 and the cooperative scheme between the Commonwealth and the States. This structured approach aims to maintain consistency and uniformity across the various jurisdictions involved in the securities industry regulation.