House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Human Services Minister for Financial Services, Superannuation and Corporate Law the Hon Chris Bowen MP)

Chapter 5 - Administration

Outline of chapter

5.1 Chapter 5 of this explanatory memorandum outlines the administrative measures established in the National Consumer Credit Protection Bill 2009 (Credit Bill). These measures provide the Australian Securities and Investments Commission (ASIC) with the ability to perform elements of its role as the national regulator of consumer credit. Chapter 5 also outlines the effects of the imposition of certain fees under the National Consumer Credit Protection (Fees) Bill 2009 (Fees Bill).

5.2 The key elements of ASIC's role as detailed in this chapter are:

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the requirement to create and maintain registers relating to credit activities and documents lodged with it under the Credit Bill, and the inspection and public availability of those registers;

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ASIC's ability to deal with documents submitted for lodgment with it under the Credit Bill;

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requirements relating to the concealment or falsification of credit books; and

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the effect of payment of fees under the Fees Bill.

5.3 These provisions are designed to allow ASIC to have sufficient administrative powers for the efficient operation of the legislative scheme.

Summary of new law

5.4 The content of the administrative provisions in Chapter 5 of the Credit Bill include (but are not limited to) the following:

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ASIC's creation and maintenance of registers relating to credit activities and documents lodged with it under the Credit Bill;

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documents lodged with ASIC, approved forms and details relating to how these documents may need to be lodged with ASIC, or when ASIC may refuse to receive them;

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matters relating to documents lodged with ASIC;

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offences relating to:

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the concealing or falsification of credit books; and

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obstructing or hindering ASIC;

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details regarding the effect of fees payable to the Commonwealth under the Fees Bill; and

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administrative matters relating to functions of ASIC.

Detailed explanation of new law

Part 5-1 - Registers relating to credit activities

Division 1 - Introduction

5.5 Part 5-1 deals with registers relating to credit activities that must be established and maintained by ASIC. [Part 5-1, Division 1, section 212]

Division 2 - Registers relating to credit activities

5.6 Division 2 requires ASIC to establish and maintain one or more registers relating to credit activities. It also deals with how those registers are to be maintained, and the inspection and public availability of those registers.

5.7 As part of ASIC's role as the national regulator of the Australian credit regime, ASIC must establish and maintain one or more registers relating to credit activities. [Part 5-1, Division 2, subsection 213(1)]

5.8 Regulations may prescribe the way in which ASIC's credit register can be established and maintained. These may include details that ASIC must enter in the credit registers in relation to:

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persons, including licensees and their credit representatives;

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those persons registered to engage in credit activities and their credit representatives;

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persons banned or disqualified from engaging in a credit activity under State or Territory law or under an order made under Part 2-4 (Part 2-4 is about the banning or disqualification of persons from engaging in credit activities); and

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any other persons prescribed by the regulations.

[Part 5-1, Division 2, subsection 213(2)]

5.9 ASIC's credit register may be maintained in electronic form and may be maintained as part of, or together with any register in relation to financial services maintained under section 922A of the Corporations Act 2001 (Corporations Act). [Part 5-1, Division 2, subsection 213(3)]

5.10 ASIC registers are not a legislative instrument. This statement is merely declaratory of the law, consistent with section 5 of the Legislative Instruments Act 2003. [Part 5-1, Division 2, subsection 213(4)]

5.11 A person may inspect, make copies of or take extracts from the credit registers that ASIC may make available to the public on its own website or by other means. [Part 5-1, Division 2, section 214]

Part 5-2 - Documents lodged with ASIC or required by the Credit Bill

Division 1 - Introduction

5.12 Part 5-2 deals with the lodging of documents with ASIC. It also has offences related to making false statements in documents. [Part 5-2, Division 1, section 215]

Division 2 - Lodgment of documents with ASIC

5.13 Division 2 deals with how documents should be lodged with ASIC, approved forms, and ASIC's power to refuse to receive documents submitted for lodgment.

5.14 In order to maintain its registers and perform its functions under the Credit Bill, ASIC can require information be provided to it. This may be done through the lodgment of certain documents.

5.15 A document required to be lodged with ASIC under the Credit Bill is considered to be lodged if it is transmitted to ASIC by an electronic format approved by ASIC. ASIC is also able to approve another (non-electronic) manner for lodgment of a document if, for example, a person has no access to a computer. If ASIC refuses to receive a document submitted for lodgment, that document is considered as having not been lodged with ASIC. [Part 5-2, Division 2, section 216]

5.16 If a document is lodged with ASIC, then any other material that is lodged with the document as required by the Credit Bill or an approved form is taken to be included in that document. [Part 5-2, Division 2, subsection 216(3)]

5.17 If ASIC has approved a form for a particular document (for example, the Australian credit licence application form), the document must be submitted to ASIC in the approved form; include the information statements or any other matters required by that form; and be accompanied by any other material required by the form. [Part 5-2, Division 2, section 217]

5.18 ASIC may refuse to receive a document submitted to it for lodgment if ASIC considers the document contains a matter contrary to law, is false or misleading, incomplete or contains an error, alteration or erasure. [Part 5-2, Division 2, subsection 218(1)]

5.19 ASIC may request that a refused document be amended or completed and resubmitted, or that a fresh document be submitted in its place, or that an incomplete document have a supplementary document lodged. [Part 5-2, Division 2, subsection 218(2)]

5.20 ASIC may give written notice to a person who submits a document for lodgment to give ASIC any other document or information ASIC considers necessary to form an opinion whether it should refuse the person's lodged document. [Part 5-2, Division 2, subsection 218(3)]

5.21 ASIC's written notice must specify the day the person must comply with the notice. The time ASIC gives for the person to comply must be a reasonable time after the notice is given. ASIC may also extend the day by giving a written notice to the person. [Part 5-2, Division 2, subsection 218(4)]

5.22 A person must comply with a written notice from ASIC. The civil penalty for non-compliance is a maximum of 2,000 penalty units [Part 5-2, Division 2, subsection 218(5)]. The criminal penalty for non-compliance is a maximum of 50 penalty units or 1 year imprisonment, or both and is consistent with section 1274 of the Corporations Act. [Part 5-2, Division 2, subsections 218(5) and (6)]

5.23 The offence is strict liability. Strict liability will significantly enhance the role of ASIC in administering the enforcement regime. [Part 5-2, Division 2, subsections 218(5), (6) and (7)]

Division 3 - ASIC's register of documents

5.24 Division 3 deals with ASIC's register of documents that have been lodged with it.

5.25 To facilitate ASIC's role as the regulator of the Australian credit regime, ASIC may establish and maintain one or more document registers in any form ASIC considers appropriate. [Part 5-2, Division 3, subsections 219(1) and (2)]

5.26 ASIC document registers may be maintained in an electronic form. [Part 5-2, Division 3, subsection 219(3)]

5.27 ASIC is not required to make any part of a document register public, nor is it required to permit any person to inspect or make copies of, or take extracts from a document register. [Part 5-2, Division 3, subsection 219(4)]

5.28 An ASIC document register is not a legislative instrument. This statement is merely declaratory of the law, consistent with section 5 of the Legislative Instruments Act 2003. [Part 5-2, Division 3, subsection 219(5)]

5.29 Where information about a person is included in a document register, ASIC may give that person a written notice requiring them to give ASIC information about themselves, being information of the kind included on the document register. For example, where the information included in the register is a business address, the person can be given a written notice requiring them to give ASIC information about their current business address. The notice must specify the day that the person must comply with the notice. This must be a reasonable period after the notice is given by ASIC. [Part 5-2, Division 3, subsections 220(1) and (2)]

5.30 A person must comply with a written notice from ASIC. The civil penalty for non-compliance is a maximum of 2,000 penalty units [Part 5-2, Division 3, subsection 220(3)]. The criminal penalty for non-compliance is a maximum of 50 penalty units or 1 year imprisonment, or both and is consistent with section 1274 of the Corporations Act. [Part 5-2, Division 3, subsection 220(4)]

5.31 The offence is strict liability. Strict liability will significantly enhance the role of ASIC in administering the enforcement regime. [Part 5-2, Division 3, subsection 220(5)]

5.32 ASIC may prepare a written document that sets out information obtained from its document register [Part 5-2, Division 3, subsection 221(1)]. The document is admissible as prima facie evidence of the matters in the document (meaning that in a court proceeding, the court will take the written document as factually representing the matters in the document, unless the contrary is established) [Part 5-2, Division 3, subsection 221(2)]. The document need not be certified by ASIC, or signed, in order to purport to have been prepared by ASIC [Part 5-2, Division 3, subsection 221(3)].

Division 4 - Other provisions relating to documents lodged with ASIC or required under the Credit Bill

5.33 Division 4 deals with further provisions relating to the lodging of documents with ASIC.

5.34 In court proceedings, a copy or extract of any document lodged with and certified by ASIC is admissible in evidence as of equal validity with the original document [Part 5-2, Division 4, section 222]. This allows ASIC to convert original documents into electronic format and provide to the court copies or extracts with equal status as the originals.

5.35 ASIC may destroy or dispose of a document if it considers that it is no longer necessary or desirable to retain the document and the document has been in ASIC's possession for a period prescribed by the regulations or a copy of the document has been included in the document register. This allows ASIC to destroy the original documents lodged with it where they have been included in the document register. [Part 5-2, Division 4, section 223]

5.36 ASIC may give a person written notice requiring them to comply with any provision of the Credit Bill that requires that they lodge a document with ASIC or comply with any request of ASIC to resubmit a document under Part 5-2, Division 2, subsection 218(2) (a lodgment notice). The notice may require the person to comply within 14 days. [Part 5-2, Division 4, subsection 224(1)]

5.37 If a person fails to comply with a lodgment notice within 14 days, ASIC may apply to a court for an order directing the person to comply with the requirement or request. [Part 5-2, Division 4, subsection 224(2)]

5.38 The court may order that costs incidental to ASIC's application be borne by certain persons. For example, the cost may be borne by the person, or if the person is a body corporate, by the director, secretary or senior manager, or if the person is a partnership or trustee, by a partner or trustee who is responsible for the failure to comply. [Part 5-2, Division 4, subsection 224(3)]

5.39 There are various offences relating to documents required to be lodged or already lodged with ASIC under the Credit Bill. [Part 5-2, Division 4, section 225]

5.40 A person must not either:

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make, or authorise the making of, a statement or an omission in a document; or

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omit, or authorise the omission of a matter from a document if:

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the person knows that the statement is false or misleading, or based on information that is false or misleading, or omits matters that makes the documents misleading; or

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the person knows that without the matter that has been omitted the document is misleading; or

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is reckless as to whether this is the case.

5.41 The civil penalty for this offence is a maximum of 2,000 penalty units. The criminal penalty for the offence is a maximum of 200 penalty units, or 5 years imprisonment, or both and is consistent with subsection 1308(2) of the Corporations Act. [Part 5-2, Division 4, subsections 225(2) to (4)]

Example 5.1

Brigitte's Home Loans Pty Ltd's application for a licence to engage in credit activities recklessly fails to disclose details of a director who will perform duties in relation to those credit activities if the registration is granted.

Without inclusion of this information, the application is false in a material particular or materially misleading. ASIC may therefore seek a civil penalty from the court against Brigitte's Home Loans Pty Ltd of up to $1.1 million.

In addition, ASIC may reject the application for a licence.

5.42 A person must take reasonable steps to ensure that they do not make, or authorise the making of, a statement, or an omission in a document under certain circumstances [Part 5-2, Division 4, subsection 225(5)]. These circumstances are:

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that the person knows or is reckless as to whether the statement is false or misleading; or

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has omitted something that makes it misleading or is based on information that is false or misleading.

5.43 The civil penalty for this offence is a maximum of 2,000 penalty units.

5.44 The criminal penalty for the offence is a maximum of 5 penalty units and is consistent with subsection 1308(4) of the Corporations Act. [Part 5-2, Division 4, subsections 225(5) and (6)]

5.45 This offence also carries strict liability [Part 5-2, Division 4, subsection 225(7)]. This strict liability will significantly enhance the role of ASIC in administering the enforcement regime.

5.46 A person is taken to have authorised the making of a statement or omission relevant to a document if they vote in favour of a resolution approving the document or otherwise approves the document. [Part 5-2, Division 4, subsection 225(8)]

Part 5-3 - Concealment or falsification of credit books

Division 1 - Introduction

5.47 Part 5-3 deals with the concealment or falsification of credit books. [Part 5-3, Division 1, section 226]

Division 2 - Prohibitions relating to the concealment or falsification of credit books

5.48 Division 2 deals with requirements not to conceal or falsify credit books, and a requirement to take precautions against the falsification of credit books. A definition for the term credit book is provided. [Part 5-3, Division 2, subsection 227(4)]

5.49 It is an offence for a person to conceal, destroy, mutilate, alter or send a credit book out of the jurisdiction of the Credit Bill [Part 5-3, Division 2, subsection 227(1)]. The civil penalty for this offence is a maximum of 2,000 penalty units. The criminal penalty for the offence is a maximum of 50 penalty units, or 6 months imprisonment, or both and is consistent with section 1101E of the Corporations Act [Part 5-3, Division 2, subsections 227(1) and (2)].

5.50 A defence to this offence is that the person did not intend to defraud or prevent, delay or obstruct the carrying out an examination, investigation or audit, or the exercise of a power under the Credit Bill [Part 5-3, Division 2, subsection 227(3)]. The defendant bears the evidentiary burden in relation to this defence since these are matters which will be peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish.

Example 5.2

Jane is taken to court for concealing a credit book from ASIC that was pertinent to an investigation ASIC was conducting in performing a function under the Credit Bill. She wants to make the defence that she did not conceal the credit book because she did not intend to obstruct ASIC's investigation.

Because she bears the evidentiary burden in relation to the defence, she will need to establish to the satisfaction of the court that she did not have the intention to obstruct ASIC's investigation for the defence to apply.

5.51 It is an offence for a person to engage in conduct that results in the falsification of a credit book [Part 5-3, Division 2, section 228]. The civil penalty for this offence is a maximum of 2,000 penalty units. The criminal penalty for the offence is a maximum of 50 penalty units, or six months imprisonment, or both and is consistent with section 1101F of the Corporations Act [Part 5-3, Division 2, subsections 228(1) and (2)].

5.52 A defence to this offence is that the person acted honestly and in all the circumstances, the act or omission constituting the offence should be excused. [Part 5-3, Division 2, subsection 228(3)]

5.53 The defendant bears the evidentiary burden in relation to this defence since these are matters which will be peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish.

5.54 It is an offence for a person required by the Credit Bill to keep a credit book not to take reasonable steps to guard against the falsification of the credit book and facilitate the discovery of any falsification of the credit book [Part 5-3, Division 2, section 229]. The civil penalty for this offence is a maximum of 2,000 penalty units. The criminal penalty for the offence is a maximum of 50 penalty units, or 6 months imprisonment, or both and is consistent with section 1101G of the Corporations Act [Part 5-3, Division 2, subsections 229(1) and (2)].

Part 5-4 - Fees imposed by the National Consumer Credit Protection (Fees) Bill 2009

Division 1 - Introduction

5.55 Part 5-4 deals with fees imposed by the Fees Bill. [Part 5-4, Division 1, section 230]

Division 2 - Fees imposed by the Fees Bill

5.56 Division 2 deals with fees, including the payment of fees, the lodging of documents or doing of acts without the payment of fees, and the waiver or refund of fees.

5.57 Fees imposed under the Fees Bill are payable to the Commonwealth. [Part 5-4, Division 2, section 231]

5.58 Generally, if a fee for the lodgment of a document is payable under the Fees Bill and the document is submitted without the payment, the document is still taken to have been lodged despite the non-payment of the fee. [Part 5-4, Division 2, section 232]

5.59 However, a compliance certificate required to be lodged under Part 2-2, Division 5, section 53 is not taken to have been lodged until the fee is paid. This has effect despite any other Part of the Credit Bill. [Part 5-4, Division 2, section 232]

5.60 If a fee is payable under the Fees Bill for a matter involving the doing of an act by the Minister or ASIC, they may refuse to do the act until the fee is paid [Part 5-4, Division 2, section 233]. This has effect despite any other Part of the Credit Bill [Part 5-4, Division 2, section 234]. This means, for example, that an application for a licence or registration may be accepted for lodgment by ASIC but that ASIC may refuse to grant the licence or registration if the fee is not paid.

5.61 Nothing in Division 2 or in the Fees Bill prevents the Commonwealth from waiving or reducing fees that would otherwise be payable, or refunding in whole or in part fees paid under the Credit Bill. The Commonwealth may do this either in a particular case or in a particular class of cases. [Part 5-4, Division 2, section 235]

5.62 ASIC may recover a debt due under Division 2 on behalf of the Commonwealth. [Part 5-4, Division 2, section 236]

5.63 Nothing in, or done under Division 2 imposes on ASIC a duty to:

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allow the inspection or search of a register or document;

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make available information; or

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confer a right to inspect or search a register or document or to have information made available except so far as such a duty or right would, but for the effect of Part 5-4, Division 2, section 233, exist under a provision of another Part of the Credit Bill or under some other law.

[Part 5-4, Division 2, section 237]

Part 5-5 - Other administrative matters

Division 1

5.64 Part 5-5 deals with miscellaneous provisions relating to administrative matters. [Part 5-5, Division 1, section 238]

Division 2 - Other administrative matters

5.65 Division 2 deals with miscellaneous provisions relating to administrative matters.

5.66 Subject to the Australian Securities and Investments Commission Act 2001 (ASIC Act), ASIC has the general administration of the Credit Bill. [Part 5-5, Division 2, section 239]

5.67 It is an offence for a person to engage in conduct that results in the obstruction or hindering of ASIC, or any other person, in the performance of a function or power under the Credit Bill [Part 5-5, Division 2, section 240]. The civil penalty for this offence is a maximum of 2,000 penalty units. The criminal penalty for the offence is a maximum of 100 penalty units, or 2 years imprisonment, or both and is consistent with section 65 of the ASIC Act [Part 5-5, Division 2, subsections 240(1) and (2)]. Sections 292 and 293 of the Credit Bill also contain other offences relating to the obstruction or hindrance of ASIC.

5.68 A defence to this offence is that the person has a reasonable excuse [Part 5-5, Division 2, subsection 240(3)]. The defendant bears the evidentiary burden in relation to this defence since these are matters which will be peculiarly within the knowledge of the defendant, and it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish.

5.69 ASIC may, on application, approve in writing codes of conduct, or variations to codes of conducts for the activities of licensees, or credit representatives; or activities in relation to which ASIC has a regulatory responsibility. Such an approval must be in writing. [Part 5-5, Division 2, subsections 241(1) and (2)]

5.70 ASIC must not approve a code of conduct, or a variation, unless it is satisfied that the code is not inconsistent with the Credit Bill or any other law of the Commonwealth under which ASIC has regulatory responsibilities. [Part 5-5, Division 2, paragraph 241(3)(a)]

5.71 Further, it must be appropriate to approve the code of conduct or variation, having regard to the following:

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the ability of the applicant to ensure that persons who hold out that they comply with the code of conduct will comply with that code as in force from time to time;

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the desirability of codes being harmonised to the greatest possible extent; or

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any other matter ASIC considers relevant.

[Part 5-5, Division 2, paragraph 241(3)(b)]

5.72 ASIC may revoke an approval of a code of conduct on application by the person who applied for the approval, or if ASIC is no longer satisfied as mentioned in subsection 241(3). Such a revocation must be in writing. [Part 5-5, Division 2, subsection 241(4)]

5.73 A code of conduct approved under subsection 241(1), or an approval of such a code of conduct, an approval of a variation of a code of conduct under subsection 241(2), or a revocation of a code of conduct under subsection 241(4) are all legislative instruments. [Part 5-5, Division 2, subsection 241(5)]

5.74 ASIC may arrange for the use of computer programs which are under their control for any purposes relating to making decisions under the Credit Bill [Part 5-5, Division 2, subsection 242(1)]. A decision made by such a computer program is taken to be a decision of ASIC. [Part 5-5, Division 2, subsection 242(2)]

5.75 A person has qualified privilege in relation to giving any information to ASIC under certain circumstances [Part 5-5, Division 2, section 243]. These circumstances are matters that:

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a person is required or expressly permitted to give under the Credit Bill [Part 5-5, Division 2, paragraph 243(1)(a)];

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relates to a contravention, or possible contravention, of the credit legislation [Part 5-5, Division 2, paragraph 243(1)(b)]; or

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relates to a matter that is relevant to a decision made by ASIC under:

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section 37 (when ASIC may grant a licence); or

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sections 54 and 55 (ASIC's powers to suspend or cancel licences); or

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subsection 80(1) (ASIC's power to make banning orders).

[Part 5-5, Division 2, subparagraphs 243(c)(i), (ii) and (iii)]

5.76 This type of intelligence from third parties is a significant source of detailed and time-sensitive information which assists ASIC in the performance of its oversight of the industry and can be used to take action against persons involved in misconduct.

5.77 A person that has qualified privilege under subsection 243(1) or (2) in relation to conduct is also not liable for any action based on breach of confidence in relation to that conduct.

Example 5.3

Bank ABC informs ASIC that they have detected what may be fraudulent statements in an application for credit which they have received from Joker Broker Inc.

On this basis of this, ASIC commences an investigation and determines that the application from Joker Broker Inc is in fact fraudulent.

Joker Broker Inc sues Bank ABC for breach of confidence. However, Bank ABC has qualified privilege under section 243 as the information relates to a contravention, or possible contravention, of the credit legislation.

5.78 ASIC may issue a certificate stating that a requirement of the Credit Bill specified in the certificate :

•

had or had not been complied with at a particular date or within a period specified in the certificate [Part 5-5, Division 2, paragraph 244(1)(a)]; or

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had been complied with at a date specified in the certificate but not before that date [Part 5-5, Division 2, paragraph 244(1)(b)].

5.79 In proceedings in a court, a certificate issued by ASIC under subsection 244(1) is admissible as prima facie evidence of the matters stated in the certificate. [Part 5-5, Division 2, section 244]

5.80 The operator of an approved External Dispute Resolution Scheme (EDR Scheme) may give information to ASIC in relation to a person becoming, or ceasing to be, a member of the EDR Scheme [Part 5-5, Division 2, section 245]. This information will enable ASIC to monitor the licence condition that all licensees must remain an EDR member at all times [Part 2-2, Division 5, paragraph 47(1)(i)].