Explanatory Memorandum
(Circulated by authority of the Minister for Climate Change and Energy Efficiency, the Hon Greg Combet AM MP)Chapter 1 - General Amendments
Outline of chapter
1.1 This chapter provides explanatory material on those amendments to other legislation including in the Carbon Credits (Consequential Amendments) Bill 2011.
Context of amendments
1.2 The amendments described in this Chapter are consequential in nature and are needed to ensure the Carbon Farming Initiative is a comprehensive, workable scheme.
1.3 Most of the proposed amendments will apply existing legislation relating to financial services, anti-money laundering and counter-terrorism financing to units held in the Registry. The amendments are intended to provide additional safeguards to protect purchasers of ACCUs and international units, and to provide deterrence against criminal activities involving the CFI.
Summary of new law
1.4 This chapter addresses amendments to be made to the following Acts consequential on the Carbon Credits (Carbon Farming Initiative) Bill 2011:
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- Anti-Money Laundering and Counter-Terrorism Financing Act 2006 ;
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- Australian Securities and Investments Commission Act 2001 ;
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- Competition and Consumer Act 2010 ;
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- Corporations Act 2001 ; and
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- National Greenhouse and Energy Reporting Act 2007 .
Detailed explanation of new law
Anti-Money Laundering and Counter-Terrorism Financing Act 2006
1.5 Amendments to this Act will address the potential risk of money-laundering through the trade in ACCUs and other types of emissions units, by regulating the buying and selling of these units on behalf of another person as a 'designated service' under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 .
1.6 A financial institution or person who provides a designated service is subject to reporting and other obligations under that Act and must, for example, report any suspicious matters or transactions above specified thresholds. Except in special cases, they will also be required to verify their customer's identity prior to trading in ACCUs or international emissions units.
1.7 Amendments to Item 33 of Table 1 (Provision of a designated service) in subsection 6(2) of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 will make the acquisition and disposal of ACCUs and eligible international emissions units by an agent on behalf of another person a 'designated service'. It will apply where the person does so in the course of carrying on a business of acquiring or disposing of those units as an agent for someone else, and where the service is not specified in the Anti-Money Laundering and Counter-Terrorism Financing Rules. [ Schedule 1, Part 1, items 3 and 4 ].
1.8 The effect of these amendments is that a person such as a broker who buys ACCUs on behalf of a client will be subject to reporting and other obligations under the designated service provisions of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 .
1.9 Designated services are generally limited to services provided to a designated customer in the course of carrying on the core activity of a business and do not capture activities which are peripheral to the core activity of the business.
1.10 The term 'Australian carbon credit unit' is defined by reference to its meaning in the main bill [ Schedule 1, Part 1, item 1 ].
1.11 The term 'eligible international emissions unit' is likewise defined by reference to its meaning in the main bill and includes units issued outside Australia [ Schedule 1, Part 1, item 2 ].
Financial products: Australian Securities and Investments Commission Act 2001 and Corporations Act 2001
1.12 Amendments to the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 are needed to regulate financial services relating to ACCUs and eligible international emissions units, similar to other financial products.
1.13 These amendments will provide a strong regulatory regime to protect purchasers of ACCUs in a new area where there will not be familiarity with offsets credits issued by government. It will also reduce the risk of misconduct in the market. Appropriate adjustments to the regime to fit the characteristics of units and avoid unnecessary compliance costs will be made.
1.14 Defining ACCUs and eligible international emissions units as financial products will trigger the application of provisions relating to financial services and markets, and product disclosure, under Chapter 7 of the Corporations Act 2001 [ Schedule 1, Part 1, items 9-11 ]. It will also trigger the general consumer protection provisions in Part 2 of Division 2 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act) [ Schedule 1, Part 1, item 5 ].
1.15 ACCUs and eligible international units will not, however, be financial products for the purpose of paragraph 12BAB(1)(g) of the ASIC Act [ Schedule 1, Part 1, item 6 ]. Section 12BAB of the ASIC Act defines a 'financial service'. The amendment will restrict the application of the ASIC Act to the following financial services relating to ACCUs and eligible international emissions units:
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- providing financial product advice;
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- dealing in a financial product;
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- making a market for a financial product;
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- operating a registered scheme;
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- providing a custodial or depository service;
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- operating a financial market or clearing and settlement facility; or
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- engaging in conduct of a kind prescribed in regulations.
Disclosure of information: Competition and Consumer Act 2010, Australian Securities and Investments Commission Act 2001 and National Greenhouse and Energy Reporting Act 2007
1.16 Amendments to the Competition and Consumer Act 2010 and the Australian Securities and Investments Commission Act 2001 are needed to ensure appropriate exchange of information between administrators.
1.17 The Trade Practices Act 1947 was renamed as the Competition and Consumer Act 2010 on 1 January 2011.
1.18 The Australian Competition and Consumer Commission may disclose certain information to the Administrator if the Chair is satisfied that it would enable or assist the Administrator to perform his or her functions [ Schedule 1, Part 1, item 8 ].
1.19 The Administrator will also be added to the list of agencies to which the Australian Securities and Investments Commission (ASIC) may disclose information [ Schedule 1, Part 1, item 7 ].
1.20 This means that ASIC will, for example, be able to disclose information that it possesses about wrongdoing in connection with trading of ACCUs which is also of significance to the Administrator as the operator of the Registry.
1.21 Similarly, the Greenhouse and Energy Data Officer (GEDO), or a person authorised by the GEDO, will be able to disclose relevant greenhouse and energy information to the Administrator [ Schedule 1, Part 1, item 14 ]. For example, the Administrator could provide GEDO with information about the performance of an audit under the CFI which may assist the GEDO to make decisions regarding registered greenhouse and energy auditors.
Audit
1.22 The audit framework for the CFI will utilise the existing audit framework under the NGER Act as:
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- it promotes administrative efficiency and reduces duplication; for example, there will be a single register for qualified assurance auditors.
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- it reduces complexity for auditors (many of whom will operate under both Acts) as they are already familiar with audit requirements set out in the NGER regulations and NGER Audit Determination and can apply the same legislative requirements in areas of overlap between NGER and CFI legislation.
1.23 In addition, use of the same audit framework will assist CFI proponents as they will need to report project emissions from electricity and other energy generation, transport, and waste, using methods set out in the NGER (Measurement) Determination. Many landfill operators participating in CFI projects will also be NGER registered corporations and will be submitting both NGER and CFI project reports.
1.24 CFI audits must be undertaken by a greenhouse and energy auditor registered under the NGER Act. This link is recognised through the definition of 'registered greenhouse and energy auditor' in clause 5 of the main bill, which has the same meaning as in the NGER Act.
1.25 The defined terms "CFI audit" [ Schedule 1, Part 1, item 12 ] and "CFI audit report" [ Schedule 1, Part 1, item 13 ], which are to be inserted into section 7 of the NGER Act, refer to all the types of audits carried out in relation to the main bill, namely:
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- Compliance audits under clause 214;
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- Other audits under clause 215;
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- Where the regulations prescribe that an audit report must accompany:
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- an application for a certificate of entitlement under clause 13(1)(e);
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- an application for a declaration of an eligible offsets project under clause 23(1)(d); or
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- an offsets report under clause 76(4)(c).
1.26 The register of greenhouse and energy auditors kept under section 75A of the NGER Act will list auditors for the purpose of both the NGER Act and the main bill [ Schedule 1, Part 1, item 16 ].
1.27 The Minister may set out mandatory requirements for registered greenhouse and energy auditors relating to greenhouse and energy audits and CFI audits [ Schedule 1, Part 1, item 15 ].