Corporations Legislation Amendment (Financial Services Modernisation) Act 2009 (108 of 2009)

Schedule 1   Margin lending facilities

Corporations Act 2001

12   After Division 4 of Part 7.8

Insert:

Division 4A - Special provisions relating to margin lending facilities

Subdivision A - Responsible lending conduct for margin lending facilities

985EA Application of this Subdivision

This Subdivision applies to a financial services licensee (the provider ) in relation to:

(a) the issuing of a margin lending facility to a retail client; or

(b) the increasing of the limit of a margin lending facility that was issued to a retail client.

985E Requirements before issuing etc. margin lending facility

Requirement to make assessment of unsuitability

(1) The provider must not:

(a) issue the margin lending facility to the retail client; or

(b) increase the limit of the margin lending facility that was issued to the retail client;

on a day (the critical day ) unless the provider has, within 90 days (or other period prescribed by the regulations) before the critical day:

(c) made an assessment that:

(i) is in accordance with section 985F; and

(ii) covers a period in which the critical day occurs; and

(d) made the inquiries and verification in accordance with section 985G.

Note: This subsection is a civil penalty provision (see section 1317E).

Increase in limit of standard margin lending facility

(2) For the purposes of paragraph (1)(b), the limit of a standard margin lending facility is taken not to be increased if:

(a) apart from this subsection, there would be an increase in the limit; and

(b) the increase in the limit would result from an increase in the value, determined under the terms of the facility, of the secured property under the facility (as referred to in paragraph 761EA(2)(c)); and

(c) the increase in the value of the secured property does not result from the client contributing additional property to the secured property.

Regulations

(3) For the purposes of paragraph (1)(b), the regulations may prescribe particular situations in which the limit of a margin lending facility is taken:

(a) to be increased, despite subsection (2); or

(b) not to be increased.

985F Assessment of unsuitability of margin lending facility

For the purposes of paragraph 985E(1)(c), the provider must make an assessment that:

(a) specifies the period the assessment covers; and

(b) assesses whether the margin lending facility will be unsuitable for the retail client if the facility is issued or the limit is increased in that period.

Note: The provider is not required to make the assessment if the margin lending facility is not issued or the limit is not increased.

985G Reasonable inquiries etc. about the retail client

Requirement to make inquiries and take steps to verify

(1) For the purposes of paragraph 985E(1)(d), the provider must, before making the assessment:

(a) make reasonable inquiries about the retail client’s financial situation; and

(b) take reasonable steps to verify the retail client’s financial situation; and

(c) make any inquiries prescribed by the regulations about any matter prescribed by the regulations; and

(d) take any steps prescribed by the regulations to verify any matter prescribed by the regulations.

(2) The regulations may prescribe particular inquiries or steps that must be made or taken, or do not need to be made or taken, for the purposes of paragraph (1)(a) or (b).

When not required to take steps to verify

(3) Despite subsection (1), if:

(a) a financial services licensee that is authorised to provide financial product advice in relation to margin lending facilities has prepared a statement of advice for the retail client; and

(b) the statement of advice was prepared no more than 90 days before the critical day; and

(c) the statement of advice recommends that:

(i) the retail client acquire the particular margin lending facility; or

(ii) the limit of the particular margin lending facility be increased; and

(d) the limit of the facility, or the increase in the limit of the facility, is not greater than the limit, or the increase in the limit, recommended in the statement of advice; and

(e) the statement of advice includes the information that was used for the purposes of preparing the statement of advice;

then the provider is not required, for the purposes of paragraph (1)(b) or (d), to verify that information.

985H When margin lending facility must be assessed as unsuitable

Requirement to assess the margin lending facility as unsuitable

(1) The provider must assess that the margin lending facility will be unsuitable for the retail client if the margin lending facility will be unsuitable for the retail client under subsection (2).

Note 1: This subsection is a civil penalty provision (see section 1317E).

Note 2: Even if the margin lending facility will not be unsuitable for the retail client under subsection (2), the provider may still assess that the margin lending facility will be unsuitable for the retail client for other reasons.

(2) The margin lending facility will be unsuitable for the retail client if, at the time of the assessment, it is likely that:

(a) if the facility is issued or the limit increased in the period covered by the assessment, and the facility were to go into margin call, the retail client:

(i) would be unable to comply with the retail client’s financial obligations under the terms of the facility; or

(ii) could only comply with substantial hardship; or

(b) if the regulations prescribe circumstances in which a margin lending facility is unsuitable - those circumstances will apply to the margin lending facility if the facility is issued or the limit increased in the period covered by the assessment.

Information to be used to make the assessment

(3) For the purposes of determining under subsection (2) whether the margin lending facility will be unsuitable, only information that satisfies both of the following paragraphs is to be taken into account:

(a) the information is about the retail client’s financial situation, or any other matter prescribed by regulations under paragraph 985G(1)(c) or (d);

(b) at the time of the assessment:

(i) the provider had reason to believe that the information was true; or

(ii) the provider would have had reason to believe that the information was true if it had made the inquiries or verification under section 985G.

985J Giving the retail client the assessment

Requirement to give assessment if requested

(1) If, before the margin lending facility is issued or the limit is increased, the retail client requests a copy of the assessment from the provider, the provider must give the retail client a written copy of the assessment before issuing the facility or increasing the limit.

Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)).

Note 2: This subsection is a civil penalty provision (see section 1317E).

Note 3: The provider is not required to give the retail client a copy of the assessment if the margin lending facility is not issued or the limit is not increased.

(2) If, during the period that:

(a) starts on the critical day referred to in subsection 985E(1); and

(b) ends 7 years after that day;

the retail client requests a copy of the assessment from the provider, the provider must give the retail client a written copy of the assessment:

(c) if the request is made within 2 years of the critical day - before the end of 7 business days after the day the provider receives the request; and

(d) otherwise - before the end of 21 business days after the day the provider receives the request.

Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)).

Note 2: This subsection is a civil penalty provision (see section 1317E).

Manner of giving assessment

(3) The provider must give the retail client the copy of the assessment in the manner (if any) prescribed by the regulations.

No payment for assessment

(4) The provider must not request or demand payment of an amount for giving the retail client a copy of the assessment.

Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)).

Note 2: This subsection is a civil penalty provision (see section 1317E).

Strict liability

(5) An offence based on subsection (1), (2) or (4) is an offence of strict liability.

Note: For strict liability, see section 6.1 of the Criminal Code.

985K Unsuitable margin lending facilities

Requirement not to issue unsuitable margin lending facilities etc.

(1) The provider must not:

(a) issue the margin lending facility to the retail client; or

(b) increase the limit of the margin lending facility that was issued to the retail client;

if the facility is unsuitable for the retail client under subsection (2).

Note 1: Failure to comply with this subsection is an offence (see subsection 1311(1)).

Note 2: This subsection is a civil penalty provision (see section 1317E).

When a margin lending facility will be unsuitable

(2) The margin lending facility is unsuitable for the retail client if, at the time it is issued or the limit is increased:

(a) it is likely that, if the facility were to go into margin call, the retail client:

(i) would be unable to comply with the retail client’s financial obligations under the terms of the facility; or

(ii) could only comply with substantial hardship; or

(b) if the regulations prescribe circumstances in which a margin lending facility is unsuitable - those circumstances apply to the margin lending facility.

Information to be used for the purposes of subsection (2)

(3) For the purposes of determining under subsection (2) whether the margin lending facility will be unsuitable, only information that satisfies both of the following paragraphs is to be taken into account:

(a) the information is about the retail client’s financial situation, or any other matter prescribed by regulations under paragraph 985G(1)(c) or (d);

(b) at the time the margin lending facility is issued or the limit is increased:

(i) the provider had reason to believe that the information was true; or

(ii) the provider would have had reason to believe that the information was true if it had made the inquiries or verification under section 985G.

Regulations in relation to unsuitability of margin lending facility

(4) The regulations may prescribe particular situations in which a margin lending facility is taken not to be unsuitable for a retail client, despite subsection (2).

Increase in limit of standard margin lending facility

(5) For the purposes of paragraph (1)(b), the limit of a standard margin lending facility is taken not to be increased if:

(a) apart from this subsection, there would be an increase in the limit; and

(b) the increase in the limit would result from an increase in the value, determined under the terms of the facility, of the secured property under the facility (as referred to in paragraph 761EA(2)(c)); and

(c) the increase in the value of the secured property does not result from the client contributing additional property to the secured property.

Regulations in relation to increase in limit

(6) For the purposes of paragraph (1)(b), the regulations may prescribe particular situations in which the limit of a margin lending facility is taken:

(a) to be increased, despite subsection (5); or

(b) not to be increased.

Subdivision B - Notice of margin calls under margin lending facilities

985L Issue of margin lending facility must not be conditional on agreement to receive communications through agent

A financial services licensee must not require, as a condition of issuing a margin lending facility to a retail client, that the retail client enter into an agreement of the kind referred to in subsection 985M(2) (which deals with agreements about communications in relation to margin lending facilities).

Note: This section is a civil penalty provision (see section 1317E).

985M Notification of margin calls

Provider must notify retail client of margin call

(1) A financial services licensee (the provider ) that has issued a margin lending facility to a retail client must, when the facility goes into margin call, take reasonable steps to notify the retail client under the facility of the margin call in accordance with this section.

Note: This subsection is a civil penalty provision (see section 1317E).

When provider must notify retail client’s agent, and agent must notify retail client, of margin call

(2) However, if there is an agreement between the provider, the retail client, and another financial services licensee (the agent ) that the agent will receive communications from the provider in relation to the margin lending facility on behalf of the retail client, then:

(a) the provider must take reasonable steps to notify the agent (instead of the retail client) of the margin call in accordance with this section; and

(b) the agent must take reasonable steps to notify the retail client of the margin call in accordance with this section.

Note: This subsection is a civil penalty provision (see section 1317E).

When and how notice must be given

(3) A notice under this section must be given:

(a) at a time determined by ASIC; or

(b) if no time is determined by ASIC - as soon as practicable.

(4) A notice under this section must be given:

(a) if a manner in which the notice is to be given has been agreed between the person who is required to give the notice and the person to whom the notice is required to be given - in that manner; or

(b) if there is no agreement and ASIC has determined the manner in which the notice is to be given - in that manner; or

(c) otherwise - in a reasonable manner.

ASIC may determine when and how notice must be given

(5) ASIC may determine:

(a) the time by which, and manner in which, a provider must notify a client or agent of a margin call under this section; and

(b) the time by which, and manner in which, an agent must notify a client of a margin call under this section.

(6) A determination made under subsection (5):

(a) must be in writing; and

(b) is a legislative instrument for the purposes of the Legislative Instruments Act 2003.