Explanatory Statement

Minister for Financial Services and Superannuation

Corporations Amendment Regulation 2012 (No. 1)

Subject - Corporations Act 2001

The Corporations Act 2001 (the Act) provides for the regulation of corporations, financial markets, products and services, including in relation to licensing, conduct, financial product advice and disclosure.

Subsection 1364(1) of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations, or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.

The Corporations Amendment Regulation 2012 (No. 1) makes a number of amendments to the Corporations Regulations 2001 (the Principal Regulations). The amendments are in respect of the definitions for financial products, and dealing with financial products.

The amendments aim to recognise Australian carbon credit units issued under the Carbon Farming Initiative, eligible international emissions units issued in accordance with the Kyoto rules or another relevant international agreement and carbon units issued under the Clean Energy Legislation, as financial products.

Specifically, the amendments to the Principal Regulations:

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include carbon units, Australian carbon credit units (ACCUs), and eligible international emissions units (EIEUs) in the definition of financial products;

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provide a transitional period for a person to register and apply for a licence to provide a financial service in relation to ACCUs, EIEUs and carbon units, and for ASIC to process the licence applications; and

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impose a range of disclosure obligations in particular circumstances in lieu of providing a Product Disclosure Statement. These obligations modify the Product Disclosure Statement requirements for ACCUs, EIEUs and carbon units in certain circumstances by requiring entities to provide clients with the website address of the Clean Energy Regulator and inform them of the information in the Regulator's statement.

The Commonwealth consulted publicly on a draft of the Regulations in November and December 2011 and February and March 2012.

Under the Corporations Agreement 2002 (the Corporations Agreement), the State and Territory Governments referred their constitutional powers with respect to corporate regulation to the Commonwealth. The Legislative and Governance Forum for Corporations (meeting as the Ministerial Council for Corporations) has been consulted about the Regulations as required by the Corporations Agreement. However, paragraph 507(1)(f) and subclause 511(2) of the Corporations Agreement provide that approval of the Council and the usual public exposure period are not required for amendments to regulations relating to financial products and services.

Details of the Regulation are set out in the Attachment .

The Act does not specify any conditions that need to be satisfied before the power to make the Regulation may be exercised.

The Regulation is a legislative instrument for the purposes of the Legislative Instruments Act 2003.

ATTACHMENT

Details of the Corporations Amendment Regulation 2012 (No. 1)

Section 1 - Name of Regulation

This section specifies the name of the Regulation as the Corporations Amendment Regulation 2012 (No. 1).

Section 2 - Commencement

This section provides for Schedule 1 of the Regulation to commence the day after registration.

Section 3 - Amendment of the Corporations Regulations 2001

This section provides that Schedule 1 amends the Corporations Regulations 2001 (the Principal Regulations).

Schedule 1 - Amendments

Item 1 amends the definition of an investment-based financial product in subregulation 1.0.02(1) to include Australian carbon credit units, eligible international emissions units and carbon units.

Item 2 inserts a new regulation 7.1.07I which provides that an Australian carbon credit unit and an eligible international emissions unit are not financial products until 1 July 2012. This is seven months after the date of proclamation of the Carbon Credits (Carbon Farming Initiative) Act 2011.

Item 3 inserts a new paragraph 7.1.08A which outlines that for the purposes of Part 7.6 of the Corporations Act 2001 (the Act) a person who holds a free carbon unit that has been issued to the person by the Clean Energy Regulator is taken not to be making a market for a financial product if the person states the price of the free carbon unit.

Item 4 inserts a new paragraph 7.1.09(1)(fa) which outlines that an obligation arising from a contract to transfer a carbon unit, an Australian carbon credit unit, or an eligible international emissions unit will be a prescribed obligation in relation to clearing and settlement facilities.

Item 5 inserts a new regulation 7.1.35B which exempts the issuing of a carbon unit, an Australian carbon credit unit, or an eligible international emissions unit by the Clean Energy Regulator, the Clean Development Mechanism Executive Board, the government of a country other than Australia or an authority acting on behalf of the government of a country other than Australia, from the Australian Financial Services licensing requirements. This means that the issuing of a carbon unit, an Australian carbon credit unit, or an eligible international emissions unit will not constitute dealing in a financial product for the purposes of the section 766C definition of 'dealing' in the Act.

This item also inserts regulation 7.1.35C, which exempts dealing in a carbon unit, an Australian carbon credit unit or an eligible international emissions unit on behalf of a related body corporate, or associated entity. Where a person provides a financial service which involves dealing in a carbon unit, an Australian carbon credit unit or an eligible international emissions unit on behalf of a related body corporate or associated entity of the person and the body corporate or entity is a liable entity for the purposes of the Clean Energy Act 2011, the conduct does not constitute dealing in the unit and accordingly, this conduct is exempt from the Australian Financial Services licensing requirements.

Items 6 and 7 outlines that provision of special native title accounts and nominee accounts for Carbon Farming Initiatives purposes are not custodial or depository services.

Items 8, 9 and 10 amends the list of agencies, to which a relevant entity can give a copy of a written compliance assessment, to include the Clean Energy Regulator. This includes compliance assessments under the following sections:

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an ASIC compliance assessment under section 794C in relation to how well the market licensee is complying with their obligations;

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an ASIC compliance assessment under section 823C in relation to how well a clearing and settlement facility licensee is complying with their obligations; and

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a Reserve Bank of Australia compliance assessment under section 823CA in relation to how well a clearing and settlement facility licensee is complying with their obligations.

Item 11 inserts a new paragraph 7.6.01(1)(ma) to outline an additional exemption from the Australian Financial Services licensing regime for persons hedging their risks in relation to the surrender, cancellation or relinquishment of carbon units, Australian carbon credit units or eligible international emissions units.

Item 12 substitutes a new paragraph (c) for subregulation 7.6.02AG(2E) so that dealing with, providing advice on or making a market in carbon units, Australian carbon credit units, or eligible international emissions units, is made exempt from the Australian Financial Services licensing requirements where the person providing the financial service is out of the jurisdiction and the person receiving the financial service is a professional investor.

Item 13 inserts a new paragraph 7.6.02AGA, which provides for a transitional period until 31 December 2012 to enable persons to apply for a licence to provide a financial service in relation to a carbon unit, an Australian carbon credit unit, or an eligible international emissions unit before the licensing requirements commence. A person must not provide a financial service in relation to carbon units, Australian carbon credit units, or eligible international emissions units unless the person holds a licence authorising the person to provide the financial service or is registered to provide the financial service.

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From 1 May 2012 to 30 June 2012, a person may apply to be registered to provide the financial service;

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From 1 May 2012 to 31 October 2012, a person is to apply for a licence to provide the financial service; and

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From 1 May 2012 to 31 December 2012 is the period for Australian Securities and Investments Commission (ASIC) to process licence applications. At the end of this period the registration of every registered person is cancelled.

Item 14 amends regulation 7.6.02A to include the Australian National Registry of Emissions Units Act 2011, the Carbon Credits (Carbon Farming Initiative) Act 2011, and the Clean Energy Act 2011 as relevant Commonwealth legislation for the purposes of section 912D.

Item 15 inserts a new regulation 7.7.10AI which outlines the disclosure obligations of an entity providing general advice in relation to a carbon unit, an Australian carbon credit unit or an eligible international emissions unit. The regulation modifies the obligation in relation to those units. Specifically, if the financial advice relates to the acquisition or possible acquisition of carbon units, Australian carbon credit units, or eligible international emissions units, then the client must be provided the address of the Clean Energy Regulator's website. The client must also be informed that they should consider each statement provided under either section 202 of the Clean Energy Act 2011, section 162 of the Carbon Credits (Carbon Farming Initiative) Act 2011, or section 61 of the Australian National Registry of Emissions Units Act 2011.

Item 16 inserts a new regulation 7.8.21B which regulates the prohibition against unsolicited contact in relation to a carbon unit, an Australian carbon credit unit or an eligible international emissions unit. A person is prohibited from offering to issue or sell a unit unless the other person has been informed to consider all information about a carbon unit, an Australian carbon credit unit or an eligible international emissions unit that is published on the Clean Energy Regulator's website, has been informed of the importance of that information and has been given the option of having that information read out.

Item 17 inserts a new subdivision 4.1A which outlines specific Product Disclosure Statement provisions that do not apply for a carbon unit, an Australian carbon credit unit or an eligible international emissions unit. New regulation 7.9.09B specifies provisions of Part 7.9 which do not apply, and regulation 7.9.09C modifies the Act so that Part 7.9 applies to a carbon unit, an Australian carbon credit unit and an eligible international emissions unit as set out in Part 19.

Item 18 inserts a new heading for Schedule 10A to incorporate the additional new regulations introduced under this Amendment Regulation.

Item 19 inserts a new Part 19 to the Principal Regulations which outlines the modifications to the Product Disclosure Statement regime for the purposes of carbon units, Australian carbon credit units and eligible international emissions units. The modifications are necessary so that the regime fits the unique characteristics of carbon units, Australian carbon credit units and eligible international emissions units, and avoids unnecessary compliance costs.

Specifically, the following changes are made:

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Item 19.1 substitutes subsections 1012D (1) to (3) with new provisions in relation to situations in which Product Disclosure Statements are not required. The new provisions take into account statements about carbon units, Australian carbon credit units and eligible international emissions units published by the Clean Energy Regulator on its website.

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Items 19.2 and 19.3 omit references to a Product Disclosure Statement in subsection 1012D (5) and (6). Instead, the obligation is to inform the client as described in paragraph 1012D (1)(b), (3A)(b) or (3D)(b).

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Item 19.4 omits subsections 1012D (7) to (10) which refer to a range of issue or sale situations for takeovers, responsible entities who are exempt bodies, interim contracts of insurance and clients associated with registered schemes. These are not relevant in the context of carbon units, Australian carbon credit units and eligible international emissions units.

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Item 19.5 substitutes a new definition of 'regulated acquisition' in subsection 1012IA (1). This new definition includes an acquisition pursuant to a sale in circumstances where subsections 1012B(3), 1012C(3) or 1012C(6) apply were those subsections applicable in relation to a carbon unit, an Australian carbon credit unit or an eligible international emissions unit.

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Item 19.6 substitutes a new subheading for subsection 1012IA (2).

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Item 19.7 omits the reference to provide the client with a Product Disclosure Statement in subsection 1012IA(2) and instead insert an obligation to inform the client to consider the Clean Energy Regulator's statement published on its website about the carbon unit, the Australian carbon credit unit or the eligible international emissions unit.

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Item 19.8 substitutes a new subheading for subsection 1012IA (3).

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Item 19.9 omits the reference to provide the client with a Product Disclosure Statement in subsection 1012IA (3) and insert an obligation to inform the client to consider the Clean Energy Regulator's statement published on its website about the carbon unit, the Australian carbon credit unit or the eligible international emissions unit.

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Item 19.10 substitutes new paragraphs for paragraph 1017E (1)(b) in relation to dealing with money received for financial products before the product is issued. The new paragraphs refer specifically to sellers of a carbon unit, an Australian carbon credit unit or an eligible international emissions unit rather than sellers of financial products in relation to which the seller has prepared a Product Disclosure Statement.

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Item 19.11 substitutes subsection 1017G (1) outlining that certain product issuers and regulated persons must meet appropriate dispute resolution requirements. The amendment outlines when dispute resolution systems are required for carbon units, Australian carbon credit units and eligible international emissions units.

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Item 19.12 substitutes a new heading for section 1018A.

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Item 19.13 substitutes a new subheading for subsection 1018A (1).

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Item 19.14 refers specifically to the issue or sale situation for a carbon unit, an Australian carbon credit unit or an eligible international emissions unit in relation to circumstances when a person must identify the issuer in advertisements and promotional materials.

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Item 19.15 omits the reference to section 1012C, and instead refers to paragraphs 1012C(3)(b) and (4)(c), and subsection 1012C(6).

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Item 19.16 substitutes the current paragraphs (d) and (e) in subsection 1018A(1), and replaces them with an obligation to inform the person about the relevant statements on the Clean Energy Regulator's website.

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Item 19.17 refers specifically to the issue or sale situation for a carbon unit, an Australian carbon credit unit or an eligible international emissions unit in relation to circumstances where a person can advertise about the product when the product is not yet available.

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Item 19.18 omits the reference to section 1012C in subparagraph 1018A(2)(c)(ii), and instead refers to paragraphs 1012C(3)(b) and (4)(c), and subsection 1012C(6).

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Item 19.19 substitutes paragraphs (d) to (f) in paragraph 1018A(2) with new paragraphs requiring the advertisement or statement to inform the person that the relevant statements can be found on the Clean Energy Regulator's website, and that the person should consider each of the statements published on the website.

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Item 19.20 omits the reference to a Product Disclosure Statement in subsection 1018A(3), and instead requires a person to inform a person that they should consider the relevant statements on the Clean Energy Regulator's website.

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Item 19.21 substitutes subparagraph (i) of the general exceptions in paragraph 1018A(4)(c) to include a reference to information about the carbon unit, the Australian carbon credit unit or the eligible international emissions unit published on the Clean Energy Regulator's website.

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Item 19.22 substitutes subparagraphs (i) and (ii) of the exception in paragraph 1018A(4)(d) to include a reference to information about the carbon unit, the Australian carbon credit unit or the eligible international emissions unit published on the Clean Energy Regulator's website.

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Item 19.23 substitutes paragraph (b) of section 1020D to provide that provisions of Part 7.9 which require a party to be informed about the relevant statements on the Clean Energy Regulator's website cannot be contracted out of.

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Item 19.24 amends paragraph 1020E(7)(b) to omit the document, advertisement or statement, and refer instead to the statement or advertisement.

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Item 19.25 substitutes the heading for section 1021C.

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Items 19.26 and 19.27 substitutes subparagraphs 1021C(1)(a)(i) and 1021C(1)(b)(i) respectively of the strict liability offence provisions to provide that failure to inform a person about the relevant statements published on the Clean Energy Regulator's website constitutes an offence of strict liability.

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Items 19.28 and 19.29 substitutes subparagraphs 1021C(3)(a)(i) and 1021C(3)(b)(i) of the ordinary offence provisions to provide that failure to inform a person about the relevant statements published on the Clean Energy Regulator's website constitutes an offence.

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Item 19.30 substitutes paragraph (b) in paragraph 1021C(4) which outlines a defence for authorised representatives and provides that there is a defence where the representative's failure to inform the person about the relevant statements occurred because the representative was acting reasonably in reliance on information or instructions.

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Item 19.31 amends section 1021G to omit the giving or communicating of disclosure documents or statements, and instead refers to a person being informed about the relevant statement on the Clean Energy Regulator's website.

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Item 19.32 amends subsection 1022B(1) to insert additional paragraphs (ad) to provide that failure to inform a person about the relevant statements published on the Clean Energy Regulator's website gives rise to a civil action for loss or damage.

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Corporations Amendment Regulation 2012 (No. 1)

This Legislative Instrument is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

Overview of the Legislative Instrument

The purpose of the Legislative Instrument is to recognise Australian carbon credit units issued under the Carbon Farming Initiative, eligible international emissions units issued in accordance with the Kyoto rules or another relevant international agreement and carbon units issued under the Clean Energy Legislation, as financial products.

Human rights implications

This Legislative Instrument does not engage any of the applicable rights or freedoms.