House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

17 Miscellaneous

17.1 Part 7.12 addresses qualified privilege (Division 1) and various other matters (Division 2).

Qualified privilege

17.2 Division 1 deals with protection from suit in a variety of situations relating to financial markets and clearing and settlement facilities. One of the aims of the relevant provisions is to describe more generally the situations in which qualified privilege applies and thus avoid the need for incremental amendment as has happened in the case of current section 779.

17.3 Section 89 of the proposed Corporations Act assists in the meaning of qualified privilege.

17.4 The protection provided by this Division extends to officers, employees and representatives of the person or body (proposed section 1100D).

Information required to be lodged by Chapter 7

17.5 Division 1 provides qualified privilege and protection from breach of confidence actions where the person is required to give the information to ASIC under Chapter 7 or regulations made for the purpose of the Chapter (proposed subsection 1110A(1)).

Information provided by markets etc to ASIC

17.6 It also provides qualified privilege and protection from breach of confidence actions where the market or clearing and settlement facility licensee, its supervisor or foreign regulator provides information to ASIC in connection with the performance by ASIC of its functions under Chapter 7 of the regulations (proposed subsection 1110A(2)).

17.7 This provision has been included to assist in the free flow of relevant information, particularly between the financial markets, as front-line regulators, and ASIC.

Information provided by markets etc to others

17.8 Qualified privilege will be provided to market and clearing and settlement facility licensees in respect of certain actions (including the giving of information) in connection with, in the case of a market, the exercise of its powers under the operating rules if the licensee believes, on reasonable grounds, that the action is necessary, for example, to ensure that the market operates in a fair, orderly and transparent way (proposed subsection 1110B(1)).

17.9 The provision also refers to the provision of information by a market licensee or clearing and settlement facility licensee to other markets or facilities (proposed subsection 1110B(2)).

17.10 There are limitations, and these are included in proposed subsection 1100B(3). These reflect the current limitations in subsection 779(6) of the Corporations Law.

Provision of information to market licensees etc

17.11 A person who provides information to a market licensee, clearing and settlement facility licensee, its supervisor or a foreign regulator has qualified privilege if the information is in relation to a contravention or suspected contravention of the proposed Corporations Act or the operating rules of the market or facility concerned (proposed section 1100C).

Other matters

Codes of conduct

17.12 The role of codes of conduct will be to establish best practice standards for meeting the requirements of the proposed Corporations Act. While a code cannot derogate from obligations imposed under the Act, it can provide clarification and processes and procedures for meeting the Acts requirements (see proposed section 1101A).

17.13 ASIC will have power to approve a code that is not inconsistent with the proposed Corporations Act or any other law of the Commonwealth under which ASIC has regulatory responsibilities and relating to the activities of financial services licensees, authorised representatives and issuers of financial products.

17.14 In exercising its approval powers, ASIC will be required to take account of the benefit of having codes of conduct harmonised to the greatest extent possible to ensure consistency across the industry and the ability of the applicant to ensure that people who hold out that they comply with the code do, in fact, comply with the code.

17.15 It will not be mandatory for an industry participant to be party to a code. This reflects the primacy of the obligations imposed by the Act and the facilitative role to be played by codes.

17.16 Codes may also be developed that establish best practice in areas not covered by the Act, but where industry and consumers consider the adoption by industry participants of consistent procedures and standards will facilitate business and enhance services offered to consumers.

17.17 It is expected that new and revised codes will be developed by industry in consultation with ASIC and with consumer associations. The Government considers that existing industry codes including those relating to practices in the areas of banking, deposit-taking, and general insurance will continue to play an important role in fleshing out best practice standards for compliance with the proposed new regime. These codes will, however, need to be amended to ensure that they align with the requirements and obligations imposed by the Bill.

Powers of Court to make certain orders

17.18 The court is given the power to make such orders as it sees fit in a range of situations (proposed section 1101B). This provision is based on section 1114 of the Corporations Law.

17.19 However, the provision will allow ASIC to make an application to the Court in relation to the contravention of a condition on any of the licensees issued under proposed Chapter 7 (proposed subparagraph 1101B(1)(a)(ii)) or conditions related to declared professional bodies (proposed subparagraph 1101B(1)(a)(iv)).

17.20 Other changes in the provision reflect changes in concepts and terminology throughout proposed Chapter 7. For example, references to securities have been amended to refer to financial products and references to securities exchange and SCH have been replaced by references to licensed market and licensed CS facility.

Provisions relating to records and books

17.21 These provisions replicate provisions currently contained in Part 7.14 of the Corporations Law. They relate to:

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preservation and disposal of records - proposed section 1101C is based on current subsections 1116(1)-(4) of the Corporations Law. Subsection 1116(3) relating to contract notes has been omitted. A regulation making power will allow for exceptions to the general rule (proposed subsection 1101C(4)).

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destruction of records by ASIC - proposed section 1101D is based on current subsection 1116(5).

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concealing etc. of books relating to financial products - proposed section 1101E is based on current section 1117.

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falsification of records - proposed section 1101F is based on current section 1118.

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precautions against falsification of records - proposed section 1101G is based on current section 1119.

17.22 Changes have been made throughout these provisions to reflect changes in concepts and terminology throughout proposed Chapter 7.

Contravention of Chapter 7 does not generally affect the validity of transactions

17.23 A failure to comply with any requirement of Chapter 7 and its regulations will not affect the validity or enforceability of any transaction (proposed subsection 1101H(1)).

17.24 This is subject to any express provision to the contrary in the Act or Regulations including regulations made specifically for this purpose (proposed subsections 1101H(2) and (3)).

Effect of gaming and wagering laws

17.25 Gaming and wagering legislation of a State of Territory in this jurisdiction (as defined in section 9 of the proposed Corporations Act) will not prevent the entering into of, or affect the validity or enforceability of a contract that is a financial product (proposedsection 1101I).

17.26 This is significantly wider than the current relevant provisions of the Corporations Law (sections 778 and 1141).

17.27 It should be noted, however, that if appropriate, a product may be excluded by the regulations from the definition of financial product. In a comparable manner, Corporations Regulation 8.1.01A removes from the definition of adjustment agreement certain transactions which relate to the course or outcomes of a sporting event, which are then left to be regulated under the gaming and wagering legislation.

Delegation

17.28 The Minister will be empowered to delegate any of his powers under proposed Chapter 7 to ASIC, a member of ASIC or a staff member of ASIC who is an SES employee or holds a position equivalent to that of an SES employee (proposed section 1101J).

17.29 This will bring a measure of flexibility and allow the Minister to delegate, for example, the power to disallow the operating rules of the smaller financial markets.