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CQIB - Chapter 3 - The Regulatory and Legal Framework > Unit 2 - Legislation and Regulators (Part 1) > Flashcards

Unit 2 - Legislation and Regulators (Part 1) Flashcards

1
Q

What are two important legislation pieces related to ASIC’s work?

A
  • Corporations Act 2001
  • FSR Act 2001
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2
Q

What does ASIC aim to do?

A
  1. Protect markets and consumers from manipulation, deception, and unfair practices (to promote confident participation in the financial system by investors and consumers)
  2. Promote honest and fairness in company operations and securities and futures markets through adequate and timely disclosure of market information.
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3
Q

How does ASIC achieve its aims?

A
  1. Developing policy/guidance about the law it administers.
  2. Granting licences and monitoring compliance.
  3. Supplying comprehensive information on companies and corporate activities.
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4
Q

How did the Financial Services Reform Act 2001 (FSRA) affect the Corporations Act 2001?

A

Introduced single licensing regime, and consistent/comparable disclosure regime, for all financial products.

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5
Q

Explain ASIC in a sentence:

A

ASIC is Australia’s corporate and financial services regulator and is responsible for promoting investor and financial consumer trust and confidence as well as ensuring fair, orderly, and transparent markets.

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6
Q

What is the Corporations Act?

A

It is an Act of the Commonwealth of Australia that sets out the laws dealing with business entities in Australia at both federal and interstate levels

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7
Q

Why was the Financial Services Reform Act 2001 introduced into the Corporations Act 2001?

A
  • Overcome anomalies and regulatory duplication
  • Introduce legal responsibility and licence requirements for the sales, advice, and dealing processes.
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8
Q

Under the Financial Services Reform Act 2001, who would need to assume responsibility for the competence and conduct of its a licensee’s employees and agents?

A

The licensee themselves

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9
Q

What is the DDO?

A

The Treasury Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019

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10
Q

What is a key issuer obligation under the DDO?

A

The development of a Target Market Determination (TMD) that puts customers at the centre of how issuers design and distribute products

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11
Q

When did DDO obligations commence?

A

October 2019

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12
Q

What products are covered by the DDO?

A
  1. Products and securities that require a PDS.
  2. Securities for which disclosure documents must be prepared.
  3. Other products prescribed in the Corporations Regulations 2001 as requiring a TMD
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13
Q

What products are excluded from the DDO?

A
  • MySyper products
  • Margin lending facilities
  • Fully paid ordinary shares (generally)
  • Securities issued under an employee share scheme
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14
Q

Who does design and distribution obligations (DDO) apply to?

A

‘Issuers’ and ‘distributors’ of financial products that are available in Australia

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15
Q

What are some requirements of the DDO (that apply to issuers/distributors)?

A
  • Products must have TMD.
  • Products should match likely objectives, situation, and need of customers (target market).
  • Must take reasonable steps to make it likely the products are being acquired by customers who meet the target market as defined by the issuer.
  • Issuers must monitor outcomes and review products to ensure they are generally consistent with needs, objectives.
  • Need effective product governance arrangements, aimed at improving outcomes for customers of these products.
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16
Q

Under Design and Distribution Obligations (DDO), how do we define a distributor?

A

Generally include regulated persons, such as Australian financial services licensees, authorised representatives, credit licensees and credit representatives.

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17
Q

Under Design and Distribution Obligations (DDO), how do we define ‘distribution’?

A

Generally, the following actions are considered to be distribution:
1. ‘Dealing’ in a financial product.
2. Providing a PDS.
3. Providing financial product advice.

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18
Q

Where a distributor ‘distributes’ a product that forms part of the DDO regime, what written information must they provide to the issuer?

A
  1. Number of complains related to the product during the reporting period specified in the TMD.
  2. Any other information during the reporting period as specified in the TMD.
  3. Any ‘significant dealings’ in the product that are not consistent with the TMD.
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19
Q

Does the DDO provide a definition of ‘significant dealing’?

A

No

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20
Q

What are some guidance factors on considering if something is a ‘significant dealing’?

A
  • Proportion of customers outside the target market who acquire the product.
  • Actual, or potential harm to customers (inc. financial).
  • Nature and extent of the inconsistency of distribution to the TMD.
  • Time period in which significant dealings took place.
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21
Q

What is organisational competence?

A

Universe of employee skills that the company must have in order to achieve their plans.

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22
Q

What are Fee disclosure statements?

A

Obligation that requires advisors to provide their clients with an annual fee disclosure statement plus a requirement for their client to “opt in” to renew their ongoing fee arrangement every two years.

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23
Q

What is an SOA?

A

Statement of Advice. Written explanation of the adviser’s advice to a client. Explains and records the advice, reasons for the advice, and how the advice is to be implemented.

24
Q

What are margin lending facilities?

A

A margin loan lets you borrow money to invest and uses your shares or managed funds as security.

25
Q

What is wholesale banking?

A

Banking services between merchant banks and other financial institutions. This type of bank deals with larger clients, such as large corporations and other banks, whereas retail banking focuses more on the individual or small business

26
Q

The Corporations Act defines all clients as ‘retail’ unless they fall within a wholesale client category. What is the wholesale client category based on product value?

A

The product being invested in or advised on has a value exceeding $500,000.

Note: this does not apply to risk-based products (such as life insurance) or to the extent that investment funds are sourced from a superannuation fund.

27
Q

The Corporations Act defines all clients as ‘retail’ unless they fall within a wholesale client category. What is the wholesale client category based on individual wealth?

A

Requires a person to have:
- Net assets of at least $2.5 million, or
- Gross income for each of the last two financial years of at least $250k (certified by an accountant).

28
Q

According to the Corporations Act, when determining if individual wealth falls under the ‘wholesale client’ category, can the net assets or gross income of a company or trust controlled by a person be included?

A

Yes

29
Q

Under the Corporations Act, if a person is eligible to be a wholesale client, is a company or trust controlled by that person also a wholesale client?

A

Yes (some restrictions apply to self-managed superannuation funds)

30
Q

The Corporations Act defines all clients as ‘retail’ unless they fall within a wholesale client category. What is the wholesale client category based on large business?

A

Where the product to be used is in connection with a business other than a small business.

31
Q

The Corporations Act defines all clients as ‘retail’ unless they fall within a wholesale client category. What are 5 types of wholesale investor categories?

A
  1. Product value
  2. Individual wealth
  3. Large business
  4. Professional investor
  5. Sophisticated investor
32
Q

What 8 key AFSL Licensee obligations?

A
  1. Licensing obligations
  2. Financial Product Advice & Dealing
  3. Disclosure Documents
  4. Training of Financial Product Advisers
  5. Organisational Competence
  6. Dispute Resolution
  7. Breach reporting
  8. Design and Distribution Obligations
33
Q

In 2012, ASIC released regulatory guidance in relation to the Future of Financial Advice (FOFA) reforms. What are 5 key amendments to the Corporations Act that were introduced?

A
  1. Conflicted remuneration
  2. Best interests duty
  3. Scaled advice
  4. Fees disclosure
  5. Enhanced powers for ASIC
34
Q

We are looking at amendments to the Corporations Act in line with the Future of Financial Advice (FOFA) reforms. Explain Conflicted Remuneration?

A

A ban on certain remuneration structures such as commissions and volume-based payments, resulting from the distribution of and advice about a range of retail investment products.

35
Q

We are looking at amendments to the Corporations Act in line with the Future of Financial Advice (FOFA) reforms. Explain Best Interest duties?

A

Financial advisers must act in the best interest of their clients.

36
Q

We are looking at amendments to the Corporations Act in line with the Future of Financial Advice (FOFA) reforms. Explain scaled advice?

A

Have the advice as simple or complex as the needs/situation of the client requires.

37
Q

We are looking at amendments to the Corporations Act in line with the Future of Financial Advice (FOFA) reforms. What are the enhanced powers for ASIC?

A

Powers to cancel or suspend an AFS licence and ban representatives.

38
Q

What legislation does APRA enforce?

A

The prudential supervision elements of:
- the Banking Act 1959, and
- the Australian Prudential Regulation Authority Act 1998

39
Q

What does APRA aim to do?

A

Act in the interests of depositors, policyholders and superannuation fund members, and maintain prudential standards

40
Q

How does APRA achieve their aims?

A
  • Requiring institutions to manage risk prudently
  • Issuing enforceable directions, including power to revoke licences
  • Appointing an investigator or statutory manager to a financial institution in difficulty, or take control of the institution itself, if required.
41
Q

Under the APRA Act 1998, who does APRA regulate?

A
  1. ADIs
  2. General insurance providers
  3. Superannuation providers
42
Q

Who are the four members of the Council of Financial Regulators (CFR)?

A
  1. Treasury
  2. RBA
  3. ASIC
  4. APRA
43
Q

What two government departments have existed continuously since Federation in 1901?

A
  1. The Treasury
  2. Attorney-General’s Department
44
Q

What is the Treasury responsible for?

A
  1. Economic policy
  2. Fiscal policy
  3. Market regulation
  4. Australian federal budget
45
Q

What are 3 Treasury functions?

A
  • Participation in regulatory reforms to improve the resilience of the financial system
  • Innovation and consumer outcomes
  • Participation in regional and international forums, such as G20 summits.
46
Q

Who is the coordinating body for Australia’s main financial regulatory agencies?

A

The Council of Financial Regulators (CFR)

47
Q

Who chairs the CFR?

A

The RBA

48
Q

What are the aims for the CFR?

A

Contribute to the efficiency and effectiveness of financial regulation and to promote stability of the Australian financial system.

  1. Facilitate sharing of information amongst members.
  2. Discuss regulatory issues.
  3. Coordinate responses to potential threats to financial stability if the need arises.
  4. Advise government on the adequacy of Australia’s financial regulatory arrangements.
49
Q

What is a key piece of legislation related to the ACCC?

A

Competition and Consumer Act 2010

50
Q

What is the aim of the ACCC?

A

Promote competition and fair trade in markets to benefit consumers, businesses, and the community.

51
Q

How does the ACCC achieve its aims?

A
  • Laws to protect consumers from unfair business practices.
  • Prohibiting anti-competitive behaviour.
  • Price monitoring.
  • Prohibiting mergers and acquisitions that would have the effect (or be likely to) of substantially lessening competition in a market.
52
Q

Who regulates industries such as airports, electricity, gas, and telecommunications?

A

ACCC

53
Q

Who monitors markets with limited competition e.g. fuel industry and petrol prices?

A

ACCC

54
Q

What does the Competition and Consumer Act cover?

A
  • Activities that substantially lessen competition in a market.
  • Cartels
  • Collective bargaining and boycotts
  • Exclusive dealing
  • Misuse of market power
55
Q

What are cartel activities?

A

Practices that inflate prices such as price fixing, controlling market share or restricting outputs/production.

56
Q

What does Australian Consumer Law cover (i.e., where does it provide consumer protection)?

A
  • Unfair business practices (misleading/deceptive)
  • Consumer rights (guarantees, refunds, replacements)
  • Product safety (standards, bans, recalls)
  • Sales practices (unsolicited agreements, referrals, harassment/coercion)

CQIB - Chapter 3 - The Regulatory and Legal Framework (6 decks)

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