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CONTENTS
Passage History
Purpose
Background
Main Provisions
Endnotes
Contact Officer and Copyright Details
Financial Sector Reform
(Consequential Amendments) Bill 1998
Date Introduced: 14 May 1998
House: Senate
Portfolio: Treasury
Commencement: Unless otherwise
stated below, the significant amendments commence on the
commencement of the Australian Prudential Regulation Authority
Act 1998. That Act commences on the earlier of 6 months after
Royal Assent and a day to be fixed by proclamation.
To:
- Amend the terminology used in numerous Acts to make that
terminology consistent with the amended legislation governing the
financial system
- Give the Australian Securities Investment Commission (formerly
the Australian Securities Commission) the function of consumer
protection in respect of financial services and remove that role
from the Australian Competition and Consumer Commission.
General
This Bill forms part of a package of financial
sector reform Bills introduced as a consequence of the Financial
System Inquiry (although this Bill was introduced at a later date
than those Bills).(1)
The general background to this Bill is the
content of the Financial System Inquiry Final Report
(Wallis Report). A summary and critique of the Wallis Report can be
found in the Parliamentary Library's Research Paper No.16 of
1996-97, The Wallis Report on the Australian Financial System:
summary and critique, by Phil Hanratty.
Consumer protection and financial
services
The Wallis Report recommended the establishment
of a single agency, the Corporations and Financial Services
Commission (CFSC), to provide Commonwealth regulation of
corporations, financial market integrity and consumer protection.
It further recommended that the body should combine the existing
market integrity, corporations and consumer protection roles of the
Australian Securities Commission, the Insurance and Superannuation
Commission and the Australian Payments System Council. The
Government followed this recommendation but has called the new body
the Australian Securities and Investment Commission (ASIC).
Recommendation 3 of the Wallis Report
provides:
The CFSC should administer all consumer protection
laws for financial services.
While the economy wide reach of the powers of the
Australian Competition and Consumer Commission (ACCC) should be
retained in law (subject to Recommendation 4), the CFSC should have
sole responsibility for administering consumer protection
regulation within its jurisdiction over the finance sector. For
this purpose, consumer protection provisions comparable to those in
the Trade Practices Act 1974 should be included in the
CFSC's legislation.(2)
The members of the Wallis inquiry felt that the
coexistence of the ACCC's and CFSC's roles would create a potential
for regulatory duplication in the financial system and that this
would lead to additional compliance costs, uncertainty and risk of
inconsistency.
The inquiry canvassed the concern that a
specialist regulator may develop a shared interest in the industry
being regulated ('regulator capture'), but took the view that given
the wide reach of responsibilities proposed for the CFSC, the risk
of that occurrence was not substantial.
Schedule 1 - Consequential amendment of
Acts
This Schedule amends 53 different Acts to
replace the terms used in these Acts to make them consistent with
the terms used in the package of legislation which implements the
changes to the regulation of the financial system. Most
significantly, all references to the term 'bank' are replaced with
references to 'approved deposit-taking institution' and references
to the Insurance and Superannuation Commission are replaced by
references to ASIC.
Schedule 2 - Unconscionable conduct and
consumer protection in relation to the supply of financial
services
This Schedule inserts, into Division 2 of Part 2
of the Australian Securities Commission Act 1989, the
consumer protection provisions of Parts IVA and V and some of the
enforcement provisions of Part VI of the Trade Practices Act
1974 (TPA). The ASIC will be limited in its consumer
protection role to conduct in respect of 'financial services'.
The amendments take the form of 9 subdivisions.
It is appropriate to comment on some of those subdivisions.
Subdivision B - Interpretation
A 'financial service' is a service that consists
of providing a financial product or a service that is supplied in
relation to a financial product.
A 'financial product' means:
- a facility for taking money on deposit made available in the
course of conducting a banking business within the meaning of the
Banking Act 1959
- a security
- a futures contract
- a contract of insurance within the meaning of the Life
Insurance Act 1959
- a retirement savings account within the meaning of the
Retirement Savings Accounts Act 1997
- a superannuation interest within the meaning of the
Superannuation Industry (Supervision) Act 1993.
A foreign exchange contract is expressly
excluded from the definition and, in accordance with the Wallis
recommendations, consumer protection in respect of the provision of
credit will not be the responsibility of ASIC, at this stage.(3)
Consumer credit is regulated by the Uniform Consumer Credit
Code and consumer protection in respect of credit will
continue to be provided by the TPA.
Where a transaction involves both a credit
product and a financial product, and a claim is being brought by a
private citizen, it will be a case of pleading a breach of both the
ASC Act and the TPA in respect of the appropriate parts of the
business dealing. Where each of the two regulators may potentially
bring an action in respect of the business dealings which involve
both a credit product and a financial product, both regulators are
empowered to delegate its powers and functions to a staff member of
the other regulator to allow him or her to pursue the matter (see
below).
Subdivision C - Unconscionable conduct
Proposed new sections
12CA and 12CB replicate sections 51AA and 51AB of
the TPA, respectively, but limit the prohibitions to conduct
engaged in in respect of financial services. New section
12CA prohibits corporations engaging in unconscionable
conduct, within the meaning of the common law. New Section
12CB prohibits unconscionable conduct (to be determined
having regard to a number of factors) in respect of financial
services which are acquired for personal, domestic or household
use.
The new unconscionable conduct provision
(inserted by the Trade Practices Amendment (Fair Trading)
Act 1998) of the TPA (section 51AC) are not included
in the FSRCA Bill. This is the small business provision which
prohibits corporations engaging in unconscionable conduct in
respect of the supply or possible supply of goods and services
where the price of the goods or services does not exceed
$1,000,000.
This is a curious omission. A person will be
still be entitled to rely on section 51AC in respect of
unconscionable conduct which relates to a financial service, so
that there is no 'gap' in the rights available to an aggrieved
person, but from the viewpoint of drafting consistency, section
51AC should be replicated in the ASC Act.
The only explanation is that at this stage new
section 51AC is not operative. However it is expected it will
become operative from 1 July 1998.
Item 26 excludes the operation
of the sections 51AA and 51AB of the TPA in respect of financial
services.
Subdivision D - Consumer protection
The most significant provision of this
subdivision is proposed section 12DA which
restates section 52 of the TPA in respect of financial services.
This new section will prohibit corporations, in trade or commerce,
from engaging in conduct in relation to financial services which is
misleading or deceptive or likely to mislead or deceive.
Item 27 inserts new
section 51AF into the TPA. That section excludes the
application of Part V (consumer protection) to the supply or
possible supply of financial services.
Subdivision E - Conditions and warranties in consumer
transactions
Proposed new section 12ED
operates to insert into every contract for the supply of financial
services by a corporation to a consumer a warranty that:
- the services will be rendered with due care and skill, and
- any materials supplied in connection with those services will
be reasonably fit for the purpose for which they are supplied.
Under that same provision, if the consumer makes
known the particular purpose for which the services are required or
the result that he or she desires to achieve, there is an implied
warranty that the services are reasonably fit for that purpose or
might reasonably be expected to achieve that result.
The provision replicates section 74 of the TPA
but is confined to financial services.
Subdivision G - Enforcement and remedies
This subdivision restates the significant
enforcement and remedy provisions contained in Part VI of the
TPA.
Proposed new section 12GB
imposes a penalty where a person contravenes proposed subdivision D
or E. However, subdivision E contains no provisions which are
capable of being contravened, i.e. it contains no prohibitions and
does not mandate a particular conduct. As mentioned above,
subdivision E implies into every contract for the supply of
financial services by a corporation to a consumer in the course of
business, that the services will be rendered with due care and
skill. If the consumer makes known any particular purpose for which
the services are required, there is an implied warranty that the
services will be reasonably fit for that purpose.
A failure to supply financial services with due
care and skill will result in the 'consumer' being entitled to
bring a private action based on a breach of a term of the contract
between it and the supplier.
Cross Delegation
The combination of items 18 and
19 of Schedule 2 will result in the ASIC being
able to delegate any or all of its powers or functions to a member
of staff of the ACCC with the agreement of the Chairperson of the
ACCC. Correspondingly, item 25 permits the ACCC to
delegate any of its functions and powers in relation to
unconscionable conduct, consumer protection and enforcement to a
staff member of the ASIC, with the agreement of the chairperson of
the ASIC.
Schedule 3 - Amendment of the
Corporations Law
This Schedule contains further amendments as a
result of the change in terminology from 'bank' to 'approved
deposit-taking institution'.
- Australian Prudential Regulation Authority Bill 1998
- Authorised Deposit-Taking Institution Supervisory Levy
Imposition Bill 1998
- Authorised Non-Operating Holding companies Supervisory Levy
Imposition bill 1998
- Supervisory Levy Imposition Bill 1998
- Superannuation Supervisory Levy Imposition Bill 1998
- Retirement Saving Account Providers Supervisory Levy Imposition
Bill 1998
- Life Insurance Supervisory Levy Imposition Bill 1998
- General Insurance Supervisory Levy Imposition Bill 1998
- Financial Institutions Supervisory Levies Collection Bill
1998
- Financial Sector Reform (Amendments and Transitional
Provisions) Bill 1998
- Payments Systems (Regulation) Bill 1998
- Financial Sector (Shareholdings) Bill 1998
- Financial System Inquiry, Financial System Inquiry Final
Report, (Mr S Wallis, Chairman), Canberra, March 1997, p.
248.
- Recommendation 6.
Lee Jones
30 June 1998
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ISSN 1328-8091
© Commonwealth of Australia 1998
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