Bills Digest No. 236 1997-98
Financial Sector Reform (Consequential Amendments) Bill 1998
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
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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Published by the Department of the Parliamentary Library, 1998.
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