The provision of financial services and products is regulated in Australia by Chapter 7 of the Corporations Act 2001 (Cth) (Corporations Act). The regulatory framework creates a uniform licensing (Australian Financial Services (AFS) licensing) and disclosure regime for financial services and products. The Australian Securities and Investment Commission (ASIC) is responsible for AFS licensing and supervision of financial services providers, consumer protection in the financial services industry and for enforcement of the financial services laws in general.
Anyone considering the establishment of a business in Australia should carefully ascertain whether their intended business (including by the internet) might also be providing a financial service covered by the licensing or disclosure regime.
The AFS licensing regime covers a broad range of financial services and products. Financial services include advice and dealing in respect of financial products. Financial products include most investment products, non-cash payment facilities and arrangements for the management of financial risk. This covers everything from derivatives and shares to managed investment schemes, superannuation, life and general insurance, miscellaneous risk products, sales support for electronic cash and smart cards, payment systems, spread betting, contracts for difference and some loyalty schemes. Margin lending is regulated as a financial product rather than as a credit product. Credit rating agencies also require an AFS Licence to operate in Australia.
From July 2012, providing advice in relation to or dealing in Australian carbon credit units and eligible international emissions units will be a financial service and providers of such services will require an AFS Licence. Certain financial product issuers such as general and life insurance entities, credit unions and responsible superannuation entities are also prudentially supervised by the Australian Prudential Regulation Authority (APRA) - see the Insurance chapter. Insurers that are authorised by APRA and whose clients are solely wholesale (within the meaning of the Corporations Act) may claim an AFS Licence exemption.
Licences carry a range of financial solvency and risk management requirements, including adequacy of resources – human, financial and technological (except for APRA-regulated bodies). Licensees must ensure that their representatives are trained and able to provide its authorised financial services, and must manage conflicts of interest in accordance with ASIC requirements. ASIC issues regulatory guides, which set out its interpretation of the requirements of the law and how it implements regulation. The guides are available on ASIC's website.
Ongoing licence conditions require AFS licensees to comply with industry codes of practice.
The time and resources required for a new licence and to maintain ongoing compliance with an AFS Licence can be significant depending on the required AFS Licence authorisations.
Some of the more time-consuming requirements concern the preparation of licensing proofs on topics such as risk management, compliance, information technology processes and capabilities. Staff providing financial product advice to retail customers must also satisfy stringent minimum educational and competency requirements. Disclosure requirements apply to retail product information and marketing material.
Advertising restrictions including restrictions on cold calling and making unsolicited offers are also in place in Australia.
Consumer credit activities are regulated on a national basis in accordance with the National Consumer Credit Protection Act 2009 (Cth) and Code. This replaced the existing state and territory consumer credit laws. Credit providers and intermediaries require an Australian Credit Licence to provide credit or financial broking services. The credit licensing system is based on the AFS licensing concepts and requirements. ASIC is now the national regulator for consumer credit and finance broking.
FINANCIAL OMBUDSMAN SERVICE
The Financial Ombudsman Service (FOS) is responsible for the Codes of Practice and dispute resolution for banking and finance, general insurance and life insurance. The FOS is an external dispute resolution scheme established to provide free advice and assistance to consumers aiming to resolve complaints against insurance and financial services industry members, including those offering banking, credit, loans, general insurance, life insurance, financial planning, investments, stock broking, managed funds and pooled superannuation trusts. Financial products and services provided to retail clients trigger the specific disclosure document requirements. This is an area of ongoing regulatory reform.
The FOS is headed by a chief ombudsman who is supported by three ombudsmen covering each of the sectors: Banking and Finance; General Insurance; and Investments, Life Insurance and Superannuation.
A separate Code of Practice still exists for each sector.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) imposes legal obligations on the providers of certain services such as financial services providers (reporting entities), including the obligation to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) if providing designated services set out in the AML/CTF Act.
The AML/CTF Act imposes obligations on certain reporting entities, including the requirement to adopt and maintain an AML/CTF compliance program that includes customer identification procedures and a process for reporting suspicious and threshold transactions involving amounts over a set monetary value. Annual compliance reports must be lodged with AUSTRAC.
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