Chapter 7 of the Corporations Act regulates financial
markets and services. Providers of financial services are required
to hold an Australian Financial Services Licence
(AFSL) issued by ASIC or to be authorised
representatives of an AFSL. A person provides a financial service
if they provide financial product advice, deal in a financial
product, make a market for a financial product, operate a
registered scheme or provide a custodial or depository service.
Credit ratings agencies and providers of margin lending
facilities are also required to hold AFSLs. Each financial services
business is subject to its own set of specific licence
Certain exemptions from holding an AFSL are available, for
in relation to financial services only involving the financial
services provider itself, such as a company issuing shares;
where the financial service is regulated by an approved
overseas (ie non-Australian) regulatory authority.
The definitions and rules for determining whether a particular
person or activity is required to hold an AFSL, or whether an
exemption applies, are relatively complex and need to be assessed
on a case by case basis.
Holders of an AFSL can be subject to licence conditions such as
being limited to offering financial services only to wholesale
clients. An AFSL for the carrying on of one kind of financial
services business will not authorise the licence-holder to carry on
another kind of financial services business. There are also a range
of financial and operational requirements imposed on AFSL holders
as conditions of their licences.
The definition of "financial products" is critical to
determining whether the regulatory regime under the
Corporations Act applies. The concept is defined broadly
to mean a facility through which a person:
makes a financial investment, where an investor gives money to
another person to generate a financial return for the investor and
the investor has no day-to-day control over the money, e.g. shares
manages a financial risk, where a person manages the financial
consequence of particular circumstances happening or avoids or
limits the financial consequences of fluctuations in, or in the
value of, receipts or costs (including prices and interest rates),
e.g. insurance products; or
makes non-cash payments, where a person makes payments or
causes payments to be made otherwise than by the physical delivery
of Australian or foreign currency in the form of notes and/or
coins, e.g. through card payment systems.
Offering a financial product to a retail investor will normally
require the preparation of a product disclosure statement or a
prospectus, and potentially also the provision of a financial
services guide. The form and content of both types of documents are
prescribed by the Corporations Act.
The Anti-Money Laundering and Counter-Terrorism Financing
Act 2006 (Cth) is the main statute dealing with anti-money
laundering and terrorism financing and is administered by the
Australian Transaction Reports and Analysis Centre
(AUSTRAC). Entities covered by the legislation
include businesses in the financial, bullion and gambling sectors.
These entities are required to:
conduct risk assessments and implement system and governance
arrangements to manage money laundering and terrorism financing
verify the identity of their customers (e.g. "know your
client" checks) and keep adequate records;
advise AUSTRAC if they have obligations under the legislation;
report certain cash and international transactions and any
suspicious activity to AUSTRAC.
National Consumer Credit Licensing
The National Consumer Credit Protection Act 2009 (Cth)
(NCCPA) sets out, amongst other things, a
comprehensive licensing regime for all providers of consumer credit
and credit services and imposes responsible lending conduct
requirements on licensees.
In broad terms, the NCCPA requires two broad categories of
people engaged in consumer credit activities to be licensed:
credit providers (i.e. lenders and lessors); and
providers of credit services, including intermediaries such as
The provision of credit to consumers for residential investment
purposes also falls under the NCCPA.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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