The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Nick Sherry

Minister for Superannuation and Corporate Law

3 December 2007 - 8 June 2009

Media Release of 26/02/2009

NO.017

Minister Welcomes Parliamentary Inquiry

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has today welcomed a Parliamentary Joint Committee on Corporations and Financial Services Inquiry into recent corporate collapses in Australia.

"The Rudd Government feels for families affected by these corporate collapses."

"I understand the Committee will explore issues associated with the recent corporate collapses including Storm Financial and Opes Prime. I understand this includes the role played by financial advisers, current remuneration structures such as fees and commissions and the current regulatory environment, including licensing arrangements, for providers and advisers."

I look forward to supporting the Joint Committee on Corporations and Financial Services Committee inquiry."

"On margin lending regulation, the Rudd Government acted early to fix the gap left open for over a decade by the Liberal Party, by securing an agreement at COAG in mid-2008 for a national regulatory approach to margin lending," said Minister Sherry.

The new national regime, to be introduced into Parliament by the middle of this year, includes:

  • adding margin loans as a "financial product" under the Corporations Act;
  • dramatically increasing the levels of simple, plain-English consumer disclosure, including the compulsory disclosure of commissions;
  • imposing a tough responsible lending obligation on all margin lenders; and
  • boosting consumer protections and options for redress by requiring margin lenders to be licensed and properly trained and members of a external disputes body.

"There will be single, standard, national regulation and supervision of margin lending which means better protection and greater redress for investors.

"It's just a shame these reforms weren't undertaken a decade ago," said Minister Sherry.

CANBERRA
26 February, 2009


 

Inquiry into financial products and services in Australia

Preamble

The Parliamentary Joint Committee on Corporations and Financial Services is conducting an inquiry into issues associated with recent financial product company collapses, including the role played by financial advisers; the state of the general regulatory environment; the role played by remuneration models, such as commissions; the role of marketing and advertising in financial product distribution; the licensing arrangements for those who sold the financial products and services; and the consumer protection and insurance arrangements in place.

The inquiry will recommend any necessary legislative or regulatory change on these issues. In conducting its inquiry, the Committee has made a decision to focus specifically on non-superannuation products and services.

Section 763A of the Corporations Act 2001 sets out the general definition of a financial product as follows:

  1. … a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
    1. makes a financial investment …;
    2. manages financial risk …;
    3. makes non-cash payments …
  2. … a particular facility that is of a kind through which people commonly make financial investments, manage financial risks or make non-cash payments is a financial product even if that facility is acquired by a particular person for some other purpose.
  3. A facility does not cease to be a financial product merely because:
    1. the facility has been acquired by a person other than the person to whom it was originally issued; and
    2. that person, in acquiring the product, was not making a financial investment or managing a financial risk.

Section 766A of the Corporations Act 2001 identifies when a person provides a financial service:

  1. … a person provides a financial service if they:
    1. provide financial product advice…; or
    2. deal in a financial product…; or
    3. make a market for a financial product …; or
    4. operate a registered scheme; or
    5. provide a custodial or depository service…; or
    6. engage in conduct of a kind prescribed by regulations made for the purposes of this paragraph.

The Committee will report its findings by 23 November 2009. Submissions to the inquiry close on 31 July 2009, but public hearings will commence prior to this date and early submissions are encouraged.

Terms of Reference

On 25 February 2009 the Parliamentary Joint Committee on Corporations and Financial Services resolved to inquire into, and report on by 23 November 2009, the issues associated with recent financial product and services provider collapses, such as Storm Financial, Opes Prime and other similar collapses, with particular reference to:

  1. the role of financial advisers;
  2. the general regulatory environment for these products and services;
  3. the role played by commission arrangements relating to product sales and advice, including the potential for conflicts of interest, the need for appropriate disclosure, and remuneration models for financial advisers;
  4. the role played by marketing and advertising campaigns;
  5. the adequacy of licensing arrangements for those who sold the products and services;
  6. the appropriateness of information and advice provided to consumers considering investing in those products and services, and how the interests of consumers can best be served;
  7. consumer education and understanding of these financial products and services;
  8. the adequacy of professional indemnity insurance arrangements for those who sold the products and services, and the impact on consumers; and
  9. the need for any legislative or regulatory change.