[email_address] APRA is an integrated prudential regulator responsible for deposit-taking institutions (banks, building societies and credit unions) as well as friendly societies, life and general insurance and superannuation 1 . APRA is charged with regulating these financial institutions and for developing administrative practices and procedures (e.g. prudential standards) to give effect to its regulatory role, in a manner that balances financial safety and efficiency, competition, contestability and competitive neutrality. Deposit-taking institutions are regulated by APRA under a single licensing regime. The Banking Act 1959 gives APRA power to authorise and revoke authorities of authorised deposit-taking institutions (ADIs), to make prudential standards or issue enforceable directions, and to inspect ADIs. In addition, ADIs which are permitted to accept retail deposits are covered by the ‘depositor protection’ provisions of the Banking Act 1959 . These provisions provide APRA with the power to act in the interests of depositors, including the power to appoint a statutory manager to an ADI in difficulty to take control of the institution. Under the depositor protection provisions of the Banking Act 1959 , depositors in Australia have first claim to the assets of an ADI in Australia should an ADI be unable to meet its obligations or should it suspend payment. To support depositors’ interests, ADIs which take retail deposits in Australia are required to hold assets in Australia at least equal to their deposit liabilities in Australia. The depositor protection provisions, however, do not confer any form of guarantee of depositors’ funds, and depositors have no recourse to APRA or the Government. The legislation covering life and general insurance companies in Australia provides for the protection of the interests of policyholders. APRA has power under the relevant legislation to authorise and revoke authorities of insurers, to make prudential standards or issue enforceable directions, and to inspect insurers. In the relevant legislation, preference is afforded for the policyholders of statutory funds of life companies and Australian creditors of general insurers over the assets of statutory funds, and assets in Australia of general insurers respectively. A general insurer in Australia is required to hold assets in Australia sufficient to cover the total amount of its liabilities in Australia. In addition, APRA may, in the case of life insurers, seek the appointment of a judicial manager for a troubled insurer. Legislation provides APRA with various powers with respect to superannuation funds. These include the removal and appointment of trustees covering troubled superannuation funds. The Treasurer can, on public interest grounds, compensate members of a superannuation fund for losses due to fraudulent conduct or theft. The assistance can be funded either from Consolidated Revenue or by levying other superannuation funds. Again, however, members’ and policyholders’ entitlements are not guaranteed by either APRA or the Government. Footnotes APRA regulates the superannuation funds’ compliance with the prudential regulation and retirement income provisions of the Superannuation Industry (Supervision) Act 1993 , while ASIC has responsibility for the other provisions. The Australian Taxation Office has responsibility for the regulation of excluded funds (i.e. funds that have less than five members). (back to text)
[email_address] APRA is charged with regulating these financial institutions and for developing administrative practices and procedures (e.g. prudential standards) to give effect to its regulatory role, in a manner that balances financial safety and efficiency, competition, contestability and competitive neutrality.
[email_address] The Council provides a flexible, low-cost approach to co-ordination among the main financial regulatory agencies. The Council is non-statutory and has no regulatory functions separate from those of its members.
[email_address] Daly v Sydney Stock Exchange Ltd (1986) Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 370
[email_address] http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/cth/federal_ct/2005/1805.html?query=unconscionable%20conduct%20NEAR%20Corporations%20Act#disp3 Finkelstein J Preston did not oppose the orders sought by ASIC by Finkelstein J had to decide if the evidence supported ASIC claims. He found that it did.
[email_address] Hanave v LFOT http://www.austlii.edu.au//cgi-bin/disp.pl/au/cases/cth/federal_ct/1998/1051.html?query=General%20Newspapers%20Pty%20Ltd%20v%20Telstra%20Corporation%20Near%20Trade%20Practices Moore J I turn now to consider the position of Barbara's Storehouse. The first issue relates to the advertisement which, fairly construed, describes Barbara's Storehouse as an established retailer contributing to rental income for the property of $312,644 per annum. What is comprehended by the expression &quot;established retailer&quot; is, in my opinion, of no great moment. I view the advertisement as nothing more than a device to attract the attention of potential purchasers of the property. If the description of Barbara's Storehouse as an established retailer mis-stated the position in any respect it has no relevant legal consequence. I say that because I accept the submission made on behalf of the respondents that an advertisement of this type in those terms can properly be viewed as puffery. Reference was made to Eighth SRJ Pty Ltd v Merity, unreported, 25 March 1997, Supreme Court of New South Wales, Young J. His Honour said: Under the general law, there is a real distinction between a representation and a mere puff. Under the Trade Practices Act , the law also understands that `in the ordinary course of `commercial' dealings, a certain degree of `puffing' or exaggeration is to be expected. Indeed puffery is part of the ordinary stuff of commerce.&quot; (General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164, 178). However, as Professor Harland says in his article, from which I have already quoted, at p 112, `The commentators generally believe that the defence that a seller's claim is only puffing, not to be taken seriously and not attracting liability, is less likely to succeed under the statutory prohibition than at common law. This is no doubt generally true, especially in cases of advertising and other promotional activity, and, given the public policy goals underlying the statute, any other result would be surprising.' The learned professor then goes on to say that recent cases may be reversing that trend and continues, `The question of just where to draw the line in this context will clearly remain one of debate'. When looking at the conduct of the alleged infringer of s 52 , one must look at the whole of the conduct not the particular matter on which the plaintiff has focused attention in isolation: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 , 199 and Pappas v Soulac Pty Ltd (1983) 50 ALR 231. In that lastmentioned case at 234, Fisher, J said, in the context of an agent making statements about the `commercial' viability of a shopping centre which the agent was selling, `... Many of the statements ... were also essentially the type of introductory comments, in the nature of puffery, made at the start of negotiations, for the purpose of attracting the interest of a possible `purchaser'. As such they became irrelevant or of little, if any, significance when detailed information is subsequently given a fortiori, to a potential `purchaser with commercial' experience. To the extent that they are essentially puffery, it is proper to be reluctant to elevate them to the status of potentially misleading conduct.' With these thoughts in mind, one must examine the various matters pleaded as false or misleading conduct under the statute. The first matter is the newspaper advertisement. It seems to me very difficult to allege that a newspaper advertisement which is designed primarily to tell people that a house is open for inspection should be construed as giving information other than preliminary information upon which a person should rely in order to enter into a contract. If one expects puffery anywhere it would be in such a newspaper advertisement. Although Lee, J in Paper Sales (Australia) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142 at 53,051, left open the possibility that `an ordinary member of the class of persons to whom the conduct is directed may fail to discern that representations about the advertised product are to be disregarded, I think ordinarily an advertisement which merely directs someone to enquire about the product is not expected in trade or commerce to be relied upon as a quasi representation.
www.etiennelaw.com Overview of Financial Services Law FIN -112
Under this heading the regulatory framework for the banking industry, including governing legislation and industry regulators such as APRA (Australian Prudential Regulation Authority), ASIC (Australian Securities and Investments Commission), the ACCC (Australian Competition and Consumer Commission) and the RBA (Reserve Bank of Australia) will be reviewed. Chapter 7 of the Corporations Act (Financial Services and Markets), dealing with financial products, will be briefly reviewed.
What is the financial system? www.etiennelaw.com Savers Borrowers Direct Investment Loans secured or unsecured Promissory Notes Bills of Exchange
What is the financial system? www.etiennelaw.com Savers Borrowers Indirect Investment Bank deposits Equities Corporate Bonds Fund managers Financial Intermediaries – Financial Service Providers
In a capitalist society financial services could be left to market forces to be regulated or the law could be used to maintain, facilitate and constrain free market behaviour. The law at present has since the Campbell Committee Review of the financial system in the 1980’s been used to:
Administers and enforces a range of legislative provisions relating to financial markets, financial sector intermediaries and financial products, including investments, insurance, superannuation and ADI activities and as from 2010 credit services activities.
ASIC’s aim is to:
protect markets and consumers from manipulation, deception and unfair practices;
promote confident participation in the financial system by investors and consumers;
promote honesty and fairness in company affairs and securities and futures markets through adequate and timely disclosure of market information.
As part of its consumer protection role, ASIC monitors and assesses compliance with:
the Code of Banking Practice
the Credit Union Code of Practice;
the Building Society Code of Practice;
the Electronic Funds Transfer Code of Practice; and
the National Credit Act.
ASIC and the Financial Services Reform Act 2001
ASIC regulates the financial services industry through licensing, ensuring disclosure and that the participants conduct as financial service providers, is as prescribed.
ASIC is empowered to advise the Minister on licensing matters. It is also required to undertake assessments of the compliance of market and facility licensees with their legislative obligations, and to take enforcement action where necessary.
ASIC and the Financial Services Reform Act 2001
The Financial Services Reform Act 2001 introduced a single licensing regime for Australian financial markets and clearing and settlement facilities.
Licensees (such as the Australian Securities Exchange) have primary responsibility for the operation of markets and of clearing and settlement facilities; the ‘responsible Minister’ (currently the Treasurer) has overall responsibility for licensing such entities.
Treasury is responsibile for advising the Government on financial stability issues and for the legislative and regulatory framework underpinning financial system infrastructure. It provides advice to the Government on policy processes and reforms that:
promote a secure financial system and sound corporate practices;
remove impediments to competition in product and services markets; and
safeguard the public interest in matters such as consumer protection and foreign investment.
Operates as an informal body where members share information and views, about regulatory issues (especially, where responsibilities overlap) and, if the need arises, co-ordinate responses to potential threats to financial stability.
www.etiennelaw.com Council of Financial Regulators Members are comprised from:
9 This conduct which, in one way or another, was repeated in respect of at least 30 clients, contravened the ASIC Act and the Corporations Act in at least the following respects. First, by representing to clients that their superannuation benefits could be used in any way they wished and that the moneys would be paid into and administered through a trust account (as stated on one of the forms signed by clients), the company breached s 1041E of the Corporations Act. Section 1041E prohibits the making of statements (or the dissemination of items of information) which are false or misleading and which is likely to induce a person to dispose or acquire a financial product. A self managed superannuation fund is a "superannuation interest" under the Superannuation Industry (Supervision) Act 1993 (Cth) (see ss 10, 17A) and is deemed to be a "financial product" for the purposes of the Corporations Act by s 764A (1)(g).
10 Second, by failing to inform clients about restrictions on the use of existing superannuation benefits rolled-over from a superannuation fund, as well as the various management and compliance requirements -- in particular the need for a trustee to be appointed to a self managed fund -- the company breached s 1041H of the Corporations Act and s 12DA of the ASIC Act . Those sections prohibit misleading or deceptive conduct in relation to financial services and, in the case of the Corporations Act , financial products.
11 The company also engaged in unconscionable conduct in contravention of s 12CB of the ASIC Act. Such conduct not only included the various misrepresentations and omissions in relation to superannuation benefits and self managed superannuation funds, but also the advice given to clients encouraging them to establish a self managed fund when it was not in their interests to do so in light of both the skills and expense required to establish and maintain the fund. Further, the company behaved unconscionably when it failed to pay to clients the benefits received on their behalf and when, in some instances, it mixed clients’ moneys with its own funds and applied them for its own use
(a) the offeror makes an offer to issue or sell a financial product (which includes inviting an application for their issue or sale);
(b) the offer is made in the course of (ie during), or because of, a meeting with or telephone call to a client or potential client (“consumer”); and
(c) the meeting or telephone call is unsolicited.
Note: There are some exemptions to the hawking prohibitions: see paragraphs A6.1 and A7.1–A7.3 in the Q&A section following. Both s992A and 992AA require proof of mental elements (eg recklessness and intention) in order to establish a criminal contravention of the provision. Section 736 stipulates that it is a strict liability offence, so there is no mental element for a breach of that section.
10 The prohibitions in s992A and 992AA apply only to offers that are made to retail clients. The prohibition in s736 does not apply where the relevant offer is made to sophisticated or professional investors: s736(2)(a) and (b).
General Newspapers Pty Ltd v Telstra Corporation (1993) ATPR 41-274
“ in the ordinary course of `commercial' dealings, a certain degree of `puffing' or exaggeration is to be expected. Indeed puffery is part of the ordinary stuff of commerce."
Hanave Pty Ltd v LFOT Pty Ltd  1051 FCA – Moore J
The first matter is the newspaper advertisement. It seems to me very difficult to allege that a newspaper advertisement which is designed primarily to tell people that a house is open for inspection should be construed as giving information other than preliminary information upon which a person should rely in order to enter into a contract. If one expects puffery anywhere it would be in such a newspaper advertisement. Although Lee, J in Paper Sales (Australia) WA Pty Ltd v PSA Pty Ltd (1991) ATPR 41-142 at 53,051, left open the possibility that `an ordinary member of the class of persons to whom the conduct is directed may fail to discern that representations about the advertised product are to be disregarded, I think ordinarily an advertisement which merely directs someone to enquire about the product is not expected in trade or commerce to be relied upon as a quasi representation.
Where the representee can sue the representor as the representation formed part of the contract which the representee relied upon as a basis for entering the contract.
Contractual Misrepresentation www.etiennelaw.com Misrepresentation Remedies If not term of contract If term of contract Damages Rescission Third Party Rights Restitution Affirmation Must be fact not Opinion or puffery Intention that it be acted upon Real Inducement Reliance Inducement to contract Termination If breach serious
Tort of Deceit The Elements www.etiennelaw.com Statement of Fact not opinion Known to be false Or Reckless disregard to whether true or not Subjective Test Difficult to Prove $$$$$$ Loss
Negligent Misstatement Elements www.etiennelaw.com Duty of Care Reasonable man test To determine reliance Reasonable person Or Reasonable skilled person test Reliance on known Or apparent expertise AFSL intends client to reply $$$$$$ Loss Breach of duty / Standard of care
trading in securities or engaging in related activity by someone in possession of price or value sensitive information who knows or ought to know that that information is not generally available. The definition is very broad in scope.
Covers persons in a prior relationship with a body corporate the source of the information, eg director or officers of the body, or someone with a substantial shareholding in that body corporate or a related body corporate: "corporate insiders“ and persons who at the material time occupied other positions that would have given them access to price sensitive information, such as officers of substantial shareholders or persons with business or professional relationships with such a body corporate or employees of such persons. These persons, plus "corporate insiders".
Covers persons with no connection with the body corporate and with no relationship with someone with such a connection. It could include a person who overheard a conversation involving a corporate insider
a person who as a market intermediary, such as a securities analyst, benefited from special disclosure by the body corporate's officers in the course of a research visit to its premises. It could include a person such as a market intermediary who became aware of information with no corporate source at all, such as an impending sell or buy order of substantial size. 6 In the latter case, such a person might be called a market insider if his or her relationship to market trading processes gave that person access to that information.
cover one who gains information of the sort the market insider might have without a connection to the market, as by coming across it accidentally; for example, a person who overhears the corporate insider's conversation. It is also capable of including a person planning a substantial purchase of securities of the body corporate, as in the run-up to a takeover bid. However, the Corporations Law provides an exclusion from part of the s 1002G prohibition for this sort of situation.
The concept of insider trading in the Corporations Act in its current form does not focus on any connection with the body corporate, either securities of which are being traded, or conduct in relation to which is being engaged in. Nor is the Division centred on any relationship with the person with whom any trading took place. The Division does not focus on the source of the information, except to the extent of a person's own trading intentions, as indicated. In fact, it is not relevant for the purposes of that concept whether or not the person concerned was motivated to trade by the information possessed.
Insider Trading – Who is an insider? www.etiennelaw.com A person who Possess Information about a financial product Which is not generally available and it it were A reasonable person would expect it to have a Material effect on the price or value on that Financial product
www.etiennelaw.com Does the Insider have the requisite mental State Did the insider Know or ought To have known That the Information Was not Generally known And had a material Effect on the price of the financial product If yes
www.etiennelaw.com Has the prohibited Conduct Occurred? Apply for, acquire Or Dispose or agree to Apply Or dispose of it If yes Did the person concerning A financial product Procure another Person to so do Communicate the Information knowing or Ought to have known that The other would use it Trade in the financial product
www.etiennelaw.com A breach of the insider Trading prohibitions Has occurred
Insider Trading & Chinese Walls www.etiennelaw.com You can contract out as the case shows.