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Securities And Financial Services Regulation Super Summaries Notes

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This is an extract of our Securities And Financial Services Regulation Super Summaries document, which we sell as part of our Securities and Financial Services Regulation Notes collection written by the top tier of University Of New South Wales students.

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Core obligations of an AFSL Holder Legislation S 912(a) - Efficiently, honestly and fairly

Concepts

*

Key Cases

Comments

The ultimate question is whether the appellant's performance of their functions fell short of the reasonable standard of performance the public is entitled to expect of the licensee (Story v NCSC) and the standard encompasses conduct which isn't criminal but morally wrong in a commercial sense (RJ Elrington)

o

[Not a breach] Isolated failure to adhere to a net tangible assets condition (RJ Elrington)

o

[Breach] Providing investment advice in a position of a conflict of interest (RJ Elrington)

o

[Breach] Failure to diligently transition a prescribed interest scheme to comply with MIS investments regime and properly informing investors about it (Re Koala Hydroponics)

o

[Breach] ARs failure to make inquiries as to the merits of an investment promising absurdly higher returns and simply relying on other's information to promote it (Re Foster v ASIC)

S 961 - Best interests obligation to retail clients

*

o

[Breach] ARs failure to have a reasonable basis for a securities recommendation (Re Campbell v ASIC)

o

[Breach[ Failure to disclose matters relevantly to a recommendation in breach of the FSG disclosure requirements (Re Jungstedt v ASIC)

**[Content of obligations] S 961B This is satisfied if the provider has done each of the following:

o

(a) Identified the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions

o

(b) Identified:

o(i) The subject matter of the advice that has been sought by the client (explicitly or implicitly) and(ii) The objectives, financial situation and needs of the client that would be reasonably considered as relevant to advice sought on that subject matter (client's relevant circumstance)

(c) Where it was reasonably apparent that information relating to the client's relevant circumstances was incomplete/inaccurate, made reasonable inquiries to obtain complete and accurate information(i) S 961C - reasonably apparent: apparent to a person with a reasonable level of expertise in the s.m. of the advice sought, exercising care and objectively assessing information

o

(d) Assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice

o

(e) If, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a FP:(i) Conducted a reasonable investigation into the FP that might achieve those of the objectives and meet those of the needs of the client that would

reasonably be considered as relevant to advice on that subject matter; and(ii) Assessed the information gathered in the investigation

o

(f) Based all judgments in advising the client on the client's relevant circumstances

o

(g) Taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client's relevant circumstances

*

**[Appropriateness] s 961G - The advice must only be provided if it would be reasonable to conclude the advice is appropriate

*

**[Warnings] S 961H - If advice is based on incomplete/accurate information a warning must be given at the same time and through same means the advice was provided

*

**[Priority in COI] s 961J - If any FSL or AR of them has a conflict between their interests and that of the client, they must give priority to the client's interest

*

[Auxiliary provisions]

o

[Civil Penalty Provisions] These ** are all CPPs under s 961K for an AFSL and s 961Q for an AR (unless the AR reasonably relied on information/instructions given by the FSL s 961Q(2))

o

[Compliance by ARs] s 961L - FSL must take reasonable steps to ensure ARs comply with the above **

o

[Compensation actions] s 961M(1); s 961M(3) gives standing to apply to the client to get, compensation from the FSL (s 961M(2)) including profits (s 961M(4))

Definition of Financial Product "a facility through or through the acquisition of with a person" (s 763A) does one of three prescribed actions Facility - includes a CAU or a scheme (s 761A, s 762C) Makes a financial investment - s 763B

*

[Requirements]

o

Manages a Financial Risk - s 763C

*

[Requirements]

o

(1) Giving money or money's worth to

Makes non-cash payments - s 763D

*

(1) Managing financial consequences of

[Requirements]

o

(1) Making or causing payments to be made

o

(2) Otherwise than by physical delivery of currency

circumstances happening OR

o

(2) another who uses it to generate a financial

o

return/benefit or intends to do so

o

*

consequences of fluctuations in the value of receipts/costs (e.g. prices)

(3) The absence of pooling or day-to-day control over the use of the contribution

*

[Examples]

o

(2) Avoiding/limiting the financial

Shares/debentures/MIS interests/Super trusts/LI

o

Insurance, futures, swaps

o

A litigation funding arrangement

Depositing money with a ADI

o

[Not] Real property, bullion, active day-to-day

o

control of investments

[Examples]

o

[Examples]

(Chameleon Mining)

o

*

Making payments through a facility for direct debit, deposit account

o

*

Making payments by traveller's cheques

[Express exclusions]

Pre-paid service contracts, warranty

o

Provision of credit by a TP (e.g. a CC) - reg 7.1.06

arrangements (Barclay v ASIC - but see s 763E)

o

Money orders by AU post, telegraphic transfers, intl. money transfers (reg 7.1.07F-G)

o

[Not] Employing a theft security firm

o

Facilities through which payments can only be made to one person (s 763D(2)(a)(i) - e.g. gift cards)

Incidental Financial Products - s 763E

*

[Requirements]

o

Express inclusions

*

rights in respect of these in a body, options to acquire by way of issue, rights issues

(1) An incidental component of a facility with other components

[Securities] s 764A(1)(a): shares/debentures/L&E

*

Express exclusions

*

[Credit facility] s 765A(1)(h) as defined in s reg 7.1.06:

o

The provision of credit for any period that is not making a financial investment or most of the express inclusions

[Derivatives] s 764A(1)(c): Option contracts +

o

anything deriving changes in value from the price of an underlying commodity, index or cash flow

(2) The main purpose of the components or facilities as a whole isn't a financial product purpose (above 3)

*

o

Could include warranties and pre-paid service contracts (incidental to purchase/sale - Barclay v ASIC)

*

[Margin lending facility] s 764A(1)(l)

*

[Other inclusions]

The provision of credit by a pawnbroker, trustee, employer

o

A mortgage that secures obligations under a credit contract and is not making a financial investment or most of the express inclusions

over the sale of tangible property [s 761D(3)(a) - provided that the seller's obligations cannot be settled in cash

[Examples]

o

[Expressly excludes] Forward contracts

o

o

Chameleon Mining (HC)- a CAU that is any form of financial accommodation and its provision for any period will be a credit facility . Thus an LFA is a credit facility

o

[s 12BAA(7)(k) ASICA] - credit facilities are financial products under these sections (MODC, CPL)

o

Prudentially regulated financial products

o

Government securities

o

FX contracts where currency isn't

*

[Others]

o immediately exchanged

Retirement village interests, undertakings by a BC to pay an RBC, health insurance, reinsurance, interests in super funds, interests in non-registered MIS, funeral benefits, physical equipment/infrastructure

Definition of Financial Service S 911A: A person who carries on a financial services business (FSB) must hold an AFSL covering the provision of an FS (s 766A(3) contains an exception for work ordinarily done by clerks or cashiers; s 766A(1)(a) for general advice given by the issuer of an FP to a AFSL who will give advice) "A person provides a financial service if they" (s 763A) do one of six prescribed actions including Financial Product Advice - s 766B

*

[Requirements]

Dealing - s 766C

*

[Requirements] (1) Dealing

Makes a market for an FP - s 766D

*

[Requirements] (1)

includes:

o

(1) A recommendation, statement of opinion

or report of either

o

Applying for/acquiring a FP

o

o

Issuing a FP

o

Varying/Disposing a FP

o

(2) Arranging for a person

(2) Intended to influence a person's decision

o

(3) Could reasonably be regarded as being

intended to have such an influence

*

to engage in (1) unless these actions were under s 766B

[Classifications] s 766B(3)-(4):

o

Personal advice - FPA directed to a person

where

*

[Exclusions]

o (3) Dealing on your ownThe provider has considered 1+ of the person's O/FS/N; or

behalf unless you are an issuer of financial products or are dealing in relation to these FPsA RP might expect them to have so considered

o

o (4)(c): A body corporate

General Advice - advice not personal: s

dealing in securities of itself
[unless (5): it carries on a business of investment in securities)

949A provides that you must make a general advice warning [s 1311(1) offence [100 PU, 200PU for failing to take reasonable steps to ensure ARs do it]

*

[Exclusions]

o

S 766(5): Lawyers about interpretation of

law;

*

[Examples]

o

Decisions made to make additional payments/
contributions to an FP

A facility or at a place where one regularly states prices at which they propose to acquire/dispose of FP on their own behalf AND

irt a (/class of) FP or interest in thereof OR

o

o

Others have a reasonable expectation they will be able to regularly effect transactions at that price

*

Provides a custodial or depository service s 766E

(1)

FTPO this chapter, a person (provider) provides a custodial or depository service (CODS) to another person (client) if, under an arrangement between them, or between the provider and another person with whom the client has an arrangement, a financial product or a beneficial interest therein, is held by the provider in trust for, or on behalf of, the client or another person nominated by the client

[Exception] (2): Doesn't' apply to a person stating prices of products if they are the issuer or the products are super/MIS

[See page 49 of notes further]

o

s 766(6) Telling costs of an FP in response to

already owned

a request for a cost estimate

*

ss 924A, 925A together provide that if someone provides a financial service without the appropriate license, the client can give a notice of rescission (unless informed they don't hold an AFSL) and a court can make consequential orders under s 925D to effect rescission as if the contract was vitiated by a misrepresentation

o

s 925F: The licensee can't recover commissions

o

s 925H: The client can recover commissions paid to the non-licensee

Financial products and financial services Legislation

Key Cases FP - Money for Living

Reasoning

*

S 12DA - MODC

Comments

[MODC] The investors were misled into believing:

o

The scheme was set up by experts with years of experience (in fact they had no experience or knowledge of the industry)

S 12BAB/s 766B - Provide FPA

o

S 763B - Making a financial investment

The payments due were secure and the business had the capacity make them on time for the rest of their life (in fact they didn't)

*

(Scope - sale/lease-back arrangement)

[Providing FPA]

o

They made recommendations intended to influence the people into purchasing the financial products

[Financial products]

*

Softwood forests - the relevant provisions are to be construed broadly as a statute of ambulatory operation

*

[Making a financial investment]

o

The investors gave money's worth through equity in their homeo

Did they give it - yes, they sold a house for its exchange value.

To be used to generate benefits in the form of periodic tax free payments and potential benefits from the lease

o S 911A - Licensing requirements S 761A - Providing a Financial Services Business

S 763C - Managing a Financial Risk

There was no pooling or day-to-day control of the contribution itself

FP - Chameleon Mining

Is it a derivative?

*

S 911A imposes a licensing requirement on those who carry on a FSB (defined in s 761A as business of providing FS, which includes "dealing" in a FP (s 766A(1)(b))

[Financial Products]

*

[Managing a Financial Risk] The LFA managed the financial consequences of

Young CJ says no because the value of it isn't ultimately determined by something else

Hodgson JA says yes because the value is determined by the resolution sum and legal costs. But it is also a contract for the future provision of services and thereby excluded

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