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04-088 Overview of ASIC's implementation of the Financial Services Reform Act

Monday 29 March 2004

The Australian Securities and Investments Commission (ASIC) today provided an overview of key data and other information relating to its implementation of the Financial Services Reform Act 2001 (FSR Act), following the end of the two-year transition period on 10 March 2004.

The FSR Act, which commenced on 11March 2002, is the culmination of an extensive reform program examining the regulatory requirements applying to the financial services industry.

The FSR amendments to the Corporations Act 2001 (the Act) introduced a single licensing regime for financial advice and dealings in relation to financial products. An entity that operates a financial services business must now hold an Australian financial services (AFS) licence or be authorised by a licensee.

The Act also seeks to provide consistent and comparable disclosure in relation to financial products and services (including) advice, and a single authorisation procedure for financial markets and clearing and settlement facilities.

The regulatory framework covers a wide range of financial products, including securities, derivatives, general and life insurance, superannuation, managed investments, deposit accounts, non-cash payments and foreign exchange contracts.

This information release is intended to provide industry participants and other interested stakeholders with some statistical results and operational observations at the end of the transition period, as well as a summary of the documentation issued by ASIC during the transition period.

Australian financial services licences
By the transition deadline of 10 March 2004, ASIC issued 3738 AFS licences, comprising 953 applications under the full assessment process, one qualified licence, 1875 streamlined applications and 909 composite applications.

The main industries represented by AFS licence holders (as reported by the licensees) include: general insurance, including brokers (23.5 per cent); financial advisers (20.9 per cent); managed investments (15.0 per cent); market dealers (14.3 per cent); life insurance, including brokers (12.5 per cent); superannuation (6.4 per cent); and deposit takers (4.4 per cent). The majority of licence holders (44.1 per cent) are located in New South Wales, followed by Victoria (27.1 per cent). Attachment 1 to this release shows the breakdown of licence holders by industry sector and geographical location.

ASIC has been notified of the appointment of 32,674 authorised representatives, who, under the new requirements, will be able to provide financial services on behalf of an AFS licensee. The details of AFS licensees and authorised representatives can be found by searching the relevant register on the ASIC website, www.asic.gov.au.

Over the coming months, ASIC will continue to conduct verification visits on AFS licensees who applied under the streamlining or composite processes. Those visited will be randomly selected. The purpose of the visits is to verify statements made in licence applications.

ASIC surveillance teams will also continue to monitor industry compliance, with a particular focus on businesses that may be operating without a licence.

During the two-year transition period, ASIC received 4132 in-use notices lodged by product issuers. This information notifies ASIC that a Product Disclosure Statement (PDS) for a financial product is on the market and that interests can be issued using that PDS.

ASIC uses the in-use notice information for monitoring and surveillance purposes. ASIC has an ongoing program reviewing a selection of PDSs and, to date, has reviewed over 10 per cent of all PDSs issued.

ASIC considered over 1000 FSR-related applications for relief and issued approximately 80 FSR-related class orders during the two-year transition period. ASIC granted both class order and individual relief to enable the new regime to apply appropriately, having regard to the breadth and diversity of financial services and financial products captured by the new regime. Some of this relief is interim to allow the long-term application of the new regime to be assessed.

Where relief has been granted, it has been on conditions that aim to achieve similar market integrity and consumer protection outcomes. ASIC expects to continue to receive relief applications in connection with FSR implementation issues throughout the coming months.

FSR and other class orders are available on the ASIC website via www.asic.gov.au/co.

Financial markets
ASIC worked with the established market licensees and clearing and settlement facility licensees such as the Australian Stock Exchange (ASX), the Options Clearing House (now known as Australian Clearing House), the Sydney Futures Exchange (SFE), SFE Clearing and Austraclear to ensure their smooth transition to the new licensing regime under Parts 7.2 and 7.3 of the Act.

Several overseas operators, including Chicago Mercantile Exchange and Eurex, have obtained a market licence under the new provisions of the Act that apply to foreign markets wishing to make their trading platforms available in Australia. A number of other operators, both domestic and overseas, have applied for a market licence.

On advice from ASIC, the Parliamentary Secretary to the Treasurer, The Hon. Ross Cameron MP, has issued an exemption for low-volume financial markets, so that an unlisted entity can facilitate the buying and selling of its shares without triggering the full application of the markets licensing provisions.

The Parliamentary Secretary to the Treasurer has also issued an interim exemption for facilities that trade foreign exchange contracts and derivatives in relation to foreign exchange contracts. Given the global nature of currency markets and their international importance, interim relief has been issued until March 2005 while the appropriate regulatory response is considered.

Under the Act, ASIC now has an obligation to conduct an annual assessment of the way licensees are meeting their supervisory obligations and to report on this to the Parliamentary Secretary to the Treasurer. Since the commencement of the FSR transition period, ASIC has conducted two assessments of the ASX group, the SFE group, and Newcastle and Bendigo stock exchanges.

More information about market licences and exemptions is available via the ‘Markets’ section of the ASIC website.

Policy and guidance
Between November 2001 and March 2004, ASIC published 14 FSR-related policy statements and 20 guidance papers. These are listed in Attachment 2 to this release. ASIC also published 139 answers to frequently asked questions (FAQs) about Financial Services Reform. These can be searched on the ASIC website via www.asic.gov.au/fsrfaq.

In the coming months, ASIC will update some of its policies and guides to take into account further amendments to the Act and regulations and key ASIC decisions relating to class order relief. ASIC may also publish additional guidance or policy relating to compliance or implementation issues, as required.

End of release

Attachment 1: Distribution of AFS licensees by industry and geographic location (at end of transition)

Table 1: Number and percentage of licensees by industry

No. of licensees
Percentage of total licensees
Deposit Taker
Financial Adviser
General Insurance (incl. general insurance brokers)
Life Insurance (incl. life insurance brokers)
Managed Investments
Market Dealer

Table 2: Number and percentage of licensees by geographic origin

Geographic origin
No. of licensees
Percentage of total licensees
Australian Capital Territory
New South Wales
Northern Territory
South Australia
Western Australia
Other (incl. overseas)

Disclaimer: These figures are based on data received by ASIC in eLicensing applications. Their accuracy depends on the accuracy of the data supplied to ASIC.

Attachment 2: ASIC policy statements and guidance papers issued between November 2001 and March 2004

Policy Statements (PS)
Date issued
PS 146 Licensing: Training of financial product advisersNovember 2001, updated January 2003
PS 164 Licensing: Organisational capacitiesNovember 2001, updated November 2002
PS 165 Licensing: Internal and external dispute resolutionNovember 2001
PS 166 Licensing: Financial requirementsDecember 2001, updated November 2002
PS 167 Licensing: Discretionary powers and transitionNovember 2001, updated November 2002 and October 2003
PS 168 Disclosure: Product Disclosure Statements (and other disclosure obligations)November 2001
PS 169 Disclosure: Discretionary powers and transitionNovember 2001, updated November 2002 and October 2003
PS 170 Prospective financial informationSeptember 2002
PS 172 Australian market licences: Australian operatorsMarch 2003
PS 173 Disclosure for on-sale of securities and other financial productsDecember 2002
PS 175 Licensing: Financial product advisers — Conduct and disclosureJune 2003, updated September 2003
PS 176 Licensing: Discretionary powers — wholesale foreign financial services providersSeptember 2003
PS 177 Australian market licences: Overseas operatorsOctober 2003
PS 179 Managed discretionary account servicesMarch 2004

ASIC guidance papers
Date issued
Licensing: The scope of the licensing regime: Financial product advice and dealing — An ASIC guideNovember 2001, updated November 2002
Licensing and disclosure: Making the transition to the FSR regime — An ASIC guideNovember 2001, updated November 2002
AFS Licensing KitFebruary 2002, updated October 2002, April 2003, October 2003 and March 2004
Making the transition to an AFS licence: pre-FSR licences and insurance broker registrations — An ASIC guideApril 2002
ASIC's guide to good transaction fee disclosure for bank, building society and credit union deposit and payments products (transaction accounts) June 2002
The hawking prohibitions — An ASIC guideJuly 2002, updated October 2002
What type of AFS licence authorisation and assessment process do you need to apply for? — An ASIC guide:
  • Financial Advisers
August 2002, updated November 2002 and September 2003
  • Insurance Multi-agents
September 2002
  • Building Societies and Credit Unions
November 2002, updated September 2003
  • Life and General Insurance Brokers
November 2002, updated September 2003
  • Market Makers, Advisers, Brokers and Dealers in derivatives and foreign exchange contracts
November 2002, updated September 2003
  • Stockbrokers
November 2002, updated September 2003
  • Superannuation Trustees
November 2002, updated September 2003
  • Responsible Entities and Investor Directed Portfolio Services Operators
November 2002, updated September 2003 and November 2003
  • Horse Racing Syndicate Promoters
November 2003
Small business and your AFS licence: Compliance with Policy Statement 164 — An ASIC guideNovember 2002, updated August 2003
The use of past performance in promotional material — An ASIC guideJuly 2003
Responsible officers: Demonstrating compliance with organisational competency obligations — An ASIC guideJuly 2003
A model for fee disclosure in product disclosure statements for investment productsAugust 2003
Meeting the financial requirements of your AFS licence: Compliance with Policy Statement 166October 2003, updated December 2003 and January 2004

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