Topic 5

Topic 5: Regulatory framework
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Economic and Legal Context for Financial Planning
Contents
Overview .........................................................................................................................................5.1
Topic learning outcomes ......................................................................................................................... 5.1
1 Australian Securities and Investments Commission (ASIC) ................................................... 5.2

1.1 The role of ASIC ........................................................................................................................... 5.2
1.2 ASIC’s regulatory documents ...................................................................................................... 5.6
1.3 Powers......................................................................................................................................... 5.7
2 Australian Prudential Regulation Authority (APRA) ............................................................ 5.14

2.1 The role of APRA ....................................................................................................................... 5.14
2.2 Prudential regulation ................................................................................................................ 5.15
2.3 Enforcement powers................................................................................................................. 5.17
3 ASX Group .......................................................................................................................... 5.18

3.1 The role of the ASX.................................................................................................................... 5.18
3.2 Monitoring and powers ............................................................................................................ 5.21
3.3 Corporate governance principles.............................................................................................. 5.24
3.4 Relationship between the ASX and ASIC................................................................................... 5.25
4 Reserve Bank of Australia (RBA) ......................................................................................... 5.25

4.1 The role of the RBA ................................................................................................................... 5.25
4.2 Monetary policy ........................................................................................................................ 5.26
4.3 Payments system ...................................................................................................................... 5.27
4.4 Powers....................................................................................................................................... 5.27
5 Australian Competition and Consumer Commission (ACCC) ............................................... 5.28

5.1 The role of the ACCC ................................................................................................................. 5.28
6 Australian Transaction Reports and Analysis Centre (AUSTRAC) ......................................... 5.31

6.1 The role of AUSTRAC ................................................................................................................. 5.31
7 Office of the Australian Information Commissioner (OAIC) ................................................ 5.36

7.1 Obligations under the Privacy Act and Australian Privacy Principles ....................................... 5.37
Economic and Legal Context for Financial Planning | FPC001B_T5_v3 © Kaplan Higher Education
8 Tax Practitioners Board (TPB) ............................................................................................. 5.40

8.1 Providing tax (financial) advice services ................................................................................... 5.40
8.2 Registration ............................................................................................................................... 5.41
8.3 Code of Professional Conduct ................................................................................................... 5.44
8.4 Supervision and TPB enforcement............................................................................................ 5.46
9 Self-regulation by industry bodies ...................................................................................... 5.48

9.1 What is self-regulation? ............................................................................................................ 5.48
9.2 Self-regulation in the financial services industry ...................................................................... 5.48
10 Overseas regulatory bodies ................................................................................................ 5.49

10.1 New Zealand ............................................................................................................................. 5.49
10.2 United Kingdom ........................................................................................................................ 5.51
10.3 Singapore .................................................................................................................................. 5.52
10.4 United States ............................................................................................................................. 5.53
10.5 Hong Kong ................................................................................................................................. 5.55
11 International regulation ..................................................................................................... 5.56

11.1 International Monetary Fund ................................................................................................... 5.56
11.2 Basel Committee on Banking Supervision — Basel II and III .................................................... 5.57
11.3 European Central Bank ............................................................................................................. 5.58
11.4 Financial Action Task Force ....................................................................................................... 5.58
11.5 International Organization of Securities Commissions............................................................. 5.59
11.6 International Association of Insurance Supervisors ................................................................. 5.59
References .....................................................................................................................................5.60
Suggested answers ........................................................................................................................ 5.62
5.1
Overview
This topic examines the main Australian regulatory bodies and the role of significant
international regulators.
A well-regulated financial services system is an essential part of the development of the
Australian economy and the detailed laws examined in later topics provide the framework for this
system. However, the successful operation of the system depends on effective regulatory bodies
which implement and enforce laws and supervise the activities of the financial services industry.
Australia’s financial services industry is a ‘two principal regulators’ system. The principal regulators
are the Australian Securities and Investments Commission (ASIC) and the Australian Prudential
Regulation Authority (APRA). Two other regulatory bodies also play an important role —
the Australian Competition and Consumer Commission (ACCC) and the Reserve Bank of Australia
(RBA). Operators of financial markets, such as the Australian Securities Exchange (ASX) and ASX 24,
National Stock Exchange of Australia (NSX) and Sydney Stock Exchange (SSX) markets, also have an
important function in ensuring that market participants comply with their operating rules. The main
functions and powers of these bodies are discussed.
The anti-money laundering and counter-terrorism regime introduced in 2006 has increased the
relevance of the Australian Transaction Reports and Analysis Centre (AUSTRAC) to the financial
services industry, so the role of AUSTRAC is also described in this topic.
Reference is made to self-regulation by industry bodies, which plays an important role in determining
the standards that should apply to industry participants.
Corresponding regulatory authorities in a number of other countries and their relevance to
Australian investors are outlined.
The Australian regulators that influence, and are influenced by, the main international financial
system regulators are also summarised in this topic.
This topic specifically addresses the following subject learning outcomes:

5. Explore the main sources of law and the regulatory structure of financial services law in Australia.
6. Explain the various obligations imposed on participants by financial services legislation.
Topic learning outcomes

On completing this topic, students should be able to:
• examine the main functions and powers of each of Australia’s main financial services regulators
• explain how the ASX monitors market participants and listed entities
• explain the self-regulation by industry bodies
• describe the main regulators in other countries that are relevant to Australia
• explain the roles of the principal international financial regulatory bodies
• explain the role of the Basel framework in Australia.
5.2
1 Australian Securities and Investments Commission

(ASIC)
The Australian Securities and Investments Commission (ASIC) is one of the two principal regulatory
bodies in the Australian financial services system. It supervises Australian companies, financial
markets and financial services organisations. This section examines, in particular, ASIC’s investigatory
and enforcement powers.
ASIC was formerly known as the ‘Australian Securities Commission’ (ASC) — established in 1991 —
until its name was changed in 1998. ASIC’s functions and powers are contained in the
Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). It is an independent
government body that reports to the federal Treasurer and parliament.
1.1 The role of ASIC

ASIC’s regulatory role is described on its website as follows:
We regulate Australian companies, financial markets, financial services organisations and
professionals who deal and advise in investments, superannuation, insurance, deposit taking
and credit.
As the consumer credit regulator, we license and regulate people and businesses engaging
in consumer credit activities (including banks, credit unions, finance companies,
and mortgage and finance brokers). We ensure that licensees meet the standards —
including their responsibilities to consumers — that are set out in the National Consumer
Credit Protection Act 2009.
As the market’s regulator, we assess how effectively authorised financial markets are
complying with their legal obligations to operate fair, orderly and transparent markets.
We also advise the Minister about authorising new markets.
On 1 August 2010, we assumed responsibility for the supervision of trading on Australia’s
domestic licensed equity, derivatives and futures markets.
As the financial services regulator, we license and monitor financial services businesses to
ensure that they operate efficiently, honestly and fairly. These businesses typically deal in
superannuation, managed funds, shares and company securities, derivatives and insurance.
(ASIC 2020)
Section 1(2) of the ASIC Act states:

In performing its functions and exercising its powers, ASIC must strive to:
(a) maintain, facilitate and improve the performance of the financial system and
the entities within that system in the interests of commercial certainty,
reducing business costs, and the efficiency and development of the economy; and
(b) promote the confident and informed participation of investors and consumers
in the financial system; and
(d) administer the laws that confer functions and powers on it effectively with a
minimum of procedural requirements; and
(e) receive, process and store, efficiently and quickly, the information given to
ASIC under the laws that confer functions and powers on it; and
(f) ensure that information is available as soon as practicable for access by the public; and
(g) take whatever action it can take, and is necessary, in order to enforce and give
effect to the laws of the Commonwealth that confer its functions and powers on it.
5.3
Detailed information about the Australian Securities and Investments Commission’s regulatory role
can be found on the ASIC website.
Organisational structure
ASIC is made up of a chair, a deputy chair and a number of commissioners. The main functional areas
deal with markets, investors and financial consumers, and the company registry.
Figure 1 sets out the high-level organisational structure of ASIC and the activities covered by each
functional area.
Figure 1 Organisational structure of ASIC
Source: ASIC 2020b
ASIC’s priorities
ASIC’s priorities are to ensure the following:
• confident and informed investors and financial consumers — achieved through investor
education, holding gatekeepers to account and gaining an understanding of investor behaviour
(i.e. how investors and consumers make decisions)
• fair and efficient financial markets — achieved through ASIC’s role in market supervision and
competition, and corporate governance
• efficient registration and licensing — achieved with a focus on small business.
5.4
Financial markets — licensing framework

All persons who operate a financial market in Australia must hold an Australian market licence
(unless they qualify for an exemption). ASIC has the responsibility to ensure the proper workings of
licensed financial markets in Australia. In particular, s 794C of the Corporations Act 2001 (Cth)
provides that ASIC must do an assessment of each market licensee at least once a year. This licence
gives ASIC a positive obligation to supervise the ASX and ASX 24 (previously SFE) markets, and other
licensed markets.
ASIC also has a number of other powers relating to the operation of licensed markets such as
the ASX and ASX 24 markets. Section 794D of the Corporations Act gives ASIC the power to give
notice to a licensed financial market requesting it to prohibit trading in certain products or to direct
the market to do so if it fails to act.
Further, ASIC gives advice to the Minister on the decision of whether to grant a financial markets
licence, the conditions on the licence and the content of the operating rules of the market.
ASIC also has input into any changes to the rules of existing licensees.
Licensed financial markets have self-regulatory obligations in relation to their own markets.
For instance, under s 792A of the Corporations Act, they are required to ensure that the market is a
fair, orderly and transparent market, that they have arrangements in place to operate the market
and that they have sufficient resources to operate the market. In addition, the market licensee must
give assistance to ASIC as required and must notify ASIC of certain matters, such as when it takes
disciplinary action or suspects a contravention of the Corporations Act. The way in which these
obligations are carried out in relation to the ASX and ASX 24 markets is discussed below.
There is a similar framework for licensed clearing and settlement facilities, which clear and settle
transactions in financial products. ASIC’s powers in relation to clearing and settlement facilities,
which are set out in Part 7.3 of the Corporations Act, are similar to its powers in relation to financial
markets described above.
Financial markets — supervision

On 1 August 2010, the function of supervising financial markets was transferred from licensed
markets to ASIC. This was a precondition to the introduction of competition in exchange markets.
Section 798G of the Corporations Act gives ASIC the power to make Market Integrity Rules that deal
with the activities and conduct of licensed markets and participants of those markets.
ASIC has made Market Integrity Rules relating to the supervision of various markets. These are the
rules for the ASX, ASX 24, SSX, IMB, NSXA and SIM VSE markets, which were released on
1 August 2010, and for Chi-X which were released on 29 April 2011. These rules are based on the
previous rules of the relevant market dealing with supervisory matters. They impose obligations on
market participants in relation to:
• management, insurance, responsible executives and accreditation of retail advisers
• client relationships
• records (e.g. trading records)
• trading, including client order priority, manipulative trading and fair and orderly markets
• takeovers.
There are also requirements on market operators to provide information to ASIC, including live data
from the trading platform.
5.5
ASIC has also created the ASIC Market Integrity Rules (Competition in Exchange Markets) 2011,
the majority of which became effective on 31 October 2011 and some of which became effective
earlier. These rules have since been superseded by the ASIC Market Integrity Rules (Securities
Markets) 2017. The rules provide the framework for the introduction of competition in equity
exchange markets, which was necessary before the new market operated by Chi-X Australia
commenced operation. These rules impose obligations on market participants and operators in
relation to:
• controls designed to minimise extreme price movements
• requirements on participants to achieve best execution for their clients
• requirements to ensure that orders and transactions on markets are transparent
• requirements on market operators concerning trading suspensions, information sharing,
synchronised clocks and other matters.
ASIC is responsible for supervising compliance with the Market Integrity Rules. The rules provide for
penalties for breaches, with certain rules having a maximum penalty of $1 million.
For more information on the Market Integrity Rules, see ASIC Regulatory Guide (RG) 265 ‘Guidance
on ASIC market integrity rules for participants of securities markets’ which combines a number of
earlier RGs into one.
As a result of the recent changes to market supervision and surveillance arrangements,
the Markets Disciplinary Panel was established by ASIC to serve as the main forum for disciplinary
action for breaches of the Market Integrity Rules. The Panel is a peer review body consisting of
part-time members with relevant market or professional experience and is administered by ASIC.
For an overview of the operation of the Markets Disciplinary Panel, see RG 216 ‘Markets Disciplinary
Panel’.
ASIC also has the power to give directions to an entity to suspend dealings in financial products or to
give some other direction where necessary to protect people dealing in those products (s 798J,
Corporations Act).
ASIC regulatory guides are available on the ASIC website.
Consumer credit
Since 1 July 2010, ASIC has also been the national regulator for consumer credit. Under the
National Consumer Credit Protection Act 2009 (Cth) (rather than the previous state and territory
legislation), ASIC regulates products and services such as home loans, personal loans, credit cards,
consumer leases, pre-arranged overdrafts and line of credit accounts.
ASIC’s service centres

ASIC maintains a public database of over one million Australian companies to provide certainty in
commercial dealings. ASIC has service centres that are used for routine document lodgement,
online searches of databases and to provide over-the-counter registration and lodgement facilities
for urgent documents. They also provide the first point of contact with ASIC for general enquiries.
As an extension of the services provided at service centres, ASIC has appointed a number of
established legal and accounting firms throughout Australia to act as local representatives in regional
centres. The local representatives provide facilities for obtaining ASIC information, purchasing and
lodging ASIC forms, and searching company records. Online searches and lodgements are also
available using the ASIC website.
5.6
1.2 ASIC’s regulatory documents

ASIC’s regulatory documents explain how ASIC interprets the law and what it expects of companies in
order to comply with the law. On 5 July 2007, ASIC changed the documents that it provided to the
industry (e.g. policy statements, practice notes and guides) to the following four categories of
regulatory documents:
• consultation papers
• regulatory guides
• reports
• legislative instruments
• other documents.
All ASIC regulatory documents are available on the ASIC website (ASIC 2020c).
Consultation papers
Consultation papers seek feedback from stakeholders on matters ASIC is considering, such as
proposed relief or proposed regulatory guidance. Before July 2007, these documents may have been
issued as policy proposal papers, discussion papers, issues papers and other consultative documents.
Regulatory guides
Regulatory guides provide guidance to regulated entities by:
 explaining when and how ASIC will exercise specific powers under legislation (primarily the
Corporations Act)
 explaining how ASIC interprets the law
 describing the principles underlying ASIC’s approach
 giving practical guidance (e.g. describing the steps of a process, such as applying for a licence or
giving practical examples of how regulated entities may decide to meet their obligations).
Before July 2007, these documents may have been issued as policy statements, practice notes,
guides or guidelines, or frequently asked questions.
Reports
Reports are documents that describe ASIC compliance, relief activity or the results of a
research project.
Legislative instruments
Legislative instruments are orders made by ASIC which apply to a particular class of persons.
They were previously known as ‘class orders’. ASIC has a power delegated to it by parliament to
make rules, which have the effect of legislation. They can be used to exempt persons from certain
provisions of the Corporations Act, to modify or clarify the operation of certain provisions of the Act,
or to make declarations about persons who are subject to a particular provision. Class orders remain
in force until they expire or are ‘sunsetted’ after 10 years, are superseded or repealed. Note that the
Market Integrity Rules are not subject to sunsetting, though as mentioned above, the original rules
have been repealed and replaced.
5.7
Other documents
Other documents published by ASIC include information sheets, class orders, declarations and
ministerial orders.
1.3 Powers
ASIC has a range of powers it relies on to perform its functions.
Investigatory powers
The ASIC Act confers on ASIC both general and specific investigative powers. ASIC has a general
power to investigate matters it thinks are expedient for the due administration of the Corporations
Act where it has reason to believe that the corporation’s legislation may have been contravened or
where the Treasurer considers it is in the public interest to do so.
ASIC may also investigate a suspected contravention of any Australian legislation provided it concerns
the management or affairs of a company or managed investment scheme, or involves fraud or
dishonesty and relates to a company or managed investment scheme or to financial products.
ASIC’s information-gathering powers include the following:
• The right to inspect and require the production of books: A book that is required to be kept by the
corporation’s legislation (e.g. register of members or financial records) must be open for inspection
by ASIC (s 29, ASIC Act). ASIC can issue a notice requiring the production of certain books
(e.g. relating to a company’s affairs, financial products or services; ss 30 and 31, ASIC Act).
Failure to make books available for inspection or to produce books is an offence, which is
punishable by imprisonment for two years, or a fine of up to 240 penalty units (240 x $210, or
$50,400). This fine is calculated using the newly introduced calculation in s 93D, namely a fine of
10 penalty units per potential month of imprisonment. The penalty unit calculation is 100 penalty
units per potential month of imprisonment for bodies corporate.
It is not a reasonable excuse for a person to refuse or fail to make records available on the ground
that the records or production of the books might incriminate the person required to produce
them or make them liable to a penalty (s 68, ASIC Act).
If ASIC suspects, on reasonable grounds, that books are on certain premises that have not been
produced in accordance with a notice to produce them, it can apply to a magistrate to obtain a
search warrant to find them (s 35, ASIC Act). The Australian Federal Police, in conjunction with
ASIC, can also apply for a search warrant under the Crimes Act 1914 (Cth) in relation to suspected
contraventions under the corporation’s legislation.
ASIC is bound to take all reasonable measures to protect from unauthorised use or disclosure,
information given to it in the exercise of its functions and powers. However, in certain
circumstances, the ASIC chair may authorise the disclosure of such information to
government agencies.
Section 69 of the ASIC Act entitles a lawyer to refuse to produce a book containing privileged
communications made by, on behalf of, or to the lawyer in their capacity as a lawyer.
Apart from this limited exception, a person will not be entitled to refuse to comply with a notice
to produce books on the basis that the information in them is covered by legal professional
privilege. Note that only a lawyer may rely on this limited exception.
5.8
• The right to examine a person: Under s 19 of the ASIC Act, where ASIC suspects or believes on
reasonable grounds that a person can give information relevant to a matter under investigation,
ASIC can require that person to:
– give reasonable assistance to ASIC in connection with an investigation
– appear at an examination and answer questions on oath.
A person being examined cannot refuse or fail to answer a question on the grounds that the
answer may incriminate them. However, there are restrictions on ASIC being able to use the
answer as evidence in criminal proceedings or proceedings for the imposition of a penalty against
that person (s 68, ASIC Act).
Examinations take place in private and the person being examined may have legal representation.
A failure to attend an examination or answer a question, and the giving of false information,
is punishable by imprisonment for up to two years, or a fine of 240 penalty units.
• The power to conduct hearings: In certain circumstances ASIC can conduct hearings.
In conducting hearings, which must be within its jurisdiction, ASIC can call on persons
to give evidence. ASIC conducts three broad categories of administrative hearings:
– licensing hearings
– protective hearings
– application of security hearings.
More information on ASIC’s power to conduct hearings can be found in RG 8 ‘Hearings practice
manual’.
‘Further resource 1’ in KapLearn.
Apply your knowledge 1: ASIC’s investigatory powers

Joe Sneaky is a senior officer of BigTime Ltd. He has confidential documents about the
takeover of BigTime Ltd by a competitor, Hugetime Ltd.
On the basis of this confidential information, Joe purchases a large number of BigTime
shares. The shares are purchased on the ASX market through a stockbroker employed by
BigBroker. The takeover is announced and the share price of BigTime soars. Joe sells his
shares and makes a huge profit. Joe then becomes nervous about what he has done.
He takes the confidential documents home and hides them under his bed. He then calls
his lawyer to discuss his legal position.
ASIC receives information that Joe may have been involved in insider trading
and launches an investigation.
1. What type of information can ASIC obtain through its investigation?
2. From whom can ASIC obtain the information?
3. If ASIC suspects that Joe may have hidden documents at home, how would it go
about obtaining these documents?
4. Can ASIC gain access to documents created by Joe’s lawyer?
Enforcement powers
As outlined below, ASIC has a broad range of enforcement powers available to it when it has
collected evidence of a contravention of the corporation’s legislation. Broadly classified,
these powers are criminal, civil and administrative actions. They can be used on their own or in
combination.
5.9
Criminal proceedings
ASIC may instigate the prosecution of a person as a result of an investigation, or if, from a record of
an examination, ASIC believes that the person may have committed an offence against the
corporation’s legislation and should be prosecuted for that offence (s 49, ASIC Act).
When ASIC considers that it has the evidence for prosecution of an offence, it will provide a brief of
evidence to the Commonwealth Director of Public Prosecutions (CDPP), who must approve the laying
of any charges. When charges are laid, the prosecution is run by the CDPP. ASIC continues to have a
role as the investigating agency, providing the evidence for the prosecution.
Each year, ASIC also summarily prosecutes a large number of less serious breaches (e.g. failure of an
officer to assist a liquidator) without referring them to the CDPP.
ASIC and the CDPP have a Memorandum of Understanding (MOU) which sets out the operational
arrangements for the two organisations to work together. The MOU provides procedures,
for example the CDPP’s prosecution of matters and ongoing liaison between the organisations.
Section 1317P of the Corporations Act allows ASIC to commence criminal proceedings even though it
has already achieved a civil outcome in relation to the same, or substantially similar, conduct.
Example: HIH collapse

Following the spectacular collapse of the HIH group of companies, Mr Rodney Adler,
a former director of HIH Insurance Limited, was sentenced on 16 February 2005 to
4 ½ years jail (with a non-parole period of 2 ½ years) on four charges arising from his
conduct as a director of the HIH group of companies. He pleaded guilty to the following
charges brought by ASIC:
• two counts of disseminating information knowing it was false in a material particular
and that it was likely to induce the purchase by other persons of shares in HIH
contrary to s 999 of the Corporations Act
• one count of obtaining money by false or misleading statements, contrary to s 178BB
of the Crimes Act 1900 (NSW)
• one count of being intentionally dishonest and failing to discharge his duties as a
director of HIH in good faith and in the best interests of the company, contrary to
s 184(1)(b) of the Corporations Act.
In earlier civil proceedings related to the collapse of HIH, a $7 million compensation
order had been made against him and a $450,000 pecuniary penalty imposed. He was
also disqualified from acting as a director of a company for 20 years.
In recent times, and especially in the wake of the 2018 Royal Commission into Misconduct in the
Banking, Superannuation and Financial Services Industry (the Banking Royal Commission), ASIC’s
conduct has been criticised for its tendency to seek alternatives to litigation or to soften the
regulatory impact on financial institutions (Harris 2019). As part of its review, ASIC has expressed the
intention to take a harder line on banks and other financial institutions, and a ‘why not litigate’
approach. In this regard, it set up an Office of Enforcement in 2018, which is intended to take strong
action. Its success in changing the public perception ASIC is yet to be seen; however, with tougher
penalties available to it, increased resourcing (up to $400 million in 2017), and a resolve to increase
enforcement activity, ASIC is now well armed, and must justify the use of these resources.
It is recognised, however, that the recommendations of the Banking Royal Commission put ‘even
more on ASIC’s plate’, and ‘will only add more pressure on ASIC to do more with less’ (Harris 2019).
5.10
Civil proceedings
Section 50 of the ASIC Act provides that if it appears to ASIC to be in the public interest for a person
to begin and carry on a proceeding for the recovery of:
• damages for fraud, negligence, default, breach of duty or other misconduct, committed in
connection with a matter to which the investigation or examination related, or
• property of the person.
ASIC may cause such a proceeding to begin and be carried on in the person’s name. Where that
person is an individual, ASIC must have their written consent.
In determining whether bringing such an action on behalf of a shareholder is in the ‘public interest’,
ASIC will consider:
• the regulatory effect of successfully bringing an action
• the strength of the cause of action and ability to identify plaintiffs and obtain consent to bring
proceedings
• whether shareholders are able to bring an action
• the ability of the defendants to pay the damages sought
• the prospects of winning.
ASIC has only undertaken a small number of these s 50 actions in its history.
ASIC also has power to impose civil penalties in relation to certain provisions of the Corporations Act
(known as ‘civil penalty provisions’). ASIC may seek declarations of contravention, pecuniary penalty
orders and/or compensation orders (ss 1317DA–1317S, Corporations Act). ASIC may take this type of
enforcement action where a person has contravened a ‘corporation/scheme civil penalty provision’
(e.g. breach of duty of officers of a corporation, insolvent trading and breach of continuous
disclosure obligations) or a ‘financial services civil penalty provision’ (e.g. market manipulation and
insider trading).
Example: Westpoint — ASIC action against directors

The Westpoint Group collapsed in January 2006, leaving investors in Westpoint-related
financial products with an outstanding capital invested of $386 million. ASIC took a
range of court actions in relation to Westpoint, including Federal Court proceedings
(in 2007) against nine Westpoint mezzanine finance companies. The actions were taken
under s 50 of the ASIC Act, which, as discussed above, allows ASIC to carry on
proceedings in another person’s name. The claims were against individuals who were
appointed, or alleged to have been appointed, as directors of those companies, and
were related to the way in which the directors handled money invested in the
companies. The claims were settled in February 2011 as part of a settlement with
Westpoint directors and auditors for an amount of approximately $67 million.
Injunctions
Under s 1323 of the Corporations Act, ASIC (and other aggrieved persons) can seek an injunction
preventing the person against whom ASIC has commenced an investigation or against whom a
prosecution or civil proceeding has commenced from disposing of or transferring assets.
Because aggrieved persons can also exercise this power themselves, ASIC is seldom required to intervene.
Similarly, ASIC, or a person whose interests have been, are or would be affected by the conduct,
may seek an injunction under s 1324 to prevent a person from continuing to engage or proposing to
engage in conduct that constituted, constitutes or would constitute a contravention of the
Corporations Act.
5.11
Infringement notices
The continuous disclosure provisions in Chapter 6CA of the Corporations Act require corporations to
inform the market, if listed, or ASIC, if unlisted, about information that:
• the corporation has that is not generally available
• a reasonable person would expect, if it were generally available, to have a material effect on the
price or value of the relevant securities.
ASIC has power to issue an infringement notice if it has reasonable grounds for suspecting that
a corporation has breached its continuous disclosure obligations (Part 9.4AA, Corporations Act).
Infringement notices are intended to be issued for ‘less serious’ breaches of the continuous
disclosure obligations. ASIC RG 73 ‘Continuous disclosure obligations: Infringement notices’ sets out
the processes involved in issuing these notices.
Administrative actions
ASIC can make orders against Australian financial services licensees and their representatives. This is
known as an ‘administrative action’ as it is an internal administrative decision. Such decisions include
revoking, suspending or imposing conditions on a licence and banning participants from providing
financial services, either as a licensee or as a representative of a licensee. The grounds on which
these types of actions can be taken include:
• a contravention of a financial services law
• if ASIC has reason to believe that the person will in future contravene a financial services law
• failure to comply with a licensee’s obligations
• failure to act honestly, efficiently and fairly
• if ASIC has reason to believe that the person will in future fail to act honestly, efficiently and fairly.
For most of these decisions, ASIC must hold a hearing in private and give the person affected a right
to be heard before making any decisions. Most administrative decisions of this nature made by ASIC
can be appealed to the Administrative Appeals Tribunal.
Enforceable undertakings
An enforceable undertaking is in effect a promise made by the person that can be enforced by ASIC if
it is broken. ASIC may accept written enforceable undertakings as an alternative to pursuing other
remedies. However, ASIC will not accept an enforceable undertaking in lieu of commencing criminal
proceedings against a party.
When deciding whether an enforceable undertaking is appropriate in the circumstances of the case,
ASIC will consider the following factors (this list is not exhaustive):
• Is the person prepared to publicly acknowledge ASIC’s concerns about the conduct and the
necessity for protective or corrective action?
• Was the misconduct that ASIC considers to be a breach inadvertent?
• Was the conduct that ASIC considers to be a breach a result of the conduct of one or more
individual officers or employees of the company?
• What was the seniority and level of experience of the individual(s) involved in the breach?
• Has the person cooperated with ASIC, including providing ASIC with complete information about
the underlying breaches and any remedial efforts?
5.12
• Will it achieve an effective outcome for those who have been adversely affected by the conduct
or compliance failure?
• Is the person likely to comply with the enforceable undertaking?
• Has the person been the subject of complaints or previous ASIC enforcement action?
• What are the prospects for a speedy resolution of the matter?
If the company breaches the terms of the undertaking, ASIC may apply to the court for an order
that the company comply with the undertaking. In any such proceedings, ASIC will not have to prove
that the company has breached its licence obligations. It will only have to prove that the company
has breached the undertaking. The court may also make other orders, including an order directing
the person to disgorge any profits resulting from the breach or to pay compensation for any loss
caused.
Example: ANZ Custodial Services

In 2008, ASIC investigated the management and affairs of ANZ Custodial Services.
ANZ Custodial Services is a division of the ANZ Group that provides custodial and asset
services to ANZ’s clients and conducts settlement and trade processing, investment
accounting and security lending. The investigation resulted from, at least in part,
information that emerged in the investigation following the collapse of Opes Prime.
ASIC identified a number of areas of concern and put in place an enforceable
undertaking from Australia and New Zealand Banking Group Ltd and ANZ Nominees Ltd.
The ANZ companies agreed to improve compliance in a number of areas, including to
review, and where necessary, remedy:
• poor reconciliation processing
• breakdown in proper compliance processes
• inadequate resourcing and risk management
• a poor compliance culture.
ASIC believed that an enforceable undertaking was the best way to improve
compliance within ANZ Custodial Services given the nature and breadth of the
concerns and the willingness of the ANZ companies to acknowledge the concerns and
cooperate in the investigation.
Reflect on this: The role of ASIC enforcement action

The former chair of ASIC, Tony D’Aloisio, said in a speech (2010) that ASIC is a regulatory
oversight body and not a guarantor of last resort against risk and corporate failure.
Conduct your own research in relation to action taken by ASIC in recent and current
matters such as Westpoint, Centro, Storm Financial, Opes Prime and IOOF.
Consider the extent to which ASIC enforcement action can protect investors and the
extent to which investors should be responsible for protecting themselves against risks.
5.13
Proposed changes to ASIC

In September 2013, the government of the day initiated an inquiry into the financial system.
The Financial System Inquiry (FSI) Final Report was delivered on 28 November 2014. The FSI’s report
reflected the view that the financial system was in generally good health. The report recommended
no major structural changes; however, it recommended a number of changes relating to regulator
accountability and financial competency.
On 20 October 2015, the government issued its response to the FSI, accepting most of the
recommendations, and making a commitment to formulating legislation for its first proposals
(Treasury 2015).
The response outlined various changes to financial product innovation and disclosure, and proposed
changes that directly altered ASIC’s powers, including:
• a ‘product intervention power’ that could be used to modify products, or if necessary,
remove harmful products from the marketplace
• giving ASIC the power to ban individuals from managing financial firms
• giving ASIC the power to review remuneration in the mortgage broking and
stockbroking industries
• strengthening ASIC’s powers in relation to financial services and credit licensing regimes
• competition in ASIC’s mandate and expecting ASIC to annually report on how it has balanced
competition against other measures in its mandate.
The response also made proposals about how ASIC conducts its business, including:
• consulting on an industry-funded model for ASIC regulation
• reviewing operational flexibility and staffing arrangements as part of a capability review
• increasing the focus on performance assessment in the regulators’ annual reports
• giving the Financial Sector Advisory Council the power to oversee ASIC’s performance.
Since then, ASIC has completed its first capability review (July 2015) and the ASIC Supervisory Cost
Recovery Levy Act 2017 (Cth) received Royal Assent on 19 June 2017.
In his final report into the Royal Commission, Commissioner Hayne made several recommendations
touching on the performance of both ASIC and APRA. While the performance of the regulators during
the hearings was criticised in the media, ultimately the recommendations did not suggest radical
restructuring of the existing system, but did recommend stronger oversight.
The strongest recommendations were for APRA and ASIC to be subject to regular capability reviews
(Recommendation 6.13), a new independent oversight authority to be established (Recommendation
6.14), as well as a statutory obligation for the two regulators to co-operate. Commissioner Hayne
also recommended for ASIC to take a firmer approach to enforcement, and maintain its distance
from regulated entities (Recommendation 6.2), though this coincided with an existing shift within
ASIC towards a ‘why not litigate’ stance.
5.14
2 Australian Prudential Regulation Authority (APRA)

This section examines the Australian Prudential Regulation Authority (APRA), the other principal
regulatory body in the Australian financial services system. APRA supervises organisations involved in
central activities such as banking, superannuation and insurance.
2.1 The role of APRA

APRA was established by the federal Australian Prudential Regulation Authority Act 1998 (Cth)
(APRA Act). The purposes for establishing APRA are set out in s 8 of the Act, as follows:
(1) APRA is established for the purpose of regulating bodies in the financial sector
in accordance with other laws of the Commonwealth that provide for prudential
regulation or for retirement income standards, and for developing the
administrative practices and procedures to be applied in performing that
regulatory role.
(2) In performing and exercising its functions and powers, APRA is to balance the
objectives of financial safety and efficiency, competition, contestability and
competitive neutrality and, in balancing these objectives, is to promote financial
system stability in Australia.
APRA is the prudential regulator of the Australian financial services industry, overseeing:
• authorised deposit-taking institutions — for example, banks, building societies and credit unions
• life, general and reinsurance companies
• friendly societies
• most of the superannuation industry.
Trans-Tasman cooperation
Australian banks have a very large presence in New Zealand and this has led to an unusual provision
in the APRA Act (s 8A(1)), which provides that:
In performing and exercising its functions and powers, APRA must:
(i) support the prescribed New Zealand authorities in meeting their statutory
responsibilities relating to prudential regulation and financial system stability
in New Zealand; and
(ii) to the extent reasonably practicable, avoid any action that is likely to have
a detrimental effect on financial system stability in New Zealand.
Supervision and enforcement

In its ‘Statement of Intent’, APRA has confirmed its commitment to a supervisory approach that
is focused on outcomes. This has two main and complementary elements:
• a ‘principles-based’ approach to prudential regulation that recognises the complexity and
diversity that exists among financial institutions
• a ‘risk-based’ approach to the supervision of individual institutions that ensures supervisory
attention and resources are directed to institutions whose activities are posing greater risks.
5.15
The APRA Supervision Philosophy (APRA 2020a) states that:

APRA’s vision is to deliver a sound and resilient financial system, founded on excellence
in prudential supervision.
A ‘sound and resilient financial system’ is one in which regulated entities can withstand
shocks so as to avoid failure, now and in the future, and where disruptions to the
continuity of financial services are minimised.
The primary responsibility for the financial soundness and prudent risk management
of a regulated entity rests with the board of directors and senior management. It is the
role of APRA to supervise how well these duties are carried out and to intervene
where needed.
Supervisory ‘excellence’ is, therefore, a key enabler of a sound and resilient financial
system. Excellence is achieved through the application of a contemporary supervision
methodology that is fit for purpose, both today and into the future. APRA supervisors
help deploy the supervision methodology – so they themselves need to be suitably
equipped with sufficient skills and capabilities to carry out their duties.
APRA issues prudential standards, which must be adhered to, along with guidance notes and
Prudential Practice Guides.
APRA has the power to disqualify an individual from holding prudentially significant roles within the
Australian authorised deposit-taking, general insurance and superannuation industries. APRA can
also issue directions to organisations, accept enforceable undertakings, seek restraining orders and
take criminal actions.
Further detailed information about the Australian Prudential Regulation Authority is available on the
APRA website.
2.2 Prudential regulation

APRA prepares and enforces a number of prudential and reporting standards to ensure institutions
fulfil their obligations to the financial services industry.
Authorised deposit-taking institutions

Authorised deposit-taking institutions (ADIs) are corporations which are authorised under the
Banking Act 1959 (Cth) and include banks, building societies and credit unions.
5.16
Basel II Capital Framework

The Basel II Capital Framework is a major global reform of capital adequacy requirements for banking
systems that seeks to incorporate best practices in risk management into the regulatory process.
It took effect in Australia on 1 January 2008 with the release of prudential standards in relation to
capital adequacy and securitisation that implemented the Basel II Framework in Australia. APRA has
also issued prudential standards in relation to matters such as:
• liquidity
• credit quality
• large exposures
• associations with related entities
• outsourcing
• business continuity management
• audit and related matters
• governance
• fit and proper persons.
The major Australian banks are accredited to use the advanced Basel II approaches. In aggregate,
these banks would represent a substantial portion of total ADI assets.
The Basel II Capital Framework and the Basel III framework, which has introduced higher minimum
capital requirements, are discussed further in section 11.2.
FSI recommendation
In the FSI’s final report (FSI 2014), a recommendation was made that bank capital levels be
‘unquestionably strong’. In response, APRA reported on major bank capital levels in July 2015,
finding that Australian banks are well capitalised, but recommended a 200-basis-point increase in
capital levels to meet the recommendation. It will increase mortgage risk weights and improve the
resilience of the banking system to crises and improve competition. As at the end of 2019 APRA
noted that banks held $235 billion of Common Equity Tier 1 (CET1) capital, being the highest quality
form of capital, and in excess of minimum regulatory requirements (APRA, 2020b).
Insurance
Australia’s general and life insurance industries are regulated by APRA.
General insurance
APRA supervises general insurers under the Insurance Act 1973 (Cth). APRA has issued prudential
standards in relation to matters such as:
• capital adequacy
• assets in Australia
• risk management
• business continuity management
• reinsurance management
• outsourcing
• audit and actuarial reporting and valuation
• governance
• fit and proper.
5.17
Life insurance and friendly societies

In 2008, APRA introduced new and amended prudential standards, including actuarial standards,
for life insurers and friendly societies, resulting from amendments to the Life Insurance Act 1995
(Cth) made under the Financial Sector Legislation Amendment (Simplifying Regulation and Review)
Act 2007 (Cth) (SRR Act).
In general, the approach taken by APRA, effective 1 January 2008, was to maintain the ‘status quo’.
But some changes and reissues of previously removed sections of APRA prudential standards were
made to ensure that:
 key provisions relating to actuaries, auditors and reinsurance continue to operate
(LPS 230 Reinsurance and LPS 310 Audit and Actuarial Requirements)
 the prudential framework for life companies continues as intended
 actuarial standards previously governed by the Actuarial Standards Board (LIASB) standards are
ensured continued operation.
Superannuation
APRA supervises regulated superannuation funds, other than self-managed superannuation funds
(SMSFs) (supervised by the Australian Taxation Office (ATO)) and approved deposit funds and pooled
superannuation trusts (regulated under the Superannuation Industry (Supervision) Act 1993 (Cth)).
2.3 Enforcement powers

APRA seeks to work cooperatively with institutions to solve issues. However, if an institution cannot
or will not cooperate, APRA has a wide range of enforcement powers available to it. These powers
include:
• instigate investigations and appoint inspectors
• disqualify persons and organisations from participating in management
• issue directions
• accept enforceable undertakings
• commence criminal legal proceedings
• seek injunctions.
Example: APRA disqualifications

As noted above, APRA has the power to disqualify persons from participating in
management. This power applies to the Australian deposit-taking, general insurance and
superannuation industries. For examples of disqualifications and the reasons for those
disqualifications, go to the APRA website.
5.18
While they each have a different focus in the market, APRA and ASIC may at times overlap in their
regulatory functions. With ASIC’s regulation of ADIs, and recent acquisition of responsibility for credit
providers, this is increasingly likely. The MOU between the agencies handles these conflicts to some
extent, as well as fostering an attitude of cooperation in investigation (ASIC 2010). Former ASIC
Chairman Greg Medcraft noted the potential conflict in a speech to the APRA leadership in June
2011:
We sometimes have conflicting objectives. For instance, for ADIs, APRA’s mandate is to
protect depositors by working with the entity until it is back to full health. It would work
‘behind the scenes’ and not make a public disclosure. However, ASIC’s mandate is to
protect investors by disclosing any wrongdoing to the market and through disclosure
generally. This could create tension in the regulation of products such as covered bonds,
particularly in relation to the cover pool assets.
In order to ensure we have efficient regulation in the areas of overlap, it’s critical that
our organisations communicate with each other. And since the advent of the global
financial crisis, I think we have become closer at all levels.
(Medcraft 2011)
3 ASX Group
This section focuses on the ASX’s obligation to monitor its markets with an emphasis on the
monitoring of market participants and listed entities.
Although other markets exist in the Australian financial system, the ASX Group has a scope that far
outweighs the combined economic impact of the other exchanges. Generally, though, market
operators and participants of the other markets licensed in Australia are subject to the same
operating rules and regulations as those described in this section; however, there is some variation in
the criteria for listing.
3.1 The role of the ASX

The ASX Group was created through the merger of the Australian Stock Exchange and the
Sydney Futures Exchange in 2006. The ASX is one of the world’s top 10 listed exchange groups,
as measured by market capitalisation. The ASX and ASX 24 (previously SFE) markets continue to
operate as separate markets under separate licences. The ASX Group also includes the following
entities which operate clearing and settlement facilities:
• ASX Clear Pty Ltd (ASX Clear)
• ASX Settlement Pty Ltd (ASX Settlement)
• ASX Clear (Futures) Pty Ltd (ASX Clear (Futures))
• Austraclear Ltd (Austraclear).
Each of the markets and clearing and settlement facilities in the ASX Group has a set of operating
rules which govern the operation of that market or facility.
The ASX’s role is to provide a marketplace for trading in the securities of domestic and foreign issuers
(including equity and debt products) and derivatives. It brings together people with capital on the
one hand (investors) and people requiring capital on the other. Its operations are underpinned by
comprehensive high-quality information technology systems.
The ASX has an obligation under the Corporations Act to ensure that the ASX and ASX 24 markets are
fair, orderly and transparent.
5.19
ASX’s structure and operations

The ASX Group of companies operates a:
• financial market/securities exchange referred to colloquially as the ‘Australian stockmarket’ —
operated by ASX Limited
• clearing facility — operated by ASX Clear Pty Limited (ASX Clear)
• settlement facility — operated by ASX Settlement Pty Limited (ASX Settlement).
To obtain access to ASX’s facilities, a financial services provider must be a market participant of ASX
and either contract with or be a participant of ASX Clear and ASX Settlement.
Operating Rules and ASIC/ASX Market Integrity Rules

The Operating Rules for the markets and clearing and settlement facilities in the ASX Group comprise:
• ASX Listing Rules — which govern the admission of entities to the official list, quotation of their
securities, suspension of securities from quotation and removal of entities from the official list.
They also govern continuous and periodic disclosure and some aspects of a listed entity’s conduct.
Compliance with the Listing Rules is a requirement for admission to the official list. It is also a
requirement under the contract that an entity enters into on being admitted
• ASX Operating Rules
• ASX Clear Operating Rules
• ASX Clear (Futures) Operating Rules
• ASX 24 Operating Rules
 ASX Settlement Operating Rules.
From 1 August 2010, responsibility for direct supervision of Australian financial markets, including
the ASX and ASX 24 financial markets, was transferred to ASIC. Hence, the supervision of participants
which was previously conducted by ASX is now the responsibility of ASIC. ASX remains responsible for
monitoring and enforcing compliance with its Operating Rules and oversight of listed entities.
The transfer of supervision only related to markets, not to clearing and settlement facilities.
As part of these changes, the Corporations Amendment (Financial Market Supervision) Act 2010 (Cth)
was passed to provide a new type of rule called ‘Market Integrity Rules’. These rules are made by
ASIC and apply to market operators, market participants and other prescribed entities and financial
products traded on the relevant markets.
The ASIC/ASX Market Integrity Rules (discussed in section 1.1), for the most part, incorporate the
substance of the former ASX Market Rules that related to supervisory matters.
For an overview of the Market Integrity Rules, see the ASIC website (ASIC 2020d).
As a result of the transfer of supervision, the ASX Operating Rules (for the ASX market) were
restructured as of 1 August 2010 to reflect the fact that supervisory matters are now dealt with in
the ASIC/ASX Market Integrity Rules and to provide a more streamlined rulebook. The Operating
Rules now deal with matters including the admission of participants, products, trading rules,
execution services and monitoring and enforcing compliance with the rules. There was a similar
restructure of the ASX 24 Operating Rules.
The ASX create a ‘Rule Comparison Table’ with information about the transition from ASX Market
Rules to ASX Operating Rules (ASX 2010).
5.20
Failure to comply
Possible consequences for market participants who fail to comply with the Operating Rules include
fines, suspension or expulsion as market participants.
Trading
ASX’s activities span primary and secondary market services, central counterparty risk transfer,
and securities settlement for both the equities and fixed income markets. It functions as a market
operator, clearing house and payments system facilitator. ASX operates two trading platforms:
ASX Trade and ASX Trade24.
The following is an overview of how the ASX Trade trading system operates:
In 2006, ASX adopted an integrated trading system (ITS) which provided a single trading
platform for derivatives and equities (the Trading Platform). In December 2010, ASX
retired ITS and introduced ASX Trade, a NASDAQ OMX ultra-low latency trading platform
based on NASDAQ OMX‘s Genium INET system. ASX Trade has a system latency of 300
microseconds. Like ITS, ASX Trade provides a single trading platform for both derivatives
and equities.
All ASX Option trading terminals that are owned by ASX are located in Australia. ASX
Market Participants may be located outside of Australia, and may initiate transactions
from a location outside of Australia.
Orders are entered into Market Participants‘ terminals and transmitted to the market via
the central order book on ASX's host computer, which in turn sends the order to the
hardware gateway for each Market Participant. Market Participants see and execute
orders through their desktop order management software, which interacts with and
shows them the central order book. Orders are executed on a price and time priority
basis and execution is performed by responding to a bid or offer that appears on the
Trading Platform.
Simultaneously, the trade information is announced automatically through the
Trading Platform. All trading activity is monitored and observed by ASX through the use
of a surveillance computer system which monitors in real-time all trading information
and highlights any unusual price or volume movements. After a customer order is
executed, a confirmation must be produced by the relevant Market Participant detailing
the terms of the execution. This confirmation must be provided to the customer as soon
as is practicable.
(ASX 2012)
Clearing and settlement (CHESS)

Clearing and settlement activities are undertaken through ASX Clearing Corporation’s wholly owned
subsidiaries, ASX Clear and ASX Clear (Futures). These provide central counterparty facilities as well
as risk management systems, securities collateralisation services and electronic ‘straight-through’
processing of trades.
ASX Clear is Australia’s clearing facility and central counterparty for securities listed on the ASX Trade
platform, including cash market securities (comprising equities, pooled investment products and warrants)
and predominantly equity-related derivatives (comprising exchange traded options and futures).
ASX Clear operates the derivatives clearing system (DCS) to clear and settle equity-related derivative
products.
ASX Clear (Futures) is the clearing facility and central counterparty for futures and options in interest
rate, equity, energy and commodity products that are traded on ASX Trade24.
5.21
The following summaries of clearing and settlement operations are taken from the ASX website:
When you buy or sell financial products such as shares in a listed company, you must
exchange the title or legal ownership of those financial products for money.
This exchange is called settlement.
If you buy or sell financial products such as shares in a listed company, you must
exchange the title or legal ownership of those financial products for money.
This exchange is called settlement.
For financial products traded on the Australian Securities Exchange, settlement is
effected by a world-class computer system called CHESS, which stands for the
Clearing House Electronic Subregister System.
CHESS is operated by the ASX Settlement Pty Limited (ASX Settlement), a wholly owned
subsidiary of the ASX. ASX Settlement authorises participants such as brokers,
custodians, institutional investors, settlement agents and so on to access CHESS and
settle trades made by themselves or on behalf of their clients.
Usually, two business days after a buyer and seller agree to a trade, CHESS effects the
settlement of that trade. It does this by transferring the title or legal ownership of the
shares while simultaneously facilitating the transfer of money for those shares between
participants via their respective banks. This type of settlement is called Delivery versus
Payment (DvP). It is irrevocable.
In addition to performing settlement, CHESS electronically registers the title (ownership)
of shares on its subregister. This registration is secure and is an efficient means for
holders to register title of their shares if they intend to trade them.
(ASX 2016)
ASX Clear acts as the central counterparty to all ASX market transactions. Through the
ASX Clear Operating Rules, an ASX trade is ‘novated’ to ASX Clear. This is because for each buyer,
ASX Clear becomes the seller and for each seller, ASX Clear becomes the buyer. This means that ASX
stockbrokers and their clients do not have to consider the counterparty of their buy–sell transaction.
3.2 Monitoring and powers

The ASX is required under the Corporations Act to monitor and enforce compliance with its Listing Rules.
Responsibilities of a market operator

The ASX and ASX 24 markets are licensed financial markets under the Corporations Act.
Under Chapter 7 of the Corporations Act, ASX as the market operator is obliged to take all reasonable
steps to:
• ensure a fair, orderly and transparent market
• comply with the conditions on the Australian market licence
• have adequate arrangements for operating the market, including the handling of conflicts of interest
and monitoring and enforcing compliance with the market’s Operating Rules
• have sufficient human, technical and financial resources to properly operate the market
• have adequate compensation arrangements in relation to the market, as required by the Act
• ensure an unacceptable control situation does not exist
• ensure that no disqualified individual becomes involved in the licensee.
5.22
Monitoring of market participants

The ASX Operating Rules govern those participating in trading on the ASX’s market. The ASX
Operating Rules form a contract between ASX and market participants regulated by those rules
which is enforceable under the Corporations Act.
The ASX 24 Operating Rules fulfil a similar function in relation to the ASX 24 market.
Admission requirements
To participate in trading on the ASX market, market participants must meet certain requirements.
A market participant must:
• obtain an Australian financial services (AFS) licence (unless such a licence is not required by ASIC)
• satisfy the ASX that it is of high business integrity
• satisfy the ASX that it has organisational competencies which:
– are adequate for the performance of its obligations as a market participant under these rules
– are sufficient to prevent any action or inaction which results in a market for a product not
being both fair and orderly
– are sufficient to prevent any action or inaction which interferes with the operational efficiency
or proper functioning of the trading platform
– warrant to the ASX that it is in compliance with the management requirements set out in the
ASIC Market Integrity Rules
– have in place and maintain clearing and/or settlement arrangements.
The same requirements apply in relation to participation on the ASX 24 market.
Enforcement action
The enforcement process for ASX markets and clearing and settlement facilities is set out in the ASX
Enforcement and Appeals Rulebook. These processes were modified as of the date of the transfer of
supervision to ASIC (1 August 2010), and updated in 2015.
An act done by a person (i.e. an officer, employee or agent) on behalf of a market participant that is a
breach of the rules or is prohibited conduct is deemed to be done by the market participant.
Sanctions which may be imposed by the ASX on a participant or other regulated person
(‘relevant person’) include any one or more of the following:
• a censure
• a fine not exceeding $250,000 (for breaches of the ASX and ASX 24 Operating Rules) or $1 million
(for breaches of other rules) (refer to Rule 2.2.1 and Procedure 2.2.1 of the ASX Rulebook)
• prohibit the relevant person from trading for up to three months
• require the relevant person to institute or upgrade an education and compliance program
• where the contravention arose from the conduct of a particular individual involved in the business
of the market participant, direct that the market participant is to cease to permit that individual
to remain involved, or direct that the market participant changes the individual’s role in the
business in some way.
Prior to taking enforcement action, the ASX will issue a ‘submission notice’ to the relevant person,
setting out the circumstances giving rise to the alleged breach and factors in assessing the proposed
sanction and giving the relevant person the opportunity to respond by written submissions.
5.23
If the ASX decides to take enforcement action, it will do so by issuing an alleged minor infringement
notice (for minor breaches) or an enforcement notice (for other breaches). The notice will set out the
grounds for the contravention and sanction.
Appeals to an appeal tribunal can be made in a range of matters, including where a relevant person is
dissatisfied with a determination of the ASX to issue an enforcement notice or any sanction imposed
in the enforcement notice, or a decision taken by the ASX to suspend or terminate the admission of a
market participant.
Court action to enforce ASX Operating Rules

Apart from ASX’s ability to enforce its Operating Rules using the enforcement procedures described
above, s 793C of the Corporations Act is also relevant to this issue. Where any person who is under
an obligation to comply with the ASX Operating Rules fails to do so, the court may give directions
about compliance with, or enforcement of, the Rules. This may be done on application by ASIC,
the ASX or a person aggrieved by the failure to comply.
Note the following matters relevant to the court’s jurisdiction under s 793C:
• Some person must be under an obligation. A market participant will be under an obligation to
comply with or observe the ASX Operating Rules. However, it appears that ASX’s power to enforce
or give effect to the ASX Operating Rules is only a discretionary power. Therefore, the ASX is not
under an obligation (to enforce them).
• The meaning to be given to the term ‘aggrieved person’ has been the subject of conflicting court
interpretations. In Robox Nominees Pty Ltd v Bell Resources Ltd (1986) 4 ACLC 164, it was
interpreted by the Western Australian Supreme Court to mean a person with more than a nominal
holding of shares. However, the more common interpretation seems to be that taken in the earlier
case of Broken Hill Proprietary Co Ltd v Bell Resources Ltd (1984) 2 ACLC 157, where it was held by
the Victorian Supreme Court to include reference to any shareholder in the relevant company.
The court also has powers under s 1101B of the Corporations Act to make orders in cases involving
contraventions of the ASX Operating Rules, including prohibiting a person from carrying on a financial
services business (including dealing in securities) or appointing a receiver to hold property.
An application under s 1101B can be brought by ASIC, the ASX or a person aggrieved by a
contravention of the ASX Operating Rules.
The same applies in relation to enforcement of the ASX 24 Operating Rules.
Supervision of listed entities

The ASX Listing Rules set out the requirements for an initial listing and the ongoing requirements to
maintain that listing. These Listing Rules form a contract between the ASX and listed entities.
This contract specifies the minimum standards of behaviour that are aimed at ensuring that
the market is fully informed and operates fairly and efficiently.
The objectives of the ASX are to provide:
• a fair and well-informed market for financial securities
• an internationally competitive market.
The ASX Listing Rules are a key element in meeting these objectives. They deal with listing and
quotation, market information, trading and settlement and general supervisory matters.
5.24
3.3 Corporate governance principles

Corporate governance is the system by which organisations are directed and managed.
Corporate governance influences how:
• objectives of an organisation are set
• risk is monitored
• performance is optimised.
The ASX Corporate Governance Council was formed in 2002 to develop and deliver an industry-wide
framework for corporate governance in the form of best practice principles. These principles were
first released in 2003. As a consequence, Listing Rule 4.10.3 was amended to provide that a company
must now state in its annual report the extent to which it has followed the principles during a
reporting period. If a company has not followed a recommendation, it must give reasons why it has
not done so.
Revised Corporate Governance Principles and Recommendations was issued in March 2003, and then
further revised in August 2007. On 30 June 2010, more amendments relating to diversity, remuneration,
trading policies and briefings were released. These amendments apply to an entity’s first financial year
commencing after 1 January 2011. The third edition was focused on transparency and disclosure, with
the fourth edition addressing ‘emerging issues around culture, values and trust, fuelled by recent
examples of conduct by some listed entities falling short of community standards and expectations’
(ASX, 2019).
The ASX has recognised that one size does not fit all. The ‘if not, why not’ approach taken in Australia
is in contrast to that taken in the United States (US) in response to its corporate collapses. The US’s
response was arguably an overreaction in the form of the Sarbanes–Oxley Act 2002  a black letter
corporate governance checklist that covers similar territory to that covered by the Australian
Corporate Governance Principles and Recommendations. The main criticism of the Sarbanes–Oxley
Act is that it makes life difficult for the good US corporate citizen and is not tough enough for the
offending citizens.
In summary, the Australian corporate governance principles set out in the fourth edition are:
• Principle 1 — Lay solid foundations for management and oversight
A listed entity should clearly delineate the respective roles and responsibilities of its board and
management and regularly review their performance.
• Principle 2 — Structure the board to be effective and add value
The board of a listed entity should be of an appropriate size and collectively have the skills,
commitment and knowledge of the entity and the industry in which it operates, to enable it to
discharge its duties effectively and to add value.
• Principle 3 — Instil a culture of acting lawfully, ethically and responsibly
A listed entity should instil and continually reinforce a culture across the organisation of acting
lawfully, ethically and responsibly.
• Principle 4 — Safeguard the integrity of corporate reports
A listed entity should have appropriate processes to verify the integrity of its corporate reports.
• Principle 5 — Make timely and balanced disclosure
A listed entity should make timely and balanced disclosure of all matters concerning it that a
reasonable person would expect to have a material effect on the price or value of its securities.
• Principle 6 — Respect the rights of security holders
A listed entity should provide its security holders with appropriate information and facilities to
allow them to exercise their rights as security holders effectively.
5.25
• Principle 7 — Recognise and manage risk

A listed entity should establish a sound risk management framework and periodically review the
effectiveness of that framework.
• Principle 8 — Remunerate fairly and responsibly
A listed entity should pay director remuneration sufficient to attract and retain high quality
directors and design its executive remuneration to attract, retain and motivate high quality senior
executives and to align their interests with the creation of value for security holders and with the
entity’s values and risk appetite.
3.4 Relationship between the ASX and ASIC

ASIC monitors and enforces compliance by the ASX with its various obligations as a holder of an
Australian market licence and clearing and settlement facility licences. Under s 794C of the
Corporations Act, ASIC must assess how well a licensed market operator is complying with its
obligations and whether it has adequate arrangements for supervising its markets. Section 823C of
the Corporations Act sets out similar requirements in relation to clearing and settlement facilities.
Further, as discussed above, ASIC is now responsible for supervision in relation to the ASX market,
while the ASX remains responsible for the operation of the market, enforcing compliance with the
Operating Rules and oversight of listed entities.
An MOU governs the relationship between ASIC and the ASX. The MOU minimises duplication of
activity and promotes cooperation, effective communication and mutual assistance between ASIC
and the ASX.
4 Reserve Bank of Australia (RBA)

This section outlines the role of Australia’s central bank, the Reserve Bank of Australia (RBA),
in setting monetary policy, maintaining financial stability and promoting the efficiency of the
payments system.
4.1 The role of the RBA

The RBA is a statutory authority established by the Reserve Bank Act 1959 (Cth) (Reserve Bank Act).
The RBA’s main responsibility is to set monetary policy. Policy decisions are made by the Reserve
Bank Board, with the objective of achieving low and stable inflation over the medium term.
Other major roles are maintaining financial system stability and promoting the safety and efficiency
of the payments system. The RBA is also an active participant in financial markets, manages
Australia’s foreign reserves, issues Australian currency notes and serves as banker to the
Australian government.
5.26
The Board’s functions are set out in section 10 of the Reserve Bank Act as follows:
(1) Subject to this Part, the Reserve Bank Board has power to determine the policy of
the Bank in relation to any matter, other than its payments system policy, and to
take such action as is necessary to ensure that effect is given by the Bank to the
policy so determined.
(2) It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure
that the monetary and banking policy of the bank is directed to the greatest
advantage of the people of Australia and that the powers of the bank under this
Act and any other Act, other than the Payment Systems (Regulation) Act 1998, the
Payment Systems and Netting Act 1998 and Part 7.3 of the Corporations Act 2001,
are exercised in such a manner as, in the opinion of the Reserve Bank Board, will
best contribute to:
(a) the stability of the currency of Australia
(b) the maintenance of full employment in Australia
(c) the economic prosperity and welfare of the people of Australia.
Detailed information about the Reserve Bank of Australia is available on the RBA website at:
<www.rba.gov.au>.
4.2 Monetary policy

The RBA Board is responsible for monetary policy. The federal Treasurer and the governor of the RBA
have signed a number of Statements on the Conduct of Monetary Policy. The core point is the agreed
aim of keeping consumer price inflation between 2% and 3% p.a.
Monetary policy decisions involve setting the interest rate on overnight loans in the money market.
Other interest rates in the economy are influenced by this interest rate to varying degrees, so that
the behaviour of borrowers and lenders in the financial markets is affected by monetary policy
(although not only by monetary policy).
Reflect on this: Monetary policy

Conduct your own research on the impact of monetary policy on the Australian
economy in recent times.
The RBA and the government agree on the importance of low inflation and low inflation
expectations and seek to achieve this by keeping the inflation rate between 2% and 3%.
Has this approach benefited the Australian economy?
Does the recent practice of some banks raising interest rates by more than the RBA have
any impact on monetary policy?
5.27
4.3 Payments system

The RBA’s Payments System Board is established under the Reserve Bank Act, which states that it is
the Board’s duty to ensure, within the limits of its power, that:
• the Bank’s payment systems policy is directed to the greatest advantage of the people of Australia
• the powers of the Bank are exercised in a way that, in the Board’s opinion, will best contribute to:
– controlling risk in the financial system
– promoting the efficiency of the payments system
– promoting competition in the market for payments systems, consistent with the overall
stability of the financial system
• the powers and functions of the Bank under Part 7.3 of the Corporations Act are exercised in
a way that, in the Board’s opinion, will best contribute to the stability of the financial system.
Under Part 7.3 of the Corporations Act, the Reserve Bank is responsible for assessments of clearing
and settlement facility licensees.
4.4 Powers
The RBA’s powers in relation to clearing and settlement (CS) facility licensees are set out in Part 7.3
of the Corporations Act. Such a licensee must give notice to the RBA as soon as the licensee is aware
that it is failing to meet standards or obligations. The RBA may give advice to the Minister about such
a matter and the Minister has the power to suspend or cancel a licence. At least once a year, the RBA
must do an assessment of how well each CS facility licensee is complying with its obligations.
A report on the assessment is given to the Minister and ASIC.
The RBA’s powers in the payments system are set out in the Payment Systems (Regulation) Act 1998
(Cth). It may:
• ‘designate’ a particular payment system as being subject to its regulation
• determine rules for participation in that system, including rules on access for new participants
• set standards for the safety and efficiency for that system. These may deal with issues such as
technical requirements, procedures, performance benchmarks and pricing
• direct participants in a designated payment system to comply with a standard or access regime
• arbitrate on disputes in that system over matters relating to access, financial safety,
competitiveness and systemic risk, if the parties concerned wish.
5.28
5 Australian Competition and Consumer Commission

(ACCC)
This section outlines the ACCC’s role in enforcing the anti-competition and consumer protection
provisions of the Competition and Consumer Act 2010 (Cth) (previously the Trade Practices Act 1974
(Cth)).
5.1 The role of the ACCC

The ACCC is an independent statutory authority. As the Commission’s name suggests, it has two main
roles:
• consumer protection — including enforcing prohibitions against misleading or deceptive conduct
and unconscionable conduct in dealings with consumers
• anti-competitive practices — including enforcing prohibited business-to-business anti-
competitive practices (also known as ‘restrictive trade practices’).
Particular attention has to be paid to this area because it affects virtually every business in Australia
and because of the extremely heavy penalties which can be, and have been, imposed for breaches of
the law.
As ASIC is tasked with consumer protection in the financial services sector, with nearly identical
provisions to those in the Competition and Consumer Act in the financial services law, the ACCC
generally has a limited role to play. Nonetheless, it may still investigate anti-competitive behaviour
in the financial services industry and regulates debt collection activity in cooperation with ASIC.
Detailed information about the Australian Competition and Consumer Commission is available on the
ACCC website at: <www.accc.gov.au>.

The ACCC may exercise its enforcement powers for matters relating to consumer protection and
anti-competitive behaviour.
Consumer protection
There are a large number of consumer protection provisions in the Australian Consumer Law
(which is Schedule 2 to the Competition and Consumer Act). Two of the most relevant in the present
context are the prohibitions on:
• misleading or deceptive conduct — this is conduct which is misleading or deceptive, or which is
even likely to mislead or deceive. This kind of conduct includes actions such as
misrepresentations, misleading advertising or failing to disclose important relevant information
• unconscionable conduct — this involves taking advantage of a stronger bargaining position in a
harsh or oppressive way.
To enforce the consumer protection provisions, the ACCC can take legal proceedings seeking:
• injunctions (restraining orders)
• damages
• adverse publicity orders
• corrective advertising.
5.29
Breaches of some of the consumer protection provisions carry penalties of $500,000 for individuals,
and potentially limitless penalties for corporations – where the maximum penalty can be calculated
on 10% of a company’s turnover in a 12 month period, as explained below.
Fair trading laws

All the states have fair trading laws that mirror the consumer protection provisions of the
Competition and Consumer Act. These laws are administered by the fair trading offices in each state
or territory, which take action to investigate and prevent unfair practices.
Anti-competitive practices
Some of the anti-competitive practices that are prohibited by the Competition and
Consumer Act include:
• anti-competitive agreements, for example agreements that substantially lessen competition,
market sharing and price fixing
• misuse of market power
• exclusive dealing
• resale price maintenance
• some mergers and acquisitions.
Unconscionable conduct is also prohibited in commercial transactions.
Example: Cabcharge Australia

In September 2010, the Federal Court ordered Cabcharge Australia to pay $15 million in
penalties and costs for misuse of market power. Cabcharge had refused to allow
competing suppliers of electronic payment processing services to process Cabcharge
payments. It had also supplied Cabcharge taxi meters at below cost for an
anti-competitive purpose.
The ACCC has the power to ‘authorise’ anti-competitive conduct if it is satisfied that the
benefit to the public from the conduct outweighs the detriment to the public.
Example: ACCC authorisations

Examples of authorisations include:
• The ACCC issued a final determination in February 2009, granting authorisation to
Cashcard Australia and the Bank of China (the ‘applicants’) to enter into an
unincorporated joint venture to establish, market and promote a sub-network of
ATMs owned and developed by those entities.
• The ACCC issued a final determination in March 2009, granting authorisation to the
members of the TAB Agents’ Association to collectively negotiate with Tabcorp the
terms and conditions for members to provide services to Tabcorp and to participate
in the process of resolving disputes between one or more agents and Tabcorp.
5.30
Penalties
The penalties for breaches, which are set out in s 76 of the Competition and Consumer Act,
are extremely high. For companies, breaches may result in fines of up to the greater of:
• $10 million, or
• where the value of the illegal benefit can be ascertained, three times the value of the illegal
benefit, or
• where the value of the illegal benefit cannot be ascertained, 10% of the company’s turnover
in the relevant period.
Cartels
The Competition and Consumer Act prohibits ‘cartel provisions’ within a contract, arrangement or
understanding. A cartel provision is defined to include the following varieties of cartel conduct:
• price fixing
• output restriction
• allocating customers, supplies or territories, and/or bid-rigging.
At least two of the persons involved in the agreement must be, or be likely to be, in competition with
each other.
Example: Penalties for cartel conduct

The ACCC’s significant powers to pursue breaches of Australia’s competition laws and to
apply very heavy penalties in relation to cartel conduct have been demonstrated in a
number of high-profile cases.
Between 2008 and 2010, the ACCC took proceedings against 15 international airlines in
relation to price fixing agreements for air cargo services entered into between
2002 and 2006.
In June 2017, the High Court found that price fixing agreements entered into between a
number of airlines between 2002 and 2006 breached Australia’s competition law
(at that time, the Trade Practices Act 1974 (Cth)). Central to the case was determining
the existence of a market ‘in Australia’ – Air New Zealand v Australian Competition and
Consumer Commission; PT Garuda Indonesia Ltd v Australian Competition and Consumer
Commission [2017] HCA 21.
In June 2018, the Federal Court ordered Air New Zealand to pay $15 million in penalties.
This brings total penalties imposed in this decade-long action against 14 airlines to
$113.5 million. The media release issued by the ACCC can be found on the ACCC
website.
The Competition and Consumer Act includes a criminal cartel offence as well as a civil cartel prohibition.
The ACCC can grant a corporation or an individual immunity from legal proceedings and penalty if the
corporation or individual involved in a cartel is the first person to disclose its existence.
5.31
6 Australian Transaction Reports and Analysis Centre

(AUSTRAC)
The commencement of an anti-money laundering/counter-terrorism financing regime in Australia
has imposed substantial new obligations on financial services organisations. This section discusses
the role of the relevant regulator, AUSTRAC, in this regime.
6.1 The role of AUSTRAC

AUSTRAC is the regulatory authority which supervises the operation of the federal Anti-Money
Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Act). In its intelligence role,
AUSTRAC provides financial transaction reports information to law enforcement bodies,
security agencies, social services and revenue departments.
The AML/CTF Act is principles-based legislation which sets out broad obligations and a great deal of
the detailed requirements on meeting those broad obligations is provided by AML/CTF Rules issued
by AUSTRAC.
Under the Financial Transaction Reports Act 1988 (Cth) (FTR Act), regulated entities are required to
report suspicious transactions or transactions over a certain threshold.
6.2 Anti-money laundering/counter-terrorism financing regime

Australian legislation meets international standards designed to prevent the world’s financial system
from being used as a channel for money laundering and financing terrorism. AUSTRAC receives and
analyses thousands of reports and identifies potential breaches of legislation to be investigated.
An anti-money laundering/counter-terrorism financing regime was introduced with the
commencement of the AML/CTF Act in December 2006 and December 2007. The regime is being
introduced in two tranches (stages). The first tranche was implemented over a two-year period from
December 2006 to December 2008 and is discussed below.
It is intended that the second tranche will specify additional designated services to which the regime
will apply. The second tranche is intended to cover non-financial business and professional entities
including real estate agents, accountants and solicitors, which has proved to be a politically fraught
development. Despite roadmaps and discussions about the possibility of a second tranche coming up
every few years, as at October 2020 the second tranche is still to be implemented.
Businesses which are included within the first tranche are required to comply with the AML/CTF Act
where that business provides ‘designated services’, including:
• opening accounts
• accepting deposits
• making or guaranteeing a loan (but not ‘trade credit’)
• supplying goods by hire purchase or finance lease (but not where supply is to a consumer)
• acquiring or disposing of securities for another party
• issuing a life policy or sinking fund policy
• carrying on a business of issuing or selling interests in managed investment schemes
• dealing with superannuation funds (except SMSFs), pensions and annuities
• providing a custodial or depository service
• exchanging currency.
5.32
The law takes a risk-based, rather than a prescriptive, approach — that is, it is largely for the financial
organisation to determine the level of money-laundering or terrorism-financing risk that it is exposed
to in its provision of certain services (called ‘designated services’ under the AML/CTF Act) to its
customer base. The higher the risk, the greater the obligations imposed on the financial organisation.
AUSTRAC ensures proper compliance with the AML/CTF Act and the AML/CTF Rules by reviewing a
financial organisation’s annual compliance reports and its auditing powers.
Some of the principal obligations under the regime include:
• customer identification and verification of identity
• expanded record keeping
• establishing and maintaining an AML/CTF program
• ongoing customer due diligence
• reporting of ‘suspicious matters’, threshold transactions ($10,000) and international funds
transfer instructions.
Organisations dealing in cash transactions, such as ADIs, casinos, and money transfer and currency
exchange institutions have onerous obligations. The FTR Act requires financial institutions to report
certain transactions to AUSTRAC. The transactions that must be reported are:
• cash transactions of A$10,000 or more
• transfers of amounts of $10,000 or more into or out of Australia
• suspicious transactions of any size, including non-cash transactions, for example using a false
name, trying to avoid the transaction being reported or withdrawing or depositing multiple
amounts just below the A$10,000 threshold over a number of days.
Some of the key designated services that will affect licensees (and others involved in financial
service) are outlined below.
Making arrangements for a person to receive a designated service

Item 54 of the list of ‘designated services’, which are set out in section 6 of the AML/CTF Act, relates
to the designated service below.
Key concept: Designated service

The designated service described in item 54 is directed at capturing the arranging of a
designated service by a person who is also at the time acting in the capacity of the
holder of an AFS licence (AUSTRAC 2008) in relation to item 54.
AUSTRAC’s guidance is that the better interpretation is that item 54 is to apply only
where the person who holds an AFS licence arranges a designated service that is also a
financial service under the Corporations Act. This means that if the holder of a licence
provides advice to a person in the capacity of the holder of a licence and then arranges
for a person to receive a designated service that is not a financial service, such as a loan,
then item 54 should not apply.
A financial adviser holds an AFS licence in order to provide product advice regarding a financial
product (as defined in Chapter 7 of the Corporations Act), such as a security (e.g. a share), debenture
or a life policy. As part of the provision of financial product advice, the financial adviser arranges for
the customer to receive a life policy. The issuing of the life policy that is being ‘arranged’ for the
customer to receive is a designated service under s 6 of the AML/CTF Act and a ‘financial product’
under the Corporations Act.
5.33
Example: Item 54 and designated services

Where a person or administrator (carrying out administration services on behalf of a
superannuation trustee) holds an AFS licence and makes an arrangement for another
person to receive a designated service described in item 40, 42 or 44 (in Table 1 of s 6 of
the AML/CTF Act) and making the arrangement is not in the administrator’s capacity of an
AFS licence holder, the administrator’s provision of such services does not fall within the
AML/CTF Act. Where the administrator makes that arrangement in the capacity of an AFS
licence holder, the administrator’s provision of such services does fall within item 54.
Under s 39(7) of the AML/CTF Act, in these circumstances the administrator is not required
to carry out the customer identification procedures in Part 2 of the AML/CTF Act. However,
the administrator is subject to the suspicious matter reporting obligation under Division 2
of Part 3 of the AML/CTF Act.
Acquiring financial products as agent

Item 33 of the designated services list is also of relevance to licensees (and others involved in
financial services) and is extracted below:
In the capacity of agent of a person, acquiring or disposing of:
(a) a security; or
(b) a derivative; or
(c) a foreign exchange contract; on behalf of the person, where:
(d) the acquisition or disposal is in the course of carrying on a business of acquiring or
disposing of securities, derivatives or foreign exchange contracts in the capacity of
agent; and
(e) the service is not specified in the AML/CTF Rules.
Issuing interests in a scheme

Among other things, item 35 is of relevance to issuers of interests in managed investment schemes
(treated as ‘securities’ for the following purposes). Part of this provision is issuing or selling a security
or derivative to a person, where:
(a) the issue or sale is in the course of carrying on a business of issuing or selling
securities or derivatives; and
(b) in the case of an issue of a security or derivative — the issue does not consist of
the issue by a company of either of the following:
(i) a security of the company (other than an interest in a managed investment
scheme); or
(ii) an option to acquire a security of the company (other than an option to
acquire an interest in a managed investment scheme).
5.34
Customer identification
Generally, service providers are not allowed to provide a designated service to a customer until the
appropriate customer identification procedure has been carried out. The procedure and the
minimum information required about a customer vary according to the type of customer
(e.g. individual, company, partnership, trust, government entity or association).
There are three exceptions to this general rule:
• pre-existing customers — the identification requirements do not apply to those who were
customers of an organisation before 13 December 2006
• low-risk services — the identification requirements do not apply in relation to services that are
designated as low risk
• identification after service — the identification procedures can be carried out after the provision
of a designated service where the service is specified in the rules.
In certain cases where the identification services have not had to be carried out, the
customer’s identity will have to be subsequently verified.
Reporting
The AML/CTF Act specifies that reporting entities must inform AUSTRAC of the following:
• suspicious matters
• the transfer of physical currency or e-money of $10,000 or more
• international funds transfer instructions.
A report must be made to AUSTRAC where a service provider suspects on reasonable grounds the
existence of a suspicious matter. There does not have to have been an actual transaction. It is
enough to have a suspicious matter even where a person has just enquired whether the service
provider would be willing or able to provide a designated service.
Example: Reporting
Matters which may give rise to a reporting obligation include:
• the person (or the person’s agent) is not the person they claim to be
• that they may be relevant to the investigation of, or prosecution for, contraventions
of laws.
AML/CTF programs
The general rule is that a reporting entity cannot provide a designated service unless it has adopted and
maintained an anti-money laundering and counter-terrorism financing program. The entity must comply
with that program. Such a program will consist of two parts — part A deals with identifying, mitigating
and managing AML/CTF risk and part B deals with the applicable customer identification procedures.
There is a special AML/CTF program where the reporting entity is an AFS licensee who arranges for
the provision of a designated service (see s 86, AML/CTF Act). Under that program, a licensee need
only comply with the applicable customer identification procedures, that is, part B of the program.
Though the focus of the AML/CTF Act appears to be on licensees, as they are ultimately responsible
for their authorised representatives, advisers should be aware that the obligations also fall upon
them.
5.35
Item 54 of the designated services table makes a person ‘in the capacity of a holder of an AFS license’
a reporting entity for the purposes of the Act. Advisers are conferred with this capacity through their
authorisation. The obligations may vary according to the circumstances of the authorisation
provided; however, advisers should be alive to the requirements of the AML/CTF Act, ensuring that
clients for whom they arrange the acquisition or disposal of financial products are properly
identified, that records of their identity are safely retained, and that any suspicious matters are
noted and reported on.
Record keeping
A reporting entity must keep a record of the following for seven years:
• a record of a designated service
• the customer’s document relating to the provision of a designated service
• an applicable customer identification procedure
• the entity’s anti-money laundering and counter-terrorism financing program.

AUSTRAC has a very wide range of enforcement powers, including:
• prosecution of criminal offences
• civil penalties
• infringement notices
• remedial directions
• injunctions
• enforceable undertakings
• notices to undertake risk assessments or external audits.
Example: AUSTRAC enforcement powers

In March 2017, the Federal Court ordered Tabcorp to pay a then record $45 million civil
penalty relating to 108 contraventions of the AML/CTF Act over a period of five years.
In its media release AUSTRAC reported that the court found that Tabcorp failed to:
(1) have a compliant AML/CTF program for over three years to manage the risks of
money laundering and terrorism financing
(2) give AUSTRAC reports about suspicious matters on time or at all on 105 occasions.
Tabcorp has admitted that these suspicions related to unlawful activity,
including money laundering and credit card fraud
(3) identify a customer who collected $100,000 in winnings
(4) enrol with AUSTRAC on time.
In June 2018, an agreement was reached between AUSTRAC and the
Commonwealth Bank of Australia (CBA) to pay a $700 million penalty relating to
53,750 contraventions of the AML/CTF Act.
In 2020, Westpac Banking Corporation agreed to pay a penalty of $1.3 billion —
the largest ever civil penalty in Australian corporate history — for contraventions of the
AML/CTF Act.
General information about the Australian Transaction Reports and Analysis Centre is
available on the AUSTRAC website at: <www.austrac.gov.au>.
5.36
Apply your knowledge 2: Enforcement powers

In the following table, insert the appropriate enforcement authority for each function or
power. The authorities are listed at the end of the table.
Function or power Enforcement authority
One of my functions is to regulate ADIs.
I have the power to remove companies from the official list.
One of my functions is to set Australia’s monetary policy.
I have the power to disqualify an AFS licensee.
One of my functions is to receive reports of ‘suspicious matters’ in relation
to some financial services.
I have the power to take legal action against cartel conduct.
I issue prudential standards.
One of my functions is to regulate anti-competitive business behaviour.
One of my functions is to supervise Australia’s financial markets.
One of my functions is to supervise Australia’s payments system.
Enforcement authorities
• ASIC (Australian Securities and Investments Commission)
• APRA (Australian Prudential Regulation Authority)
• ASX (Australian Securities Exchange)
• ACCC (Australian Competition and Consumer Commission)
• RBA (Reserve Bank of Australia)
• AUSTRAC (Australian Transaction Reports and Analysis Centre).
7 Office of the Australian Information Commissioner

(OAIC)
The private sector provisions of the Privacy Act 1988 (Cth) (Privacy Act) apply to organisations with
an annual turnover of $3 million or more. Some small businesses are exempt from all or part of the
Privacy Act, although they can choose to comply to improve client confidence in their practices.
A small business with a turnover of less than $3 million is generally exempt from the provisions of
the Privacy Act. However, this exemption does not apply to AML/CTF Act reporting entities
(which includes financial advisers) and a credit reporting entity.
It should be noted that financial advisers are generally required by law to record personal identifying
information about clients, especially where that information assists in providing the advice.
Further, the anti-money laundering/counter-terrorism financing regime may also place obligations on
an adviser to collect and securely store clients’ personal information. Financial advisers need to have
processes in place to:
• explain the need to disclose the use of personal information to all involved parties, particularly
spouses or partners
• allow clients access to all personal information held about them
• manage referral procedures that ensure client approval has been obtained for referral.
5.37
7.1 Obligations under the Privacy Act and Australian Privacy

Principles
A financial services licensee who is covered by the Privacy Act must comply with the Australian
Privacy Principles when collecting, using, disclosing or otherwise handling personal information
about an individual.
Key concept: Personal information

Section 6 of the Privacy Act defines ‘personal information’ as:
… information or an opinion (including information or an opinion forming part
of a database), whether true or not, and whether recorded in a material form
or not, about an individual whose identity is apparent, or can reasonably be
ascertained, from the information or opinion.
The Privacy Act and the Australian Privacy Principles (APPs) are administered by the Office of the
Australian Information Commissioner (OAIC). The OAIC also oversees the Freedom of Information Act
1982 (Cth). The Privacy Act regulates how private and public entities collect, store, use and disclose
personal information. The Privacy Commissioner aims to ensure that organisations comply with their
obligations under the Privacy Act and can investigate and act on complaints from individuals about
the use of their personal information. The OAIC has published guidelines (‘Australian Privacy
Principles guidelines: Privacy Act 1988’) on its interpretation of the APPs, how it will exercise its
functions and powers, and good privacy practice to supplement minimum compliance with the
mandatory requirements in the APPs.
All financial institutions are bound by the Privacy Act. Each institution must have a written privacy
policy that explains how clients’ personal information is collected, stored, handled and protected.
This must be made available to anyone who asks for it. The Privacy Act also has specific requirements
for the handling of tax file number information and credit information.
Examples of personal information collected by financial institutions include name, address and
financial details. Other personal information covered by the Privacy Act includes:
• ethnic origins
• political opinions
• religious beliefs
• membership of professional organisations
• sexual preferences
• criminal records
• health information.
Following a review of the privacy legislation, revised provisions were implemented from 12 March
2014. The key changes were:
• an expanded set of privacy principles (see below)
• enhanced powers for the Privacy Commissioner to:
– accept enforceable undertakings
– seek civil penalties in the case of serious or repeated breaches of privacy
– conduct assessments of privacy performance for both Australian Government agencies and
businesses
• to allow external dispute resolution (EDR) schemes to handle privacy-related complaints
• enhanced codes of practice about information privacy (APP codes) and a code of practice for
credit reporting (the CR code). The Privacy Commissioner can develop and register binding codes
that are in the public interest.
5.38
An organisation can either adopt the APPs or develop their own privacy code, which must be
approved by the Privacy Commissioner.
The APPs and OAIC APP guidelines require that organisations:
• take reasonable steps to ensure that individuals are aware that personal information about them
is being collected and the purposes for which the information will be used
• allow individuals the right to access their personal information and to have the information
corrected or annotated if it is incorrect, out of date or incomplete
• must only collect personal information where it is necessary for one of its functions or activities
• take reasonable steps to ensure that personal information is secure and safe
• must appoint a privacy officer, train staff and document policies on privacy of personal
information.
The Privacy Amendment (Enhancing Privacy Protection) Act 2012 (Cth), which applied from
March 2014, introduced significant reforms to Australia’s privacy laws. The existing National Privacy
Principles (which apply to businesses) and the Information Privacy Principles (which apply to
Australian Government agencies) were replaced by a new, harmonised set of 13 Australian Privacy
Principles (APPs). These APPs are in Schedule 1 of the Privacy Amendment (Enhancing Privacy
Protection) Act 2012 (Cth) and may also be viewed in the Australian Information Commissioner
Privacy Fact Sheet 17: Australian Privacy Principles February 2013 (see ‘Required reading 1’ below).
These 13 Australian Privacy Principles relate to the collection, handling and accuracy of information
as well as the protection of privacy and are set out below.
Part 1: Consideration of personal information privacy

APP 1. Open and transparent management of personal information — to ensure personal
information is managed in an open and transparent way.
APP 2. Anonymity and pseudonymity — to enable individuals to remain anonymous or use a
pseudonym for some matters.
Part 2: Collection of personal information

APP 3. Collection of solicited personal information — to limit the collection of information to that
which is reasonable (see below regarding sensitive information).
APP 4. Dealing with unsolicited personal information — to ensure entities deal appropriately with
information they receive.
APP 5. Notification of the collection of personal information — to ensure individuals are aware that
information has been collected and by whom.
Part 3: Dealing with personal information

APP 6. Use or disclosure of personal information — to restrict the use and disclosure of information
held by an entity.
APP 7. Direct marketing — to limit the use of sensitive information for direct marketing.
APP 8. Cross-border disclosure of personal information — to ensure that foreign entities treat
information disclosed to them in line with APPs as much as possible.
APP 9. Adoption, use or disclosure of government related identifiers — to limit the use of
government identifiers by other entities.
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Part 4: Integrity of personal information

APP 10. Quality of personal information — requires the collecting entity to check that information is
accurate, up to date and complete.
APP 11. Security of personal information — requires an entity to protect the personal information
held by an entity.
Part 5: Access to, and correction of, personal information

APP 12. Access to personal information — generally requires the entity to give the individual access
to the information it holds about them.
APP 13. Correction of personal information — the entity must correct information that is inaccurate,
out of date, incomplete, irrelevant or misleading or that the individual has requested to be changed.
‘Required reading 1’ in KapLearn

The Australian Privacy Principles.
Special requirements applying to handling of sensitive information

Examples of sensitive information include:
• health, including predictive genetic information
• racial or ethnic origin
• political opinions
• membership of a political association, professional or trade association or trade union
• religious beliefs or affiliations
• philosophical beliefs
• sexual orientation or practices
• criminal record
• biometric information that is to be used for certain purposes
• biometric templates.
Complaints may be made to the OAIC. The Office tries to resolve complaints on a case-by-case basis
through conciliation. Depending on the particular complaint, some possible resolutions could
include:
• an apology
• a change to the respondent’s practices or procedures
• staff counselling
• taking steps to address the matter, for example providing access to personal information
or amending records
• compensation for financial or non-financial loss
• other non-financial options, for example, a complimentary subscription to a service.
5.40
8 Tax Practitioners Board (TPB)

Tax legislation affects most aspects of personal financial and business life. Concerns about the quality
and consistency of tax advice led to the creation of the Tax Agent Services Act 2009 (Cth) (TASA),
which commenced on 1 March 2010. It established the Tax Practitioners Board (TPB), which is a
national body responsible for the registration and regulation of tax agents, BAS agents and tax
(financial) advisers (collectively referred to as ‘tax practitioners’). The TPB is also responsible for
ensuring compliance with the Tax Agent Services Act, including the Code of Professional Conduct
(Code).
The term ‘a taxation law’ is defined in the Tax Agent Services Act as:
… an Act (including a part of an Act) of which the Commissioner of Taxation has the
general administration, or regulations under such an Act. It includes the Tax Agent Services
Act 2009 (TASA) and the Tax Agent Services Regulations 2009 (TASR) and various powers
identified in s 6 of the Superannuation Industry (Supervision) Act 1993 (SIS).
Although some financial advisers are also qualified accountants, most do provide advice which has tax
implications. There are three types of tax advisers. The following is a summary of the role of each type:
• Tax agents — advise clients on their tax liabilities, obligations and entitlements under any
taxation law. They can lodge tax returns on behalf of clients and represent the taxpayer in
dealings with the ATO.
• BAS agents — prepare a business activity statement (BAS) and can represent the taxpayer in
dealings with the ATO. BAS agents can give advice on aspects of pay-as-you-go (PAYG) tax
withholding and fringe benefits tax (FBT), goods and services tax (GST), the superannuation
guarantee (SG) and SG charge, wine tax, luxury car tax and fuel tax.
• Tax (financial) advisers — like tax agents, they advise clients on their tax liabilities, obligations
and entitlements under any taxation law. However, only someone holding an AFS licence and
providing financial planning advice can give tax (financial) advice. They cannot lodge tax returns
nor represent the taxpayer in dealings with the ATO. In practice, a tax (financial) adviser is likely to
refer more complex situations to a registered tax agent. Any financial adviser providing tax
(financial) advice for a fee must be registered with the TPB.
8.1 Providing tax (financial) advice services

A tax (financial) advice service is defined under the Tax Agents Services Act (s 90-15) as:
(1) a tax agent service (other than a service that relates to representing an entity in
their dealings with the Commissioner) provided by a financial services licensee or a
representative of a financial services licensee in the course of giving advice of a
kind usually given by a financial services licensee or a representative of a financial
services licensee to the extent that:
(a) the service relates to:
(i) ascertaining liabilities, obligations or entitlements of an entity that
arise, or could arise, under a taxation law; or
(ii) advising an entity about liabilities, obligations or entitlements of the
entity or another entity that arise, or could arise, under a taxation law;
and
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(b) the service is provided in circumstances where the entity can reasonably be
expected to rely on the service for either or both of the following purposes:
(i) to satisfy liabilities or obligations that arise, or could arise, under a
taxation law;
(ii) to claim entitlements that arise, or could arise, under a taxation law.
(2) another service that the Tax Practitioners Board specifies by legislative instrument
is a tax financial service
(3) However, a service is not a tax (financial) advice service if:
(a) it consists of preparing a return or a statement in the nature of a return; or
(b) it is specified in the TASA regulations.
‘Required reading 2’ in KapLearn

Information Sheet TPB(I) 20/2014 ‘What is a tax (financial) advice service’?
8.2 Registration
All AFS licensees and their representatives who provide tax (financial) advice services for a fee or
other reward must be registered with the Tax Practitioners Board. Providing a client with advice on
the tax consequences of financial advice, or advice on a superannuation product is likely to constitute
tax (financial) advice.
‘Representative’ has the same meaning as applies under s 910A of Chapter 7 of the Corporations Act
as considered in Topic 4 and includes an authorised representative (also defined in s 761A of the
Corporations Act). According to the TPB, the following people need to register as a tax (financial)
adviser representative:
• an authorised representative of the licensee, which may be:
– an individual
– a body corporate (including a corporate authorised representative (CAR) of the licensee)
– a partnership
– a group of individuals and/or bodies corporate that are the trustees of a trust
• an employee or director of the licensee
• an employee or director of a related body corporate of the licensee
• any other person acting on behalf of the licensee.
There are significant penalties for providing tax (financial) advice services for a fee or reward or
advertising tax (financial) advice services while unregistered.
A tax (financial) advice service consists of five key elements:
1. a tax agent service (excluding representations to the Commissioner of Taxation)
2. provided by an AFS licensee or representative (including individuals and corporates) of an AFS licensee
3. provided in the course of advice usually given by an AFS licensee or representative
4. relates to ascertaining or advising about liabilities, obligations or entitlements that arise, or could
arise, under a taxation law
5. reasonably expected to be relied upon by the client for tax purposes.
To meet the requirements of the TPB, a financial adviser must meet the ‘fit and proper’ person
requirements as well as education, experience and voting membership of a professional association.
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Eligibility for registration

To register as a tax (financial) adviser, individual applicants must satisfy the TPB that they:
• are over 18 years of age
• are a fit and proper person
• maintain, or will be able to maintain, professional indemnity insurance that meets TPB requirements
• meet the qualifications and relevant experience requirements (including that the applicant is or has
been an AFS licensee or a representative of an AFS licensee within the 90 days preceding application).
Tax (financial) advisers are also required to comply with TPB continuing professional development
requirements (s 20-5(1), Tax Agent Services Act (TASA)).
In the case of partnerships, each individual partner must meet the age and fit and proper person
requirements and the partnership must have, taking into account the requirements of paragraphs
912A(10(d) to (f) of the Corporations Act, a sufficient number of individuals, being registered tax
agents or registered tax (financial) advisers, to provide tax (financial) advice services to a competent
standard, and to carry out supervisory arrangements; and have and maintain adequate professional
indemnity insurance in accordance with the TPB’s requirements.
In the case of companies, each director must comply with the fit and proper person requirements.
Also, the company must:
• not be under external administration
• not have been convicted of a serious taxation offence or an offence involving fraud or dishonesty
during the previous five years
• have, taking into account the requirements of paragraphs 912A(1)(d) to (f) of the Corporations
Act, a sufficient number of individuals, being registered tax agents or registered tax (financial)
advisers, to provide tax (financial) advice services to a competent standard, and to carry out
supervisory arrangements
• have and maintain adequate professional indemnity insurance in accordance with the TPB’s
requirements (s 20-5(3), TASA).
There is no set formula for determining the sufficient number of registered individuals a partnership
or company requires, but factors considered by the TPB include the:
• size of the business
• services being offered
• supervisory arrangements in place
• conditions that may be imposed on the partnership or company registration based on the
qualifications and experience of its personnel.
Maintaining registration
Tax (financial) advisers are required to maintain their registration with the TPB by:
• complying with the Code of Professional Conduct
• notifying the TPB when their registration details or circumstances change
• maintaining professional indemnity insurance that meets TPB requirements
• undertaking continuing professional education that meets TPB requirements (and maintaining
and producing records to the TPB if required)
• renewing their registration on time.
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They must notify the TPB in writing within 30 days on which they become, or ought to have become,
aware of any changes in the tax (financial) adviser’s:
• contact details
• practice structure
• legal or trading name
• circumstances relevant to their registration
• professional association membership.
Events which may affect continuing registration

The following events may affect a tax (financial) adviser’s continued registration, and must be
notified to the TPB within 30 days of occurring:
• convicted of a serious taxation offence
• convicted of an offence involving fraud or dishonesty
• penalised for being a promoter of a tax exploitation scheme
• penalised for implementing a scheme that has been promoted on the basis of conformity with a
product ruling in a way that is materially different from that described in the product ruling
• becoming an undischarged bankrupt or going into external administration
• sentence of a term of imprisonment.
Failure to notify is a breach of the TASA Code of Professional Conduct and may result in the TPB
terminating registration.
Renewal of registration
Tax (financial) advisers must complete an annual declaration to demonstrate and provide assurance
to the TPB that they meet the ongoing registration requirements, including:
• having professional indemnity insurance cover
• undertaking continuing professional development (for individuals only)
• satisfying fit and proper requirements
• meeting personal tax obligations (i.e. lodging personal and business returns on time and paying
tax bills or coming to an arrangement with the Commissioner of Taxation to pay amounts owing).
Failing to meet personal tax obligations breaches item 2 in the TASA Code of Professional Conduct
and renders a tax (financial) adviser liable to sanctions which include deregistration by the TPB.
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8.3 Code of Professional Conduct

The TASA Code of Professional Conduct is set out in Division 30 of Part 3 of the Tax Agent Services
Act. Table 1 below provides a comparison of TASA Code obligations and Corporations Act provisions.
Table 1 Comparison of TASA Code obligations and Corporations Act provisions

Code of Professional Conduct Principles Corporations Act
1. You must act honestly and with Sections 912A, 913B, 915C, 991A, 1041E, 1041G and 1041H
integrity. Obligations are similar. In particular, the following is noted:
• Licensees have a general obligation to ensure that the financial services
covered by their licence are provided efficiently, honestly and fairly.
• In the course of carrying on a financial services business, a person must
not engage in dishonest conduct (according to the standards of ordinary
people) in relation to a financial service.
• A licensee must not engage in conduct that is, in all the circumstances,
unconscionable. Further, there are also obligations in relation to false or
misleading statements or conduct under Part 7.10 of the Corporations
Act 2001.
• ASIC may suspend or cancel an AFS licence if no longer satisfied that the
licensee or the licensee’s representatives are of good fame or character.
2. You must comply with the taxation No similar obligation exists in the Corporations Act.
laws in the conduct of your personal However, under the Income Tax Assessment Act 1997 (Cth), it is a legal
affairs. obligation for all taxpayers to comply with taxation laws in both their
personal and business tax affairs.
3. If you receive money or other Sections 981B and 981H
property from or on behalf of a client, The following is noted:
and you hold the money or other • The licensee must ensure that money paid into a client’s account
property on trust, you must account satisfies certain requirements.
to your client for the money or other
• Money paid to the licensee by their client (or their representative) is
property.
taken to be held in trust by the licensee for the benefit of the client.
For further information, refer to
• Money held by the licensee on behalf of the client for the purchase or
Code of Professional Conduct -
sale of a financial product or insurance, must be deposited into an
Holding money or other property on
account with an approved foreign bank or a cash management trust on
trust TPB(I) 15/2012.
the day it is received, or the next business day.
4. You must act lawfully in the best Sections 961A, 961B, 961G, 961J and 961H
interests of your client. The person providing personal advice to retail clients is required to:
• act in the best interests of the client in relation to the advice
• give priority to the interests of the client in the event of a conflict of
interest
• ensure the advice is appropriate
• warn clients if the advice is based on incomplete or inaccurate
information.
Note: Section 961B outlines steps a provider can follow for the purpose
of satisfying the best interests duty.
See also www.asic.gov.au for ASIC Regulatory Guide (RG) 175
‘Licensing: Financial product advisers—Conduct and
disclosure’, in particular Part E which gives guidance on ‘acting in the
client’s best interests and related obligations’.
5. You must have in place adequate Sections 912A and 961J
arrangements to manage conflicts of • Licensees must have in place adequate arrangements for the
interest that may arise in relation to management of conflicts of interest that may arise (either wholly or
the activities that you undertake in partially) in relation to activities undertaken by the licensee or a
the capacity of a registered tax representative in the provision of financial services.
practitioner. • If there are competing interests between the advice provider and the
For further information, refer to client, the provider must give priority to the client’s interests when
Code of Professional Conduct - giving advice.
Managing conflicts of interest TPB(I) See also www.asic.gov.au for ASIC RG 181 ‘Licensing: Managing conflicts
19/2014. of interest’.
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6. Unless you have a legal duty to do so, No similar obligation exists in the Corporations Act.
you must not disclose any information However, it is noted that Australian Privacy Principle 6.1 in the Privacy Act
relating to a client’s affairs to a third 1988 (Cth) requires a licensee to not use personal information about an
party without your client's permission. individual that was collected for a particular purpose (primary purpose) or
For further information, refer to for another purpose (secondary purpose) unless the individual has
Code of Professional Conduct – consented to the use or disclosure of the information.
Confidentiality of client information
for tax (financial) advisers TPB(I)
32/2017.
7. You must ensure that a tax agent Sections 912A and 961B
service you provide or that is provided • A licensee must maintain the competence to provide financial services
on your behalf is provided and ensure that its representatives are adequately trained and are
competently. competent to provide financial services.
• The person providing the advice must assess whether they have the
expertise required to provide advice on the client’s identified subject
matter. If the provider does not have the expertise, they must decline
to provide the advice.
See also www.asic.gov.au for ASIC RG 104 ‘Licensing: Meeting the
general obligations’ and ASIC RG 105 ‘Licensing: Organisational
competence’.
8. You must maintain knowledge and Sections 912A and 961B
skills relevant to the tax agent services • A licensee must maintain the competence to provide financial services
that you provide. and ensure that its representatives are adequately trained and are
For further information, competent to provide those financial services.
refer to Continuing professional • If the person providing the advice does not have the expertise required
education policy requirements for tax to provide advice on the client’s particular subject matter, they must
(financial) advisers TPB(EP) 06/2014. decline to provide the advice.
9. You must take reasonable care in Sections 961B and 961H
ascertaining a client’s state of affairs, • The person providing the advice must make reasonable enquiries to
to the extent that ascertaining the obtain complete and accurate information relating to the client’s
state of those affairs is relevant to a relevant circumstances.
statement you are making or a thing • If it is reasonably apparent that the information on which the advice is
you are doing on behalf of the client. based is incomplete or inaccurate, the person providing the advice must
For further information, refer to warn the client that the:
Code of Professional Conduct - – advice is, or may be, based on incomplete or inaccurate information
Reasonable care to ascertain a client's relating to the client’s relevant personal circumstances, and
state of affairs TPB(I) 17/2013.
– client should consider the appropriateness of the advice before acting
on it.
• If the person providing the advice does not have the expertise required
to provide advice on the client’s particular subject matter, they must
decline to provide the advice.
10. You must take reasonable care to Sections 912A, 961B and 961G
ensure that taxation laws are applied • A licensee must comply with financial services laws and take reasonable
correctly to the circumstances in steps to ensure that its representatives comply with financial services
relation to which you are providing laws.
advice to a client. • The person providing personal advice to a retail client is required to act
For further information, refer to in the best interests of the client in relation to the advice. The resulting
Code of Professional Conduct – advice must also be appropriate to the client.
Reasonable care to ensure taxation
laws are applied correctly TPB(I)
18/2013.
11. You must not knowingly obstruct the Sections 912A and 1310
proper administration of the taxation A person must not, without lawful excuse, obstruct or hinder ASIC, or any
laws. other person, in the performance or exercise of a function or power under
the Corporations Act.
There is also a general requirement that licensees must comply with
financial services laws and that AFS licensees take reasonable steps to
ensure that their representatives comply with financial services laws.
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12. You must advise your client of their Sections 912A, 961B and 961H
rights and obligations under the No similar obligations exist in the Corporations Act. However, the
taxation laws that are materially following is noted:
related to the tax agent services • The person providing the advice must make reasonable enquiries to
you provide. obtain complete and accurate information relating to the client’s
relevant circumstances.
• If it is reasonably apparent that the information on which the advice is
based is incomplete or inaccurate, the person providing the advice must
warn the client that the:
– advice is, or may be, based on incomplete or inaccurate information
relating to the client’s relevant personal circumstances, and
– client should consider the appropriateness of the advice before acting
on it.
• There is a general requirement that licensees must comply with
financial services laws and that AFS licensees take reasonable steps to
ensure that their representatives comply with financial services laws.
13. You must maintain the professional Section 912B
indemnity insurance that the Board Licensees must have arrangements for compensating retail clients for
requires you to maintain. losses or damage they suffer as a result of a breach by the licensee or its
For further information, refer to representatives of their obligations in Chapter 7 of the Corporations Act.
Professional indemnity insurance See also www.asic.gov.au for ASIC RG 126 ‘Compensation and insurance
policy requirements for tax (financial) arrangements for AFS licensees’.
advisers TPB(EP) 05/2014.
14. You must respond to requests and Section 912C
directions from the Board in a timely, While there is no requirement to respond to the TPB, there is an
responsible and reasonable manner. obligation for licensees to respond to ASIC.
In particular, licensees must respond to requests for information from
ASIC within a reasonable time and as directed.
Source: TPB 2019.
8.4 Supervision and TPB enforcement
Supervision
Tax (financial) advisers must ensure that the tax (financial) advice services they provide, or that are
provided on their behalf, are provided competently. This will generally require them to maintain
adequate supervision and control over tax agent, BAS or tax (financial) advice services provided on
their behalf. Again, there is no standard process to determine what are adequate supervisory
arrangements, but these factors may be considered:
• the level and depth of oversight over the provision of tax (financial) advice services, noting that
this will vary according to the skills and experience of the individuals providing the services and
the complexity of the service being provided
• the physical or geographic proximity of the tax practitioner to the person carrying out the work
• whether there is substantial supervision, rather than mere checking of documents, while
recognising that the oversight will vary according to the knowledge, skills and experience of the
person doing the work and the complexity of the tax matters involved. However, it is recognised
that a statement of advice (SOA) can be signed off on behalf of a registered tax (financial) adviser.
For example, an employee of a registered tax (financial) adviser can sign an SOA on behalf of the
employer, because it is the employer who is the actual provider of the SOA
• whether the tax practitioner performs periodic and spot checks of relevant material prepared
• quality assurance mechanisms
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• the degree of control exercised by the tax practitioner over the way in which work is carried out
on their behalf
• the level of relevant initial and ongoing educational and practical training undertaken by those
performing work on behalf of the tax practitioner
• whether there are documented procedures to ensure relevant processes can occur,
including escalation of issues that are beyond an individual’s knowledge or experience to an
appropriate supervisor.
Enforcement
The TPB has the power to receive and investigate complaints about tax (financial) advisers under
s 60-95 of the TASA concerning:
• applications for registration
• breaches of the Code of Professional Conduct
• any false or misleading statements made to the Commissioner of Taxation
• advertising or providing tax agent, BAS or tax (financial) advice services for a fee when not registered
• any other conduct that may breach the TASA.
Failure to comply with the TASA and the Code of Professional Conduct can result in the imposition by
the TPB of one or more administrative sanctions:
• a written caution
• an order requiring the tax practitioner to:
– respond to requests and directions from the Board
– complete a course of education or training they specify
– only provide certain services
– provide services only under supervision
• suspension of registration for a certain period
• termination of registration.
The severity of a sanction depends on the nature and extent of the breach and the circumstances of
each case.
If an administrative sanction is imposed (other than a written caution), details of the sanction are
listed against the tax practitioner on the TPB Register.
The Federal Court also has the power to impose penalties of up to $55,000 for individuals and
$277,500 for corporations for each breach.
TPB decisions are generally reviewable by lodging an application within 28 days of notice of the
decision to review the decision under the Administrative Appeals Tribunal Act 1975 (Cth) in the
Administrative Appeals Tribunal.
Tax Practitioner Board Conduct Committee Determinations are generally published in anonymised
format as case studies on the TPB website.
5.48
9 Self-regulation by industry bodies

This section discusses the role that self-regulation by financial industry bodies plays in setting
appropriate standards and providing guidance on how to comply with the financial laws.
9.1 What is self-regulation?

Self-regulation is when the participants, or an associate of the participants, in a particular industry
set standards of behaviour to achieve best practice. Those standards are often higher than the
statutory and other legal requirements applicable to those participants’ activities.
Self-regulation is usually preferred by the industry because it allows the industry to set its own
specific standards and practices having regard to the participants’ first-hand knowledge of the
industry. Successful self-regulation reduces the need for governments and lead regulators
(i.e. statutory regulatory bodies) to prescribe detailed requirements for industry participants.
It also promotes professional and ethical conduct. A limitation of self-regulation is that such
requirements are usually not enforceable in the courts and rely on internal disciplinary procedures or
professional pride for compliance.
9.2 Self-regulation in the financial services industry

Self-regulation in a particular industry often takes the form of a code of professional conduct or best
practice. Such codes range from prescribing required behaviour in a particular situation to setting
general objectives or considerations when a participant is carrying out their professional role.
Codes of conduct or best practice are often worded in ways that emphasise the ethical nature of the
desired or required conduct.
A number of industry and professional bodies in the financial services industry carry out a
self-regulatory role for their members or participants. These professional/industry bodies
have developed either codes of ethics or codes of conduct.
A code of ethics tends to be a positive and affirming set of broad values and principles that provides
the basis for ethical decision making and conduct. It may be explained as both a ‘liberating’ and an
‘affirming’ document with a focus on aspirations. However, sometimes it is expressed as more than
just aspirations. Such a code permits those who are subject to its contents to identify the
fundamental motivating ideas that underscore good action and right decisions. Importantly,
such a code in the financial services industry should be understood against a context of
understanding individual discretion and judgment as constant and continuing elements in both
individual and corporate decision making and commitments.
A code of conduct is usually more specific and prescriptive in detailing areas of unacceptable conduct
and often explains the implications of non-compliance. It can include an enforcement strategy and a
disciplinary process for instances of breaches of the code.
Under the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017 (Cth),
from 1 January 2020, all financial) advisers are required to comply with the FASEA Code of Ethics.
Further discussion of the FASEA Code of Ethics for financial advisers is a core focus of subject
FPC002B Ethics and Professionalism in Financial Advice.
5.49
10 Overseas regulatory bodies

Globalisation, increasing investment overseas and the interdependence of markets and regulators
have made overseas regulators more important to the Australian financial services industry. In this
section the regulators in five countries of particular relevance to Australia are considered —
New Zealand, United Kingdom, Singapore, United States and Hong Kong.
10.1 New Zealand

The relevance of the New Zealand regulatory authority to Australia is outlined below.
Cooperation between New Zealand and Australia

An important feature of the Australian and New Zealand financial services systems is the close
integration and cooperation between the two systems. This is a deliberate policy by the governments
of both countries built around the Australia-New Zealand Closer Economic Relations Trade
Agreement which came into effect in 1983.
The revised Memorandum of Understanding on Business Law Coordination between the
two countries, signed in 2006, states that the areas suitable for coordination include:
• financial product disclosure regimes
• cross-investment activities and cross-market listing
• cross-recognition of companies
• consumer issues
• coordination of insurance regulation
• coordination of the anti-money laundering supervisory framework.
New Zealand Financial Markets Authority

The New Zealand Financial Markets Authority is an independent Crown entity established as the
New Zealand Securities Commission under the Securities Act 1978, and now operates under
the Financial Markets Conduct Act 2013 (FMC Act). The Authority’s website describes its mandate as
being responsible for ensuring public confidence in New Zealand’s financial markets and supporting
the growth of New Zealand’s capital base through effective regulation.
The Authority’s functions include the monitoring and supervision of market participants,
investigating misconduct and taking timely and proportionate enforcement action by seeking
compensation for investors where appropriate, providing information that assists firms and
professionals to comply with the law, developing and promotion of education resources to help
investors make better investment decisions and licensing.
5.50
New Zealand Exchange Limited

The New Zealand Exchange Limited (NZX Limited) operates five markets:
• NZSX: the Stockmarket Main Board
• NZDX: the debt market — offers a range of investment securities (e.g. corporate and
government bonds)
• NZCX: Equity Derivatives
• NZX: Dairy Derivatives
• FSM: Fonterra Shareholders’ Market.
Previously the exchange also operated the NXT for small-to-mid cap listings and NZAX, an alternative
Market designed for small to medium companies and non-standard company structures
(e.g. cooperatives). In 2017 it was decided to fold these markets into the main NZSX board as they
did not develop as had been hoped.
The NZX is both responsible for the regulation of the markets and is itself a company listed on
the markets. It regulates the markets through the Listing Rules and the NZX Participant Rules.
Supervision of the NZX itself is undertaken by a Special Division which is empowered to exercise the
powers and functions of NZX Regulation in respect of NZX as a listed issuer that NZX Regulation
exercises in respect of other issuers listed on NZX’s markets.
Further information about the New Zealand Exchange is available on the NZX website at:
<www.nzx.com>.
Reserve Bank of New Zealand

The Reserve Bank of New Zealand (RBNZ) established under the Reserve Bank of New Zealand Act
1989, is New Zealand’s central bank. Section 8 provides that the primary function of the bank is to
formulate and implement monetary policy directed to the economic objective of achieving and
maintaining stability in the general level of prices. It also deals with currency and operates the
payments system.
The Reserve Bank of New Zealand is the prudential regulator of banks, non-bank deposit takers
and insurers.
Further information about the Reserve Bank of New Zealand is available on the RBNZ website at:
<rbnz.govt.nz>.
Commerce Commission
The Commerce Act 1986 prohibits anti-competitive practices and the Fair Trading Act 1986 provides
for consumer protection. The Commerce Commission has an enforcement and adjudication role in
relation to both of these Acts.
Further information about the Commerce Commission is available on the Commerce Commission
website at: <www.comcom.govt.nz>.
5.51
10.2 United Kingdom

The relevance of the UK regulatory authority to Australia is outlined below.
Financial Conduct Authority

The Financial Conduct Authority (FCA), established under the Financial Services Act 2012,
regulates the UK’s financial services industry. The FCA aims to protect consumers, enhance the
integrity of the UK’s financial system and to promote healthy competition between financial services
providers. It has extensive rule-making, investigative and enforcement powers to achieve these aims.
The FCA also acts as the competent authority for listing in the UK.
Until its disbandment on 1 April 2013, these regulatory responsibilities rested with the Financial
Services Authority (FSA) — which was also responsible for prudential regulation of the UK financial
services industry. Since 1 April 2013, the UK’s Prudential Regulation Authority (discussed below) has
assumed these responsibilities.
More information about the Financial Conduct Authority is available on the FCA website at:
<fca.org.uk>.
London Stock Exchange

The London Stock Exchange, which merged with the Borsa Italiana in 2007, is one of the world’s
oldest stock exchanges. It has four primary markets:
• Main Market
• AIM (equities market for smaller growing companies)
• Professional Securities Market (listed debt and depository receipt securities)
• Specialist Fund Market (specialised investment entities).
Further information about the London Stock Exchange is available on the London Stock Exchange
website at: <www.londonstockexchange.com>.
Bank of England
The Bank of England, the central bank of the United Kingdom, was established by Royal Charter
under the Bank of England Act 1694. The Bank’s current monetary responsibilities were established
by the Bank of England Act 1998. That Act also transferred the banking supervision responsibility to
the Financial Services Authority.
The Bank of England has operational independence to set monetary policy by deciding on the
short-term level of interest rates to meet the government’s stated inflation target.
Further information about the Bank of England is available on the Bank of England website at:
<www.bankofengland.co.uk>.
5.52
Prudential Regulation Authority

On 1 April 2013, the Prudential Regulation Authority (PRA) assumed responsibility for the
prudential regulation of banks, building societies, credit unions, insurers and major investment firms.
The PRA was created under the Financial Services Act 2012 and is part of the Bank of England.
It works closely with other parts of the Bank, and with the FCA, to achieve its regulatory objectives.
The FCA is responsible for the prudential regulation of financial services firms not supervised by the
PRA, such as asset managers and independent financial advisers.
Further information about the Prudential Regulation Authority is available on the PRA website.
10.3 Singapore
The relevance of the Singapore regulatory authority to Australia is outlined below.
Monetary Authority of Singapore

Singapore is almost unique among developed countries with a single institution, the Monetary
Authority of Singapore, which serves as both the central bank and the regulator of the financial
services sector, with prudential oversight of the banking, securities, futures and insurance industries.
Further information about the Monetary Authority of Singapore is available on the Monetary
Authority of Singapore website at: <www.mas.gov.sg>.
Singapore Exchange
The Singapore Exchange (SGX) was formed in 1999 as the result of the merger of the Stock Exchange
of Singapore and the Singapore International Monetary Exchange. The SGX issues seven rulebooks
which govern listing, clearing, trading and depository services.
An interesting development has been the transformation, from November 2007, of the Stock
Exchange of Singapore Dealing and Automated Quotation (SESDAQ) market into the ‘Catalist’ market.
Catalist is designed to cater for smaller, fast-growing companies. Its distinctive feature is that it is a
‘sponsor supervised’ market. Sponsors (finance professionals) decide whether a company is suitable
for admission.
The ongoing supervisory role for these companies is undertaken by these sponsors, who must be
formally authorised by SGX. The trading and clearing mechanisms for Catalist shares are the same as
for Main Board shares.
Further information about the Singapore Exchange is available on the SGX website at:
<www.sgx.com>.
Competition Commission of Singapore

The Competition Act 2004 prohibits three main anti-competitive practices:
• anti-competitive agreements, decisions and practices
• abuse of a dominant position
• mergers and acquisitions that substantially lessen competition.
5.53
The Competition Commission is the regulatory authority which administers and enforces the
Competition Act, and the Consumer Protection (Fair Trading) Act which protects consumers against
unfair practices and gives them additional rights in respect of goods.
Further information about the Competition Commission of Singapore is available on the
Competition Commission of Singapore website at: <www.cccs.gov.sg>.
10.4 United States

The relevance of the US regulatory authority to Australia is outlined below.
Securities and Exchange Commission

The Securities and Exchange Commission (SEC), established by the Securities Exchange Act 1934,
consists of five commissioners appointed by the President of the United States. The main
responsibilities of the SEC are:
• interpreting federal securities laws
• issuing new rules and amending existing rules
• overseeing the inspection of securities firms, brokers, investment advisers and rating agencies
• overseeing private regulatory organisations in the securities, accounting and auditing fields
• coordinating US securities regulation with federal, state and foreign authorities.
The role of the SEC was greatly expanded by the Sarbanes–Oxley Act of 2002, described by then
President George W Bush as ‘the most far-reaching reforms of American business practices since the time
of Franklin Delano Roosevelt’. That Act established strict corporate governance and financial reporting
standards for US public company boards, management and public accounting firms. The SEC makes
rulings on how to comply with these requirements. There has been some debate on whether
the Sarbanes–Oxley Act was an over-reaction, being too detailed and failing the cost-benefit test.
Further information about the Securities and Exchange Commission is available on the SEC website
at: <www.sec.gov>.
Federal Reserve
The US has a dual banking system. State chartered banks operate under state laws and are
supervised by state banking authorities. Other banks are part of the Federal Reserve System,
which consists of a Board of Governors in Washington, DC, and 12 regional Reserve Banks.
The principal responsibilities of the Board of Governors are the formulation of monetary policy and
regulation of banks that are part of the Federal Reserve System. The Board of Governors’ decisions
on monetary policy in the US have a ‘ripple’ effect on financial systems around the world.
Further information about the Federal Reserve is available on the Federal Reserve website at:
<www.federalreserve.gov>.
5.54
New York Stock Exchange

There are a number of stock exchanges in the US in addition to the New York Stock Exchange (NYSE),
for example the National Association of Securities Dealers Automated Quotations (NASDAQ);
however, the NYSE is the most influential.
In a sign of these globalised times, NYSE Euronext, the holding company created by the combination
of the NYSE and Euronext (Paris), was launched in April 2007. In 2008, NYSE Euronext also acquired
the American Stock Exchange (AMEX). NYSE Euronext and German exchange operator Deutsche
Borse sought to merge in 2011 in a merger that would have yielded a market capitalisation of listed
companies equal to $15 trillion. The merger was blocked by European Union opposition to the
monopoly, and the NYSE Euronext was subsequently acquired by US commodities exchange
Intercontinental Exchange (ICE) in 2012. Euronext was spun off by ICE, but it retained, and presently
owns, the NYSE.
Further information about the New York Stock Exchange is available on the NYSE website at:
<www.nyse.com/index>.
US Commodity Futures Trading Commission

The Commodity Futures Trading Commission (CFTC) was created in 1974 as an independent agency
with the mandate to regulate commodity futures and option markets in the US. The CFTC’s mandate
has been renewed and expanded several times since then, most recently by the Commodity Futures
Modernisation Act of 2000. In 1974, most futures contracts were over agricultural products,
but there are now a wide range of complex financial futures contracts.
The CFTC assures the economic utility of the futures markets by encouraging their competitiveness
and efficiency, protecting market participants against fraud, manipulation and abusive trading
practices, and by ensuring the financial integrity of the clearing process.
Further information about the Commodity Futures Trading Commission is available on the CFTC
website at: <www.cftc.gov/index.htm>.
Federal Trade Commission

The Federal Trade Commission (FTC) supervises anti-competition law (called ‘anti-trust law’
in the US) and consumer protection. The principal anti-competition laws deal with anti-competitive
agreements, abusing a dominant position and some mergers and acquisitions.
Further information about the Federal Trade Commission is available on the FTC website at:
<www.ftc.gov>.
5.55
Reforms to financial regulation

In June 2009, President Barack Obama recommended a number of reforms to financial regulation as
a result of the global financial crisis (GFC). This resulted in the Dodd–Frank Wall Street Reform and
Consumer Protection Act 2010 (Dodd–Frank Act) which came into effect in July 2010.
Reforms introduced by this Act include:
• the establishment of the Financial Services Oversight Council to identify and respond to risks to
financial stability
• the authority for regulators to wind down entities that present a systemic risk to the economy
• limits on banks’ ability to engage in proprietary trading
• increased regulation of derivatives and swaps
• the establishment of a new consumer watchdog, the Bureau of Consumer Financial Protection,
to oversee consumer financial products and services such as mortgages, credit cards and short-
term loans
• minimum standards for mortgage lenders.
However, on 22 May 2018, the US House of Representatives voted 258–159 in favour of a Bill to roll
back a number of the Dodd–Frank Act provisions. Among its modifications to the Dodd–Frank Act,
it will remove thousands of smaller and medium-sized banks (with less than US$250 billion in assets)
from Dodd–Frank Act regulatory burdens. The Economic Growth, Regulatory Relief, and Consumer
Protection Act was signed into law by President Donald Trump the same month.
10.5 Hong Kong

The relevance of the Hong Kong regulatory authority to Australia is outlined below.
Securities and Futures Commission

The Securities and Futures Commission (SFC) is an independent, non-governmental statutory body
responsible for regulating the securities and futures markets in Hong Kong.
The SFC regulates licensed corporations and individuals carrying out the following regulated activities:
• dealing in securities
• dealing in futures contracts
• leveraged foreign exchange trading
• advising on securities
• advising on futures contracts
• advising on corporate finance
• providing automated trading services
• securities margin financing
• asset management
• providing credit rating services.
The SFC also regulates listed companies, investment products offered to the public,
Hong Kong Exchanges and Clearing Ltd and all participants in trading activities.
Further information about the Securities and Futures Commission is available on the SFC website at:
<www.sfc.hk/en>.
5.56
Hong Kong Stock Exchange

The Hong Kong Stock Exchange (HKEX) is one of the top 10 stock exchanges in the world based
on market capitalisation and is listed on its own exchange.
Further information about the Hong Kong Stock Exchange is available on the HKEX website.
Hong Kong Monetary Authority

The Hong Kong Monetary Authority (HKMA) is the government authority in Hong Kong responsible
for maintaining monetary and banking stability. Its main functions are:
• maintaining currency stability within the framework of the Linked Exchange Rate system
• promoting the stability and integrity of the financial system, including the banking system
• helping to maintain Hong Kong’s status as an international financial centre, including the
maintenance and development of Hong Kong’s financial infrastructure
• managing the Exchange Fund.
Further information about the Hong Kong Monetary Authority is available on the HKMA website.
11 International regulation
This section outlines the roles of some of the major international institutions that facilitate the
operation and coordination of the global financial system.
11.1 International Monetary Fund

The International Monetary Fund (IMF) is the world’s central organisation for international monetary
cooperation. The IMF has more than 180 member countries, including Australia.
It was established to:
• promote international monetary cooperation, exchange stability and
orderly exchange arrangements
• to foster economic growth and high levels of employment
• to provide temporary financial assistance to countries to help ease balance of payments
adjustment.
More recently, the IMF has applied both its surveillance and technical assistance work to the
development of standards and codes of good practice in its areas of responsibility.
The IMF now also plays an important role in the fight against money laundering and terrorism
processes.
Further information about the International Monetary Fund is available on the IMF website at:
<www.imf.org/external/index.htm>.
5.57
11.2 Basel Committee on Banking Supervision — Basel II and III

Basel II, formally known as ‘International Convergence of Capital Measurement and Capital Standards:
A Revised Framework’, was established by the Basel Committee on Banking Supervision in 2004.
The aim of the Basel II framework is to enhance the soundness and stability of the banking system by
aligning the minimum regulatory capital requirements more closely to the risks that banks face and
encouraging improvements in banks’ risk management. The framework was developed by the
Basel Committee on Banking Supervision, a group of central banks and bank supervisory authorities
in the G10 countries.
The Basel II framework comprises three ‘pillars’:
• Pillar One (the capital adequacy minimum requirements): This prescribes rules relating to how
banks should calculate the minimum capital that they are required to hold for credit, market and
operational risks. It provides a range of options to allow banks to select the approaches that are
appropriate for their operations and risk profiles.
• Pillar Two (the supervisory review process): This describes the accompanying supervisory review
of a bank’s internal capital adequacy assessment.
• Pillar Three (market discipline): This prescribes minimum disclosure requirements to facilitate
market discipline.
Basel III
In response to the GFC and in the wake of bank failures, bailouts and guarantees, the Basel
Committee reviewed the framework and announced new (and higher) global minimum capital
standards for banks as part of a global financial reform agenda. These changes are known as
‘Basel III’ and are designed to address the deficiencies exposed in the financial system as a result of
the GFC. The proposals affect both the quantity and the quality of capital required for banks. There is
a transitional arrangement to implement the increases which commenced in 2013.
An overview of the Basel III reforms is available on the Bank for International Settlements website at:
<www.bis.org>.
APRA released a suite of Basel III disclosure requirements and prudential standards on its website.
It consulted on Basel III in a Discussion Paper released in February 2018.
APRA had intended to schedule implementation of Basel III reforms in Australia in January 2022,
but has deferred the implementation until January 2023 in response to the COVID-19 pandemic.
In doing so, APRA has recognised that Australian ADIs are ‘well capitalised’ and meeting the
benchmarks set by APRA in 2017 (APRA, 2020c).
5.58
11.3 European Central Bank

The European Central Bank (ECB) is the central bank for Europe’s single currency, the euro. The ECB’s
main task is to maintain the euro’s purchasing power and thus price stability in the euro area.
The euro area comprises the European Union countries that have introduced the euro since 1999.
The Treaty on European Union which established the European Union provides that the ECB’s basic
tasks are the:
• definition and implementation of monetary policy for the euro area
• conduct of foreign exchange operations
• holding and management of the official foreign reserves of the euro area countries
(portfolio management)
• promotion of the smooth operation of payment systems.
The Bank also has the exclusive right to authorise the issuing of banknotes within the euro area.
Further information about the European Central Bank is available on the ECB website.
11.4 Financial Action Task Force

As discussed earlier, AUSTRAC is the regulator that supervises the anti-money laundering and
counter-terrorism regime in Australia. On an international level, efforts against money laundering are
coordinated by the Financial Action Task Force (FATF).
The FATF is an inter-governmental body founded in 1989 to formulate policies to combat money
laundering and terrorist financing. It currently has over 30 member countries (including Australia)
and two member regional organisations.
Forty Recommendations
The main policies released by the FATF are the ‘Forty Recommendations’ on money laundering which
require members to:
• criminalise money laundering and confiscate the proceeds of money laundering
• implement customer due diligence, record keeping and suspicious matter transaction reporting
• establish a financial intelligence unit.
Special recommendations on terrorist financing

These recommendations were made following the 9/11 terrorist attacks on the US. Essentially, they
extend the Forty Recommendations to include terrorist financing.
Further information about the Financial Action Task Force is available on the FATF website at:
<www.fatf-gafi.org>.
5.59
11.5 International Organization of Securities Commissions

The International Organization of Securities Commissions (IOSCO) is an international organisation of
the regulators of the world’s securities and futures markets. ASIC is a member of IOSCO.
The Organization’s stated objectives are:
• to cooperate in developing, implementing and promoting adherence to
internationally recognized and consistent standards of regulation, oversight and
enforcement in order to protect investors, maintain fair, efficient and transparent
markets, and seek to address systemic risks;
• to enhance investor protection and promote investor confidence in the integrity of
securities markets, through strengthened information exchange and cooperation in
enforcement against misconduct and in supervision of markets and market
intermediaries; and
• to exchange information at both global and regional levels on their respective
experiences in order to assist the development of markets, strengthen market
infrastructure and implement appropriate regulation.
Further information about the International Organization of Securities Commissions is available on
the IOSCO website at: <www.iosco.org>.
11.6 International Association of Insurance Supervisors

The International Association of Insurance Supervisors (IAIS) represents the insurance regulators
and supervisors of nearly 140 countries. APRA is a member. The principal work of the Association is
issuing principles, standards and guidance papers.
Further information about the International Association of Insurance Supervisors is available on the
IAIS website at: <www.iaisweb.org>.
5.60
References
ASX Corporate Governance Council 2019, Corporate governance principles and recommendations,
4th edn, Australian Securities Exchange, Sydney, February, viewed 4 November 2020,
<https://www.asx.com.au/documents/asx-compliance/cgc-principles-and-recommendations-fourth-
edn.pdf>.
Australian Securities and Investments Commission (ASIC) 2019, Memorandum of Understanding
between the Australian Prudential Regulation Authority and the Australian Securities and Investments
Commission, 28 November, viewed 4 November 2020,
<https://www.apra.gov.au/sites/default/files/APRA-
ASIC%20Memorandum%20of%20Understanding%202019.pdf>.
Australian Securities and Investments Commission (ASIC) 2020a, Our role, 24 June,
viewed 4 November 2020, <http://www.asic.gov.au/about-asic/what-we-do/our-role>.
Australian Securities and Investments Commission (ASIC) 2020b, Our structure, 30 October,
viewed 4 November 2020, <https://asic.gov.au/about-asic/what-we-do/our-structure>.
Australian Securities and Investments Commission (ASIC) 2020c, Regulatory guides,
viewed 4 November 2020, <https://asic.gov.au/regulatory-resources/find-a-document/find-a-
regulatory-document/?docType=Regulatory%20guide>.
Australian Securities and Investments Commission (ASIC) 2020d, Market Integrity Rules, 31 March,
viewed 25 October 2020, <http://asic.gov.au/regulatory-resources/markets/market-integrity-rules>.
Australian Prudential Regulation Authority (APRA) 2018, Discussion Paper: Revisions to the capital
framework for authorised deposit-taking institutions, 14 February, APRA, Sydney,
viewed 4 November 2020,
<https://www.apra.gov.au/sites/default/files/Revisions%2520to%2520the%2520capital%2520frame
work%2520for%2520ADIs.pdf>.
Australian Prudential Regulation Authority (APRA) 2020a, APRA’s supervision philosophy, 6 October,
APRA, viewed 4 November 2020, <Error! Hyperlink reference not
valid.https://www.apra.gov.au/apras-supervision-philosophy>.
Australian Prudential Regulation Authority (APRA) 2020b, APRA adjusts bank capital expectations,
19 March, APRA, viewed 4 November 2020, <https://www.apra.gov.au/news-and-publications/apra-
adjusts-bank-capital-expectations>.
Australian Prudential Regulation Authority (APRA) 2020c, APRA announces deferral of capital reform
implementation, 30 March, APRA, viewed 4 November 2020, <https://www.apra.gov.au/news-and-
publications/apra-announces-deferral-of-capital-reform-implementation>.
Australian Securities Exchange (ASX) 2010, Rule comparison table, ASX, viewed 4 November 2020,
<https://www.asx.com.au/documents/rules/100801_operating_rules_comparison_table.pdf>.
Australian Securities Exchange (ASX) 2012, ASX Disclosure Document (Options): Special Characteristics
and Risks of Equity and Stock Index Options, ASX, July, viewed 17 November 2020,
<https://www.asx.com.au/documents/products/ASX_Options_Disclosure_Document_version_7.pdf>.
Australian Securities Exchange (ASX) 2016, CHESS: Clearing House Electronic Subregister System, ASX,
March, viewed 17 November 2020, <https://www.asx.com.au/documents/resources/chess-
brochure-march-2016.pdf>.
D’Aloisio, T 2010, ‘Responding to global financial crisis: The ASIC story’, speech to the Trans-Tasman
Business Circle, 30 November, viewed 4 November 2020,
<https://download.asic.gov.au/media/1347350/speech-responding-global-crisis-nov-2011.pdf>.
5.61
Harris, J 2019, Is ASIC the watchdog that no one fears?, Opinion, University of Sydney, 22 February,
viewed 4 November 2020, <https://sydney.edu.au/news-opinion/news/2019/02/22/is-asic-the-
watchdog-that-no-one-fears-.html>.
Medcraft, G 2011, Speech to Australian Prudential Regulation Authority leadership team, 30 June,
viewed 4 November 2020, <http://www.asic.gov.au/about-asic/media-centre/speeches/speech-to-
the-australian-prudential-regulation-authority-leadership-team>.
Tax Practitioners Board 2019, Code comparison with the Corporations Act and FASEA Standards,
21 January, viewed 4 November 2020, <https://www.tpb.gov.au/code-comparison-corporations-act-
fasea-standards>.
The Treasury 2014, Financial System Inquiry final report, Australian Government, 7 December,
viewed 4 November 2020, <https://treasury.gov.au/publication/c2014-fsi-final-report>.
The Treasury 2015, Government response to the Financial System Inquiry: Improving Australia’s
financial system, Australian Government, 20 October, viewed 4 November 2020,
<https://treasury.gov.au/publication/government-response-to-the-financial-system-inquiry>.
The Treasury 2016, Fit for the future: A capability review of the Australian Securities and Investments
Commission, 20 April, Australian Government, viewed 4 November 2020,
<https://treasury.gov.au/publication/fit-for-the-future-a-capability-review-of-the-australian-securities-
and-investments-commission>.
Legislation
Federal
• Administrative Appeals Tribunal Act 1975
• Anti-Money Laundering and Counter-Terrorism Financing Act 2006
• ASIC Supervisory Cost Recovery Levy Act 2017
• Australian Prudential Regulation Authority Act 1998
• Australian Securities and Investments Commission Act 2001
• Banking Act 1959
• Competition and Consumer Act 2010
• Corporations Act 2001
• Corporations Amendment (Financial Market Supervision) Act 2010
• Corporations Amendment (Professional Standards of Financial Advisers) Act 2017
• Crimes Act 1914
• Financial Sector Legislation Amendment (Simplifying Regulation and Review) Act 2007
• Financial Transaction Reports Act 1988
• Freedom of Information Act 1982
• Insurance Act 1973
• Life Insurance Act 1995
• National Consumer Credit Protection Act 2009
• Payment Systems (Regulation) Act 1998
• Privacy Act 1988
• Privacy Amendment (Enhancing Privacy Protection) Act 2012
• Reserve Bank Act 1959
• Superannuation Industry (Supervision) Act 1993
• Tax Agent Services Act 2009.
5.62
State
• Crimes Act 1900 (NSW).
International
• Bank of England Act 1998 (UK)
• Commodity Futures Modernisation Act of 2000 (US)
• Dodd–Frank Wall Street Reform and Consumer Protection Act 2010 (US)
• Financial Markets Conduct Act 2013 (NZ)
• Financial Services Act 2012 (UK)
• New Zealand Securities Commission under the Securities Act 1978 (NZ)
• Sarbanes–Oxley Act 2002 (US)
• Securities Exchange Act 1934 (US).
Cases
• Air New Zealand v Australian Competition and Consumer Commission; PT Garuda Indonesia Ltd v
Australian Competition and Consumer Commission [2017] HCA 21
• Broken Hill Proprietary Co Ltd v Bell Resources Ltd (1984) 2 ACLC 157
• Robox Nominees Pty Ltd v Bell Resources Ltd (1986) 4 ACLC 164.
Suggested answers
Apply your knowledge 1: ASIC’s investigatory powers
1. ASIC can require the production of books relating to the alleged insider trading (s 31, ASIC Act).
‘Books’ is defined broadly and includes financial reports or financial records, however compiled,
recorded or stored, documents and any other record of information (s 8, ASIC Act). ASIC can also
seek information from people who may know about the circumstances of Joe’s trading by
requiring them to provide assistance or appear at an examination and answer questions
(s 19, ASIC Act).
2. ASIC can require the production of books by the operator of a financial market (ASX), a person
who carries on a financial services business (BigBroker) or any other person who, in
ASIC’s opinion, has been a party to a dealing in financial products (Joe) (s 31, ASIC Act). ASIC can
require assistance from, or conduct investigations of, any persons which ASIC has reasonable
grounds to suspect or believe has information in relation to the insider trading (s 19, ASIC Act).
This could include Joe’s broker at BigBroker or his colleagues at BigTime.
3. If Joe does not produce these documents, ASIC could apply to a magistrate to obtain a warrant to
search Joe’s home for the documents (s 35, ASIC Act).
4. A lawyer may refuse to produce a book containing privileged communications made by, on behalf
of, or to the lawyer in their capacity as a lawyer (s 69, ASIC Act). Hence, if the documents contain
privileged communications, Joe’s lawyer can refuse to produce them.
5.63
Apply your knowledge 2: Enforcement powers

Enforcement
Function or power
authority
One of my functions is to regulate ADIs. APRA
I have the power to remove companies from the official list. ASX
One of my functions is to set Australia’s monetary policy. RBA
I have the power to disqualify an AFS licensee. ASIC
One of my functions is to receive reports of ‘suspicious matters’ in relation to some financial services. AUSTRAC
I have the power to take legal action against cartel conduct. ACCC
I issue prudential standards. APRA
One of my functions is to regulate anti-competitive business behaviour. ACCC
One of my functions is to supervise Australia’s financial markets. ASIC
One of my functions is to supervise Australia’s payments system. RBA

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Topic 5: Regulatory framework

Economic and Legal Context for Financial Planning

1 Australian Securities and Investments Commission (ASIC) ................................................... 5.2

2 Australian Prudential Regulation Authority (APRA) ............................................................ 5.14

3 ASX Group .......................................................................................................................... 5.18

4 Reserve Bank of Australia (RBA) ......................................................................................... 5.25

5 Australian Competition and Consumer Commission (ACCC) ............................................... 5.28

6 Australian Transaction Reports and Analysis Centre (AUSTRAC) ......................................... 5.31

7 Office of the Australian Information Commissioner (OAIC) ................................................ 5.36

8 Tax Practitioners Board (TPB) ............................................................................................. 5.40

9 Self-regulation by industry bodies ...................................................................................... 5.48

10 Overseas regulatory bodies ................................................................................................ 5.49

11 International regulation ..................................................................................................... 5.56

Suggested answers ........................................................................................................................ 5.62

This topic specifically addresses the following subject learning outcomes:

Topic learning outcomes

1 Australian Securities and Investments Commission

1.1 The role of ASIC

Section 1(2) of the ASIC Act states:

Figure 1 Organisational structure of ASIC

Source: ASIC 2020b

Financial markets — licensing framework

Financial markets — supervision

ASIC’s service centres

1.2 ASIC’s regulatory documents

‘Further resource 1’ in KapLearn.

Apply your knowledge 1: ASIC’s investigatory powers

‘Further resource 2’ in KapLearn.

Example: HIH collapse

Example: Westpoint — ASIC action against directors

‘Further resource 3’ in KapLearn.

‘Further resource 4’ in KapLearn.

Example: ANZ Custodial Services

‘Further resource 5’ in KapLearn.

Reflect on this: The role of ASIC enforcement action

Proposed changes to ASIC

2 Australian Prudential Regulation Authority (APRA)

2.1 The role of APRA

Supervision and enforcement

The APRA Supervision Philosophy (APRA 2020a) states that:

2.2 Prudential regulation

Authorised deposit-taking institutions

Basel II Capital Framework

Life insurance and friendly societies

2.3 Enforcement powers

Example: APRA disqualifications

3.1 The role of the ASX

ASX’s structure and operations

Operating Rules and ASIC/ASX Market Integrity Rules

Clearing and settlement (CHESS)

3.2 Monitoring and powers

Responsibilities of a market operator

Monitoring of market participants

Court action to enforce ASX Operating Rules

Supervision of listed entities

3.3 Corporate governance principles

• Principle 7 — Recognise and manage risk

‘Further resource 6’ in KapLearn.

3.4 Relationship between the ASX and ASIC

4 Reserve Bank of Australia (RBA)

4.1 The role of the RBA

4.2 Monetary policy

‘Further resource 7’ in KapLearn.