Topic 2: Introduction to the financial services industry ... · it should not be relied upon when providing advice or constructing financial plans. External websites Kaplan’s subject

Topic 2: Introduction to the financial services industry and legislation

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Foundations of Financial Planning Part A: Generic Knowledge

Contents

Overview ........................................................................................................... 2.2

Topic learning outcomes ............................................................................................ 2.2

1 Who provides financial advice? ............................................................... 2.3

1.1 What do clients expect from a provider of advice? ....................................... 2.6

2 Regulatory environment for financial services ......................................... 2.7

2.1 Key regulatory authorities .............................................................................. 2.8

2.2 Regulatory Acts and codes ............................................................................. 2.9

3 Regulation of financial services and advice ............................................ 2.17

3.1 Introduction ................................................................................................. 2.17

3.2 Responsibilities of licensees ......................................................................... 2.21

3.3 Training and competency requirements for licensees and representatives ............................................................................................ 2.22

3.4 What are financial services? ........................................................................ 2.23

3.5 What are financial products? ....................................................................... 2.24

3.6 What is financial product advice? ................................................................ 2.26

3.7 Types of advice ............................................................................................. 2.28

4 Sustainability ........................................................................................ 2.28

4.1 Drivers for sustainable practice in the workplace ....................................... 2.29

4.2 Triple bottom line reporting......................................................................... 2.29

4.3 The finance services industry and sustainability .......................................... 2.30

Review questions ............................................................................................. 2.33

Key points ........................................................................................................ 2.34

References ....................................................................................................... 2.35

Suggested answers ........................................................................................... 2.35

© Kaplan Education Pty Ltd 2.1

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Overview A financial planner needs to understand the way that the financial services industry operates and the relevant legislation that applies to the provision of financial product advice.

This topic introduces the framework of the financial services industry in Australia and the key laws and regulations that govern its operation.

The legislative framework applying to financial advice is also covered.

Topic learning outcomes On completing this topic, students will learn: • the primary providers of financial advice • the key legislation for financial services • the key regulators and their roles • how to comply with the privacy legislation during the collection, use and storage of

personal information • key obligations under anti-money laundering laws • key legislative requirements for financial product advice • relevant legal principles that apply to participants in the financial services industry • relevant industry standards and codes of conduct • how to define sustainability and its effects on a financial planning practice.

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1 Who provides financial advice? This topic introduces the primary participants in the financial services industry, many of who provide personal and/or general financial product advice to retail clients. These participants are required to undertake initial training and compulsory ongoing education to provide advice to retail clients.

Financial planner/financial adviser

A financial planner is an individual who develops financial strategies, usually for retail clients to build their wealth and/or protect it to achieve their client’s lifestyle goals. Financial planners normally provide advice on complex financial planning strategies and products but can also provide scaled or limited advice suited to each client’s individual circumstances.

Other financial product advisers may be authorised to give advice on a specific product or products e.g. client services personnel with large superannuation funds or advisers who give advice on only life or general insurances.

The Corporations Act 2001 (Cth) (the Corporations Act) and regulations is the principle legislation controlling the activities of all ‘financial product’ advisers. The Australian Securities and Investments Commission (ASIC) is the principal federal regulator.

Note: ‘Financial planner’ is not currently defined in any law so some advisers, including single product advisers, have preferred to describe themselves as financial planners. At August 2014, the Federal Government is considering placing some form of legislative conditions before an adviser can be called a ‘financial planner’. For the purposes of this topic, the description ‘financial planner’ and ‘financial adviser’ are interchangeable.

Brokers Brokers are specialists who are licensed only in their own area/s of expertise, e.g. mortgage brokers who provide lending advice are regulated under the National Consumer Credit Protection Act 2009 (NCCP) legislation.

Other examples are life and general insurance brokers who provide advice on various insurance contracts. Insurance brokers are regulated by ASIC.

Stockbrokers Stockbrokers advise clients on the purchase and sale of shares and other listed securities. The only entities permitted to operate in stock exchange markets are stockbrokers acting as agents for their clients.

While this has been stockbrokers’ principal role traditionally, the advent of Internet share trading facilities has encouraged more stockbrokers to include holistic financial advice as part of their services.


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Accountants

For many years, accountants were lawfully able to give limited investment advice as part of their overall service without the need to be licensed if they did not: • charge a discrete fee for the advice • receive a commission or other benefit from a product provider.

Currently, all ‘recognised accountants’ who wish to provide ‘financial product advice’ under the Corporations Act and are not subject to a regulatory exemption must hold an Australian Financial Services Licence (AFSL) from ASIC or become a representative of an AFS licensee. The regulatory exemption is commonly referred to as the ‘accountant’s exemption’ and allows registered tax agents and accountants to provide certain limited advice on superannuation structures, including self-managed superannuation funds (SMSF).

However, this exemption will cease on 1 July 2016.

To replace this exemption, accountants (and other advisers) can apply for a ‘limited’ AFS licence from 1 July 2013, with a three-year transition period until 30 June 2016. Those applying for this new limited AFS licence will be able to apply for authorisations to provide financial advice on SMSFs and class of product about:

• superannuation products • securities • simple managed investment schemes as defined in the Corporations Regulations

2001 (Cth) • general and life insurance • basic deposit products.

Included within the definition of ‘limited financial services’ is the authorisation to arrange to deal in an interest in an SMSF.

Accountants will not be able to make recommendations about the establishment of an SMSF or advise clients on contributions or pensions without the new licence. With the licence, they will be able to provide switching or consolidation advice involving SMSFs. Importantly, anyone making switching or consolidation recommendations involving SMSFs will still need to meet the obligations on superannuation switching and the best interests duty in the Corporations Act.

In addition, accountants will be authorised to deal or arrange to deal in a financial product needed to set up an SMSF.

Examples of the types of advice accountants could provide under the authorisations listed above are: • The types of personal insurance cover (e.g. life, total and permanent disability,

trauma cover and income protection) appropriate for a client based on the client’s relevant circumstances (e.g. their existing level of cover) and whether they should own the cover directly or through a superannuation fund.

• The type of simple managed investment scheme that would be appropriate for and in the best interests of a client (e.g. cash funds versus equity funds).

• Whether shares are an appropriate investment option given a client’s relevant circumstances including their tolerance for risk and whether alternative classes of product might be more suitable.

• The types of basic deposit products that would be appropriate for and in the best interests of a client saving for a home deposit (e.g. term deposits or online savings accounts).

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Solicitors

Solicitors have always had some exposure to the financial services industry, predominantly in the areas of mortgage lending and estate planning. Since 11 March 2004, solicitors wishing to provide financial product advice as defined by the Corporations Act must hold an AFSL or become a representative of a licensee. There are some exemptions under the Corporations Act, which apply to legal professionals.

Real estate agents Government regulation of real estate agents and other property advisers is currently far less stringent than that governing other advisers and planners. Agents earn commission on the sale of real estate so they are expected to restrict their financial advice to the purchase and financing of direct property.

The Corporations Act does not cover the services provided by real estate agents or advisers because real estate or real property is not included as a financial product under the Corporations Act. However, real estate personnel must be mindful of not extending any advice they may give to clients beyond real estate.

Real estate agent services are regulated by consumer affairs departments in each state and territory.

General insurance companies

General insurance companies provide insurance products ranging from those usually purchased by individuals (such as home and contents insurance, travel insurance and motor vehicle insurance) to those purchased by small businesses and larger organisations (such as product and public liability insurance, commercial property, and directors and officers insurance).

Concerning advice on retail general insurance contracts, many general insurers have internal client services personnel who are authorised to provide personal or general advice to consumers on their products.

Life insurance companies

Insurance companies and life insurance companies in particular, traditionally manage large funds such as pension funds, insurance funds and annuities. The range of investment products available from life companies has grown considerably, particularly in the area of superannuation products.

Many insurance companies have now set up subsidiary companies in the field of financial advice to distribute their products.

Actuaries Actuaries specialise in numerical analysis and design for insurance and superannuation products. While they are at the forefront of investment performance analysis and therefore not associated specifically with the provision of investment advice, actuaries can if they wish become licensed to provide advice.


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Banks

In the past, banks traditionally only provided advice on their products and capabilities. However, over time their retail client advisory activities have expanded. Through the creation of subsidiaries and divisions specialising in areas relating to financial advice, and resulting from mergers and acquisitions, banks have demonstrated a significant commitment to the provision of financial advice.

In Australia, banks now own a large proportion of key advisory groups and recognise the provision of financial advice as an essential component of their product distribution strategy.

Again, any bank that provides financial product advice to retail clients must hold a separate AFS license. Bank employees providing the advice, either personal or general, must be representatives of the licensee.

Finance companies Finance companies are non-bank financial institutions that generally provide commercial and personal finance. Funds for lending may be raised by the issue of debentures or notes for a fixed term. Although finance companies may not provide financial planning advice directly, some of them are associated with another financial institution (e.g. a bank that could provide this advice).

Building societies and credit unions

Building societies and credit unions have traditionally been not-for-profit organisations providing deposit services and lending facilities. For some, the expansion of their services has now resulted in the provision of financial advice.

Fund managers

Fund managers generally restrict their advice to their own products. Some fund managers have their own planners, but may also use third-party intermediaries to market their products.

Their principal activity is the management of funds on behalf of investors. Their clients include large superannuation funds and master trusts.

1.1 What do clients expect from a provider of advice? As a client of any service provider, the main expectations of that business or professional relationship are those listed below.

Reliability • When a commitment is made, it happens as promised. • The provider follows up to ensure client needs are met. • Appointments are kept. If the provider is going to be late, they let the client know.

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Responsiveness

• When a client leaves a message, the provider returns the call as soon as possible. • When a client asks for something, they receive it on time.

Quality of service and product

• The provider delivers the best possible service. • Products recommended are of high quality and the most appropriate to the

client’s needs.

Positive, friendly working relationship

• The provider genuinely cares about the client and their needs. • The provider makes an effort to find out about the client’s needs. • The provider is always friendly and makes an effort to develop a positive working

relationship, even in difficult circumstances.

Credibility • The client has confidence in the provider because the provider can demonstrate that

they know their line of work and can refer the client to a good alternative provider if necessary.

• The provider projects a credible, professional image of themselves and their team.

Achievement

• The ability to deliver on agreed outcomes.

Note: That strict licensing requirements apply to the provision of financial services advice. These requirements are discussed in more detail in this topic.

2 Regulatory environment for financial services A stable financial system is vital for our economy. Public trust in the soundness and fairness of the financial system is achieved through the operation of both government authorities and self-regulatory bodies.

Australia has one regulatory authority for each of the main areas of the financial system. These are described below.


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2.1 Key regulatory authorities Australian Securities and Investments Commission

Australian Securities and Investments Commission (ASIC) administers the Corporations Act 2001, which sets out the law about how corporations must behave. ASIC is also responsible for consumer protection in financial products (including superannuation, life insurance, general insurance and deposit-taking credit); standards of information disclosure; and supervision of share, insurance and mortgage brokers; and trading in financial markets.

It regulates those institutions and individuals who provide personal and general advice on financial products.

The training standards for people working in the financial services industry and advising clients come under ASIC’s control.

Further, ASIC supervises compliance of the Australian Securities Exchange (ASX).

Australian Prudential Regulation Authority

Australian Prudential Regulation Authority (APRA) oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most of the superannuation industry.

APRA continuously supervises the activities of the financial institutions it supervises to ensure that they comply with prudential standards, are in sound financial condition and have adequate and effective governance and risk management systems.

APRA licenses and supervises all authorised deposit-taking institutions (ADIs) in Australia. ADIs include the following institutions: • Australian-owned banks • building societies • credit unions • foreign banks operating through subsidiaries in Australia • branches of foreign banks in Australia • other ADIs such as specialised credit card institutions (SCCIs).

APRA supervises general insurers in Australia under the Insurance Act 1973. The industry includes diversified insurers, captive insurers, reinsurers and lenders mortgage insurers. Direct foreign offshore insurers (DOFIs) are required to be authorised by APRA to write business in Australia unless exempted by the Australian Government.

APRA supervises life insurers, including friendly societies, under the Life Insurance Act 1995.

APRA also importantly supervises a wide range of superannuation funds under the Superannuation Industry (Supervision) Act 1993. Trustees of superannuation funds (excluding self-managed superannuation funds which are regulated by the Australian Taxation Office (ATO)) must also be licensed by APRA.

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Reserve Bank of Australia

The Reserve Bank of Australian (RBA) is Australia’s central bank and is responsible for the stability of the financial system as a whole, the payments system, and implementing monetary policy.

Australian Competition and Consumer Commission

The Australian Competition and Consumer Commission (ACCC) is an independent statutory government authority whose role is to serve the public interest in relation to consumer protection and competition by ensuring that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws. Most of the ACCC’s enforcement work is conducted under the provisions of the Competition and Consumer Act 2010. The ACCC oversees competition within the financial system.

Australian Securities Exchange In August 2010, the Australian Securities Exchange’s (ASX) supervisory responsibilities were transferred to ASIC. As of that date, the ASX is no longer a regulator in the securities markets, however it has kept its responsibility for monitoring compliance with the operating rules of the ASX. This includes making and supervising listing rules and continuous disclosure by entities. All participants are monitored by the ASX to ensure that, as far as possible within its obligations, the ASX is a fair, orderly and transparent market. Therefore, the ASX will continue to hold authority to enforce its operating rules.

2.2 Regulatory Acts and codes The activities of banks and other financial institutions are regulated to protect the interests of clients, shareholders and members of the broader community. This part of this topic reviews important regulations and laws to which all banks and other financial institutions must comply.

There are other important areas of which advisers must be aware. Some of these are unique to financial institutions. Others, such as privacy legislation, also apply to non-financial organisations.

The industry operates within the framework of a number of key Acts and codes. Those affecting the day-to-day operations of financial organisations include: • Corporations Act 2001 • Australian Securities and Investments Commission Act 2001 (ASIC Act) • Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) • Financial Transaction Reports Act 1988 • Privacy Act 1988 • Competition and Consumer Act 2010 • National Consumer Credit Protection Act 2009 • Financial institutions’ codes of practice, including Electronic Funds Transfer Code

of Practice.

Each of these is discussed below.


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Corporations Act 2001

The Corporations Act 2001 (Corporations Act) is the principal law regulating companies in Australia. It controls the formation and operation of companies, including the constitution that may be adopted by a company, duties of officers, takeovers and fundraising.

The Corporations Act also regulates the powers of ASIC, defines financial services and products, and sets out the licensing requirements of providers of financial services. It provides the standards for the conduct and disclosure requirements of financial advisers.

The Corporations Act imposes certain requirements on the financial services industry, including a single licensing regime for all dealings in financial advice.

One of the requirements of the Corporations Act is completion of a training program listed on the ASIC training register relevant to the level of advice being provided.

ASIC issues Regulatory Guides (RGs) that set directions and practical guidance on how various sections of the Corporations Act should be interpreted. ASIC’s Regulatory Guide 146 (RG 146) outlines the training requirements for people who provide financial product advice to retail clients.

RG 146 focuses on the protection of consumers of financial products by ensuring advisers have the appropriate minimum level of knowledge and skills to undertake their roles.

ASIC Act 2001

The ASIC Act transferred responsibility for primary consumer protection in the financial services sector from the ACCC to ASIC.

ASIC is the agency responsible for the administration of the relevant sections of the Corporations Act and the Competition and Consumer Act 2010 (formerly the Trade Practices Act) because it applies to those who provide financial product advice. These provisions prohibit conduct that is misleading, deceptive and unconscionable in relation to the sale of financial products.

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) What is AML/CTF legislation?

In 2006, amid growing global concerns about money laundering and terrorism financing, Australia brought its laws into line with international standards designed to prevent the world’s financial system from being used as a channel for these activities.

Since 12 December 2008, reporting entities have been required to report suspicious matters and any threshold transactions and international funds transfer instructions to the regulator, the Australian Transaction Reports and Analysis Centre (AUSTRAC). This applies to all reporting entities.

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The AML/CTF Act imposes obligations on financial services participants that provide certain designated services. With regard to wealth management, the following are defined as designated services: • acting as an agent for the acquisition or disposal of securities or derivatives • issuing or selling a security or derivative • accepting payment for the establishment of a new pension or annuity • making payment to a person under a pension or annuity • accepting a contribution, rollover or transfer into a superannuation fund

(excluding SMSFs) • cashing all or part of an interest in a superannuation fund (excluding an SMSF).

Regardless of the nature of the client (e.g. individuals, companies or trusts), a planner who acts as an agent is obliged to establish and verify the client’s identity.

Risk assessment and identity verification procedures

A reporting entity can authorise an agent to conduct customer identification procedures on its behalf. Although each product provider will have its own requirements, the sample identity verification process below sets out the main elements that planners may be required to execute: • Verify the customer’s identity in person — authorised representatives of the holder

of an AFSL who have had two or more years of continual service can certify copies of identification.

• Assess the customer’s level of product risk — the planner should assess whether the type of product being applied for indicates an elevated level of risk of a reportable activity. Most standard products offered by planners will not be considered indicative of elevated risk.

High-risk products include: – letters of credit – pre-shipment finance – residential lines of credit – low-doc residential mortgages — while not high risk, these are considered to be of

higher risk than the standard-risk products above.

Product providers will provide guidance to planners about any potentially risk-indicative products in their product portfolio. • Assess the customer’s level of jurisdiction risk — planners should be alert for

geographical indicators of high-risk activity. These include the location of the: – customer (i.e. not Australia or New Zealand) – funds used for the investment. • Undertake standard identity verification procedures — these verification

procedures include ascertaining the client’s full name, residential address and birth date, as well as a business name and business address for sole traders. Additional documentary verification is also required e.g. for an individual, primary identity documents include a current:

– Australian or foreign passport – Australian driver’s licence or proof-of-age card with photograph. The Financial Services Council (FSC) and the Financial Planning Association of

Australia (FPA) have designed a standard form for this purpose that is acceptable to all product providers.


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Financial Transaction Reports Act 1988

As well as the AML/CTF Act, to help the Government control organised crime, tax evasion and money laundering from criminal activity, the Financial Transaction Reports Act 1988 (FTRA) 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 • suspect transactions of any size, including non-cash transactions. Indicators of a suspect transaction might include: – a suspicion that a false name has been used to open an account – an individual trying to avoid filing a significant cash transaction report for cash

amounts of $10,000 or more, or – withdrawing or depositing a number of amounts just below the $10,000 threshold

over a number of days.

Privacy obligations – Privacy Act 1988

The collection and use of personal information is vital to the financial advising and credit processes.

Important considerations for those providing financial product or credit advice include: • the need to disclose the use of personal information to all involved parties,

particularly spouses • allowing clients access to all personal information held about them • referral procedures that ensure client approval has been obtained for referral.

The Privacy Act 1988 (Privacy Act) regulates how private and public entities collect, store, use and disclose personal information. The Privacy Commissioner ensures that organisations comply with their obligations under the Privacy Act.

The Privacy Commissioner’s role is to investigate and, if necessary, act on complaints from individuals about the use of their personal information.

All financial institutions are bound by the Privacy Act. Each institution has a privacy policy that explains how clients’ personal information is collected, handled and protected.

Examples of personal information collected by financial institutions include: • name • address • financial details.

Other personal information covered by the Privacy Act includes: • racial origins • political opinions • religious beliefs • membership of professional organisations • sexual preferences • criminal records • health information.

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On 29 November 2012, the Privacy Amendment (Enhancing Privacy Protection) Act 2012, was passed into legislation. This new Act includes a number of changes to the original Act that come into effect on 12 March 2014. The changes are: • a set of new privacy principles that will regulate the handling of personal information

by both Australian government agencies and businesses • enhanced powers for the Australian Information Commissioner (the Information

Commissioner), generally exercised by 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 – recognise external dispute resolution (EDR) schemes to handle privacy-related

complaints • new laws on codes of practice about information privacy (APP codes) and a code of

practice for credit reporting (the CR code), including enabling the Information Commissioner to develop and register binding codes that are in the public interest.

Transition from national to Australian Privacy Principles From 12 March 2014, the Australian Privacy Principles (APPs) will replace the National Privacy Principles (NPPs) and Information Privacy Principles (IPPs) and will apply to organisations, and Australian Government (and Norfolk Island Government) agencies. Previously the NPPs applied to business and the IPPs applied to government agencies.

National Privacy Principles (effective up to 12 March 2014) The Privacy Act contains 10 National Privacy Principles (NPPs) to which private sector organisations must adhere in order to comply. Alternatively, organisations may choose to adopt their own privacy code, which must be approved by the Privacy Commissioner.

The NPPs and any approved privacy codes state that: • organisations take reasonable steps to ensure that individuals are aware that

personal information is being collected about them and the purposes for which the information will be used

• individuals have the right to get access to their personal information and to have the information corrected or annotated if it is incorrect, out-of-date or incomplete

• an organisation must only collect personal information where it is necessary for one of its functions or activities

• organisations take reasonable steps to ensure that personal information is secure and safe

• organisations must appoint a privacy officer, train staff and document policies on privacy of personal information.


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Australian Privacy Principles (effective from 12 March 2014)

These principals relate to the collection, handling and accuracy of information as well as the protection of privacy. The following are the new Australian Privacy Principles (APPs): 1. Open and transparent management of personal information — to ensure

personal information is managed in an open and transparent way. 2. Anonymity and pseudonymity — to enable individuals to remain anonymous or

use a pseudonym for some matters. 3. Collection of solicited personal information — to limit the collection of

information to that which is reasonable (see below re sensitive information). 4. Dealing with unsolicited personal information — to ensure entities deal

appropriately with information that they receive. 5. Notification of the collection of personal information — to ensure individuals are

aware that information has been collected and by whom. 6. Use or disclosure of personal information — to restrict the use and disclosure of

information held by an entity. 7. Direct marketing — to limit the use of sensitive information for direct marketing. 8. Cross-border disclosure of personal information — to ensure that foreign entities

treat information disclosed to them in line as much as possible with Australian privacy principles.

9. Adoption, use or disclosure of government-related identifiers — to limit the use of government identifiers by other entities.

10. Quality of personal information — requires the collecting entity to check that information is accurate, up-to-date and complete.

11. Security of personal information — requires an entity to protect the personal information held by an entity.

12. Access to personal information — generally requires the entity to give the individual access to the information it holds.

13. Correction of personal information — the entity must correct information that is inaccurate, out of date, incomplete, irrelevant or misleading or that has been requested by the individual to be changed.

Many of the privacy principals distinguish between personal information and sensitive information, with the latter generally having much stricter requirements regarding collection, use and disclosure.

Exemptions under the private sector provisions Any small business with a turnover of less than $3 million is exempted from the provisions of the Privacy Act unless it: • is related to another business that is not exempted • trades in personal information • is a contracted service provider for a Commonwealth agency • provides a health service and holds health records because separate provisions

already exist, or • is a reporting entity as defined in the Anti-Money Laundering and Counter-Terrorism

Financing Act 2006 (Cth).

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In addition, registered political parties, Commonwealth agencies and state or territory authorities are excluded as existing laws apply. Some actions or practices of organisations are also excluded. These include the handling of employee records, media organisations’ journalistic practices and certain political activities.

Apply your knowledge 1: Your organisation’s privacy policy

In the space below, summarise your organisation’s privacy policy.

Note: This answer will be specific to your personal circumstances.

Competition and Consumer Act 2010 (CCA)

On 1 January 2011, the Trade Practices Act 1974 was renamed the Competition and Consumer Act 2010 (CCA) and includes the Australian Consumer Law.

The objective of the national consumer policy framework is to improve consumer wellbeing through consumer empowerment and protection, foster effective competition and enable consumers to participate confidently in markets in which both consumers and suppliers trade fairly.

The objectives of the CCA are: • to ensure that goods and services are safe and fit for the purposes for which they

were sold • to prevent practices that are unfair • to meet the needs of those consumers who are most vulnerable or are at the

greatest disadvantage • to provide accessible and timely redress where consumer loss has occurred • to promote proportionate, risk-based enforcement to ensure that consumers are

sufficiently well informed to benefit from and stimulate effective competition.


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National Consumer Credit Protection Act 2009 (NCCP)

The National Consumer Credit Protection Act 2009 (NCCP) brings the regulation of consumer credit within one federal Act. It replaces state legislation and the Uniform Consumer Credit Code (UCCC).

The NCCP is designed to protect consumers and ensure ethical and professional standards in the finance industry through the National Credit Code (NCC). The NCCP is regulated and enforced by ASIC.

The key elements of the NCCP are: • establishing a national licensing regime to require providers of consumer credit and

credit-related broking services and advice to obtain a licence from ASIC • extending the powers of ASIC to make it the national regulator of the new credit

framework with enhanced enforcement powers • requiring licensees to observe a number of general conduct requirements, including

responsible lending practices • requiring mandatory membership of an external dispute resolution (EDR) body by all

providers of consumer credit and credit-related broking services and advice • extending the scope of credit products covered by the UCCC to regulate the provision

of consumer mortgages over residential investment properties • extending the operation of the Corporations Act to regulate margin lending.

As its name indicates, the main purpose of the NCCP is to protect consumers, not licensed brokers or lenders. Consumers have initial avenues of redress to EDR bodies however should consumers not achieve satisfaction through this mechanism, they can make claims for compensation through the courts.

Financial institutions’ codes of practice

Banks, building societies, credit unions and insurance companies all follow a voluntary code of practice in relation to products and services for retail clients. A code is usually created by the peak industry association representing a financial services segment or group. Each code must be followed by that association’s members.

The different codes for financial institutions generally cover the requirements in relation to information disclosure, standards of conduct and dispute resolution processes. These codes include: • Code of Banking Practice • Electronic Funds Transfer Code of Conduct • Mutual Banking Code of Practice • General Insurance Code of Practice • Insurance Brokers’ Code of Practice • Financial Planners Code of Ethics and Rules of Professional Conduct.

Details of each code can be found on the ASIC website. Go to <http://www.asic.gov.au> Financial advice & services Compliance Codes of practice.

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http://www.asic.gov.au/


Apply your knowledge 2: Codes of Practice

Identify and then access the Code of Practice that is most relevant to your industry. What are three (3) key aspects covered by the code?

Note: This answer will be specific to your personal circumstances.

3 Regulation of financial services and advice

3.1 Introduction In order to provide a ‘financial service’ or, more specifically, ‘financial product advice’, it is not acceptable to simply hang up a sign identifying oneself as a financial planner or adviser and start meeting with clients, even if a program of study has been completed. There are strict legal requirements and rules that apply to those working in the financial services industry in Australia.

The Corporations Act and regulations provide the following: • A single licensing framework in which a person or entity carrying on a financial

services business is required to hold an Australian financial services licence. Those individuals who are employed by or act for licensees to give advice on the licensee’s behalf must be properly authorised and comply with specific conduct requirements.

• Uniform disclosure obligations for all financial products provided to retail clients. • Minimum standards of conduct for providers of financial services to retail clients. • A general obligation on licensees to provide financial services, including ensuring

their representatives are adequately trained and competent to provide financial services.

Note: Licensee and adviser conduct conditions will be covered in greater detail in later courses.


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Figure 1 Structure of the regulatory regime under Corporations Act 2001

Note: For the purposes of this topic, the term ‘representative’ refers to persons who are either employees or authorised representatives of the licensee, and who provide financial services on the licensee’s behalf. Both of these are obligated to meet the same competency standards listed under RG 146.

The Corporations Act applies to and affects almost all the participants in the financial services industry, including: • banks, building societies and credit unions • general and life insurance companies • managed investment schemes and superannuation funds • the Australian Securities Exchange (ASX) • stockbrokers, financial planners and personal investment advisers including

derivatives (i.e. options and futures) brokers.

To ensure adherence to the regulations enacted under the Corporations Act, the Australian Securities and Investments Commission Act 2001(ASIC Act) was enacted. This Act provides ASIC with the authority to administer and enforce the laws that relate to the corporate markets and finance sector.

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Apply your knowledge 3: The role of ASIC

Visit <http://www.asic.gov.au> About ASIC Our role (viewed 1 August 2014).

Using the information from this site, describe the role of ASIC by answering the questions below. 1. What does ASIC do?


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2. Who does ASIC regulate?

3. What are ASIC’s powers?

Note: You can access ‘Suggested answers’ for this activity at the end of this topic.

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3.2 Responsibilities of licensees AFS licences are issued for the provision of one or more specific classes of financial products or services (e.g. life insurance, general insurance, credit or particular products such as superannuation).

Licensees are required to: • take responsibility for the actions of their representatives • ensure systems are in place for the training and supervision of their representatives • have appropriate internal compliance procedures and controls for their type

of business • have appropriate internal and external dispute resolution mechanisms available to

retail clients • ensure compliance with all conditions set down under their licence and those under

the Corporations Act and regulations.

ASIC is responsible for issuing the licences and administrating the law, and may either suspend or revoke a licence if sufficient reasons exist (e.g. for significant breaches of the law).

Additionally, ASIC has the power to ban a person from acting as a representative of a licensee if they are found to be in breach of the Corporations Act requirements.

A person who has been banned cannot act as a representative for the duration of the ban, nor can the person obtain an AFSL.

Authorised representatives As previously described, a person providing financial services may be the holder of a licence (i.e. the principal), an employee of the principal or an authorised representative of a licence holder. Licensees who provide services through authorised representatives must authorise them by issuing express written authority to do so. All authorised representatives must be registered with ASIC.

Employees of the licensee are generally referred to as representatives of the licensee when they are providing financial services. An employee or director of a licensee is a representative of the licensee and does not need to be authorised (s 910A). Therefore, they are able to provide financial advice under the licensee without a specific authority.

Under the Corporations Act, all representatives are subject to the law through their principals. Licensees are responsible and liable for the actions of their representatives, even if a representative acts outside the scope of their authority.

An authorised representative cannot authorise a person to act as their representative, however, they can appoint others as authorised representatives of the licensee, provided the licensee consents. Where a company is an authorised representative, the individuals acting for the company must also be authorised directly by the licensee.

A person can be the authorised representative of two or more AFS licensees, but only if each of the licensees consents to the person being the authorised representative of the other licensee(s), or each of the licensees is a related body corporate of the other licensees (s 916C).


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3.3 Training and competency requirements for licensees and representatives ASIC Regulatory Guide RG 146 ‘Licensing: Training of financial product advisers’ (RG 146) sets out the minimum training and competency standards required of any licensee or representative of a licensee who provides financial product advice to retail clients.

The requirements of RG 146 must be met to satisfy the Corporations Act requirements placed on licensees relating to the provision of financial services and the supervision of their representatives.

It is important to be aware that many holders of AFSLs require their representatives to hold additional qualifications over and above ASIC’s RG 146 requirements.

Apply your knowledge 4: ASIC Regulatory Guide 146

Use ASIC RG 146 to answer the following questions:

You can locate RG 146 at <http://www.asic.gov.au> Publications Regulatory Documents Regulatory Guides. 1. What are the underlying principles of RG 146?

2. Who must meet the training standards as set out in RG 146?

3. Who is exempt from the requirements of RG 146?

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4. What are the licensee’s obligations in relation to the implementation of RG 146?

5. What types of generic knowledge must providers of financial advice possess?


3.4 What are financial services? When working with clients to develop and implement a financial plan, financial planners will generally be providing a financial service where they advise on a financial product or set of products. The terms ‘financial service’, ‘financial product’ and ‘financial product advice’ are defined in the Corporations Act.

Financial service

According to the Corporations Act, a financial service provider must hold an AFSL issued and administered by ASIC when they: • provide advice about a financial product • deal in a financial product • arrange for a financial product to be entered into • make a market for a financial product • operate a registered managed investment scheme, and/or • provide a custodial or depository service.


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3.5 What are financial products? The Corporations Act outlines what is and is not considered a financial product. It is important to understand these definitions and the associated AFSL requirements about the provision of advice.

General definition The Corporations Act provides a general definition of a financial product as a facility through which, or through the acquisition of which, a person carries out one or more of the three tasks described below.

(a) Makes a financial investment

Making a financial investment essentially involves an investor giving money or money’s worth to another person who will use those funds to generate a financial return or other benefit for the investor. This may be the case even if no return or benefit is generated. Further, the investor has no day-to-day control over the use of the money to generate the return or benefit.

Examples include paying money to a company for the issue of shares in the company and paying money to acquire an interest in managed investments. In both cases, the individual does not have any control over the day-to-day affairs of the fund or the company.

This is in contrast with the situation where a person purchases a direct property investment. While this may be done to generate a return, the investor does not relinquish the money to another person to invest on their behalf and they retain day-to-day control of the investment, even if they engage a property management specialist to perform this function for them.

(b) Manages financial risk

A person manages financial risk when they: • manage the financial consequences of particular events, or • avoid or limit the financial consequences of fluctuations in, or in the value of,

receipts or costs (including prices and interest rates). Examples of these are: • taking out insurance, or • reducing the risk of loss from an investment by investing in a capital protected fund

which typically uses financial instruments, such as derivatives, to enable protection of the capital value of the investment.

Note: A derivative is a financial contract whose value is linked to the performance of another asset. Derivatives include futures, forwards, swaps and options. It is not necessary to understand how they operate for this subject and you will not be examined on their properties.

An example of an action that does not constitute managing a financial risk is employing a security firm. While it may manage the risk of a theft occurring, it does not manage the financial consequences if thefts do occur.

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http://en.wikipedia.org/wiki/Futures_contract

http://en.wikipedia.org/wiki/Forward_contract

http://en.wikipedia.org/wiki/Swap_(finance)

http://en.wikipedia.org/wiki/Option_(finance)


(c) Makes non-cash payments

A person makes non-cash payments if they make payments using methods other than the physical delivery of Australian or foreign currency in the form of notes and/or coins. Examples would include making payments using: • direct debit from a deposit account • BPay, EFTPOS, PayPal • cheques • a smart card linked to a deposit account • traveller’s cheques.

Note: The use of credit cards is not considered to be a form of non-cash payment as they are debt instruments (also known as ‘credit facilities’).

Items defined as financial products Other sections of the Corporations Act define specific items as financial products, including: • a security (e.g. listed shares) • a derivative • most contracts of insurance (e.g. general and life insurances) • a superannuation interest (as defined in the Superannuation Industry (Supervision)

Act 1993) • a retirement savings account • any deposit-taking facility made available by an approved deposit-taking institution in

the course of its banking business • a debenture, stock or bond issued or proposed to be issued by a government • some foreign exchange contracts.

Note: Students are not expected to provide definitions of each of these products, but should understand what is or is not a financial product. More information about some of the products can be found in future topics.

Items excluded from being financial products

The Corporations Act also outlines items that are specifically not considered financial products. Some of these are: • an excluded security • health insurance provided as part of a health insurance business • insurance provided by the Commonwealth, state or territory governments • reinsurance • a credit facility (including credit cards) • a contract to exchange one currency, whether Australian or not, for another that is to

be settled immediately • a funeral benefit.


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3.6 What is financial product advice? Financial product advice is a recommendation, report or statement of opinion intended to influence a person in making a decision about a particular financial product(s), or that could reasonably be regarded as being intended to have such an influence.

This means that when a person or entity gives an opinion on a financial product or tries to influence a person to make a decision about a financial product, this constitutes the giving of financial product advice under the law.

All financial product advice is either ‘personal advice’ or ‘general advice’.

Personal versus general advice Personal financial product advice is tailored to a client’s individual situation and needs. It is given after: • the provider of the advice has considered one or more of the person’s objectives,

financial situation and needs, or • a reasonable person might expect the provider to have considered one or more of

those matters (i.e. objectives, financial situation and needs).

An AFS licence must be held before personal advice can be given. Providers of advice are limited to licensees, authorised representatives or employees of the licensee.

By the nature of the work that they do, planners nearly always provide personal advice. As providers of personal advice, planners are obliged to ensure their advice is appropriate, is in the client’s best interests, and is provided correctly.

General advice is financial product advice that is not personal advice (i.e. is not tailored to a specific client’s needs).

Whenever general advice is provided, it is important that the planner include a warning that the advice is of a general nature, and that the client should not act on it until they receive advice specific to their circumstances.

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Apply your knowledge 5: Personal versus general advice

State whether personal or general advice is being provided in the following situations. 1. An electronic newsletter sent to a client database.

2. A planner recommending a superannuation product designed to meet the needs of a mature client planning to retire in five years.

3. A planner explaining the difference between investing in the stockmarket or real estate.

4. An information evening about superannuation options at a financial planning firm.

5. A set of preferred options for margin lending presented to a client after an interview regarding objectives and circumstances.

6. A letter to a client outlining recent changes to the investment rate of a major bank and comparing it to other investment institutions.



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3.7 Types of advice A financial services licence issued by ASIC to a licensee defines the type and scope of advice that a financial planner associated with the licensee can give. The licence may be unrestricted or limited to a specific range of financial products. In addition, a financial planner may have further specific restrictions on the type of advice they personally can offer.

For example, a financial planner who is RG 146 accredited to provide advice in managed investments, superannuation and securities cannot advise on insurance products.

A financial planner may not have the specialist knowledge needed to satisfy all of a client’s needs. If they are unable to provide all the services needed, the law requires those planners to state this to the client and, if possible, refer the clients to other planners who have the authority to meet the client’s financial needs. Formal arrangements may be in place with other planners or professionals, such as referral fees and other incentives to encourage referrals. When commissions or other benefits are involved, the client must be told of these payments.

Clients might also seek further advice from other professionals, such as accountants, solicitors or property investment consultants.

Note: As from 1 July 2013 there have been major changes to adviser conduct provisions of the Corporations Act. This follows the Federal Government’s Future of Financial Advice (FOFA) reforms.

Through the FOFA reforms, an important amendment to the Corporations Act became effective from 1 July 2013, including the requirement on advisers to always act in the client’s best interests and the introduction of a ban on the payment of most commissions and other forms of conflicted remuneration that have the potential to influence the advice financial services’ licensees and their representatives provide to retail clients.

4 Sustainability Sustainability is defined as being able to maintain a certain rate or level, with sustainable economic growth defined as conserving an ecological balance by avoiding depletion of natural resources.

The Australian Government Department of the Environment (under which there operates the department for Sustainability, Environment, Water, Population and Communities) deals with a number of areas including environment protection and conservation of biodiversity, air quality, land contamination, environmental research, water policy and resources, coordination of sustainable communities policy, population policy and the urban environment.

Throughout Australia, environment, water and heritage issues are also managed by other levels of government. A full list of the Department’s responsibilities is available on the Department of the Environment website <http://www.environment.gov.au>.

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http://www.environment.gov.au/


4.1 Drivers for sustainable practice in the workplace The business case for sustainability within a workplace includes considerations such as compliance, reputation and brand, establishing a ‘social licence to operate’, acquiring preferred supplier status and managing the workplace risk profile effectively. Considerations also include attracting and retaining the appropriate human resources and establishing effective strategies to ensure human skill needs linked to business growth are identified and met.

Some businesses promote their ‘green credentials’ to attract the market segments committed to environmental sustainability. Rather than seeing sustainable work practices as an imposition on the organisation, they are viewed as a business opportunity.

4.2 Triple bottom line reporting ‘Triple bottom line’ was a termed coined by John Elkington in 1994 to describe corporations moving beyond reporting only on their financial ‘bottom line’ to assessing and reporting on the three spheres of sustainability: • economic • social • environmental.

The notion of the triple bottom line has many meanings to many people, and can be applied at different levels in society by different stakeholders. However, there is general agreement that the triple bottom line principle is a useful approach for examining the operations of an entity, from a local council to a major corporation to a nation (CSIRO 2011).

Benefits of triple bottom line reporting Reporting on financial performance may be considered limited in accurately representing market performance. Consequently, there is a growing need for further balanced and enhanced non-financial disclosure.

In recent years, triple bottom line reporting has become a vehicle for such disclosure based on the premise that by monitoring and reporting social, economic and environmental performance, organisations can better prepare for future challenges and opportunities, including those traditionally considered intangible, such as reputation.

For triple bottom line reporting to be of real value to an organisation, it must be integrated with daily business operations and appropriately resourced.

Organisations that have successfully driven change because of triple bottom line reporting have identified the following benefits: • Embedding sound corporate governance and ethics systems throughout all levels of

an organisation. Many corporate governance initiatives are focused currently at the board level. Triple bottom line helps ensure a values-driven culture is integrated at all levels.

• Improved management of risk through enhanced management systems and performance monitoring. This may also lead to more robust resource allocation decisions and business planning because risks are better understood.


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• Formalising and enhancing communication with key stakeholders such as the finance sector, suppliers, community and customers. This allows an organisation to have a more proactive approach to addressing future needs and concerns.

• Attracting and retaining competent staff by demonstrating that an organisation is focused on values and its long-term existence.

• Ability to benchmark performance both within industries and across industries. This may lead to a competitive advantage with customers and suppliers, as well as enhanced access to capital because the finance sector continues to consider non-financial performance within credit and investment decisions.

There is growing evidence to suggest that these benefits contribute over time to the increased market value of an organisation (Department of Environment 2003).

Apply your knowledge 6: Triple bottom line reporting

How is triple bottom line reporting different from the traditional economic benchmarks business has used to report performance?


4.3 The finance services industry and sustainability In 2010, Innovation and Business Skills Australia (IBSA) released a report, Environment Scan — 2010 — Financial Services Industry. The primary objective of the report was to advise the government of industry skill and workforce development needs and investment priorities for Australia’s Vocational Education Training system.

Under ‘Environmental Sustainability’, the report stated that almost half of financial services industry respondents to IBSA’s Environment Scan survey were concerned about addressing environmental sustainability. Employees within the industry will need to develop knowledge of new products and systems arising from environmental sustainability, such as carbon trading, and understand their impact on the industry.

Many financial services groups have developed policies regarding corporate responsibility and sustainability. Below are some of the policies extracted from major financial services organisations.

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Example: AMP — Corporate responsibility

AMP founded on a promise ‘to be a sure friend in uncertain times’.

We’ll keep that promise by continuing to build a business that’s strong and successful today and well positioned for sustainable growth tomorrow.

A successful business will come from delivering on our responsibilities, in a balanced way, to all our stakeholders, that is, customers, planners, shareholders, employees and the community in general.

We will ‘do the right thing’ by these stakeholders in all aspects of our business. For us, that’s the essence of corporate responsibility.

However, we believe we can make the biggest contribution to the long-term sustainability of our business and to the communities we serve by bringing extra focus to some subjects we already know well. They are: • building savings for the future • responsible investing • environment.

(AMP 2014)

Example: Commonwealth Bank — Our sustainable strategy For the Commonwealth Bank Group, sustainability means building a successful business today, while creating long-term value for our customers, our people, our shareholders and the wider community.

We believe creating a more sustainable business is not only the right thing to do, it also makes good business sense.

Our Sustainability Framework, endorsed by our Board, helps us address current and emerging environment, social and governance issues across our five focus areas: • sustainable business practices • responsible financial services • engaged and talented people • community contribution and action • environmental stewardship.

(CBA 2014)

Example: National Australia Bank — Environment We are committed to managing the impact of our business on the environment. Taking a sustainable approach to managing our business is not only important for the environment, but the long-term growth and resilience of our business.

Our environmental agenda incorporates strategies covering: • climate change • resource efficiency • natural value.

(NAB 2014)


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Example: Westpac Banking Corporation — Sustainability strategy

For us sustainability is not a static agenda. We know that the issues that impact our customers, employees and the broader community, and our response to those issues, will all evolve over time.

Many aspects of sustainability are already embedded in our day-to-day activities, for example the screening of suppliers, lending practices and employment practices.

Our approach with this here and now agenda is to systematically identify and respond to the issues that are currently most important to our business and stakeholders and also to share our knowledge and experience.

We also see that there are emerging issues which present both risks and opportunities for our business and our stakeholders into the future. Therefore our new strategic focus is to anticipate and shape the most pressing emerging societal issues where we have the skills and experience to make a meaningful difference. This means encouraging debate on this future landscape, identifying these emerging trends and issues early, and then working to have a positive impact through our own action, raising awareness and challenging everybody to do more.

(Westpac 2014)

Example: Urban sustainability Improving urban sustainability is an important priority for our customers and communities wherever we operate. Increasingly, we live in urban centres faced with growing congestion, air quality and sanitation challenges.

ANZ seeks to better understand social and environmental pressures and to identify what we can do in our workplaces and branches to help minimise our environmental impact. We also actively support our customers and suppliers, through our responsible sourcing program, to deliver sound environmental and social outcomes.

We aim to help move towards a lower-carbon economy. Our approach is: • supporting and encouraging our business customers to reduce

their emissions • setting a target to increase our project finance lending to lover

carbon power generation • setting carbon emission thresholds to ensure we closely

examine power generation lending • investing in renewable energy sources • achieving carbon neutrality for our operations.

We are playing an active role in facilitating and sharing best practice to assist in the advancement of urban sustainability. In particular, we are sharing our knowledge and expertise in sustainable building design to industry and our peers.

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We are committed to actively managing the environmental impact of our operations. As part of this commitment, we set clear, measurable targets to reduce our consumption of electricity, water and paper, our greenhouse gas emissions, and the amount of waste we send to landfill.

We actively engage with our suppliers to help to address and minimise social and environmental impacts in our supply chain. Our Supplier Code of Practice aims to improve the environmental and social performance, and reduce the environmental and social risks associated with our procurement activities.

(ANZ 2014)

Apply your knowledge 7: Sustainability and business opportunities

How can an organisation use sustainability approaches as a business opportunity?


Review questions You can access the Review questions for this topic at KapLearn.


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Key points • Financial planning is the process of developing strategies to help clients with

different needs manage their financial affairs so they can build wealth, enjoy life and achieve financial security.

• The regulatory regime under the Corporations Act 2001 provides a single licensing framework: the Australian financial services licence (AFSL). This ensures uniform disclosure obligations for all financial products provided to retail clients and minimum standards of conduct for financial services providers dealing with retail clients.

• ASIC is the regulator of corporate markets and financial services. Among other responsibilities, they are responsible for granting Australian financial services licences and Australian credit licences.

• The Corporations Act establishes competency standards for the education and training of representatives (detailed in a special ASIC Regulatory Guide — RG 146).

• A person or entity provides financial services when they deal, make a market, or provide advice about a financial product. This includes arranging for a financial product to be entered into, operating a registered managed investment scheme, and/or providing a custodial or depository service.

• A financial product is defined as a facility through which a person makes a financial investment, manages a financial risk or makes a non-cash payment.

• Financial product advice refers to a recommendation, statement of opinion, interpretation of information, or a report detailing any of the above, which is intended to influence a person to make a decision about a financial product or class of products.

• Financial product advice may be personal or general. • The Corporations Act requires a financial planner to include a warning to clients

whenever general advice is given, stating that it is of a general nature only and should not be acted upon until they receive advice tailored to their circumstances.

• Planners need to be aware of the Privacy Amendment Act and from 12 March 2014 adhere to the new APPs, which regulate the collection and storage of personal and sensitive client information.

• Planners must also act in accordance with the anti-money laundering protections outlined in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

• ‘Triple bottom line’ involves reporting on the three spheres of sustainability: – economic – social – environmental.

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References AMP 2014, About corporate responsibility, AMP, viewed 12 October 2013, <https://www.amp.com.au/wps/portal/au/AMPAUMiniSite3C?vigurl=%2Fvgn-ext-templating%2Fv%2Findex.jsp%3Fvgnextoid%3Db2b583b83b6f1210VgnVCM10000083d20d0aRCRD>.

ANZ 2014, Corporate Responsibility: Urban sustainability, Australia and New Zealand Banking Group Limited, viewed 12 August 2014, <http://www.anz.com/about-us/corporate-responsibility/framework/urban-sustainability>.

CBA 2014, Our Sustainability Strategy, Commonwealth Bank of Australia, viewed 12 August 2014, <https://www.commbank.com.au/about-us/sustainability-and-community/our-approach.html>.

CSIRO 2011, Balancing act — a triple bottom line analysis of the Australian economy, CSIRO, viewed 6 July 2015, <https://publications.csiro.au/rpr/pub?list=BRO&pid=procite:ef189bac-499a-46db-be4d-b391a3cb05dc>.

Department of Environment 2003, Triple line reporting in Australia — a guide to reporting against environmental indicators, Department of Environment, viewed 12 August 2014, <http://www.environment.gov.au/resource/triple-bottom-line-report-2003-04>.

NAB 2014, Strategic approach, National Australia Bank, viewed 12 August 2014, <http://cr.nab.com.au/what-we-do/strategic-approach>.

Westpac 2014, Sustainability strategy, Westpac, viewed 12 August 2014, <http://www.westpac.com.au/about-westpac/sustainability-and-community/better-tomorrow/our-approach/sustainability-strategy>.

Suggested answers

Apply your knowledge 1: Your organisation’s privacy policy

This answer will be specific to your personal circumstances.

Apply your knowledge 2: Codes of Practice

This answer will be specific to your personal circumstances.


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https://www.amp.com.au/wps/portal/au/AMPAUMiniSite3C?vigurl=%2Fvgn-ext-templating%2Fv%2Findex.jsp%3Fvgnextoid%3Db2b583b83b6f1210VgnVCM10000083d20d0aRCRD



http://www.anz.com/about-us/corporate-responsibility/framework/urban-sustainability/

http://www.anz.com/about-us/corporate-responsibility/framework/urban-sustainability/

https://www.commbank.com.au/about-us/sustainability-and-community/our-approach.html

https://www.commbank.com.au/about-us/sustainability-and-community/our-approach.html

https://publications.csiro.au/rpr/pub?list=BRO&pid=procite:ef189bac-499a-46db-be4d-b391a3cb05dc

https://publications.csiro.au/rpr/pub?list=BRO&pid=procite:ef189bac-499a-46db-be4d-b391a3cb05dc

http://www.environment.gov.au/resource/triple-bottom-line-report-2003-04

http://www.environment.gov.au/resource/triple-bottom-line-report-2003-04

http://cr.nab.com.au/what-we-do/strategic-approach

http://www.westpac.com.au/about-westpac/sustainability-and-community/better-tomorrow/our-approach/sustainability-strategy/

http://www.westpac.com.au/about-westpac/sustainability-and-community/better-tomorrow/our-approach/sustainability-strategy/


Apply your knowledge 3: The role of ASIC

1. ASIC is Australia’s corporate, markets and financial services regulator. It contributes to Australia’s economic reputation and wellbeing by ensuring that Australia’s financial markets are fair and transparent, and supported by confident and informed investors and consumers.

ASIC is an independent Commonwealth Government body set up under the Australian Securities and Investments Commission Act (ASIC Act).

ASIC administers the following legislation or relevant parts of it, as well as relevant regulations made under it:

• Australian Securities and Investments Commission Act 2001 • Corporations Act 2001 • Business Names Registration Act 2011 • Business Names Registration (Transitional and Consequential Provisions) Act 2011 • Insurance Contracts Act 1984 • Superannuation (Resolution of Complaints) Act 1993 • Superannuation Industry (Supervision) Act 1993 • Retirement Savings Accounts Act 1997 • Life Insurance Act 1995 • National Consumer Credit Protection Act 2009 • Medical Indemnity (Prudential Supervision and Product Standards) Act 2003. • Other regulators also administer some parts of these Acts. For example, parts of the last four Acts dealing with prudential regulation are

administered by the Australian Prudential Regulation Authority (APRA). The Australian Securities and Investments Commission Act 2001 requires ASIC to: • maintain, facilitate and improve the performance of the financial system and

entities in it • promote confident and informed participation by investors and consumers in the

financial system • administer the law effectively and with minimal procedural requirements • enforce and give effect to the law • efficiently and quickly receive, process and store information • make information about companies and other bodies available to the public as

soon as practicable.

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2.

Organisations and persons regulated

ASIC’s regulatory role

Investment and deposit-taking institutions Superannuation funds; life and general insurance companies; deposit-taking banks, credit unions, building societies and friendly societies

• Sets standards about what they disclose to their customers • Monitors their sales practices and compliance with codes

of practice • Checks customer complaints systems • Investigates and takes action against misconduct

Financial planners Investment advisers, insurance agents and brokers

• Sets standards for their operations, training and education • Licenses them before they start operating • Records their details and the names of their authorised

representatives on a public register • Monitors the advice they give, their sales practices and

compliance with codes of practice • Investigates and takes action against misconduct

Stockmarkets Australian Securities Exchange (ASX) and other markets authorised by the Minister

• Advises the Minister on changes to its rules • Monitors what ASX Ltd says and does as a listed company • Monitors trading in ASX Ltd shares • Investigates and takes action against misconduct of listed

companies that the ASX Ltd tells them about • Supervises and enforces misconduct law (e.g. insider trading,

market manipulation) • Advises the Minister on whether to approve new markets • Advises the Minister on changes to market rules

Managed investments • Sets standards for their operations • Licenses them before they start operating • Records their details and the names on a public register • Registers prospectuses before money is raised • Monitors their sales practices and operations • Investigates and takes action against misconduct

Companies • Registers each company with a unique number • Records the company’s number, name, directors and other

information on a public register • Grants or refuses requests for relief from the law • Registers prospectuses before money is raised • Monitors what directors say and do • Inspects company financial statements • Investigates and takes action against misconduct

Company auditors and liquidators • Registers them before they start operating • Monitors their work • Investigates and takes action against misconduct


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3. ASIC has the power to: • register companies and managed investment schemes • grant Australian financial services licences and Australian credit licences • register auditors and liquidators • grant relief from various provisions of the legislation that we administer • maintain publicly accessible registers of information about companies,

financial services licensees and credit licensees • make rules aimed at ensuring the integrity of financial markets • stop the issue of financial products under defective disclosure documents • investigate suspected breaches of the law and require people to produce books or

answer questions at an examination • issue infringement notices in relation to alleged breaches of some laws • ban people from engaging in credit activities or providing financial services • seek civil penalties from the courts • commence prosecutions — these are generally conducted by the Commonwealth

Director of Public Prosecutions, although there are some categories of matters that ASIC prosecutes.

Apply your knowledge 4: ASIC Regulatory Guide 146 1. The underlying principle of RG 146 is to set out the minimum training standards for

financial product advisers to ensure consumers are protected and receive advice from those who have the required knowledge and skills to provide it. RG 146 assists licensees to comply with legislation and adviser licensing.

2. All persons providing financial product advice to retail clients. 3. RG 146 exempts those who do not provide financial product advice, including:

Those who are exempt under the Corporations Act, who prepare advertising, give advice to wholesale clients, work from scripts developed by those who meet the regulation and paraplanners and trainees working under supervision of a person who meets the regulation.

4. The licensee must ensure that they and their advisers meet the training standards and only advise on the financial products covered by the AFS licence. The licensee must also comply with financial services laws and ensure they maintain their own competence.

Licensees must also have adequate policies and procedures to ensure those not trained are supervised and do not provide financial product advice.

5. Advisers, except those advising on Tier 2 products, must have knowledge of the following:

The economic environment

• Characteristics and impact of economic and business cycles • Interest rates, exchange rates • Inflation • Government monetary and fiscal policies

Operation of financial markets

• Roles played by intermediaries and issuers • Structure and interrelationships within the financial markets • Interrelationship between industry sectors

Financial products

• Concept of a financial product — general definition, specific inclusions, exclusions

• Types of financial investment products • Types of financial risk products (e.g. derivatives, risk insurance products)

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Apply your knowledge 5: Personal versus general advice

1. An electronic newsletter sent to a client database (general) 2. A planner recommending a superannuation product designed to meet the needs of a

mature client intending to retire in five years (personal) 3. A planner explaining the difference between investing in the stockmarket or real

estate (general) 4. An information evening about superannuation options at a financial planning firm

(general) 5. A set of preferred options for margin lending presented to a client after an interview

regarding objectives and circumstances (personal) 6. A letter to a client outlining recent changes to the investment rate of a major bank

and comparing it to other investment institutions (general)

Apply your knowledge 6: Triple bottom line reporting

Triple bottom line reporting assesses and reports on the operations of a business from the perspective of three spheres of sustainability: • economic • social • environmental.

Traditional economic benchmarks only report on the economic performance of the business.

Apply your knowledge 7: Sustainability and business opportunities Sustainability within a workplace can improve the business by building its reputation and brand, establishing a ‘social licence to operate’, acquiring preferred supplier status and managing the workplace risk profile effectively.


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