Commonwealth of Australia Explanatory Memoranda Commonwealth of Australia Explanatory Memoranda[Index] [Search] [Download] [Bill] [Help]
2022-2023
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TREASURY LAWS AMENDMENT (2023 MEASURES NO. 3) BILL 2023
EXPLANATORY MEMORANDUM
(Circulated by authority of the Assistant Treasurer and Minister for Financial Services,
the Hon Stephen Jones MP)
Table of Contents
Glossary................................................................................................. iii
General outline and financial impact ...................................................... 1
Avoidance of certain product intervention orders ......... 7
Recognising experience in the financial advice industry
................................................................................... 15
Competition in the clearing and settlement of cash
equities ........................................................................ 1
Improving the flexibility of the First Home Super Saver
Scheme ..................................................................... 45
Statement of Compatibility with Human Rights .......... 49
Attachment 1: Impact Analysis - Recognising experience in the
financial advice industry ............................................. 57
Attachment 2: Impact Analysis - Competition in the clearing and
settlement of cash equities ........................................ 77
Glossary
This Explanatory Memorandum uses the following abbreviations and acronyms.
Abbreviation Definition
ACCC Australian Competition and Consumer
Commission
Approved Qualifications Determination Corporations (Relevant Providers
Degrees, Qualifications and Courses
Standard) Determination 2021
ASIC Australian Securities and Investments
Commission
ASIC Act Australian Securities and Investments
Commission Act 2001
ASX ASX Limited
Better Advice Act Financial Sector Reform (Hayne Royal
Commission Response--Better Advice)
Act 2021
Bill Treasury Laws Amendment (2023
Measures No. 3) Bill 2023
CCA Competition and Consumer Act 2010
CFR Council of Financial Regulators
Corporations Act Corporations Act 2001
Corporations Regulations Corporations Regulations 2001
Credit Act National Consumer Credit Protection
Act 2009
CS facility A clearing and settlement facility as
defined in section 768A of the
Corporations Act 2001
CS service A CS service defined in section 828 of
the Corporations Act 2001 as would be
amended by this Bill.
Glossary
Abbreviation Definition
Education and Training Standards Corporations (Relevant Providers--
Determination Education and Training Standards)
Determination 2021
First Home Super Saver FHSS
ICCPR International Covenant on Civil and
Political Rights
ITAA 1997 Income Tax Assessment Act 1997
Professional Standards of Financial Corporations Amendment (Professional
Advisers Act Standards of Financial Advisers) Act
2017
RBA Reserve Bank of Australia
TAA Taxation Administration Act 1953
Tax Agent Services Act Tax Agent Services Act 2009
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
General outline and financial impact
Schedule 1 - Avoidance of certain product
intervention orders
Outline
Schedule 1 to the Bill introduces new rules that prohibit schemes designed to avoid the
application of a product intervention order (in relation to a credit facility) made under
Part 7.9A of the Corporations Act.
Date of effect
Schedule 1 to the Bill will commence on the day after Royal Assent.
Financial impact
Nil.
Human rights implications
Schedule 1 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 5.
Compliance cost impact
Schedule 1 to the Bill is expected to have a minor regulatory impact.
Schedule 2 - Recognising experience in the
financial advice industry
Outline
Schedule 2 to the Bill amends the Corporations Act to deliver the Government's
election commitment to better recognise the experience of existing financial advisers as
equivalent to tertiary study. This Schedule also addresses technical limitations in the
current framework, relevant to both new entrants into the financial advice industry and
tax agents providing a tax (financial) advice service to retail clients.
1
General outline and financial impact
Date of effect
Other than the contingent amendments in Parts 5 and 6, the amendments in Schedule 2
to the Bill commence on the day after Royal Assent.
Proposal announced
Schedule 2 to the Bill fully implements the Government's election commitment to
Better Recognise the Experience of Long-serving Advisers announced by the
Government on 8 December 2021.
Financial impact
Nil.
Impact Analysis
The Impact Analysis relating to the experienced provider pathway amendments in
Schedule 2 to the Bill has been included in Attachment 1.
Human rights implications
Schedule 2 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 5.
Compliance cost impact
Nil.
Schedule 3 - Competition in the clearing and
settlement of cash equities
Outline
Part 1 of Schedule 3 to the Bill provides ASIC with a rule-making power to facilitate
competitive outcomes in the provision of CS services.
Part 2 of Schedule 3 to the Bill creates a new arbitration regime for persons seeking to
access CS services. The ACCC is provided with additional powers to facilitate access
to CS services on terms and conditions that are transparent, non-discriminatory, fair
and reasonable.
2
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Date of effect
The amendments in Parts 1 and 2 of Schedule 3 to the Bill commence on the day after
Royal Assent. The amendments in Part 3 of Schedule 3 to the Bill are contingent on the
commencement of the Treasury Laws Amendment (2023 Law Improvement Package
No. 1) Bill 2023.
Proposal announced
Schedule 3 to the Bill partially implements the Modernising Australia's financial
system measure announced on 14 December 2022.
Financial impact
Nil.
Impact analysis
The following reports from the CFR were certified as equivalent to a Policy Impact
Analysis for the amendments in Schedule 3 to the Bill. The executive summaries and
recommendations contained in each report are included in this explanatory
memorandum at Attachment 2:
1. Competition in Clearing Australian Cash Equities: Conclusions1, December
2012
a. This review drew conclusions from a discussion paper on competition
in the clearing and settlement of Australian cash equities. In the review
the CFR Agencies adopted a position of openness to competition but
recommended that further work be undertaken to assess the
appropriate conditions for competition to occur.
2. Review of Competition in Clearing Australian Cash Equities: Conclusions2,
June 2015
a. This review outlined the CFR Agencies' conclusions from a further
consultation paper focusing on the clearing of ASX-listed cash equity
securities and made recommendations that government confirm a
policy stance of openness to competition, and implement legislative
changes to facilitate safe and effective competition, should it emerge.
It also recommended the Agencies set out regulatory expectations for
the conduct of monopoly clearing and settlement services, and
legislative changes to enable regulators to enforce these in a monopoly
environment. The CFR recommended that ASIC be granted a rule-
1
https://treasury.gov.au/sites/default/files/2019-03/Competition-in-clearing-and-settlement-of-
the-Australian-cash-equity-market.pdf
2
https://treasury.gov.au/sites/default/files/2019-03/C2015-007_CFR-ConclusionsPaper.pdf
3
General outline and financial impact
making power and the ACCC an arbitration power in respect of cash
equity clearing and settlement services.
3. Safe and Effective Competition in Cash Equity Settlement in Australia:
Response to Consultation3, September 2017
a. This response to consultation focussed on whether the prospect of
competition in the settlement of cash equities in Australia had
increased and led to the development of the Minimum Conditions for
Safe and Effective Competition in Cash Equity Settlement in Australia.
4. Regulatory Expectations for Conduct in Operating Cash Equity Clearing and
Settlement Services in Australia (the Regulatory Expectations)4, September
2017
a. The Regulatory Expectations set out the CFR Agencies' expectations
regarding activity, conduct and governance of the ASX's monopoly
clearing and settlement services. These include expectations around
user input to governance; transparent, non-discriminatory, and fair and
reasonable pricing of clearing and settlement services; and
commercial, transparent and non-discriminatory access to clearing and
settlement services.
5. Minimum Conditions for Safe and Effective Competition in Cash Equity
Clearing in Australia (Minimum Conditions Clearing)5, September 2017
a. The Minimum Conditions Clearing set out the adequate regulatory
arrangements for ensuring competition in the provision of clearing
services is undertaken in a way that is safe and effective. This includes
appropriate safeguards in the settlement process; access to securities
settlement infrastructure on non-discriminatory, transparent, fair and
reasonable terms; and appropriate interoperability arrangements
between competing clearing services providers.
6. Minimum Conditions for Safe and Effective Competition in Cash Equity
Settlement in Australia (Minimum Conditions Settlement)6, September 2017
a. The Minimum Conditions Settlement set out the appropriate regulatory
arrangements for ensuring competition in the provision of settlement
services is undertaken in a way that is safe and effective. This includes
access to services on non-discriminatory, transparent, fair and
3
https://www.cfr.gov.au/publications/consultations/2017/safe-effective-competition-
response/pdf/response-to-consultation.pdf
4
https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2016/regulatory-
expectations-policy-statement/pdf/policy-statement.pdf
5
https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2016/minimum-
conditions-safe-effective-cash-equity/pdf/policy-statement.pdf
6
https://www.cfr.gov.au/publications/policy-statements-and-other-reports/2017/minimum-
conditions-safe-effective-competition/pdf/policy-statement.pdf
4
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
reasonable terms, and appropriate links between competing settlement
facilities services providers.
Human rights implications
Schedule 3 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 5.
Compliance cost impact
This measure is estimated to have an average annual compliance cost for business of
$0.27 million.
Schedule 4 - Improving the flexibility of the First
Home Super Saver Scheme
Outline
Schedule 4 to the Bill amends the TAA and ITAA 1997 to make technical changes to
the FHSS Scheme to improve the scheme's flexibility.
Date of effect
Schedule 4 to the Bill will commence on a single day to be fixed by Proclamation.
However, if it does not commence within the period of 12 months beginning on the day
the Bill receives Royal Assent, it commences on the day after the end of that period.
Financial impact
Nil.
Human rights implications
Schedule 4 to the Bill does not raise any human rights issues. See Statement of
Compatibility with Human Rights -- Chapter 5.
Compliance cost impact
Schedule 4 to the Bill is expected to have an unquantifiable but small impact on
receipts over the forward estimates period.
5
Avoidance of certain
product intervention orders
Table of Contents:
Outline of chapter .................................................................................. 7
Context of amendments ......................................................................... 7
Comparison of key features of new law and current law ........................ 8
Detailed explanation of new law ............................................................ 8
Commencement, application, and transitional provisions .................... 13
Outline of chapter
1.1 Schedule 1 to the Bill introduces new rules that prohibit schemes designed to
avoid the application of a product intervention order (in relation to a credit
facility) made under Part 7.9A of the Corporations Act.
Context of amendments
1.2 The Financial Sector Reform Act 2022 contained a number of anti-avoidance
measures to encourage compliance with the Credit Act. Those measures were
designed to minimise financial and other harm to consumers and disincentivise
businesses from undertaking avoidance practices.
1.3 As a supplement to the Financial Sector Reform Act 2022, Schedule 1 to the
Bill introduces equivalent provisions regarding the prohibition to avoid
relevant product intervention orders in the Corporations Act.
7
Avoidance of certain product intervention orders
Comparison of key features of new law and
current law
Table 1.1 Comparison of new law and current law
New law Current law
A person must not enter into, begin to carry No equivalent.
out, or carry out a scheme to avoid the
application of a credit product intervention
order.
Detailed explanation of new law
1.4 Schedule 1 to the Bill introduces new rules that prohibit schemes designed to
avoid the application of a product intervention order (in relation to a credit
facility) made under Part 7.9A of the Corporations Act.
1.5 The amendments ensure that:
• where there is a product intervention order made in relation to a
financial product that is a credit facility;
• a person (alone or with others) must not engage in activity in the
avoidance of that product intervention order.
1.6 This is intended to ensure that a person cannot respond to a product
intervention order by engaging in activity that is not covered by the order but
results in similar detriment to consumers. As with general integrity provisions,
the intended effect of the product intervention order is a relevant consideration
in the operation of these amendments.
1.7 The general prohibition provides that a person (alone or with others) must not
enter into a scheme, begin to carry out a scheme, or carry out a scheme if,
having regard to any matters prescribed by the regulations, it would be
reasonable to conclude that the purpose, or one of the purposes, of the person
engaging in that conduct was to avoid the application of a credit product
intervention order.
[Schedule 1, item 1, subsection 1023S(1)]
1.8 A credit product intervention order means a product intervention order made in
relation to a financial product that is a credit facility (covered by
paragraph 12BAA(7)(k) of the ASIC Act).
[Schedule 1, item 1, subsections 1023S(11)]
8
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
1.9 Under the amendments, the provisions require there to be an assessment of
whether it is reasonable to conclude that the purpose of the scheme was to
avoid the application of a credit product intervention order. The reference to
whether it would be 'reasonable' to make such a conclusion ensures that the
prohibition applies objectively. This is because having to prove the subjective
intention of the person in question would otherwise not be feasible or would
allow a person to artificially document the purpose of a scheme as being other
than to avoid the application of a credit product intervention order. Using
objective criteria of reasonableness ensures the integrity of the
Corporations Act and ensures that the effectiveness of the anti-avoidance
provisions are not undermined.
1.10 In addition to the objective criteria required under the amendments, regard
must be had to any matters prescribed in the regulations if they are made. The
regulation-making power recognises that industry participants may develop
new avoidance practices which may require the law to specify additional
matters that must be considered in determining whether the avoidance purpose
exists. This flexibility is therefore necessary to ensure the prohibitions remain
fit for purpose as entities prepared to engage in avoidance purposes will
respond to legislative changes by identifying gaps in its scope and changing
their practices accordingly.
[Schedule 1, item 1, subsection 1023S(8)]
1.11 The regulation-making power therefore gives additional flexibility to respond
to evolving avoidance practices.
1.12 The legislation also makes clear that matters other than the avoidance matters
may be considered in determining whether the scheme was to avoid the
application of a credit product intervention order.
[Schedule 1, item 1, subsection 1023S(9)]
1.13 Under the framework, a scheme is defined broadly to capture:
• any agreement, arrangement, understanding, promise or undertaking
whether express or implied; or
• any scheme, plan, proposal, action, course of action or course of
conduct, whether unilateral of otherwise; or
• any combination of the above.
[Schedule 1, item 1, subsections 1023S(11)]
1.14 As with the previous Credit Act amendments under the Financial Sector
Reform Act 2022, this definition mirrors the definition of scheme in other
anti-avoidance provisions in the A New Tax System (Goods and Services Tax)
Act 1999 and the ITAA 1997.
1.15 The nature of avoidance schemes means that a number of different people or
entities can be involved, undertaking different activities that can change over
9
Avoidance of certain product intervention orders
time or altering the legal structure of the contracts they offer in response to
legislative changes.
1.16 As with most general anti-avoidance legislation, a relevant inquiry is the
substance and effect of the activity in avoiding the relevant product
intervention order. In these situations, while the legislation applies broadly to
ensure the effectiveness of a relevant product intervention order, it has
limitations in that persons can adapt to change their practices to engage in
conduct that is not prohibited by the product intervention order and does not
result in the same or similar detriment to consumers. The intended policy
outcome of the amendments is to ensure the effective operation of product
intervention orders issued under the Corporations Act and prohibit persons
from engaging in schemes that circumvent the application of those orders in a
contrived or artificial manner that results in, or is likely to result in, a similar
outcome to the conduct that ASIC addressed in the product intervention order.
1.17 In addition to the general prohibition on persons, the amendments ensure that
the prohibition also applies to:
• any constitutional corporations (either alone or with others) that enter
into a scheme, begin to carry out a scheme or carry out a scheme;
• any person (either alone or with others) who enters into a scheme,
begins to carry out a scheme or carries out a scheme in the course of
constitutional trade or commerce; and
• any person (either alone or with others) using postal, telegraphic,
telephonic or other like services (within the meaning of paragraph
51(v) of the Constitution) who enters into a scheme, begins to carry out
a scheme, or carries out a scheme.
[Schedule 1, item 1, subsections 1023S(2), (3), (4) and (11)]
1.18 These prohibitions are independent from and do not limit each other. However,
the amendments ensure that, while the same conduct may engage more than
one of these prohibitions, a person can only be ordered to pay a pecuniary
penalty under one of the prohibitions.
[Schedule 1, item 1, subsections 1023S(5), (6) and (7)]
Consequences of failing to comply with the prohibition
1.19 Failure to comply with any of the new prohibitions attracts a civil penalty in
accordance with the Corporations Act. The maximum pecuniary penalties
applicable to the contravention of a civil penalty provision by an individual or
a body corporate are set out in subsections 1317G(3) and 1317G(4) of the
Corporations Act.
1.20 The amendments update the table in subsection 1317E(3) of the Corporations
Act where a comprehensive list of civil penalty provisions are included. The
10
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
penalties relating to the avoidance of produce intervention orders under the
amendments are uncategorised.
[Schedule 1, items 1 and 2, subsections 1023S(1), (2), (3) and (4) and
subsection 1317E(3)]
1.21 For an individual, the maximum pecuniary penalty is the greater of:
• 5,000 penalty units; and
• if the Court can determine the benefit derived and detriment avoided
because of the contravention - that amount multiplied by 3.
1.22 For a body corporate, the maximum pecuniary penalty is the greatest of:
• 50,000 penalty units;
• if the Court can determine the benefit derived and detriment avoided
because of the contravention - that amount multiplied by 3; and
• Either:
- 10% of the annual turnover of the body corporate for the 12-
month period ending at the end of the month in which the body
corporate contravened, or began to contravene, the civil
penalty provision; or
- if the amount worked out above is greater than an amount
equal to 2.5 million penalty units - 2.5 million penalty units.
1.23 Civil penalties are designed to deter prohibited activities, and are part of the
standard suite of enforcement tools. Strong penalties are warranted given the
harm of the avoidance conduct on the community, and to ensure that incurring
a civil penalty is not considered a mere cost of doing business.
1.24 A contravention of any of the prohibitions also constitutes the commission of
an offence, with a financial penalty of up to 100 penalty units if fault is proven
in respect of the offence for an individual, and 1,000 penalty units for a body
corporate.
[Schedule 1, item 3, subsection 1023S(10)]
1.25 The amendments also update the penalties table in Schedule 3 to the
Corporations Act.
[Schedule 1, item 4]
1.26 These penalties reflect the serious financial impact that avoidance schemes
have on consumers and regulated industry participants, and the need for a
strong deterrent. It also supports the effectiveness of ASIC's enforcement
action in respect of these schemes.
11
Avoidance of certain product intervention orders
Presumption of avoidance for certain schemes
1.27 It is presumed, for proceedings other than criminal proceedings, that it is
reasonable to conclude that a person entered into or carried out a scheme to
avoid the application of a credit product intervention order if the scheme is a
scheme prescribed by the regulations or determined by ASIC in a legislative
instrument.
[Schedule 1, item 1, subsections 1023T(1) and (3)]
1.28 However, the presumption does not apply if the person proves that it would not
be reasonable to conclude that the purpose was to avoid a credit product
intervention order, having regard to any matters prescribed by the regulations.
[Schedule 1, item 1, subsection 1023T(2)]
1.29 Placing the legal burden of proof on the person is appropriate as it will be
peculiarly within the knowledge of the person to establish that it would not be
reasonable to conclude that there was an avoidance purpose, compared with
requiring ASIC to disprove that matter. For example, if the scheme in question
does have a legitimate (non-avoidance) purpose, that matter would be
peculiarly within the knowledge of the person.
1.30 Further, the presumption applies only in civil cases (not in criminal
proceedings), and any regulations or legislative instrument made to prescribe
or determine schemes that are presumed to have the avoidance purpose will be
subject to parliamentary scrutiny and disallowance.
[Schedule 1, item 1, subsections 1023T(3) and (4)]
1.31 Merely reversing the evidential burden of proof is insufficient as doing so will
likely still result in ASIC being required to establish that it would not be
reasonable to conclude that there was an avoidance purpose. This is
inappropriate as it will be considerably easier for the person, as opposed to
ASIC, to establish that it would not be reasonable to conclude that there was an
avoidance purpose. It also jeopardises the ability of the law to achieve its
purpose of prohibiting avoidance schemes.
1.32 The conferral of a regulation-making power and a power for ASIC to make a
legislative instrument in this context also reflects historical experience that
avoidance schemes tend to proliferate quickly if they are seen by other industry
participants to be effective. This flexibility therefore ensures that either the
Government or ASIC can respond quickly to evolving practices as needed.
Exemption by ASIC
1.33 ASIC also has the power to, by legislative instrument, exempt a scheme or
class of schemes from all or specified parts of the prohibitions set out in
section 1023S. ASIC may impose any conditions on such an exemption.
12
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
[Schedule 1, item 1, section 1023U]
1.34 This instrument making power ensures that ASIC is able to promptly provide
clarity and certainty to industry and consumers where the scheme:
• does not cause harm to consumers or regulated industry participants;
and
• has a legitimate (non-avoidance) purpose.
1.35 The use of delegated legislation is critical to ensure that the legislative
framework can respond promptly to changing circumstances. This power to
exempt from the general anti-avoidance provisions is proportionate and
necessary as it allows ASIC to ensure that the prohibition does not apply to
schemes that should not be captured, and do not cause harm.
1.36 It is appropriate that ASIC has this instrument making power because, as the
administrator of corporations legislation, ASIC has relevant industry
information and understanding to effectively apply this exemption in
accordance with the policy intention. Additionally, any instrument that ASIC
makes would be subject to Parliamentary scrutiny and disallowance.
Commencement, application, and transitional
provisions
1.37 The amendments commence on the day after Royal Assent.
1.38 These amendments apply to conduct engaged in on or after that day, whether
the credit product intervention order was made before, on or after
commencement.
[Schedule 1, item 3, section 1701]
13
Recognising experience
in the financial advice industry
Table of Contents:
Outline of chapter ................................................................................ 15
Context of amendments ....................................................................... 15
Comparison of key features of new law and current law ...................... 16
Detailed explanation of new law .......................................................... 17
Education and training standards for financial advisers ................ 17
Experienced financial advisers ...................................................... 17
New entrants ................................................................................. 24
Financial advisers who are also registered tax agents .................. 27
Consequential amendments ................................................................ 28
Commencement, application, and transitional provisions .................... 28
Outline of chapter
2.1 Schedule 2 to the Bill amends the Corporations Act to deliver the
Government's election commitment to better recognise the experience of
existing financial advisers. This Schedule also addresses technical limitations
in the current framework, relevant to both new entrants into the financial
advice industry and tax agents providing a tax (financial) advice service to
retail clients. The amendments resolve unintended consequences introduced
through the Professional Standards of Financial Advisers Act and the Better
Advice Act while continuing to support the professionalisation of the financial
advice sector.
Context of amendments
2.2 The Professional Standards of Financial Advisers Act and the Better Advice
Act implemented new education and training requirements to improve
15
Recognising experience in the financial advice industry
consumer outcomes and increase public confidence in the financial advice
industry. However, practical implementation issues have arisen:
• Existing financial advisers with extensive industry experience and a
clean disciplinary record are leaving the industry.
• Potential new entrants are unable to meet the qualifications standard
for technical reasons, despite meeting the substance of that
requirement.
• For financial advisers who are also qualified tax agents, there is
unnecessary duplication of qualification requirements to provide tax
(financial) advice services to retail clients.
2.3 This Schedule contains amendments to address these implementation issues.
Comparison of key features of new law and
current law
Table 2.1 Comparison of new law and current law
New law Current law
Experienced financial advisers who have Existing financial advisers must complete an
been authorised to provide personal advice approved qualification (no more than eight
to a retail client for a minimum of 10 years prescribed units) by 1 January 2026 to meet
and have a clean disciplinary record, are the qualifications standard.
not required to complete an approved They must also pass the exam and comply
qualification (no more than eight prescribed with continuing professional development
units) by 1 January 2026 to meet the requirements.
qualifications standard.
They are still required to pass the exam and
comply with continuing professional
development requirements.
The Minister may, in the Approved New entrants to the financial advice
Qualifications Determination, approve one profession must complete an approved
or more ways of satisfying the conditions qualification, including meeting all the
for an approved qualification. conditions prescribed for that approved
qualification, as determined by the Minister
in the Approved Qualifications
Determination.
New entrants with a domestic qualification No equivalent.
may apply to the Minister for individual
approval, where that person has completed
an approved qualification, as determined by
the Minister in the Approved Qualifications
16
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
New law Current law
Determination, but not met all the
conditions attached to that qualification.
Financial advisers who are also registered Financial advisers who are also registered
tax agents are not required to meet the tax agents must meet the additional
additional education requirements to be a education requirements to be a qualified tax
qualified tax relevant provider. relevant provider.
Detailed explanation of new law
Education and training standards for financial advisers
2.4 A 'relevant provider' is a person who is authorised to provide personal advice
to retail clients about financial products in accordance with the requirements of
Part 7.6 of the Corporations Act. In this explanatory memorandum, the term
'financial adviser' is used instead of 'relevant provider'.
2.5 A financial adviser must meet the four 'education and training standards'
outlined in section 921B of the Corporations Act:
• qualifications standard;
• exam standard;
• work and training standard; and
• continuing professional development standard.
2.6 To meet the qualifications standard for financial advisers, a person is generally
required to complete a bachelor or higher degree, or equivalent qualification,
approved by the Minister in the Approved Qualifications Determination.
Experienced financial advisers
Who is eligible for the experienced provider pathway?
2.7 Current transitional arrangements for 'existing providers' mean that existing
financial advisers have until 1 January 2026 to meet the qualifications
standard, while continuing to provide financial advice. To meet this standard,
existing financial advisers need to complete at most eight units.
2.8 Schedule 2 to the Bill amends the Corporations Act to insert new transitional
arrangements for experienced financial advisers with a clean disciplinary
record.
17
Recognising experience in the financial advice industry
2.9 These new transitional arrangements provide that financial advisers who meet
the criteria for an 'experienced provider' are not required to undertake further
study to meet the qualifications standard. If an existing provider does not meet
the criteria for an 'experienced provider', they will need to undertake further
study, as required under the existing transitional arrangements, to meet the
qualifications standard by 1 January 2026.
2.10 An 'experienced provider' is an individual who:
• was authorised to provide personal advice to a retail client for a
minimum of 10 years (need not be consecutive), during the period
1 January 2007 to 31 December 2021; and
• had a clean disciplinary record as at 31 December 2021, that is:
- never been banned or disqualified under Division 8 of Part 7.6
of the Corporations Act; and
- never given an undertaking under section 93AA or
section 171E of the ASIC Act.
[Schedule 2, item 3, section 1684 (definition of experienced provider) of the
Corporations Act]
2.11 As with all financial advisers, an experienced provider also needs to meet the
requirements of the exam standard. If a person fails to pass the financial
adviser exam, they cannot provide financial advice.
2.12 A person is not eligible to access the experienced provider pathway if they had
remained authorised to provide financial advice on their exam cut-off date,
despite having failed to pass the financial adviser exam by that date. This is
consistent with the current transitional arrangements applying to existing
providers, whereby a person is no longer eligible for those transitional
arrangements if they remained authorised to provide financial advice on the
exam cut-off date, despite not passing the exam before that date.
[Schedule 2, item 7, subsection 1684AA(1) of the Corporations Act]
2.13 If a person left the industry before the exam cut-off date, they can return at any
time - and access the experienced provider pathway, if they meet the eligibility
criteria. Before being authorised to provide advice, the adviser will need to
pass the financial adviser exam.
18
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Diagram 2.1 Am I eligible for the experienced provider pathway?
How to access the experienced provider pathway
2.14 If a financial adviser wishes to rely on the new transitional arrangements for
experienced providers, the financial adviser must make a self-declaration
confirming that they have met all the criteria to be an experienced provider.
[Schedule 2, item 7, subsections 1684AA(1) and (2) of the Corporations Act]
2.15 There is no deadline by which a person must make a self-declaration if they
wish to access the experienced provider pathway. However, if an existing
financial adviser is authorised on 1 January 2026 and intends to continue in the
industry after that date, but they do not otherwise meet the qualifications
standard, they will need to make their self-declaration to access the
experienced provider pathway before 1 January 2026. Otherwise, under the
current transitional arrangements for existing providers, their authorisation
would cease on that date. They could return to the industry after making their
self-declaration to access the experienced provider pathway. Criminal and/or
civil penalties would apply if a person continued to provide financial advice to
retail clients while unauthorised.
[Schedule 2, item 7, Notes 1 and 2 to subsection 1684AA(2) of the
Corporations Act]
19
Recognising experience in the financial advice industry
2.16 If the financial adviser is authorised to provide personal advice to retail clients
on behalf of an Australian financial services licensee, they must provide their
self-declaration to the licensee. If the financial adviser is authorised by
multiple licensees, or moves to another licensee, they must give a copy of their
self-declaration to each licensee.
[Schedule 2, item 7, subsection 1684AA(7) of the Corporations Act]
Example 2.1 Experienced provider currently working in the industry
Silpa is currently working part-time as a financial adviser. She has
been a financial adviser for over 20 years. She has never been
banned or disqualified from working as a financial adviser and has
never given an enforceable undertaking to ASIC. Her work history
includes periods of full-time and part-time work, as well as two
career breaks while on maternity leave. Silpa assesses that she
meets the 10 year experience requirements - having been
authorised to provide financial advice to retail clients for over
10 years during the 15 year window - and that she is eligible for
the experienced provider pathway (as an alternative to completing
an approved qualification by 1 January 2026).
In December 2025, Silpa makes a written declaration that she has
met the criteria to be an experienced provider and emails a copy of
it to her authorising licensee. By making this declaration she is
taken to have met the qualifications standard and is able to continue
practicing without completing further education.
Example 2.2 Experienced provider returning to the industry
Kirby had been working as a financial adviser for 25 years. He left
the industry in 2021, prior to the exam cut-off date. During his
career, Kirby had never been banned or disqualified from working
as a financial adviser, nor given an enforceable undertaking to
ASIC.
In 2024, Kirby decides to return to the industry. Kirby assesses that
he meets the 10 year experience requirements - having been
authorised to provide financial advice to retail clients for over
10 years during the 15 year window - and that he is eligible for the
experienced provider pathway (as an alternative to completing an
approved qualification by 1 January 2026). He makes a written
declaration that he has met the criteria to be an experienced
provider.
Once Kirby passes the financial adviser exam, he can then be
authorised to provide financial advice. He must provide a copy of
his self-declaration to his authorising licensee.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
2.17 A notice must be lodged with ASIC. Consistent with the existing notification
requirements applying to financial advisers, notices must be lodged by the
Australian financial services licensee. If the experienced provider is not a
licensee, their authorising licensee must lodge a notice with ASIC. Where there
is more than one authorising licensee, each authorising licensee must lodge a
notice with ASIC.
[Schedule 2, item 7, subsections 168AA(3) and (4) of the Corporations Act]
2.18 The notice must include identifying details of the experienced provider, and a
written statement as follows:
• if the experienced provider is an Australian financial services
licensee--a written statement confirming that they have made a
self-declaration; or
• otherwise--a written statement by the authorising licensee confirming
that they have received a copy of the experienced provider's
self-declaration.
[Schedule 2, item 7, subsection 1684AA(6) of the Corporations Act]
2.19 Licensees are not required to lodge these notices with ASIC until 1 July 2024.
This gives ASIC time to prepare its systems to receive these notices. This has
no impact on the timing for an experienced provider to make their
self-declaration.
[Schedule 2, item 7, subsections 1684AA(3) and (5) of the Corporations Act]
2.20 For experienced providers who are licensees, they must lodge a notice with
ASIC within the following timeframes:
• If they make their self-declaration before 1 July 2024--within
30 business days after 1 July 2024.
• If they make their self-declaration on or after 1 July 2024--within
30 business days after making their self-declaration.
[Schedule 2, item 7, subsections 1864AA(3) and (5) of the Corporations Act]
2.21 For experienced providers who are not licensees, each authorising licensee
must lodge a notice with ASIC within the following timeframes:
• If the licensee receives the self-declaration from the experienced
provider before 1 July 2024, and the experienced provider is still
authorised by that licensee on 1 July 2024--within 30 business days
after 1 July 2024.
• If the licensee receives the self-declaration on or after 1 July 2024--
within 30 business days after receiving the self-declaration from the
experienced provider.
[Schedule 2, item 7, subsections 1684AA(3) and (5) of the Corporations Act]
21
Recognising experience in the financial advice industry
2.22 Upon receipt of such a notice, ASIC must update the Financial Advisers
Register to reflect that the financial adviser has declared that they meet the
criteria for an experienced provider. ASIC will use its discretion as to the
information recorded on the public-facing Moneysmart website to ensure that
consumers have clear information available to enable them to make informed
decisions when looking for a financial adviser.
[Schedule 2, item 7, subsection 1684AA(8) of the Corporations Act]
2.23 The notice requirements are consistent with the existing notification
requirements applying to financial advisers. Consistent with existing
obligations, Australian financial services licensees are held accountable for
authorising an 'experienced provider' to provide financial advice as a
representative of that licensee. The individual financial adviser is accountable
for making a claim that they meet the 'experienced provider' criteria. Criminal
and/or civil penalties apply if either or both the financial adviser or licensee
give false or misleading information.
[Schedule 2, item 7, subsection 1684AA(9) and Note 3 to
subsection 1684AA(2) of the Corporations Act]
2.24 Division 3 of Part 5 to this Schedule also makes a contingent amendment to
subsection 1684AA(9) - repealing the reference to "notice provision" and
substituting "provision referred to in subsection 922L(1)" - which is
contingent on the commencement of Schedule 2 to the Treasury Laws
Amendment (2023 Law Improvement Package No. 1) Act 2023. If enacted, that
Act will delete definitions for terms that are only used once or a small number
of times throughout the Corporations Act and incorporates the substance of the
definition into the relevant section(s). This is consistent with the Australian
Law Reform Commission's report finding, from the Financial Services
Legislation Interim Report A (ALRC Report 137, 2021), that a term should
only be defined if it enhances readability or significantly reduces the need to
repeat text.
[Schedule 2, item 27, subsection 168AA(9) of the Corporations Act]
2.25 This contingent amendment (reference to notice provisions) ensures that the
amendment to subsection 1684AA(9) is made appropriately, irrespective of
whether references to notice provisions are changed as introduced by the
amendments in Schedule 2 to the Treasury Laws Amendment (2023 Law
Improvement Package No. 1) Act 2023 (if enacted).
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Diagram 2.2 Self-declaration and ASIC notification process
Example 2.3 Experienced provider who is an authorised representative
Amanda has worked full-time as a financial adviser from 2005 to
the present day. In that time, she has never been banned or
disqualified from working as a financial adviser and has never
given an enforceable undertaking to ASIC. Given her years of
experience and clean disciplinary record, she is eligible for the
experienced provider pathway.
In January 2024 Amanda makes a written declaration that she has
met the criteria to be an experienced provider. She is therefore
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Recognising experience in the financial advice industry
eligible for the experienced provider pathway which is an
alternative to completing an approved qualification by
1 January 2026. By making this declaration she is taken to have
met the qualifications standard and is able to continue practicing
after 1 January 2026.
Shortly after making her self-declaration, Amanda emails a copy to
her authorising licensee. In July 2024, the authorising licensee
notifies ASIC that they have received a copy of Amanda's
self-declaration.
2.26 Experienced providers must continue to comply with the ongoing requirements
of the continuing professional development standard.
New entrants
2.27 The Approved Qualifications Determination lists qualifications approved by
the Minister. These approved qualifications may be conditional on the person
having commenced the course after a specified date and having completed
specified 'units of study' as part of that course. Currently, to meet the
qualifications standard, a person's academic transcript must exactly match the
legislative instrument, inclusive of any conditions.
2.28 Potential new entrants may have completed a qualification listed in the
Approved Qualifications Determination, but their course transcript may not
meet all the prescribed conditions for that approved qualification. This may
occur for technical reasons, such as (but not limited to):
• administrative changes to courses, not yet reflected in the Approved
Qualifications Determination;
• a person commencing their studies earlier than the dates specified for
their qualification in the Approved Qualifications Determination; or
• a person completing a requisite unit with a different education
provider, following the completion of a qualification.
2.29 This means that a potential new entrant may be prevented from becoming a
financial adviser.
Flexibility in meeting conditions of approved qualifications
2.30 Schedule 2 to the Bill amends the Corporations Act to enable greater flexibility
for a new entrant to demonstrate that they satisfy the conditions of an approved
qualification. This is achieved by amending the Minister's current power to
approve qualifications through a determination. In addition to approving
relevant qualifications and imposing conditions for each of those approved
qualifications, the Minister may also provide flexibility to new entrants by
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
approving one or more ways to satisfy the conditions.
[Schedule 2, items 8 and 11, subsections 921B(2) and (6) of the
Corporations Act]
2.31 This flexibility enables the Minister to determine alternative ways for a
potential new entrant to demonstrate that they have substantively met the
conditions for an approved qualification, where this is not evident from that
person's course transcript. For example, subject to passage of this Bill, the
Minister may amend the Approved Qualifications Determination to enable a
person to satisfy condition(s) by providing written confirmation from their
course provider that they have substantively met the conditions for the
specified approved qualification.
Applying for individual approval of equivalent qualifications
2.32 Schedule 2 to the Bill amends the Corporations Act to allow a person with
equivalent domestic qualifications to apply to the Minister for approval of their
qualification.
[Schedule 2, item 14, section 921GA of the Corporations Act]
2.33 There may be situations where a person has completed a qualification listed in
the Approved Qualifications Determination but is unable to demonstrate that
they satisfy the prescribed conditions. For example, a person may encounter
difficulties in obtaining written confirmation from a course provider. Such a
person could apply to the Minister for approval of their qualification.
2.34 A person who holds such an approval from the Minister satisfies the
qualifications standard.
[Schedule 2, item 9, paragraph 921B(2)(c) of the Corporations Act]
2.35 A person is eligible to apply to the Minister for approval of an equivalent
domestic qualification if:
• the person has completed one or more bachelor or higher degree(s)
listed in the Minister's Determination under paragraph 921B(6)(a); and
• the person has not met all the requirements of an approved degree.
[Schedule 2, item 14, subsection 921GA(1) of the Corporations Act]
2.36 The application must be in writing, and in the form approved, in writing, by the
Minister.
[Schedule 2, item 14, subsection 921GA(2) of the Corporations Act]
2.37 The list of qualifications approved by the Minister in the Approved
Qualifications Determination remains the primary avenue for prospective
financial advisers to meet the qualifications standard. For new entrants who
have studied in Australia, the new option to seek individual approval is
similarly restricted to those degrees already approved by the Minister in the
legislative instrument. This ensures the high entry standards for the profession
are upheld, whilst ensuring that new entrants who have genuinely studied
25
Recognising experience in the financial advice industry
equivalent qualifications are not unnecessarily prevented from becoming
financial advisers for a technical reason.
2.38 The Minister has the power to approve individual applications for equivalent
domestic qualifications, if satisfied that the applicant's qualification is
equivalent to one in the Approved Qualifications Determination. The Minister
must either approve or refuse to approve applications for equivalent domestic
qualifications. The approval or refusal must be given to the applicant in
writing.
[Schedule 2, item 14, subsections 921GA(3) and (4) of the Corporations Act]
2.39 The new option to seek individual approval is primarily intended to facilitate
new entrants who have completed a bachelor or higher degree into the financial
advice industry. It does not apply to existing financial advisers who have
undertaken alternative courses as permitted by the current transitional
arrangements (see paragraph 1684A(2)(b)). However, the option to seek
individual approval is available to existing advisers on the same basis as new
entrants - that is, where the adviser has completed a bachelor or higher degree
approved by the Minister in the Approved Qualifications Determination, but
they have not met all the requirements of that approved degree.
Example 2.4
Lucy completes a Bachelor degree listed in the Approved
Qualifications Determination with a Higher Education Provider.
After graduation Lucy realises that she does not satisfy the
education requirements to be a financial adviser as she has not
completed the prescribed unit in business law. Lucy enrols in a
business law unit with another Higher Education Provider.
Lucy then applies to the Minister for approval that she has
completed an approved degree, on the basis of her Bachelor degree
and the additional unit she completed separately. The Minister is
satisfied that the units are equivalent, meaning Lucy has completed
all the necessary units of study to become a financial adviser. The
Minister approves her application.
2.40 The Ministerial power to approve or refuse equivalent domestic qualifications
can be delegated to an officer of the Department under section 1345A of the
Corporations Act.
2.41 A decision by the Minister (or their delegate) to approve or refuse an
application is subject to merits review under section 1317B of the
Corporations Act.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Financial advisers who are also registered tax agents
2.42 A financial adviser must be a 'qualified tax relevant provider' in order to
provide tax (financial) advice services to retail clients. To do so, they must
meet the additional education requirements determined by the Minister in the
Education and Training Standards Determination (section 921BB of the
Corporations Act). These additional requirements ensure that financial advisers
have the necessary understanding of commercial and tax law to enable them to
provide financial advice on tax-related matters.
2.43 A person who is registered as a financial adviser under the Corporations Act
may also be registered as a tax agent under the Tax Agent Services Act. To be
a registered tax agent, they must meet the qualifications and experience
requirements in the Tax Agent Services Act.
2.44 Schedule 2 to the Bill amends the definition of qualified tax relevant provider
in the Corporations Act to provide that financial advisers who are registered
tax agents are also qualified tax relevant providers. This removes the
duplication of education requirements, enabling those financial advisers to
provide tax (financial) advice to retail clients without needing to undertake
additional study.
[Schedule 2, items 25 and 26, section 910A (definition of qualified tax
relevant provider) of the Corporations Act]
2.45 This amendment to the definition of qualified tax relevant provider is a
contingent amendment under Divisions 1 and 2 of Part 5 of this Schedule as it
is contingent on the commencement of Schedule 2 to the Treasury Laws
Amendment (2023 Law Improvement Package No. 1) Act 2023. If enacted, that
Act amends the Corporations Act to create a single glossary to contain a
complete list of all defined terms used in the main body of the
Corporations Act.
2.46 The contingent amendments (main amendment and contingent amendment if
the Law Improvement measure commences second) ensure that the amendment
to the definition of qualified tax relevant provider is made appropriately,
irrespective of whether that definition is located in section 910A of the
Corporations Act or in a single glossary as introduced by the amendments in
Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement
Package No. 1) Act 2023 (if enacted).
2.47 Schedule 2 to the Bill also includes a minor amendment to clarify that a
determination made under subsection 921BB(1) - prescribing the additional
education requirements for a financial adviser to provide tax (financial) advice
services to retail clients - may deal with matters of a transitional nature.
[Schedule 2, item 18, Note to subsection 921BB(1) of the Corporations Act]
27
Recognising experience in the financial advice industry
Consequential amendments
2.48 Consequential amendments to Part 10.57 of the Act reflect that the Part
contains transitional provisions relating to two amending Acts. An editorial
amendment is made to repeal the definition of relevant provider in Part 10.57
and in its place add a new subsection to ensure that expressions used in
Part 10.57 and Part 7.6 have the same meaning. There is no change to the
definition of relevant provider.
[Schedule 2, items 1, 2 and 4 to 6, Part 10.57 (heading) and section 1684 of
the Corporations Act]
2.49 Consequential amendments are made to various provisions that refer to the
Minister's current power to approve relevant qualifications to ensure those
provisions continue to refer only to the Minister's power to approve relevant
qualifications, not the Minister's new power to approve one or more ways to
satisfy the conditions. Amendments are made to the transitional provisions in
Part 10.57 to update references to the qualifications standard, referring to the
standard as amended by Schedule 2 to this Bill.
[Schedule 2, items 10, 12, 13, 15, 16, 17, 28 and 29, sections 921B, 921G,
1684A, 1684C and 1684D of the Corporations Act]
2.50 Consequential amendments are also made to ensure that ASIC may grant an
Australian financial services licence to an applicant that is a registered tax
agent, and that licensees may authorise registered tax agents to provide tax
(financial) advice services to retail clients without needing to undertake
additional study.
[Schedule 2, items 19 to 22, section 921C of the Corporations Act]
Commencement, application, and transitional
provisions
2.51 Other than the contingent amendments in Parts 5 and 6, the amendments in
Schedule 2 commence on the day after Royal Assent.
[Table item 3 of the commencement table]
2.52 The amendments in Parts 3 and 5 of this Schedule - relating to financial
advisers who are also registered as tax agents - apply in relation to a person
who is, or becomes, a registered tax agent on or after 1 January 2022. This
retrospective application aligns with the commencement of the definition of
'qualified tax relevant provider' under the Better Advice Act. Retrospective
application is appropriate to ensure that financial advisers who were also
registered tax agents were not inadvertently disadvantaged following
commencement of the Better Advice Act.
[Schedule 2, item 24, section 1684VC of the Corporations Act]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
2.53 Transitional provisions in Part 4 of this Schedule provide for the approval of
domestic qualifications and the continued application of the Approved
Qualifications Determination.
[Schedule 2, items 23 and 24, Part 10.57 (heading) and sections 1684VA
and 1684VB of the Corporations Act]
Contingent amendments
2.54 The contingent amendments in Divisions 1 and 2 of Part 5 - relating to
financial advisers who are also registered as tax agents - commence on the day
after Royal Assent. However, they do not commence at all if Schedule 2 to the
Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023
commences at that time (Division 1--Main amendment). If Schedule 2 to the
Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023
commences first, the amendments relating to financial advisers registered who
are also registered as tax agents commence immediately after (Division 2--
Contingent amendment).
[Table items 4 and 5 of the commencement table]
2.55 The contingent amendment in Division 3 of Part 5 - relating to the notice
provision for the experienced provider pathway - commence on the day after
Royal Assent. However, it does not commence at all if Schedule 2 to the
Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023
commences at that time. If Schedule 2 to the Treasury Laws Amendment (2023
Law Improvement Package No. 1) Act 2023 commences first, the amendments
relating to the notice provision for the experienced provider pathway
commence immediately after.
[Table item 6 of the commencement table]
2.56 The contingent amendments in Part 6 - relating to the Minister's power to
approve equivalent qualifications for new entrants - commence on the day
after Royal Assent. However, they do not commence at all if Part 1 of
Schedule 4 to the Treasury Laws Amendment (Modernising Business
Communications and Other Measures) Act 2023 commences at that time
(Division 1--Main amendment). If Part 1 of Schedule 4 to the Treasury Laws
Amendment (Modernising Business Communications and Other Measures) Act
2023 commences first, the amendments relating to relating to the Minister's
power to approve equivalent qualifications for new entrants commence
immediately after (Division 2--Contingent amendment).
[Table items 7 and 8 of the commencement table]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Competition in the
clearing and settlement of cash equities
Table of Contents:
Outline of chapter .................................................................................. 1
Context of amendments ......................................................................... 2
Summary of new law.............................................................................. 3
Detailed explanation of new law ............................................................ 4
ASIC rule-making power ................................................................. 4
Access negotiation and arbitration to certain clearing and settlement
services ......................................................................................... 17
Consequential amendments ................................................................ 42
ASIC rule-making power ............................................................... 42
Arbitration ...................................................................................... 43
Commencement, application, and transitional provisions.............. 43
Outline of chapter
3.1 Schedule 3 to the Bill amends the Corporations Act, the Competition and
Consumer Act and ASIC Act to facilitate competitive outcomes in the
provision of CS services for Australia's financial markets. The amendments
provide ASIC with powers to:
• implement and enforce requirements for a monopoly provider of CS
services to operate in a way that achieves competitive outcomes; and
• ensure safe and effective competition in clearing and/or settlement
should a competitor emerge.
3.2 The amendments also provide the ACCC with the power to conduct binding
arbitration to resolve disputes regarding access to CS services where the CS
service and the CS facility it is connected to are part of the same corporate
group, and are covered by a declaration made by the Minister.
3.3 The overarching objective of these amendments is to facilitate outcomes for
the monopoly provision of CS services which are similar to those which might
1
Competition in the clearing and settlement of cash equities
be expected in a competitive environment, and to ensure that competition, if it
emerges, is safe and effective. Regulators are to ensure that the regulatory
framework is not a barrier to the emergence of competition. Whether
competition does emerge is ultimately up to the market.
Context of amendments
3.4 CS facilities provide a regular mechanism for parties to transactions in
financial products to meet their obligations to each other that arise from
entering into those transactions. They include central counterparties, securities
settlement facilities and central securities depositories. These facilities are
crucial to supporting confident and informed participation by investors in
Australia's financial markets and are critical to the functioning and stability of
financial markets.
3.5 The Corporations Act does not prohibit more than one CS facility to handle the
clearing and settlement of transactions executed on the one financial market or
different financial markets. However, the current market structure is a
monopoly where ASX (through its subsidiaries ASX Clear Pty Ltd and ASX
Settlement Pty Ltd) is the sole provider of cash equity CS services. The current
legislative settings for CS facilities in the Australian cash equity market, while
reflecting an openness to competition, lack mechanisms to facilitate
competitive outcomes. This view was affirmed by the CFR in its 2015 Review
of Competition in Clearing Australian Cash Equities: Conclusions, and
subsequently in its 2017 report, Safe and Effective Competition in Cash Equity
Settlement in Australia: Response to Consultation.
3.6 In June 2015 the CFR recommended legislative amendments to give the
relevant regulators rule-making and arbitration powers to facilitate safe and
effective competition in clearing and/or settlement, and to deal with the
continued monopoly provision of cash equity CS services until competition
emerges.
3.7 New rule-making powers in the Corporations Act will allow ASIC, with
ministerial consent, to make rules to manage pricing, access, governance
arrangements and interoperability. Amendments to the CCA will provide the
ACCC with an arbitration power that will enable binding arbitration of
disputes about the terms of access to CS services where those services are
covered by a declaration made by the Minister. This is intended to make
arbitration available where there is a monopoly or significant market power in
the provision of the service that has been declared. It will also allow for
arbitration in a competitive environment, should one emerge, where one CS
facility is reliant upon access to another CS facility. Together, these powers
will facilitate competitive outcomes in the provision of CS services both prior
to and following the introduction of competition.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.8 Subsequent to the 2015 Conclusions Paper and the 2017 report, the CFR
published three policy statements, outlining its expectations for ASX's conduct
as the monopoly provider of CS services (Regulatory Expectations), and the
two sets of minimum conditions for safe and effective competition between CS
facilities, should a competitor emerge (Minimum Conditions (Clearing) and
Minimum Conditions (Settlement) - together the Minimum Conditions).
Summary of new law
3.9 These amendments provide ASIC and the ACCC with new powers that would
allow the regulators to enforce the CFR's policy statements governing the
monopoly provision of CS services and competition in clearing and settlement.
• ASIC may make rules to facilitate outcomes that are consistent with
those expected in a competitive market for CS services, and ensure that
competition, should it emerge, is safe and effective.
- ASIC may make rules that deal with the activities, conduct or
governance of CS facility licensees, their associated entities
and other persons specified by regulations, in relation to the
provision of CS services. This includes rules with respect to
the governance arrangements of the licensee or related entities
providing the service, such as the composition of its board of
directors.
- ASIC may only make such rules in relation to CS services that
are covered by a determination made by the Minister. It is
expected that the rule-making power will initially apply only to
cash equities but with the flexibility for the Minister to
determine other financial products if the need arises in the
future.
- A compliance and enforcement regime is established in regards
to rules made by ASIC, including a directions power for ASIC,
civil penalties and alternatives to civil penalties, such as
enforceable undertakings.
• ACCC may make binding arbitration decisions to resolve disputes
regarding access to CS services. Negotiation and arbitration apply
where the provider of the CS services is the licensee of a CS facility, or
a related entity of a CS facility licensee, and the CS service can only
operate because it has access to the CS facility the licensee is
authorised to operate.
- The arbitration power is to provide for resolution of disputes
where parties are unable to agree on the terms of access to
those CS services through commercial negotiation.
3
Competition in the clearing and settlement of cash equities
Detailed explanation of new law
ASIC rule-making power
3.10 The amendments provide ASIC with a power to make rules that deal with the
activities, conduct or governance of CS facility licensees, and certain other
entities, in relation to CS services. The rules may also deal with incidental
matters.
3.11 The definitions provision in section 9 of the Corporations Act is updated to
include defined terms introduced by these amendments.
[Schedule 3, item 2, section 9 of the Corporations Act]
CS services
3.12 A 'CS service' is a service that can only be provided if it has access to a CS
facility, or to data used in the operation of a CS facility.
[Schedule 3, item 8, section 828 of the Corporations Act]
3.13 The definition of a CS service is intended to capture a range of services
provided to users, including the provision of data held or produced by the
relevant CS facility.
3.14 'CS services' covers services provided by a CS facility under Part 7.3 of the
Corporations Act (including the operation of the CS facility and the clearing
and/or settlement of transactions in relation to financial products) and extends
to a wider range of activities that leverage CS facility infrastructure and data.
CS services also include access arrangements, and the provision of data to
generate holding statements. Market operators' and other CS facility operators'
access to the CS facility and its services are examples of CS services.
3.15 Generally, these services can only be provided if the user has an agreement
with the relevant CS facility licensee for access to that facility. CS facilities are
significant financial market infrastructure. In Australia, these facilities are
currently privately owned and operated as a vertically integrated monopoly.
This raises the potential for conflicts of interest, including an incentive for CS
facility licensees to allow only affiliated entities access to the facility, or to
provide affiliates more favourable access terms than non-affiliated entities.
3.16 The definition of CS service includes services where access to a CS facility
(including access to data used in the operation of a CS facility) is yet to be
provided.
3.17 A CS facility is as defined in section 768A of the Corporations Act (see also
the Glossary). In brief, a CS facility is a facility which provides a regular
mechanism for the parties to transactions relating to financial products to meet
obligations to each other arising from entering into those transactions. The
4
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
relevant obligations are prescribed in regulation 7.1.09 of the Corporations
Regulations. The explanatory memorandum to the Financial Services Reform
Bill 2001 that introduced the regulatory regime for CS facility licensees, stated
that the 'mechanisms' which are referred to include technical infrastructure,
regulations and procedures.
Classes of CS services in relation to which ASIC may make
rules
3.18 The CS services rules made by ASIC cannot impose requirements dealing with
the activities, conduct and governance arrangements of CS facility licensees
and associated entities, in relation to CS services, unless those services are of a
type covered by a determination made by the Minister.
[Schedule 3, item 4, subsection 828B(1) of the Corporations Act]
Ministerial determinations
3.19 The Minister may, by legislative instrument, make a determination specifying
one or more classes of CS services.
[Schedule 3, item 4, subsection 828B(2) of the Corporations Act]
3.20 The Minister's determination may specify a class of CS services by reference
to certain matters on a non-exhaustive list. These include specification by
reference to the particular CS facilities to which the relevant CS services have
access, by reference to CS facilities where specified data to which CS services
have access is used in the operation of the CS facility, or by reference to
financial products to which the CS services relate.
[Schedule 3, item 8, subsections 828B(3) and (4) of the Corporations Act]
3.21 For example, the Minister may determine that CS services provided in relation
to specified classes of financial products are a class of CS services covered by
the determination. ASIC could then make rules outlining requirements with
respect to the activities, conduct or governance of CS facility licensees or
associated entities in relation to the provision of CS services for that financial
product.
3.22 While the Regulatory Expectations and Minimum Conditions relate to CS
services in connection with cash equities, the legislative framework is flexible
enough to extend to other CS services and classes of financial products, should
circumstances require and based on CFR advice. Any extension should be
based on CFR advice. However, the Government's intent is that a
determination would, in the first instance, only relate to CS services in
connection with cash equities traded in Australia.
Status of Ministerial determinations
3.23 Determinations are legislative instruments and subject to review by Parliament
and, potentially, disallowance. This ensures the Parliament can exercise an
appropriate level of scrutiny and oversight over the determinations. It is
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Competition in the clearing and settlement of cash equities
expected that initial determinations will allow the CS services rules to impose
requirements with respect to CS services dealing with cash equities with the
flexibility to expand to other financial products in the future, if the need arises.
Given that the Ministerial determination is a legislative instrument, it is subject
to consultation requirements as stipulated in section 17 of the Legislation Act
2003.
3.24 Consultation on a Ministerial determination in respect of a CS service or a
class of CS services may focus on the clarity and effectiveness of the drafting
of the determination. For example, consultation on a determination to prescribe
the class of CS services in relation to cash equities may ask whether 'cash
equities' is sufficiently clear to fulfil the policy intent outlined in the relevant
CFR policy statements. Consultation on the determination would not cover
whether the determination should be made.
Considerations in making a determination
3.25 In making determinations, the Minister must consider certain matters in
relation to the effect of a determination, including the likely:
• effect on the Australian economy, and on the efficiency, integrity, and
stability of the Australian financial system;
• regulatory impact of making the determination; and
• effect on the safety, fairness and effectiveness of competition in the
provision of CS services.
3.26 The Minister must consider any matters raised in the advice provided by ASIC,
the ACCC or the RBA in relation to the determination. The Minister may also
have regard to any other matters that they consider relevant (for example any
relevant international standards or international commitments).
[Schedule 3, item 8, subsection 828B(5) of the Corporations Act]
3.27 ASIC, ACCC and the RBA may, on their own initiative, provide advice on
whether a specific determination should be made. They must provide this
advice in response to a request from the Minister. Regulators providing advice
through the CFR on potential determinations following a public consultation
process would be considered a provision of advice to the Minister. This would
give the regulators an opportunity to provide input in determining the scope
and text of a determination. Before making a determination, the Minister must
have regard to such advice.
[Schedule 3, item 8, subsection 828B(6) of the Corporations Act]
Variation or revocation of determination
3.28 The Minister may amend or revoke a determination following the same
procedures, and having regard to the same considerations, as apply when the
Minister makes an initial determination.
[Schedule 3, item 8, subsection 828B(7) of the Corporations Act]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Power to make CS services rules
3.29 Once the Minister has determined the class of CS services in relation to which
rules can be made, ASIC may make CS services rules by legislative
instrument. The CS services rules may deal with the activities, conduct or
governance of CS facility licensees, their associated entities and other persons
prescribed by regulations. The power to make CS services rules applies to the
activities, conduct and governance of those entities in relation to CS services.
The scope of the rule-making power to cover activities, conduct and
governance is not intended to limit by implication other rule-making provisions
in the Corporations Act that use similar terms.
[Schedule 3, item 8, subsections 828A(1) and (2) of the Corporations Act]
3.30 In relation to matters of governance, the rules can deal with matters that have
either a direct or indirect relationship to the provision of CS services. Rules can
therefore be made on a range of matters, including requiring user input into the
governance arrangements of the CS facility despite those matters potentially
having an indirect relationship to the provision of the CS services (see
paragraph 3.34 for further detail on matters the rules can cover). The rules can
also regulate the appropriate interoperability arrangements between different
CS facilities, as set out in the Minimum Conditions, once competition emerges.
[Schedule 3, item 8, subsection 828A(3) of the Corporations Act]
3.31 A 'CS facility licensee' is defined in section 761A of the Corporations Act as a
person who holds an Australian CS facility licence. An associated entity is
defined in section 50AAA of the Corporations Act.
3.32 The ability to make CS services rules in relation to the activities, conduct or
governance of other persons, where prescribed by regulation, is needed to
allow the framework to develop to address potential innovations and new
players in the market. It may be necessary to apply the CS services rules to
additional entities. If it becomes clear that this is necessary, the rules may need
to be applied swiftly to ensure safe and effective competitive outcomes. The
rules are therefore equally capable of applying to persons or entities that are
not CS facility licensees (but only in relation to CS services). This provision
may serve as an anti-avoidance measure, which would allow the rule-making
power to be flexibly administered within existing policy intent, which includes
CS facility licensees and related parties.
3.33 The rule-making power is designed to allow ASIC to enforce the CFR policy
statements. The Minimum Conditions outline matters that may need to be dealt
with via rules before ASIC and the RBA could advise in favour of a CS facility
licence application. However, in the current monopoly environment, a material
deviation from the Regulatory Expectations by a monopoly provider of CS
services is not required before ASIC can exercise its rule-making power.
7
Competition in the clearing and settlement of cash equities
Content of CS services rules
3.34 The objective of the rule-making regime is to regulate the conduct of a
monopoly provider of CS services and, in the event that a committed
competitor does emerge, ensure competition is safe and effective. In this
context, 'safe' means competition that does not adversely affect financial
stability or market functioning. This objective is already embodied by existing
objects in the Corporations Act and the ASIC Act. For example:
• section 760A of the Corporations Act states that one of the main
objects of Chapter 7 is to promote the reduction of systemic risk and
the provision of fair and effective services by CS facilities; and
• section 1(2) of the ASIC Act provides that in performing its functions
and exercising its powers, ASIC must strive to 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.
3.35 The CS services rules are intended to give effect to the CFR policy documents,
but are not constrained by them. Specifically, it is intended that the rules may
deal with matters including, but not limited to:
• the dealings of a CS facility licensee with users of the facility,
including participants, end users, potential or actual competing CS
facilities (such as central counterparties and/or securities settlement
facilities, and/or central securities depositories), technology service
providers and other relevant stakeholders;
• the CS facility licensee's governance arrangements (including its board
composition and participation of users in the CS facility's governance
arrangements)
• the CS facility licensee's arrangements for handling conflicts of interest
(including how the CS facility handles confidential information of its
competitors);
• the CS facility licensee's accountability (including public reporting);
• the CS facility licensee's provision of services to users (including
competitors) including investment in core infrastructure, service levels,
transparent, non-discriminatory and fair and reasonable pricing of the
CS services, and the provision of access to the CS services (including
data) on transparent, non-discriminatory and fair and reasonable terms;
• coordination, cooperation and links between CS facilities, including in
respect of interoperability, settlement, default management, risk
management, recovery and resolution;
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
• coordination and cooperation between CS facilities, registries and
issuers in respect of the transfer and administration of holdings of
financial products; and
• the cessation of the provision of services by a CS facility (including a
structured wind-down supported by financial commitments).
3.36 CS services rules will only impose obligations on CS facility licensees and
associated entities. The CS service rules would not impose any obligations on
clearing and settlement participants, share registries, market operators or other
entities. However, the CS services rules could impose obligations on a CS
facility licensee or a related entity in relation to a user - for example, by
requiring that the licensee provide certain pricing information to a user or to
users generally, or by obligating a licensee to impose certain requirements on
users for access to the facility.
3.37 The CS service rules may deal with transparent, non-discriminatory, fair and
reasonable pricing of CS services, However, ASIC is only expected to make
rules relating to the broad conduct of pricing. The CS service rules are
designed to ensure compliance with the principles underpinning the Regulatory
Expectations. It is necessary for ASIC to make rules regarding pricing, as these
are a core part of the Regulatory Expectations. Matters such as how and what
level prices should be set for access to specific CS services are more
appropriately dealt with under the ACCC's arbitration power (refer paragraph
3.83).
3.38 More broadly, ASIC can make rules that:
• specify the persons required to comply with requirements imposed by
the CS services rules;
• prescribe matters which must be dealt with in the operating rules and
procedures of a licensed CS facility, in relation to CS services. This
includes the power to prescribe the content of the operating rules and
procedures, should the need arise;
• prescribe matters in respect of which the facility must have written
procedures, in relation to CS services; and
• specify matters to which the Minister must have regard in deciding
whether to disallow a change to operating rules, in relation to CS
services.
[Schedule 3, items 5, 6 and 8, subsections 822A(1), 822B(2)(c),
822E(4) and 827A(2) of the Corporations Act]
3.39 The above non-exhaustive lists of rules ASIC can make will ensure the
regulators have the ability to put in place adequate regulatory arrangements in
the current monopoly environment or should a committed competitor emerge.
3.40 The rules cannot provide for matters in relation to a CS facility to which an
exemption made by the Minister under section 820C of the Corporations Act
9
Competition in the clearing and settlement of cash equities
applies. That section enables the Minister to exempt a particular clearing and
settlement facility, or class of clearing and settlement facilities, from all or
specified provisions of Part 7.3.
[Schedule 3, item 8, subsection 828A(4) of the Corporations Act]
3.41 CS services rules are legislative instruments and subject to parliamentary
disallowance.
Ministerial consent required to make the rules
3.42 Written Ministerial consent is required before ASIC may make CS services
rules. Such Ministerial consent is not a legislative instrument within the
meaning of section 8(1) of the Legislation Act 2003 and is therefore not subject
to disallowance. This provision is included to assist readers, as the consent is
only an interim step in the rule-making process and will not by itself have the
effect of changing a person's rights or obligations. The provision is declaratory
of the law and is not a substantive exemption from the ordinary operation of
the Legislation Act 2003.
[Schedule 3, item 8, section 828K of the Corporations Act]
3.43 A decision to provide Ministerial consent is not reviewable by the
Administrative Appeals Tribunal but is reviewable under the Administrative
Decisions (Judicial Review) Act 1977. The decision of the Minister to provide
consent is a preliminary decision and does not directly impact the rights of
individuals or entities.
[Schedule 3, item 9, paragraph 1317C(gce) of the Corporations Act]
Emergency rules
3.44 In certain emergency circumstances ASIC can make CS services rules without
Ministerial consent and without having consulted the public, ACCC, and any
other person or body that may be required by regulations to be consulted. To
make emergency rules, ASIC must be of the opinion that it is necessary, or in
the public interest, to do so in order to protect the Australian economy, the
efficiency, integrity or stability of the Australian financial system, or to protect
safety, fairness or effective competition in the provision of CS services.
[Schedule 3, item 8, subsection 828L(1) of the Corporations Act]
3.45 Emergency rules may be necessary where there is limited time to respond to
changes in the market, including changes that threaten safe, fair or effective
competition in the provision of CS services. Issues may emerge which have
ramifications that suddenly become apparent and would not provide ASIC with
sufficient time to complete a full consultation.
3.46 If ASIC makes an emergency rule, it must provide a written explanation of the
decision to the Minister on the day after the rule is made and follow any
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
written directions of the Minister to amend or revoke the rule. A direction from
the Minister is not a legislative instrument. This provision is included to assist
readers; as such a direction is not a legislative instrument within the meaning
of section 8(1) of the Legislation Act 2003. The provision is not a substantive
exemption from the ordinary operation of that Act. While the direction is not
disallowable by Parliament, it can only have the effect of changing a person's
rights by way of the rules, which are disallowable.
[Schedule 3, item 8, subsections 828L(2) and (3) of the Corporations Act]
3.47 A decision to give such a direction is not reviewable by the Administrative
Appeals Tribunal but is reviewable under the Administrative Decisions
(Judicial Review) Act 1977.
[Schedule 3, item 9, paragraph 1317C(gcd) of the Corporations Act]
3.48 ASIC must consult with the RBA to make emergency rules. However, a failure
to consult does not invalidate the rule.
[Schedule 3, item 8, subsections 828L(4) and (5) of the Corporations Act]
Variation or revocation of rules
3.49 ASIC may amend or revoke a CS services rule. In doing so, ASIC is subject to
the same requirements that apply to the making of CS services rules. The
requirements to consult, have regard to certain matters, and obtain Ministerial
consent do not apply when ASIC amends emergency rules at the direction of
the Minister. These requirements do not apply as ASIC must act in accordance
with the Minister's directions.
[Schedule 3, item 8, section 828M of the Corporations Act]
Providing advice
3.50 ASIC and the RBA may give advice to the Minister in relation to any matter
which the Minister has discretion under Part 7.3A of the Act, as well as any
other matter concerning the CS service rules.
[Schedule 3, item 8, sections 828N and 828Q of the Corporations Act]
3.51 Further, the ACCC may also provide advice to the Minister in relation to any
matter concerning the CS service rules.
[Schedule 3, item 8, section 828P of the Corporations Act]
The process of making the rules
3.52 The method by which CS services rules are made is similar to the manner in
which derivative transaction rules, derivative trade repository rules and market
integrity rules are currently made.
3.53 In deciding whether to make a rule, ASIC must have regard to the same
matters the Minister must have regard to in deciding whether to make the
11
Competition in the clearing and settlement of cash equities
determination. This includes the likely effect of the proposed rule on the
economy and the financial system, the likely regulatory impact of the proposed
rule, and the likely effect of the proposed rule on the safety, fairness and
effectiveness of competition in the provision of CS services. ASIC must also
have regard to the current market structure for the provision of the CS services.
ASIC may have regard to other matters ASIC considers are relevant, such as
any relevant international standards and commitments, and matters raised in
consultation.
[Schedule 3, item 8, section 828H of the Corporations Act]
3.54 Consideration of current market structure is based on facts and is not a
qualitative assessment of the effectiveness of competition. ASIC is empowered
to make rules in a competitive environment as well as in the absence of
competition, such as a monopoly environment.
3.55 The CS services rules may enforce both the Regulatory Expectations and the
Minimum Conditions, which cover monopoly and competitive provision of CS
services respectively. This provides ASIC flexibility to enforce the regulatory
expectations over those services that remain a monopoly, whilst
simultaneously being able to enforce the Minimum Conditions over particular
CS services which may become subject to competition.
Consultation requirements
3.56 ASIC is required to consult with the public prior to making a CS services rule.
Making the proposed rule, or a description of the content of the proposed rule,
available on ASIC's website and inviting the public to comment within a
reasonable timeframe should be sufficient to comply with this requirement.
[Schedule 3, item 8, paragraph 828J(1)(a) and subsection 828J(2) of the
Corporations Act]
3.57 ASIC must also consult with the RBA, the ACCC and any other person or
body specified in the regulations. The RBA or ACCC may provide advice to
ASIC if they consider it appropriate to do so. ASIC would be expected to rely
upon the advice of the RBA in making any assessment on the likely impacts of
rules on the stability of the Australian financial system, given the RBA's
primary role in regard to such matters. As the Financial Stability Standards
determined by the RBA under section 827D of the Corporations Act are to
prevail over the CS services rules, to the extent of any inconsistency, advice
from the RBA should include advice about any potential conflict.
[Schedule 3, item 8, paragraph 828J(1)(b) of the Corporations Act]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.58 A failure to consult at all or for a particular time does not invalidate a rule.
While ASIC is required to consult on every proposed rule, this provision is
designed to promote certainty among regulated entities by ensuring that an
alleged technical failure to comply with the consultation requirements does not
affect the validity of the rule. It also provides ASIC with the flexibility to use
targeted consultation with affected stakeholders where this is appropriate
without creating uncertainty as to the validity of a rule. Furthermore, there are
additional safeguards to ensure that ASIC undertakes proper consultation,
including that the CS services rules are disallowable by the Parliament. ASIC
is also regularly called to appear before Parliamentary Committees for
parliamentary oversight purposes.
[Schedule 3, item 8, subsection 828J(3) of the Corporations Act]
Exemptions
3.59 The regulations, or ASIC by written instrument, may exempt a person or class
of persons from all or part of the CS services rules, the provisions of new
Part 7.3A, regulations made for the purposes of that Part, or associated
definitions in the Act or regulations.
[Schedule 3, item 8, subsections 828R(1) and (2) of the Corporations Act]
3.60 The exemption power has been included to ensure that there is sufficient power
to address, in a timely way, any unforeseen consequences of the
implementation of the requirements under this Part. Given the systemic
importance and evolving nature of CS services it is necessary that the rule-
making power provide flexibility as to the matters CS services rules deal with,
and the persons on whom requirements may be imposed. This includes the
event of material changes to the operating environment or market structure for
CS services, such as the emergence of a competitor in the provision of CS
services.
3.61 The exemption power is also provided to deal with circumstances where the
determinations, regulations or rules may operate inadvertently or in a perverse
manner, contrary to the underlying intention of the regime. While the
framework seeks to provide a high degree of flexibility, there may be cases
where it cannot be adapted (without legislative reform) to an unanticipated
scenario, or at least not adapted within a sufficiently short time frame to avoid
the unintended result.
3.62 Conditions may be imposed on an exemption. A person to whom an exemption
applies must comply with any conditions on that exemption. ASIC may apply
to the Court for an order that a person comply with the condition in a specific
way.
[Schedule 3, item 8, subsection 828R(3) of the Corporations Act]
13
Competition in the clearing and settlement of cash equities
3.63 An exemption, whether made by ASIC or through regulations, that applies to a
class of persons is a legislative instrument, and disallowable by Parliament.
Exemptions that have a general effect on a class (that is, exemptions that do
not just relate to a specific person) are therefore subject to Parliamentary
scrutiny and potential disallowance. This is an important check upon ASIC's
power of exemption.
[Schedule 3, item 8, subsection 828R(4) of the Corporations Act]
3.64 An exemption that applies to one or more persons, that are not within a class of
persons, is a notifiable instrument. This ensures that there is transparency
regarding the granting of exemptions and that ASIC's exercise of the power is
open to public scrutiny.
[Schedule 3, item 8, subsection 828R(5) of the Corporations Act]
3.65 The regulations prevail over an ASIC exemption in case of an inconsistency.
[Schedule 3, item 8, subsection 828R(6) of the Corporations Act]
Power of ASIC to give directions
3.66 Where ASIC considers that a person is not complying, or is not likely to
comply, with its obligations under the CS services rules, ASIC may give the
person a written direction to do specified things which it believes will promote
compliance. This direction must be accompanied by a statement from ASIC in
writing setting out the reasons for giving the person the direction.
[Schedule 3, items 8, subsections 828G(1) and (2) of the Corporations Act]
3.67 The direction has effect until either ASIC revokes the direction; or the end of a
period specified in the direction as the period during which the direction is
effective. During this time, the person must comply with the direction. Failure
to comply with a direction is an offence.
[Schedule 3, items 8 and 11, subsections 828G(3) and (4) and Schedule 3 of
the Corporations Act]
3.68 Where a person fails to comply with a direction, ASIC may apply to the Court
for, and the Court may make, an order that the person comply with the
direction.
[Schedule 3, item 8, subsection 828G(5) of the Corporations Act]
3.69 ASIC may vary or revoke a direction by giving written notice to the person.
[Schedule 3, item 8, subsections 828G(6) and (7) of the Corporations Act]
Compliance with the rules
3.70 Any person, whether it is a CS facility licensee, associated entity of a CS
facility licensee or a person prescribed by the regulations, that is subject to the
14
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
CS services rules must comply with them. A civil penalty applies to breaches
of the CS services rules. The ability to prescribe persons by regulations also
functions as an anti-avoidance measure, as well as a provision to allow for
flexibility with respect to new market entrants and innovation.
[Schedule 3, item 8, subsection 828C(1) of the Corporations Act]
3.71 The Court will consider the appropriate penalty for each contravention of the
rule, taking into account the breach and severity of the misconduct. ASIC may
make submissions to the Court on the amount of penalty that is appropriate in
the matter. Ultimately, however, the Court or will decide the penalty amount.
3.72 In the event of any inconsistency between the CS services rules and the
Financial Stability Standards made under section 827D of the Corporations
Act, the Financial Stability Standards prevail to the extent of the inconsistency.
[Schedule 3, item 8, note 2 to subsection 828C(1) of the Corporations Act]
3.73 A person or entity who must comply with the CS services rules is obliged to
notify ASIC in writing, as soon as practicable, if they become aware that they
may no longer meet their obligations under the rules or have breached the
rules. ASIC may give advice to the Minister about such a notification. Failure
to notify ASIC is an offence and may attract civil penalties.
[Schedule 3, items 8, 10 and 11, section 828D, subsection 1317E(3) and
Schedule 3 of the Corporations Act]
3.74 The regulations may allow for alternatives to civil proceedings for a person
who is alleged to have breached the CS services rules. The section imposes
limits on the alternatives which may be allowed by the regulations, which are
limited to:
• paying a penalty to the Commonwealth that is not more than 3 000
penalty units for individuals and 15 000 penalty units for a body
corporate;
• undertaking or instituting remedial measures (including education
programs);
• accepting sanctions other than the payment of a penalty to the
Commonwealth; or,
• entering into a legally enforceable undertaking, which may include one
or more of the following:
- an undertaking to take specified action within a specified
period;
- an undertaking to refrain from taking specified action;
- an undertaking to pay a specified amount within a specified
period to the Commonwealth or to some other specified
person.
15
Competition in the clearing and settlement of cash equities
3.75 The Guide to Framing Commonwealth Offences recommends maintaining
consistency in the legislative framework as regards to penalties as much as is
appropriate. Consistently with this principle, this provision largely mirrors the
existing section 798K of the Corporations Act which applies to enforcement of
market integrity rules, section 901F of the Corporations Act which applies to
enforcement of derivative transaction rules and section 903E of the
Corporations Act which applies to enforcement of derivative trade repository
rules.
[Schedule 3, item 8, section 828E of the Corporations Act]
3.76 A person's failure to comply with CS services rules does not affect the validity
of a transaction in relation to financial products, or any rights or obligations
arising under, or relating to, the transaction.
[Schedule 3, item 8, section 828F of the Corporations Act]
Reviewability of decisions
3.77 Merits review is not available for a decision by ASIC to make CS services
rules, as well as decisions in the making of the rules and certain other decisions
as outlined below.
3.78 Decisions by ASIC to make CS services rules under section 828A and provide
directions under section 828G to a person not complying with their obligations
under the rules are exempt from merits review. The matters that would be
regulated by CS services rules touch on significant aspects of financial
markets. Market certainty is crucial to the efficient functioning of financial
markets. A process of merits review with respect to the making of CS services
rules and directions to ensure their compliance may create uncertainty around
expectations with respect to provision of CS services. This would have a
negative impact upon the efficient functioning of financial markets.
3.79 Decisions made in the course of making CS services rules are considered
preliminary or procedural decisions which in the Administrative Review
Council's view are not suitable for review. These decisions are:
• a decision by the Minister under subsection 828B(2) to make a
determination, specifying one or more classes of CS services in
relation to which rules may impose requirements;
• a decision by the Minister under subsection @828K(1) to consent to
the making of CS services rules; and
• a decision by the Minister under paragraph @828L(2)(b) to make
directions requiring ASIC to amend or revoke emergency CS services
rules.
[Schedule 3, item 9, paragraph 1317C(gce) and (gcd) of the
Corporations Act]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.80 Minister determinations, CS service rules and decisions to exempt classes of
entities from all or certain provisions of Part 7.3A under section 828R are
legislative instruments that are subject to appropriate parliamentary oversight
and do not necessitate a merits review.
3.81 A decision to exempt a person from provisions under Part 7.3A is subject to
merits review.
3.82 The above-mentioned procedural decisions do not have the effect of making
rights, liberties or obligations dependent upon insufficiently defined
administrative power. These rights, liberties or obligations are not dependent
upon nonreviewable decisions.
Access negotiation and arbitration to certain clearing
and settlement services
Power to arbitrate disputes
3.83 The framework in the new Part XICB has some parallels with the National
Access Regime in Part IIIA of the CCA, where some of those provisions will
apply in respect of the new framework.
3.84 The arbitration regime inserted by this Schedule is similarly designed to be
used where there is an imbalance of bargaining power between a CS service
provider and an access seeker.
3.85 CS facilities are often part of vertically integrated monopolies, where listing,
trade execution, clearing, settlement and other processes are undertaken by
related companies within a corporate group. In these circumstances there is an
incentive for the facility to provide access to its services to affiliated entities on
more favourable terms than for unaffiliated entities, giving rise to
discriminatory terms of access.
3.86 A vertically integrated monopoly would usually be competing in upstream and
downstream markets. The incentive for the vertically integrated monopolist is
to discriminate in favour of its related entities upstream or downstream to the
detriment of competitors in those markets, which could manifest itself in denial
of access or monopoly pricing. Where the owner of a facility is not vertically
integrated, the principal competition concern is not access to the facility but
rather the price (and other terms) charged for access.
3.87 This imbalance of bargaining power may arise even after there is competition
in the market for CS services if one or more CS service provider continues to
hold significant market power. Therefore, it is important that when access
seekers are unable to negotiate an agreement on commercial terms and
17
Competition in the clearing and settlement of cash equities
conditions, they can rely on arbitration to resolve an access dispute on
reasonable terms.
3.88 The purpose of the arbitration power is to provide for the timely resolution of
material disputes where parties are genuinely unable to agree on the terms of
access to CS services through commercial negotiation.
3.89 Schedule 3 establishes a new arbitration regime for persons seeking access to
CS services in new Part XICB of the CCA.
[Schedule 3, item 22, section 153ZEA of the CCA]
Declared CS Service
3.90 New Part XICB of the CCA applies to an entity (the access seeker) seeking
access to a declared CS service. A CS Service is only a declared CS service if:
• The provider of the CS Service is a CS facility licensee or is related to
a CS facility licensee; and
• That CS facility licensee holds an Australian CS facility licence that
authorises it to operate a CS facility; and
• The CS service can only be provided because it has access to that CS
facility, or to data used in the operation of that facility; and
• The CS Service is covered by a Ministerial declaration made under
section 153ZEF (see paragraph 3.106).
3.91 The arbitration regime is only open to access seekers seeking access to CS
services that hold the above characteristics. Each characteristic is expanded
upon below.
The provider of the CS service
3.92 To be a declared CS Service, the provider of the CS service must be a CS
facility licensee or be related to a CS facility licensee. Part XICB does not
adopt the definition of provider from Part IIIA of the CCA. The meaning of
provider takes on its normal, natural meaning.
3.93 The provider of the CS service, or a related entity of the provider, must also
hold a CS facility licence that allows it to operate a CS facility. In effect, this
means that to be a declared CS service, the provider of the CS service either
needs to also be an operator of a CS facility, or a related party of the provider
needs to be the operator a CS facility.
[Schedule 3, item 22, paragraphs (a) and (b) in the definition of 'declared CS
service' in section 153ZEB of the CCA]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
The CS service can only be provided because it has access to a linked CS
facility
3.94 For a declared CS service, the CS service must only be able to be provided
because it has access to (or to data used in the operation of) the same CS
facility that the provider operates, or that the provider's related party operates
(the linked CS facility).
3.95 A CS service does not have this characteristic if it does not need access to that
CS facility or the facility's data in order to provide services. A CS service does
have this characteristic if it has access to multiple CS facilities, including the
linked CS facility, but is reliant on having access to the linked facility in order
to provide its services. In the former case, arbitration regarding the CS service
is only open with respect to an access dispute concerning services in relation to
the linked CS facility.
3.96 In effect, for a CS service to be a declared CS service, the provider of the CS
service, or a related entity of the provider, must operate the CS facility that
allows the CS service to operate.
3.97 Part XICB adopts a specific meaning of the word linked in relation to a CS
facility and a CS service that incorporates the description above. A declared
CS Service and CS facility are linked where the relevant CS facility licensee,
or a related person of that licensee, is also the provider of the CS service.
[Schedule 3, item 22, paragraph (c) in the definition of 'declared CS service'
and the definition of 'linked' in section 153ZEB of the CCA]
The CS service must be covered by a Ministerial declaration
3.98 Additionally, the CS service must be covered by a Ministerial declaration in
order to be a declared CS Service.
3.99 Declarations can be given in respect of one or more specific CS services or can
be made with respect to a class or classes of CS services. The Minister must
consider certain matters and undertake consultation prior to making a
declaration (the Minister's power to make a declaration is expanded upon in
paragraphs 3.106 to 3.114)
[Schedule 3, item 22, paragraph (d) in the definition of 'declared CS service'
in section 153ZEB of the CCA]
3.100 The effect of this definition of declared CS service is that the ACCC will have
power to make binding arbitration determinations usually where an entity is
seeking access to a CS service where common ownership arrangements exist
between the provider of that CS service and the CS facility the CS service
operates in relation to.
The access seeker or the provider of the CS service must be a corporation
3.101 The arbitration regime only applies if either the access seeker is a corporation
or the provider of the declared CS service is a corporation, including instances
of a partnership or joint venture consisting wholly of corporations.
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Competition in the clearing and settlement of cash equities
Alternatively, if neither the access seeker nor the provider of the CS service is
a corporation, then access must (or would) be in the course of, or for the
purposes of, constitutional trade and commerce as defined in section 53B of
the CCA. It is expected that the majority of CS service providers would be CS
facility licensees, who are required to be a body corporate under section 824A
of the Corporations Act.
[Schedule 3, item 22, sections 153ZEB and 153ZED of the CCA]
3.102 The extended application to providers of a CS service that are joint ventures or
partnerships consisting of corporations clarifies that anything in Part XICB
will apply to the responsible person for the management and control of the
provider.
[Schedule 3, item 22, section 153ZEC of the CCA]
3.103 An access seeker for a declared CS service, is defined as a person who wants
access to the CS service or wants a change to some aspect of the person's
existing access to the CS service. Access seekers are any third parties that are
direct users of CS services. This may include participants in a CS facility,
share registries, market operators, intermediaries, agents and other stakeholders
that are accessing or wish to access a CS service on behalf of another person.
An example of other stakeholders may be share registries who access CS
services to maintain records for shareholders and shareholdings on behalf of
their clients.
[Schedule 3, item 22, section 153ZEB of the CCA]
Crown and application
3.104 Part XICB of the CCA binds the Crown in each of its capacities. That is, the
provisions bind the Crown in right of the Commonwealth, of each of the
States, of the Australian Capital Territory and of the Northern Territory.
However, it will not make the Crown liable to be prosecuted for an offence
(this protection does not extend to an authority of the Commonwealth or of a
State or Territory).
[Schedule 3, item 22, section 153ZEE of the CCA]
3.105 Part XICB only applies to domestic CS licensees. Overseas CS licensees are
not captured in the access regime.
Declaring a clearing and settlement service
3.106 The Minister has the power to add or exempt classes or certain CS services by
declaration. CS services that are specified within a declaration that is in force
are considered covered by the declaration and may be subject to negotiation or
arbitration.
[Schedule 3, item 22, subsections 153ZEF(1), (2) and (3) of the CCA]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.107 The declaration is a legislative instrument and subject to review and
disallowance by Parliament.
[Schedule 3, item 22, subsection 153ZEF(1) of CAA]
3.108 Given that the Ministerial declaration is a legislative instrument, it is subject to
consultation requirements as stipulated in section 17 of the Legislation Act
2003. Satisfactory consultation on a Ministerial declaration in respect of a CS
service or a class of CS services would ensure that it is sufficiently clear to
fulfil the policy intent outlined in the CFR policy statements. Consultation on
the declaration would not cover whether the declaration should be made. The
Minister's declaration may be varied or revoked, for example if the regulatory
policy changes, facts change or subsequent information becomes available.
3.109 The amendment or revocation of a declaration does not affect:
• the arbitration of an access dispute that was notified before the
amendment or revocation; or
• the operation or enforcement of any determination made in the
arbitration of an access dispute that was notified before the amendment
or revocation.
[Schedule 3, item 22, section 153ZEG of the CCA]
3.110 A CS service covered by that declaration, where the notification of the relevant
dispute was made before the amendment or revocation, can continue to be the
subject of arbitration. The ACCC must only terminate the arbitration under
section 60 of the CCA if the provider ceases to be a CS facility licensee or
related to one that authorises the operation of the relevant CS facility.
3.111 Where a negotiation has been notified and a relevant declaration is revoked,
the provider of the CS service that was the subject of the declaration can notify
the access seeker that the negotiation is at an end because the CS service is no
longer a declared CS service. The negotiation does not continue in the same
manner as an arbitration is able to continue despite a relevant declaration being
revoked. This is because the CS service would cease to be a declared CS
service and therefore the next step in resolving the dispute, starting arbitration,
is unavailable (see also paragraph 3.120).
[Schedule 3, item 22, subsection 153ZEI(2) of the CCA]
Matters to consider
3.112 In declaring whether CS services are to be subject to negotiation or arbitration
the Minister must consider the following in consultation with the ACCC prior
to making a declaration:
• the likely effect on the Australian economy, and on the efficiency,
integrity and stability of the Australian financial system, of making the
declaration
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Competition in the clearing and settlement of cash equities
• the likely regulatory impact of the declaration
• the extent to which a provider of a CS service that will be affected by
the declaration has a monopoly or significant market power over the
provision of the service; and
• any other factors the Minister considers relevant.
[Schedule 3, item 22, subsection 153ZEF(4) of the CCA]
3.113 The ACCC must advise the Minister when requested, or may provide advice at
its discretion, relating to whether a declaration should be made. The Minister
must not make the declaration unless the Minister has had regard to the advice
from the ACCC.
[Schedule 3, item 22, subsections 153ZEF(5) of the CCA]
3.114 ASIC and the RBA may provide advice to the ACCC without being requested
or the ACCC may request advice from ASIC and the RBA for the purposes of
advising the Minister on whether a declaration should be made.
[Schedule 3, item 22, subsections 153ZEF(6) and (7) of the CCA]
Negotiation of access
3.115 Commercial negotiation and agreement is the preferred method of accessing
CS services. It is intended that arbitration by the ACCC would only be
available where parties are genuinely unable to agree on terms of access to CS
services through commercial negotiations.
Notification of negotiations beginning
3.116 An access seeker may notify a CS service provider of intention to negotiate
access if the CS service is a declared CS service.
[Schedule 3, item 22, subsection 153ZEH(1) of the CCA]
3.117 The access seeker must provide a contact person, contact details and the terms
intended to be negotiated in the notification to the provider. The terms may
include whether access can be granted, the price of access and other terms and
conditions of access. Regulations may prescribe additional matters the access
seeker must outline in the notification.
[Schedule 3, item 22, subsections 153ZEH(2) and (3) of the CCA]
3.118 Once the access seeker has provided notification to the provider it must also
provide a copy of the notification to the ACCC as soon as practicable.
[Schedule 3, item 22, subsection 153ZEH(4) of the CCA Act]
Notification of negotiations ending
3.119 An access seeker may end a negotiation at any time by providing notice to the
provider. This applies regardless of whether an access seeker refers or
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previously referred a related access dispute to arbitration. The access seeker
must also notify the ACCC as soon as practicable that negotiations have ended.
The negotiation is taken to have ended when notification has been provided in
line with the provisions by either the provider or the access seeker.
[Schedule 3, item 22, subsections 153ZEI(1) and (3) and paragraph
153ZEI(4)(a) of the CCA]
3.120 A provider may also give notice to the access seeker that the negotiation is at
an end if the CS service ceases to be a declared CS service. This might be
because:
• the provider is no longer a CS facility licensee or a person related to a
CS facility licensee
• the licensee no longer holds a relevant Australian CS facility licence
• it is no longer the case that the CS service can only be provided
because it has access to, or to data used in the operation of, the CS
facility or facilities; or
• the CS service is no longer covered by a Ministerial declaration.
3.121 An Australian CS facility licence will no longer be current where the licensee
has failed to comply with its obligations under Part 7.3 of the Corporations
Act, and consequently the licence is suspended or cancelled.
3.122 Where a provider has notified the access seeker that negotiations have ended
on this basis, they must also notify the ACCC as soon as practicable.
[Schedule 3, item 22, subsection 153ZEI(2) and paragraph 153ZEI(4)(b) of
the CCA]
Conducting negotiations
3.123 Negotiations are generally between the access seeker and the provider.
However, if both the access seeker and provider agree, other persons may be
included in the negotiations.
[Schedule 3, item 22, subsection 153ZEJ(1) of the CCA]
3.124 Each party has an obligation to negotiate in good faith on the terms and
conditions of access to the CS service, prior to seeking arbitration on an access
dispute.
[Schedule 3, item 22, subsection 153ZEJ(2) of the CCA]
3.125 Some examples of conduct that may breach the good faith obligation include
avoiding or refusing to engage in discussions with the other party, making
clearly unreasonable offers or failing to consider or accept reasonable offers
made by the other party.
3.126 All reasonable requests from the parties regarding timeframes for negotiations
must be accommodated by the other parties.
[Schedule 3, item 22, subsection 153ZEJ(3) of the CCA]
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Competition in the clearing and settlement of cash equities
3.127 The negotiation must address the issues that are specified on the notification
provided by the access seeker to the provider, that may include whether access
can be granted, the price of access and other terms and conditions of access.
Other issues may be negotiated provided that all parties agree in writing.
[Schedule 3, item 22, subsection 153ZEJ(4) of the CCA]
3.128 Where the parties reach agreement over each issue that is the subject of the
negotiations, they must provide written notification of the outcome to the
ACCC, as soon as practicable.
[Schedule 3, item 22, subsection 153ZEJ(5) of the CCA]
Exchange of information between parties
3.129 Parties to a negotiation must exchange information related to the access request
in a manner and at a time consistent with the duty of each party to negotiate in
good faith. This ensures both parties can negotiate with full information.
[Schedule 3, item 22, subsection 153ZEK(4) of the CCA]
3.130 A party may request information relating to the access request from the other
party to the negotiation, where the information is held by the responding party
and the request is reasonable. Relevant information must be provided within 21
days or within a longer period if agreed by the parties to the negotiation.
[Schedule 3, item 22, subsections 153ZEK(1) and (3) of the CCA]
3.131 The information must be provided in a readily readable form, including, where
requested, in an electronic file format with all underlying data files and inputs.
[Schedule 3, item 22, subsection 153ZEK(3) of the CCA]
3.132 Information requests must comply with the requirement to negotiate in good
faith and not be overly burdensome. To ensure that it meets this requirement
the request for information must be in writing and state the reasons why it is
reasonable to make the request. The request must comply with any other
requirements specified in the regulations.
[Schedule 3, item 22, subsection 153ZEK(2) of the CCA]
3.133 Specific pieces of information are not required to be exchanged if sharing the
information is personal information within the meaning of the Privacy Act
1988.
[Schedule 3, item 22, subsection 153ZEL(1) of the CCA]
3.134 Any information that is exchanged must only be used for a purpose relating to
Part XICB.
[Schedule 3, item 22, subsection 153ZEL(2) of the CCA]
3.135 If negotiations do not proceed to arbitration, the information may not be used
once negotiations cease. However, if negotiations end but proceed to
arbitration, then parties to the arbitration may use the information exchanged
during negotiations.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.136 The penalty for breaching section 153ZEL(2) is a maximum civil penalty of
$500,000 for individuals and 600 penalty units for bodies corporate.
[Schedule 3, items 18 and 19, section 76 of the CCA]
3.137 The Guide to Framing Commonwealth Offences was considered in
determining these maximum civil penalty amounts. The maximum penalty
should be adequate to deter and punish a worst-case offence, including repeat
offenders. Penalties should also be consistent with existing offences of a
similar kind or of similar seriousness. These penalties were determined to be
appropriate based on comparable penalties in the News Media Bargaining
Code under section 52ZV(3) of the CCA.
ACCC's power if information not provided
3.138 Once a dispute has progressed to arbitration, a party is required to seek
permission from the ACCC in writing if it wishes to rely on information that
was requested but not provided to other parties during negotiations.
[Schedule 3, item 22, subsection 153ZEW(1) of the CCA]
3.139 If a request for information is not complied with and an access dispute has
started (see paragraph 3.141), the ACCC may:
• direct that a party is not entitled to rely on specified information or
materials;
• draw adverse inferences from the failure to comply with the request for
information; or,
• proceed to a determination solely on the basis of the information
provided to the other party during negotiations (not have regard to the
information that the party failed to provide).
[Schedule 3, item 22, subsection 153ZEW(4) of the CCA]
3.140 When granting permission to consider the information, the ACCC must
consider:
• the desirability to comply with the information request; and
• whether the responding party was given a reasonable opportunity to
provide the information to the other parties before the dispute was
notified.
[Schedule 3, item 22, subsection 153ZEW(2) of the CCA]
Notification of access disputes
3.141 Either an access seeker or the service provider may provide written notification
to the ACCC of an access dispute if they are unable to agree on terms and
conditions for access to a declared CS service.
[Schedule 3, item 22, subsection 153ZEM(1) of the CCA]
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Competition in the clearing and settlement of cash equities
3.142 Prior to accepting an access dispute, the ACCC must be satisfied that either the
provider is a corporation (or a partnership or joint venture consisting wholly of
corporations); the access seeker is a corporation, or that access is or would be
in the course of or for the purposes of constitutional trade or commerce.
3.143 The person notifying the dispute must provide information that suggests that
the parties have been unable to reach agreement about one or more matters
related to access to the CS service. To ensure clarity regarding the matters
which are agreed and in dispute, the party who notifies the ACCC of the access
dispute has an obligation to provide to the ACCC a list of matters which have
been agreed and the matters which are in dispute. The notification must also
include any additional matters specified in the regulations.
[Schedule 3, item 22, subsection 153ZEM(2) of the CCA]
3.144 Once the ACCC has received notification, it must give notice to the party that
did not submit the notification. The ACCC may notify other persons of the
access dispute where the ACCC thinks the person might want to become a
party, however, there is no requirement for those other parties that are notified
to join the arbitration.
[Schedule 3, item 22, subsection 153ZEM(3) of the CCA Act]
Sharing information with ASIC and the RBA
3.145 Once the ACCC is notified of an access dispute, it may notify ASIC or the
RBA of the matter, request advice, and give information relating to the dispute.
ASIC and the RBA may give advice that relates to the arbitration of an access
dispute to the ACCC, including information of a confidential commercial
nature. ASIC and the RBA are not limited to only providing advice when the
ACCC requests, but may do so at any time in relation to the arbitration of an
access dispute.
[Schedule 3, item 22, section 153ZEX of the CCA]
Arbitration of access disputes
Parties to the arbitration
3.146 The parties to the arbitration are the access seeker, the CS service provider and
any other party joined to the arbitration by the ACCC. Parties seeking to join
the arbitration must make a written application to the ACCC to be made a
party. The application must demonstrate that the other party has a sufficient
interest in the determination to be made in the arbitration. If the applicant
satisfies the ACCC that it has demonstrated a sufficient interest, then the
applicant will also become a party to the arbitration. The ACCC cannot
unilaterally join parties to an arbitration.
[Schedule 3, item 22, section 153ZEO of the CCA]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Determinations
3.147 The ACCC must make a written final determination on the outcome of access
by the access seeker to the CS service, and may also make a written interim
determination. A determination may deal with any matter related to access to
the CS service to which the access dispute relates, including matters that were
not the basis for notification of the dispute.
[Schedule 3, item 22, subsections 153ZEP(1) and (2) of the CCA]
3.148 For transparency, the ACCC in its role as arbitrator must provide reasons for
its determination. Both the determination and reasons for the determination
must be provided to the parties. The determination is not intended to be a
legislative instrument, as it will only apply to parties to the arbitration. This
does not differ from the existing standard in section 44V of the CCA, but
instead clarifies the status of the determination.
[Schedule 3, item 22, subsections 153ZEP(4) and (5) of the CCA]
3.149 The ACCC must consult with ASIC and the RBA prior to making an interim or
final determination. This recognises the central role those regulators have in
the oversight of CS facilities. The consultation requirement enables ASIC to
provide advice on the obligations of CS facility licensees under Parts 7.3 and
7.3A of the Corporations Act, and the RBA to offer advice on the financial
stability implications of matters related to the access dispute. Any advice that
is provided to the ACCC by either ASIC or the RBA must be considered in
making a determination.
[Schedule 3, item 22, paragraph 153ZEP(3)(b) of the CCA]
3.150 The ACCC must provide a draft determination to the parties to arbitration prior
to making either an interim or final determination. The requirement to issue a
draft determination is also applicable for where the ACCC varies or revokes a
determination.
[Schedule 3, item 22, paragraph 153ZEP(3)(a) of the CCA]
3.151 A draft decision is issued after the ACCC has given full consideration to the
matters in dispute. However, the draft determination is designed to give the
parties an opportunity to comment on the draft determination and for the
ACCC to further consider its analysis and position before making its final
determination.
Matters the ACCC must have regard to
3.152 To provide certainty to industry on how access outcomes are determined, the
ACCC must consider various matters. The ACCC must consider the following
matters when making a final determination, but has discretion on what to
consider in making an interim determination:
• access to CS services is on fair and reasonable terms and conditions,
including pricing, that are transparent and non-discriminatory;
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Competition in the clearing and settlement of cash equities
• the pricing of access prices should generate expected revenue for a CS
service that reflects the costs of providing access to the CS service;
• access prices should include a return on investment in proportion to the
regulatory and commercial risks involved;
• access price structures should not allow a vertically integrated provider
to set terms and conditions that discriminate in favour of its related
entities, except to the extent that the cost of providing access to other
access seekers is higher;
• whether access pricing provides incentives to reduce costs or otherwise
improve productivity;
• the long-term interests of the Australian market are supported by
delivering outcomes that are consistent with those expected in a
competitive market for CS services;
• imbalances in bargaining power between providers of CS services and
access seekers in Australia;
• provide incentives for providers of CS services to negotiate
commercial and non-discriminatory terms of access with access
seekers of the CS services in Australia;
• provide for a timely resolution of access related disputes between
providers of CS services and access seekers, where they arise; and
• discourage providers of CS services from exerting market power to the
detriment of competition in upstream and downstream markets.
[Schedule 3, item 22, paragraphs 153ZER(1)(a) and (c) and
subsection 153ZER(3)-(5)of the CCA]
3.153 Generally, the matters the ACCC must consider in making a determination
address the inefficiencies that arise from exercising market power. The ACCC
must consider the specific circumstances of the provider and the CS facility
licensee, including the legal and regulatory obligations that apply to the
provider and licensee when making a determination. Specifically, the ACCC
must consider the following matters if it is relevant or necessary to the parties
involved in arbitration:
• the operational and technical requirements necessary for the safe and
reliable operation of any CS facility used to provide CS service;
• any obligations under Australian law that applies to the provider or CS
facility licensee in relation to the CS service;
• the legitimate business interests of the provider or CS facility licensee,
and the provider's or CS facility licensee's investment in the CS
facility;
• the interests of all persons who have rights to use the CS service;
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
• guidance or policies that relate to CS services made by the RBA, ASIC
or ACCC (in addition to the CS services rules made by ASIC);
• any advice provided by ASIC or the RBA during consultations on
determinations or relating to arbitration of an access dispute;
• the public interest, including the public interest in having competition
in markets (whether or not in Australia).
[Schedule 3, item 22, paragraph 153ZER(1)(b) and (d)-(l) of the
CCA]
3.154 Obligations under Australian law covers relevant obligations of the CS service
provider and CS facility licensee under legislation (such as the Corporations
Act), subordinate legislation, licence conditions, standards and rules made by
the relevant regulators governing access to the service.
3.155 The legitimate business interests include the pricing principle that relates to
considering whether the provider's ability to make a return on investment
commensurate with the commercial risks involved. However, the legitimate
business interests of the provider does not include considering monopoly rents.
3.156 The ACCC may consider any other matters it considers relevant.
[Schedule 3, item 22, subsection 153ZER(2) of the CCA]
Restrictions on access determinations
3.157 The ACCC is restricted from making a final determination that would have the
following effects:
• prevents an existing user (a person using the service when the dispute
was notified) who is not related to the provider from obtaining
sufficient access to the CS service;
• prevents a person who is not related to the CS service provider from
obtaining, by the exercise of a pre-notification right (that is, a right
under a contract, or under a determination, that was in force at the time
when the dispute was notified), sufficient access to the CS service;
• results in the access seeker becoming the owner (or one of the owners)
of any part of the CS facility used for the purposes of providing the CS
service, or of extensions to the facility used for the purposes of
providing the service without the consent of the CS service provider;
• requires the CS service provider to bear some or all of the costs of
extending or maintaining extensions of the facility used for the
purposes of providing the service (including expanding the capacity of
the facility to provide the service).
[Schedule 3, item 22, subsection 153ZEQ(1) of the CCA]
3.158 Any final determination made by the ACCC that deprives someone that is not
related to the provider of a right to access the CS service, that existed prior to
the notification, must require the access seeker to pay fair compensation for the
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Competition in the clearing and settlement of cash equities
deprivation as determined by the ACCC. The access seeker is also required to
reimburse both the provider and the Commonwealth for any compensation that
is agreed by either the provider or the Commonwealth. The court may also
order the access seeker to reimburse the provider or Commonwealth for
compensation.
[Schedule 3, item 22, subsection 153ZEQ(4) of the CCA]
3.159 In the case where the provider is not a CS facility licensee (the provider may
be a related entity of the relevant CS facility licensee) the ACCC must
consider these restrictions and the implications as if the relevant CS facility
licensee was the provider of the CS service.
[Schedule 3, item 22, subsection 153ZEQ(5) of the CCA]
3.160 With respect to the ACCC considering the effects of preventing access to users
that should have access, the ACCC is not restricted from making a final
determination that prevents an existing user (who is unrelated to the CS service
provider) from accessing the service when the ACCC is making a decision that
relates to an earlier determination of an access dispute between the access
seeker and the CS service provider. This is to ensure a previous determination
made under the arbitration framework can be replaced by a new determination.
[Schedule 3, item 22, subsection 153ZEQ(2) of the CCA]
3.161 These restrictions are necessary for the ACCC to consider so that appropriate
access is granted and no unrelated third-party is disadvantaged from doing so.
3.162 A final determination that contravenes any of the restricted matters listed
above is invalid only for the part that is contravened. That is, part of the
determination is invalid to the extent that it contravenes any one of the
restricted matters.
[Schedule 3, item 22, subsection 153ZEQ(3) of the CCA]
Interim determinations
3.163 The ACCC may make interim determinations on the matter in dispute and/or
any other matter relating to access to the CS service to which the dispute
relates.
3.164 The ACCC has discretion whether to consider any of the matters outlined in
subsections 153ZER(1) or (2) when making an interim determination.
[Schedule 3, item 22, subsections 153ZER(4) and (5) of the CCA]
3.165 This is to facilitate appropriate access to the CS service while the arbitration is
taking place and prevents a provider from using the arbitration process as a
strategy to delay providing access. For example, if a CS service provider
unreasonably refuses access to a CS service, then the ACCC could make an
interim order that requires the CS service provider to provide access to that
service.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.166 The interim determination only applies to parties to the arbitration.
3.167 An interim order takes effect on the day specified in the determination and has
a limited duration. The interim determination will continue to have effect until
it is revoked or one of the following occurs earlier:
• the notification of the access dispute is withdrawn
• the arbitration is terminated; or
• a final determination takes effect.
[Schedule 3, item 22, section 153ZEZ of the CCA]
Final determinations
3.168 The ACCC has the power to make a final determination on any matter related
to access to the CS service to which the access dispute relates, including
matters that were not the basis for notification of the dispute.
[Schedule 3, item 22, section 153ZEY of the CCA]
3.169 For example, final determinations may include terms relating, but are not
limited to:
• require the CS service provider to provide access to the service by the
access seeker;
• require the access seeker to accept, and pay for, access to the CS
service;
• specify the terms and conditions of the access seeker's access to the CS
service; and
• vary or revoke an earlier determination relating to access to a CS
service by the access seeker.
[Schedule 3, item 22, subsection 153ZEP(2) of the CCA]
3.170 The final determination is binding on the parties to the arbitration.
3.171 Generally, final determinations are to operate prospectively, with effect 21
days after the determination is made. However, a final determination may
apply from an earlier date provided that it is specified on the determination.
The determination cannot be backdated to a date prior to the notification of
negotiations, and may not be on a date that an access seeker did not have
access to the CS service. Where a final determination applies simultaneously to
an interim determination, the provisions of the final determination take
precedent over the interim determination.
3.172 In the instance of a backdated final determination that requires a party to pay
money to another party, interest may apply at the rate specified on the
determination. Interest may only apply for part of the cost or part of the period
or both and is effective for the duration specified on the determination.
[Schedule 3, item 22, section 153ZEY of the CCA]
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Competition in the clearing and settlement of cash equities
3.173 A final determination must be made within 180 days (six months) from the day
the ACCC is notified of the access dispute.
[Schedule 3, item 22, subsection 153ZES(1) of the CCA]
3.174 It is crucial that the ACCC have the flexibility to extend the time period if it is
appropriate in the circumstances. For example, a decision may be reliant on
market information or a decision that may be released or made outside the set
time limit for the arbitration. It is likely that the nature and circumstances of
each arbitration will vary therefore it is optimal for the ACCC to have
maximum flexibility to extend the time period, up to a pre-determined limit.
3.175 The ACCC may extend the time one or more times, if it considers it is
appropriate to do so, to a maximum period for decision of 365 days. For
transparency, the ACCC must notify the parties of the extension prior to it
taking effect and provide reasons for an extension, but the ACCC is not
required to rely on the agreement of parties to extend the time period. This is
because parties may attempt to gain an advantage of the process by refusing an
extension of time, resulting in crucial information not being able to be
considered by the ACCC.
[Schedule 3, item 22, subsections 153ZES(2), (3) and (4) of the CCA]
3.176 Including a time limit to release a final determination will ensure that the
arbitration is conducted expediently and allows parties to be aware of the
maximum timeframe by which an arbitration must conclude. This allows
parties to plan the presentation of their cases accordingly and holds the ACCC
to account.
3.177 Where the ACCC fails to make a final determination within the extended
period it is deemed that the ACCC has made a final determination that does not
impose or alter any obligations on either party. It is also considered that the
ACCC has published a written report about the final determination under
section 153ZET of the CCA.
[Schedule 3, item 22, subsection 153ZES(5) of the CCA]
Parties may withdraw notification
3.178 There are certain circumstances under which a party to the dispute may
withdraw a notification. In some cases, the parties may resolve the dispute
before it is determined by the ACCC. In other cases, the parties may decide
that they would prefer a negotiated outcome to a determination by the ACCC,
for example where the ACCC has indicated the likely direction the
determination will take.
3.179 In general, a notification may be withdrawn prior to the ACCC making a final
determination. The party that may withdraw the notification depends on the
party that submitted the notification. The provider may only withdraw the
notification that it submitted to the ACCC and can do this at any time prior to
32
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
the final determination. The access seeker may also withdraw the provider's
notification but may only do so in the period between the ACCC issuing a draft
final determination and making a final determination. However, if the provider
has notified a dispute over variation to a final determination, the access seeker
is not permitted to withdraw the provider's notification.
[Schedule 3, item 22, subsections 153ZEN(1) and (2) of the CCA]
3.180 The provider may not withdraw the access seeker's notification at all, but the
access seeker is permitted to withdraw its notification at any time before the
ACCC makes its final determination. If the notification is withdrawn, it is
taken for the purposes of the Part never to have been given.
[Schedule 3, item 22, subsections 153ZEN(1) and (3) of the CCA]
Variation or revocation of determinations
3.181 The ACCC has the discretion to vary or revoke an interim or final
determination.
3.182 Any party to an arbitration may apply to the ACCC for a variation of a
determination. However, the decision to vary or revoke a final determination
or interim order is not contingent on an application from any party, nor
prevented by an objection from any party.
[Schedule 3, item 22, subsection 153ZFA(1) of the CCA]
3.183 Before making a variation, the ACCC must consider the same matters and
restrictions as when making a final determination or interim determination as
set out in sections 153ZEQ and 153ZER of the CCA. The ACCC may provide
a draft of the variation to the parties prior to issuing the finalised version.
[Schedule 3, item 22, subsections 153ZFA(2) and (3) of the CCA]
3.184 The ACCC must provide reasons for the variation or revocation of a
determination to affected parties.
[Schedule 3, item 22, subsection 153ZFA(4) of the CCA]
3.185 The variation or revocation is not a legislative instrument as it only relates to
the parties to arbitration.
[Schedule 3, item 22, subsection 153ZFA(5) of the CCA]
Termination by the ACCC
3.186 The ACCC must terminate an arbitration if the provider ceases to be a licensee
or related to one, and that CS facility licensee authorises the operation of the
facility (effectively paragraphs (a), (b) and (c) of the definition of declared CS
service cease to be true).
3.187 The ACCC may reject or terminate an arbitration if it thinks that:
• the notification is vexatious;
• the matter is trivial, misconceived or lacking in substance;
33
Competition in the clearing and settlement of cash equities
• the party that notified the dispute has not engaged in negotiations in
good faith;
• the commercial negotiation prior to notifying the ACCC is
insufficiently relevant to the matters the final determination will deal
with; or
• access to the service should continue to be governed by an existing
contract between the CS service provider and the access seeker.
[Schedule 3, item 22, subsection 153ZEU(1) of the CCA]
3.188 It is not a ground for the ACCC to reject or terminate an arbitration if a party,
other than the notifying party, refuses to negotiate in good faith prior to the
arbitration process, provided that the notifying party has engaged, or has
attempted to engage, in negotiations in good faith.
3.189 If a dispute is about varying an existing determination, the ACCC may
terminate the arbitration if it thinks there is no sufficient reason why the
previous determination should not continue to have effect in its present form.
[Schedule 3, item 22, subsection 153ZEU(2) of the CCA]
Arbitration reports
3.190 The ACCC must prepare and publish a written report about any final
arbitration determination made. This is important to provide transparency on
how the ACCC came to its determination. This will enhance procedural
transparency and regulatory accountability and will facilitate informed
consideration of whether there are grounds to seek a review of a decision by
way of a judicial review application to the courts. The report is not a legislative
instrument.
[Schedule 3, item 22, subsections 153ZET(1) and (8) of the CCA]
3.191 The report must address:
• the matters both agreed and in dispute;
• the principles applied by the ACCC;
• the methodologies applied by the ACCC;
• all matters considered by the ACCC and reasons for doing so; and
• any information provided by the parties to the arbitration that was
relevant to the principles and methodologies applied (subject to
confidentiality restrictions).
[Schedule 3, item 22, subsection 153ZET(3) of the CCA]
3.192 The arbitration report may include the whole or part of a final determination
and the reasons. The requirements that must be included in the report does not
preclude the ACCC from reporting on other matters relevant to an arbitration,
34
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
subject to the exclusion of confidential commercial information.
[Schedule 3, item 22, subsections 153ZET(2) and (4) of the CCA]
3.193 Prior to publishing the arbitration report, the ACCC must provide parties
notice of the contents of the arbitration report, allowing parties 14 days to
make written submissions identifying any information that the parties consider
should not be published because of its confidential commercial nature. The
ACCC must have regard to the submissions in deciding whether any
information should be excluded and any other matters that is considered
relevant.
[Schedule 3, item 22, subsections 153ZET(6) and (7) of the CCA]
3.194 The ACCC must not include in an arbitration report any information the
ACCC decided not to give to a party to the arbitration under section 44ZL of
the CCA. That section provides for a party to an arbitration to request the
ACCC to treat material as confidential. The ACCC must consider a party's
request to keep specified information confidential and advise the other party,
inviting their comments and if there are objections to the request and any
reasons for their objections. The ACCC is to consider the request, any
objections and any further submission that relate to the request before deciding
whether the confidential information should or should not be given to the other
party.
[Schedule 3, item 22, subsection 153ZET(5) of the CCA]
Review of determinations
3.195 A determination made by the ACCC will not be subject to merits review by the
Australian Competition Tribunal. The arbitration regime is intended as a
backstop where parties are unable to agree on terms of access to a CS service
through commercial negotiations. As such, merits review would entail further
costs and could be a barrier to entry for parties seeking arbitration.
3.196 Parties to the arbitration may seek review of the ACCC's decision in the
Federal Court of Australia. An application for judicial review must be made
within 28 days of the ACCC's decision and be made in accordance with the
Rules of the Court (made under the Federal Court of Australia Act 1976). An
application for judicial review is limited to questions of law. Judicial review of
the decision is available under the Administrative Decisions (Judicial Review)
Act 1977 and s 39B of the Judiciary Act 1903.
3.197 An application to the Federal Court does not automatically mean that the
decision of the ACCC is affected or that action to implement the decision must
cease. In the event of an appeal, the decision of the Federal Court has effect
until the Court or a judge of the Court makes an order otherwise. A court may
do this if it considers it appropriate to stay or affect the implementation of the
35
Competition in the clearing and settlement of cash equities
decision to secure the effectiveness of the hearing and determination of the
appeal.
3.198 The Federal Court may make orders:
• affirming the decision of the ACCC;
• setting aside the decision of the ACCC;
• referring the matter back to the ACCC to be decided again in
accordance with;
- the directions of the Federal Court; or
- any other order that the court considers appropriate.
Procedure in arbitrations
3.199 Subdivision D of Division 3 of Part IIIA outlines the procedure of arbitration
that is applicable to CS services.
[Schedule 3, item 22, section 153ZEV of the CCA]
3.200 Given that the ACCC has oversight of the National Access Regime outlined in
Part IIIA it is appropriate that the procedure be extended to access to CS
services as it is based on third party access. This ensures that the ACCC
applies a consistent application for arbitrating disputes for third party access.
3.201 The ACCC works closely and will continue to work closely with ASIC and the
RBA as regulators of licensed CS facilities. Arbitrations are to be conducted
by members of the ACCC to ensure consistency with the overall regulatory
framework. The chairperson of the ACCC is required to nominate in writing
two or more members of the ACCC to constitute the ACCC for the purposes of
a particular arbitration. The ACCC will inform all parties in writing once the
ACCC has been constituted.
3.202 If a member of the ACCC presiding at an arbitration stops being a
commissioner or for whatever reason becomes unavailable for the purposes of
the arbitration, the chairperson must either:
• direct that the remaining member(s) will constitute the ACCC for the
arbitration; or,
• appoint another member of the ACCC to the arbitration.
[Schedule 3, item 22, Division 6 referring to sections 44Z, 44ZA,
44ZB of the CCA]
3.203 A newly constituted arbitration commission:
• must continue and finish the arbitration; and
• may have regard to the records of previous ACCC proceedings of the
arbitration.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.204 Any questions before the ACCC must be decided according to the majority,
where there is an evenly split decision the presiding member may decide an
appropriate response.
[refer section 44ZC of the CCA].
3.205 Arbitration hearings are to be in private unless the parties agree to a public
hearing.
[refer section 44ZD of the CCA].
3.206 A party in arbitration may choose to be represented by another person
[refer section 44ZE of the CCA]
3.207 The ACCC has complete discretion in determining:
• what is relevant for the dispute as it deems appropriate;
• reasonable time periods for adequate presentation of the case;
• what evidence or argument to request; and
• the method of communication the arbitration hearing will be
conducted.
[refer section 44ZF of the CCA]
3.208 In general, the ACCC may give directions and do all things that are necessary
in investigating the dispute and consider all matters affecting the merits and
fair settlement of the dispute to arrive at a determination. This includes the
ability to take evidence on oath and summon a person to provide evidence.
Where a person has been summoned and does not appear, the ACCC may
determine the arbitration without that person.
[refer section 44ZF, 44ZG and 44ZH of the CCA]
3.209 Various penalties throughout Subdivision D of Division 3 of Part IIIA of the
CCA are applicable to parties in Part XICB arbitration. A person is required to
do the following, where contravention can result in imprisonment of up to six
months:
• comply with an order from the ACCC to keep specified information
confidential;
[refer subsection 44ZG(5) of the CCA]
• refrain from doing anything that the court would consider contempt
throughout arbitration; and
[refer subsection 44ZG(3) of the CCA]
• attend as a witness where the ACCC is served a summons and answer
questions where there is not a reasonable excuse to do so.
[refer sections 44ZI and 44ZJ of the CCA]
3.210 Additionally, a penalty of 12 months imprisonment is applicable for a person
that contravenes the requirement not to intimidate, threaten or disadvantage
another person because that person has documents or is a witness for the
37
Competition in the clearing and settlement of cash equities
ACCC.
[refer section 44ZK of the CCA]
3.211 The principles in the Guide to Framing Commonwealth Offences were
considered when developing these penalties. These penalties were considered
appropriate in the context of a Part XICB arbitration to maintain consistency
with other similar arbitration processes overseen by the ACCC.
Regulations
3.212 The regulations may impose conditions for the purpose of arbitrating a dispute
and may specify the payment of costs associated with arbitration and any
apportionment of the charges between parties.
[refer section 44ZG(3) and 44ZN of the CCA]
3.213 Regulations may also be made for other matters that set out rules about the
conduct of mediation. These rules may be incorporated via a reference in the
Regulations to extrinsic materials and must apply as in force at the time the
regulations are made or at another fixed point in time. This is to ensure
consistency across mediations and provide certainty for bargaining parties. A
mediation must be conducted in accordance with any rules set out in the
Regulations.
[Schedule 3, item 22, subsection 153ZEV(3) of the CCA]
3.214 Regulations made for the purpose of an arbitration of an access dispute for CS
services will not have the effect of modifying the operation of a provision of
the Act but will merely modify the operation of regulations made under
Subdivision D of Division 3 of Part IIIA of the CCA.
Joint arbitration hearings
3.215 The ACCC has the discretion to conduct joint arbitration hearings following
notification to the parties to the dispute. These arrangements will allow the
ACCC to consider the CS service in its entirety and could streamline
administrative requirements, reduce costs and may expedite commercially
negotiated outcomes.
[Schedule 3, item 22, section 153ZEV of the CCA and section 44ZNA of the
CCA]
3.216 The Chairperson of the ACCC may decide, by written notice, that the ACCC
must hold a joint arbitration hearing in respect of the specified disputes
nominated in the notice. The Chairperson may exercise this discretion only
where the Chairperson considers that such an arrangement would be likely to
result in the nominated disputes being resolved in a more efficient and timely
manner.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.217 The ACCC is required to undertake consultation with the parties to the dispute
prior to undertaking the joint arbitration hearing. The ACCC must also have
regard to submissions received in deciding whether to hold the joint hearing.
3.218 The procedural requirements applicable to the Chairperson and the ACCC in
arbitration hearings apply in the same way to joint arbitration hearings. The
ACCC must adhere to the rules specifying having regard to certain material in
the arbitration of any nominated dispute.
3.219 The ACCC may make a single determination that covers all of the disputes,
that is not a legislative instrument.
Enforcement and remedies
3.220 Enforcement and remedies from the national access regime under Division 7 of
Part IIIA of the CCA have been extended for the purposes of access to CS
services. The enforcement and remedies provisions set out the orders which the
Federal Court may make where a person contravenes an arbitration
determination or the prohibition on hindering access to declared CS services
under Part XICB and deems the application of enforcement of access
undertakings that are accepted under Part IIIA. The principal remedies for
contravention are injunctions and orders for compensation, although the court
is also empowered to make any other order that it considers appropriate.
3.221 The enforcement mechanisms under Part IIIA are appropriate to be extended
for the CS services regime as the penalties promotes commercial, fair,
reasonable, transparent and non-discriminatory access to CS services and act
as a deterrent to individuals and companies from engaging in anti-competitive
conduct.
3.222 Preventing or hindering an access seeker's access to the CS service under a
determination is prohibited under the arbitration regime. This applies to the
provider or user of a CS service or a body corporate related to the provider or
user of the CS service.
[Schedule 3, item 22, section 153ZFB of the CCA]
3.223 To ensure determinations are complied with by parties, a provision that enables
a party to apply to the Federal Court has been incorporated. The involvement
of the Federal Court is also extended to parties that contravene the prohibition
on hindering access to CS services. Where a determination is in force and a
party applies to the court that the determination has been, is or is likely to be
contravened by the other party, the Court may make any order it considers
appropriate including, but not limited to:
• grant a restraining or mandatory injunction; or
• direct the party at fault to compensate the other party for loss or
damage as a result of the contravention.
39
Competition in the clearing and settlement of cash equities
[Schedule 3, item 22, section 153ZFC of the CCA and subsections
44ZZD(1) and 44ZZE(1) of the CCA]
3.224 The order may apply to any other person the Court considers involved in the
contravention. Whether a person was involved depends on whether that person
aided, abetted, counselled, procured, induced, or conspired with others to
effect the contravention. The person may have even been indirectly or directly
knowingly concerned in or a party to the contravention.
[Schedule 3, item 22, section 153ZFC of the CCA and subsections 44ZZD(2)
and (3) and section 44ZZE of the CCA]
Injunctions
3.225 The Federal Court may grant either a restraining or mandatory injunction. To
grant an injunction that restrains a person from engaging in certain conduct the
Federal Court may consider whether the person has, is likely to, or continue to
engage in that conduct. The Federal Court may grant an injunction that
compels a person to do a thing regardless of whether it appears that the person
has, is likely to, or continues to refuse or fail to do a thing. Either injunction
may be granted if it appears that there is imminent or substantial danger to a
person if the person engages in the conduct or refuses or fails to do a thing.
However, an injunction may only be granted by the Federal Court if all parties
consent to the proceedings. An interim injunction may be granted whilst an
outcome is determined. Whilst an interim injunction is in force the ACCC
cannot give any undertakings as to damages. The Federal Court may revoke or
vary an injunction granted at any time.
[Schedule 3, item 22, section 153ZFC of the CCA and section 44ZZF,
44ZZG, 44ZZH, 44ZI and 44ZZK of the CCA]
3.226 Section 44ZZJ of the CCA relating to enforcement of access undertakings
does not apply to the arbitration regime relating to CS services.
[Schedule 3, item 22, section 153ZFC (2)(d) of the CCA]
3.227 The ACCC may apply to the Court where there has been a breach or a
suspected breach consisting of using requested information outside the
negotiations or arbitrations of CS services under section 153ZEL of the CCA.
[Schedule 3, items 20 and 21, paragraph 80(1)(a) of the CCA]
Miscellaneous Part IIIA provisions to apply
3.228 Selected provisions of Division 8 of Part IIIA are to apply to the clearing and
settlement arbitration regime. Those provisions apply to determinations made
for access to CS services in the same manner as determinations under Part
IIIA.
[Schedule 3, item 22, subsection 153ZFE(1) of the CCA]
40
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.229 The ACCC is required to maintain a register of final determinations that
includes the details of the parties subject to arbitration. The details specified on
the determination including the names of the parties, the service and the date
the determination was made are all to be made publicly available on the
register.
[Schedule 3, item 22, section 153ZFD(1) of the CCA]
3.230 A regulation making power to prescribe details of any fees associated with
maintaining the register and inspection of the register.
[Schedule 3, item 22, section 153ZFD(2) of the CCA]
3.231 Section 44ZZN protects a determination made for CS services from being
invalid where there is unjust acquisition of property. The Commonwealth is
liable to pay a reasonable amount of compensation if the determination results
in an acquisition of property and the person has not been sufficiently
compensated. The amount payable is agreed between the person and the
Commonwealth or, failing agreement, determined by a Court. Where the
compensation relates to the deprivation of a pre-notification right, the
determination may enable the Commonwealth to seek reimbursement from the
third party to the determination under section 44W of the CCA.
[Schedule 3, item 22, paragraph 153ZFE(1)(a) of the CCA]
3.232 The access provisions under Part XICB do not affect the operation of Part IV
of the CCA, relating to competition conduct rules or Part VII of the CCA,
relating to authorisation provisions. If an access arrangement in a code or
undertaking contains anti-competitive terms, it will continue to be subject to
the operation of Part IV and Part VII of the CCA. Similarly, the operations of
industry bodies in formulating access codes will be subject to the competitive
conduct rules unless authorised or otherwise excluded from the competitive
conduct rules.
[Schedule 3, item 22, paragraph 153ZFE (1)(b) of the CCA]
3.233 The application of section 44ZZO of the CCA to determinations made for
access to CS services is necessary as it may be required to establish the state of
mind of an individual in proceedings for offences under the arbitration regime
for access to CS services. In these circumstances, it is sufficient to show that an
employee or agent of the individual engaged in the relevant conduct and had
the relevant state of mind. State of mind includes knowledge, intention,
opinion, belief or purpose.
[Schedule 3, item 22, paragraph 153ZFE (1)(c) of the CCA]
41
Competition in the clearing and settlement of cash equities
Consequential amendments
ASIC rule-making power
3.234 The operating rules and written procedures of a CS facility must deal with, in
addition to any matters prescribed by the regulations, any matters prescribed
by the CS services rules. The CS services rules prevail over any inconsistency
with the operating rules of a CS facility. This is limited to where the CS
services rules specifically require something that the operating rules must deal
with. This is important as it maintains the legal certainty of the operating rules
and their enforceability as between parties to the statutory contract under
section 822B of the Corporations Act.
[Schedule 3, items 3 and 4, subsection 822A(1) and paragraph 822B(2)(c)of
the Corporations Act]
3.235 The Minister is required to consider consistency of an operating rule change
with the CS facility licensee's obligation to comply with the CS services rules.
[Schedule 3, item 5, subsection 822E(4) of the Corporations Act]
3.236 The Financial Stability Standards take priority in the event of any
inconsistency between the standards and the CS services rules, derivative
transaction rules or derivative trade repository rules.
[Schedule 3, item 7, subsection 827D(2A) of the Corporations Act]
3.237 In addition to the matters to be taken into account by the Minister in section
827A, the Minister must have regard to relevant advice received from the
ACCC in deciding whether to grant, vary, suspend or cancel CS facility licence
or disallow changes to the operating rules of a CS facility. This is to ensure
that the ACCC can assess the impact of any operating rule changes or licensing
decisions on competition and can provide advice to the Minister accordingly.
[Schedule 3, item 6, paragraph 827A(2)(h) of the Corporations Act]
3.238 The ASIC Act is updated to allow ASIC to disclose protected and confidential
information to the ACCC. This is intended to facilitate easier information
sharing between the agencies in respect of CS facilities.
[Schedule 3, item 1, paragraph 127(2A)(da) of the ASIC Act]
3.239 The penalty for failing to notify ASIC where a person becomes aware it can no
longer meet its obligations under the CS services rules is 100 penalty units.
Similarly, the penalty for failing to comply with an ASIC direction is
consistent with existing penalties, being 100 for an individual and 1000 for a
body corporate.
[Schedule 3, items 10 and 11, subsection 1317E(3) and Schedule 3 to the
Corporations Act]
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
3.240 It is appropriate to maintain this consistency with other existing penalties for
actions of a similar kind and similar seriousness, and corresponds to the
principles in the Guide to Framing Commonwealth Offences.
Arbitration
3.241 ASIC has been included as a defined term in the CCA to improve the
readability of the Act. The effect of including ASIC as a defined term is that
additional references are now redundant and can be removed.
[Schedule 3, items 12-16, subsections 4(1), 26(1), 26(2), 86E(4) and
155AAA(12) of the CAA]
3.242 Part IIIA of the Act is updated to clarify that the reference to determination is a
final determination. This minor and technical amendment improves readability
and consistency within Part IIIA by clarifying that a final determination does
not include an interim determination.
[Schedule 3, item 17, paragraph 44T(1)(b) of the CCA]
3.243 Part 3 of Schedule 3 contains contingent amendments that update the
references in section 153ZEB to the defined terms Australian CS facility
licence, CS facility, and CS facility licensee. The Treasury Laws Amendment
(2023 Law Improvement Package No. 1) Bill 2023 consolidates defined terms
in the Corporations Act, moving these defined terms out of section 761A of
that Act into the dictionary.
[Schedule 3, items 23-25, section 153ZEB]
3.244 These amendments are contingent on Treasury Laws Amendment (2023 Law
Improvement Package No. 1) Bill 2023 receiving royal assent.
Commencement, application, and transitional
provisions
3.245 The amendments in Parts 1 and 2 commence the day after which the Bill
receives Royal Assent.
3.246 The amendments in Part 3 commence immediately after either the Bill receives
Royal Assent, or the Treasury Laws Amendment (2023 Law Improvement
Package No. 1) Bill 2023 receives Royal Assent, whichever occurs later.
43
Improving the flexibility
of the First Home Super Saver Scheme
Outline of chapter
4.1 The FHSS Scheme allows individuals to make voluntary contributions into the
superannuation system and to later withdraw those contributions and an
amount of associated earnings for the purposes of purchasing or constructing
their first home.
4.2 Schedule 4 to the Bill makes technical amendments to the TAA and the
ITAA 1997 to improve the flexibility of the FHSS Scheme.
Context of amendments
4.3 The FHSS Scheme was first introduced as part of the 2017-18 Budget. In the
2021-22 Budget, the then Government announced four technical changes to the
legislation underpinning the FHSS Scheme to improve its operation and users'
experience with it. The technical changes involve:
• increasing the discretion of the Commissioner of Taxation to amend
and revoke FHSS Scheme applications ('FHSS Scheme application'
refers to a request for a 'first home super saver determination' under
Division 138 in Schedule 1 to the TAA or a request for a 'release
authority' that relates to a FHSS determination under Division 131 in
Schedule 1 to that Act, as the case may be);
• allowing individuals to withdraw or amend their FHSS Scheme
applications before receiving a FHSS Scheme amount, and allowing
those who withdraw to re-apply for FHSS Scheme releases in the
future;
• allowing the Commissioner of Taxation to return any FHSS Scheme
amounts to superannuation funds, provided the amount has not yet
been released to the individual; and
• clarifying that FHSS Scheme amounts returned by the Commissioner
of Taxation to superannuation funds are treated as funds'
non-assessable non-exempt income and do not count towards
individuals' contribution caps.
45
Improving the flexibility of the First Home Super Saver Scheme
Comparison of key features of new law and
current law
Table 4.1 Comparison of new law and current law
New law Current law
Individuals are generally able to amend and Individuals are not able to amend and revoke
revoke their FHSS Scheme applications. their FHSS Scheme applications.
Individuals have up to 90 days to request a Individuals have up to 14 days to request a
release authority after they enter into a release authority after they enter into a
contract to purchase or construct a home. contract to purchase or construct a home.
Transitional rules allow past users of the No equivalent.
FHSS Scheme to take advantage of the
increased flexibility of the new law. The
transitional rules only apply in specified
circumstances.
Detailed explanation of new law
4.4 Schedule 4 to the Bill makes various amendments to the TAA and the
ITAA 1997 to give effect to the technical changes.
4.5 Individuals and the Commissioner of Taxation are generally able to amend or
revoke FHSS Scheme applications, provided a FHSS Scheme amount has not
already been paid to the individual (under the legislation, a FHSS Scheme
amount is effectively considered to be paid to an individual if the
Commissioner of Taxation has begun the process of paying the amount to the
individual, even though the individual may not have received the amount yet).
Any amended FHSS Scheme applications must still comply with the
underlying criteria and policy intention of the scheme (for example, individuals
who now own a home cannot continue progressing FHSS Scheme applications
and have a FHSS Scheme amount paid to them).
[Schedule 4, items 14 to 16 and 18 to 26, sections 131-5, 131-10, 131-12,
131-30, 138-10, 138-12, 138-13 and 138-15 of Schedule 1 to the TAA]
4.6 In certain circumstances, FHSS Scheme amounts paid to the Commissioner of
Taxation can be returned to superannuation funds or the relevant individual.
This generally occurs where the individual's FHSS Scheme application has
been amended or revoked and their entitlement to a FHSS Scheme amount has
ceased. In very limited circumstances, the Commissioner of Taxation may be
able to repay FHSS Scheme amounts directly to the relevant individual or their
legal personal representative. These circumstances involve the individual
46
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
satisfying a condition of release with a nil cashing restriction (for example, the
individual is at least 65 years old).
[Schedule 4, items 17 and 27, sections 131-80 and 355-65 of Schedule 1 to
the TAA]
4.7 FHSS Scheme amounts returned to superannuation funds are not included in
the fund's or individual's assessable income and do not count towards an
individual's contribution caps.
[Schedule 4, items 1 to 6, sections 306-10, 307-5 and 307-120 of the ITAA
1997]
4.8 Returned FHSS Scheme amounts are afforded the appropriate status in terms
of their tax free and taxable components. This helps ensure that returned FHSS
Scheme amounts are subject to the same taxation treatment as if they had never
been released to the Commissioner of Taxation under the FHSS Scheme.
[Schedule 4, item 7, section 307-143 of the ITAA 1997]
4.9 Consequential amendments are made to the taxation rules in relation to the
FHSS Scheme in Division 313 of the ITAA 1997 to ensure these rules account
for the increased flexibility provided by the technical changes. In particular, to
avoid potentially being liable to pay FHSS tax, individuals have up to 90 days
(previously 14 days) to request a release authority after they enter into a
contract to purchase or construct a home. The 90-day period applies in relation
to FHSS determinations made on or after the commencement of Schedule 4 to
the Bill.
[Schedule 4, items 8 to 13, sections 313-10, 313-15, 313-35 and 313-40 of the
ITAA 1997]
4.10 Amendments have been made to provisions which determine an individual's
eligibility for the FHSS Scheme. For an individual to be eligible for the FHSS
Scheme, the individual must first make a request for a FHSS determination. An
individual can only do this if certain conditions are satisfied. One of these
conditions is that the individual has never held a relevant interest in real
property or land (see paragraph 138-10(2)(a) in Schedule 1 to the TAA).
Amendments have been made to ensure this condition refers to the point in
time at which an individual becomes a property owner. In the case of a
standard contract for the purchase and sale of real property, the purchaser
becomes a property owner once the contract is completed and ownership of the
real property transfers to the purchaser. As per the application provision
provided by item 28 of Schedule 4 to the Bill, the amendments apply in
relation to FHSS determinations made on or after the commencement of
Schedule 4 to the Bill.
[Schedule 4, items 20 and 21, subparagraphs 138-10(2)(a)(i) and 138-
10(2)(a)(ii) of Schedule 1 to the TAA]
47
Improving the flexibility of the First Home Super Saver Scheme
Commencement, application, and transitional
provisions
4.11 The amendments commence on a day to be fixed by Proclamation. However, if
the provisions do not commence within the period of 12 months beginning on
the day the Bill receives Royal Assent, they commence on the day after the end
of that period. The commencement by proclamation and 12-month contingency
period are necessary to ensure that the ATO and other stakeholders have
sufficient time to update their systems to administer and comply with the
technical changes.
4.12 Consistent with the 2021-22 Budget announcement, the technical changes
generally apply retrospectively to FHSS Scheme applications made from
1 July 2018. This helps ensure the increased flexibility provided by the
amendments can be afforded to past cases.
[Schedule 4, item 28]
4.13 Transitional provisions support the application of certain provisions and ensure
that variations or revocations of certain FHSS Scheme applications that
occurred before the commencement of the amendments continue to be in force.
[Schedule 4, item 29]
4.14 Special transitional provisions extend the flexibility provided by the
amendments to FHSS Scheme users who have had a FHSS determination made
in relation to them prior to the commencement of the amendments and who
have since started holding a relevant interest in real property or land. These
individuals would otherwise be prevented from taking advantage of the
amendments (because they now hold a relevant interest in real property or land
and this would otherwise prevent them from amending their FHSS Scheme
application).
[Schedule 4, item 30]
4.15 The special transitional provisions have limited application. They only apply:
• in relation to FHSS determinations made before the commencement of
the amendments;
• where the individual has begun holding the relevant interest in real
property or land after the relevant determination was made;
• for the period of three years from commencement;
• if the individual has not already been paid a FHSS Scheme amount;
and
• to allow an individual to release a FHSS Scheme amount up to the
maximum amount the individual could have released at the time the
original determination was made.
[Schedule 4, item 30]
48
Statement of
Compatibility with Human Rights
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Table of Contents:
Schedule 1 - Avoidance of certain product intervention orders ............ 50
Overview ....................................................................................... 50
Human rights implications ............................................................. 50
Conclusion .................................................................................... 51
Schedule 2 - Recognising experience in the financial advice industry . 52
Overview ....................................................................................... 52
Human rights implications ............................................................. 52
Conclusion .................................................................................... 52
Schedule 3 - Competition in the clearing and settlement of cash equities
............................................................................................................. 53
Overview ....................................................................................... 53
Human rights implications ............................................................. 53
Conclusion .................................................................................... 55
Schedule 4 - Improving the flexibility of the First Home Super Saver
Scheme................................................................................................ 55
Overview ....................................................................................... 55
Human rights implications ............................................................. 56
Conclusion .................................................................................... 56
49
Statement of Compatibility with Human Rights
Schedule 1 - Avoidance of certain product
intervention orders
Overview
5.1 Schedule 1 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
5.2 Schedule 1 to the Bill introduces new rules that prohibit schemes designed to
avoid the application of a product intervention order (in relation to a credit
facility) made under Part 7.9A of the Corporations Act.
5.3 The amendments ensure that:
• where there is a product intervention order made in relation to a
financial product that is a credit facility;
• a person (alone or with others) must not engage in activity in the
avoidance of that product intervention order.
5.4 This is intended to ensure that a person cannot respond to a product
intervention order by engaging in activity that is not covered by the order but
results in similar detriment to consumers. As with general integrity provisions,
the intended effect of the product intervention order is a relevant consideration
in the operation of these amendments.
5.5 The general prohibition provides that a person (alone or with others) must not
enter into a scheme, begin to carry out a scheme, or carry out a scheme if,
having regard to any matters prescribed by the regulations, it would be
reasonable to conclude that the purpose, or one of the purposes, of the person
engaging in that conduct was to avoid the application of a credit product
intervention order.
Human rights implications
5.6 Schedule 1 to the Bill engages with the right to a fair trial and fair hearing
rights under Articles 14 and 15 of the ICCPR.
Assessment of civil penalties
5.7 Civil penalty provisions may engage criminal process rights under Articles 14
and 15 of the ICCPR regardless of the distinction between criminal and civil
penalties in domestic law. This is because the word 'criminal' has an
autonomous meaning in international human rights law. When a provision
imposes a civil penalty, an assessment is therefore required as to whether it
50
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
amounts to a 'criminal' penalty for the purposes of Articles 14 and 15 of the
ICCPR.
5.8 The civil penalty provisions are intended to deter people from non-compliance
with the obligations, however, none of the civil penalty provisions carry a
penalty of imprisonment, and there is no sanction of imprisonment for
non-payment of any penalty. Additionally, the larger penalty amounts imposed
by the Schedule apply solely to body corporates and not to individuals.
5.9 These provisions are consistent with similar deterrence regimes previously
introduced by the Financial Sector Reform Act 2022.
5.10 Therefore, the civil penalty provisions introduced by Schedule 1 should not be
considered 'criminal' for the purposes of Articles 14 and 15 of the ICCPR.
Presumption of avoidance for certain schemes in civil cases
5.11 New section 1023T introduces a presumption that a person entered into or
carried out a scheme for an avoidance purpose if the scheme is a scheme
prescribed by the regulations or determined by ASIC in a legislative
instrument.
5.12 However, the presumption does not apply if the person proves that it would not
be reasonable to conclude that the purpose was to avoid a credit product
intervention order, having regard to any matters prescribed by the regulations.
5.13 The Guide to Framing Commonwealth Offences outlines that a matter should
only be included in an offence-specific defence if the information is peculiarly
within the knowledge of the defendant. Accordingly, where a person enters
into a scheme, it is peculiarly within the knowledge of that person as to the
purpose for which they entered into or carried out the Scheme. For example, if
the scheme in question does have a legitimate (non-avoidance) purpose, that
matter would be peculiarly within the knowledge of the person. Conversely, it
would be difficult for ASIC to actively prove that the scheme was not entered
into for any purpose other than avoidance.
5.14 Further, the presumption applies only in civil cases (not in criminal
proceedings), and any regulations or legislative instrument made to prescribe
or determine schemes that are presumed to have the avoidance purpose will be
subject to parliamentary scrutiny and disallowance.
5.15 As such, the amendments appropriately engage with Articles 14 and 15 of the
ICCPR.
Conclusion
5.16 Schedule 1 to the Bill is compatible with human rights.
51
Statement of Compatibility with Human Rights
Schedule 2 - Recognising experience in the
financial advice industry
Overview
5.17 Schedule 2 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
5.18 Schedule 2 amends the Corporations Act to deliver the Government's election
commitment to better recognise the experience of existing financial advisers.
This Schedule also addresses some technical limitations in the current
legislative framework for financial advisers.
5.19 These amendments resolve unintended consequences introduced through the
Professional Standards of Financial Advisers Act and the Better Advice Act,
while continuing to support the professionalisation of the financial advice
sector:
• Existing financial advisers with extensive industry experience and a
clean disciplinary record are leaving the industry.
• Potential new entrants are unable to meet the qualifications standard
for technical reasons, despite meeting the substance of that
requirement.
• For financial advisers who are also qualified tax agents, there is
unnecessary duplication of qualification requirements to provide tax
(financial) advice services.
Human rights implications
5.20 Schedule 2 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
5.21 Schedule 2 to the Bill is compatible with human rights as it does not raise any
human rights issues.
52
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Schedule 3 - Competition in the clearing and
settlement of cash equities
Overview
5.22 Schedule 3 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
5.23 This Schedule amends the Corporations Act, the Competition and Consumer
Act and ASIC Act to facilitate competitive outcomes in the provision of CS
services for Australia's financial markets. The amendments provide ASIC with
powers to:
• implement and enforce requirements for a monopoly provider of CS
services to operate in a way that achieves competitive outcomes; and
• ensure safe and effective competition in clearing and/or settlement
should a competitor emerge.
5.24 The amendments also provide the ACCC with the power to conduct binding
arbitration to resolve disputes regarding access to CS services covered by a
declaration made by the Minister.
Human rights implications
5.25 Schedule 3 to the Bill engages the following human rights:
• the right to a fair trial and fair hearing rights under Articles 14 and 15
of the ICCPR; and
• the right to protection from arbitrary or unlawful interference with
privacy under Article 17 of the ICCPR.
Right to a fair trial and fair hearing
5.26 The Bill does not adversely engage the right to a fair trial in Article 14 of the
ICCPR despite some contraventions of the new Part XICB subject to the
imposition of a civil penalty.
5.27 The civil penalty provisions contained in the new Part XICB are not criminal
penalties. While a criminal penalty is a deterrent or punitive, these provisions
are regulatory and disciplinary as they aim to encourage compliance with an
entity's obligations under the Part.
53
Statement of Compatibility with Human Rights
5.28 The provisions also only target entities that are bodies corporate. They do not
apply to the general public, but to a class of entities who should reasonably be
aware of their obligations under the amendments.
5.29 Imposing these civil penalties will enable an effective response to
non-compliance. The maximum civil penalty amounts that can be imposed are
intentionally significant and are in line with penalties for like provisions in the
law.
5.30 The judiciary continues to have discretion to consider the seriousness of the
contravention and impose a penalty that is appropriate in the circumstances.
Courts are experienced in making civil penalty orders at appropriate levels
having regards to the maximum penalty amount, considering a range of factors
including the nature of the contravention, conduct and size of the entity.
5.31 A relevant consideration in setting a civil penalty amount is the maximum
penalty that should apply in the most egregious instances of non-compliance.
5.32 Civil penalties carry no sanction of imprisonment for non-payment of the
penalty.
5.33 Based on the above factors, the nature and severity of the civil penalties in the
amendments in the Schedule are not criminal for the purposes of human rights
law.
Protection from arbitrary or unlawful interference with privacy
5.34 The arbitration regime introduced in the Schedule required the ACCC to
maintain a public register to record final determinations. This register will
include information specifying the names of the parties, the service it relates to
and the date of the determination.
5.35 The information published on the register engages Article 17 of the ICCPR,
however, this engagement with the right to privacy is necessary and
proportionate to the provision of relevant information to the general public.
The names and services requiring access are published to benefit the public in
identifying which CS services have been the subject of arbitration.
5.36 The ACCC is subject to the Australian Privacy Principles (APPs) under the
Privacy Act 1988, which regulate how information is collected, disclosed and
stored. Personal information used by the ACCC is only to be for the purpose in
which it was given, or for purposes directly related to one of its function under
the Act, such as maintaining a register under section 153ZFD of the CCA.
5.37 Under the arbitration regime, parties may ask each other for information,
including personal information, but only as permitted by the Privacy Act 1988.
These parties must consent to providing the information and use of the
information is restricted to negotiations or arbitration. Any information
received from other parties cannot be used outside of negotiations or
arbitrations.
54
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
5.38 These elements of the arbitration regime do not interfere with Article 17 of the
ICCPR because they do not require or authorise any additional use or
disclosure of information than what is already regulated under the Privacy Act
1988. The amendments do not change the privacy protections for personal
information already in place under Australian law. To the extent that the
amendments impinge on individuals right to privacy, those limitations are
reasonable, necessary and proportionate to the outcome.
Conclusion
5.39 Schedule 3 to the Bill is compatible with human rights.
Schedule 4 - Improving the flexibility of the First
Home Super Saver Scheme
Overview
5.40 Schedule 4 to the Bill is compatible with the human rights and freedoms
recognised or declared in the international instruments listed in section 3 of the
Human Rights (Parliamentary Scrutiny) Act 2011.
5.41 Schedule 4 to the Bill amends the Taxation Administration Act 1953 and
Income Tax Assessment Act 1997 to make technical changes to the First Home
Super Saver (FHSS) Scheme.
5.42 The amendments increase the discretion of the Commissioner of Taxation to
amend and revoke applications to have funds released under the FHSS
Scheme.
5.43 They also allow individuals to amend and revoke an application to have funds
released under the FHSS Scheme, without those individuals being prevented
from re-applying in the future.
5.44 The Schedule includes special transitional provisions which extend the
flexibility provided by the amendments to users who have previously applied
to have funds released under the FHSS Scheme and have since started holding
a relevant interest in real property or land.
5.45 These changes will improve the operation of the FHSS Scheme by affording
the Commissioner of Taxation and users of the FHSS Scheme greater
flexibility.
55
Statement of Compatibility with Human Rights
Human rights implications
5.46 Schedule 4 to the Bill does not engage any of the applicable rights or freedoms.
Conclusion
5.47 Schedule 4 to the Bill is compatible with human rights as it does not raise any
human rights issues.
56
Attachment 1: Impact Analysis -
Recognising experience in the financial
advice industry
Table of Contents:
Introduction .......................................................................................... 58
Timeline of legislation .................................................................... 60
The problem ......................................................................................... 60
Case for government action ................................................................. 62
Policy options....................................................................................... 62
Status quo ..................................................................................... 63
Election commitment - the 'experienced pathway' ........................ 63
Cost-benefit analysis............................................................................ 64
Data sources ................................................................................. 64
Determining affected cohorts ........................................................ 65
Impact on advisers ........................................................................ 66
Impact on education providers ...................................................... 68
Impact on consumers .................................................................... 68
Consultation ......................................................................................... 70
Conclusion ........................................................................................... 72
Implementation and evaluation ............................................................ 72
Glossary............................................................................................... 73
References .......................................................................................... 74
Appendix A - Status of the RIS at each major decision point .............. 75
57
Impact Analysis - Recognising experience in the financial advice industry
Introduction
In the past decade there have been significant developments in the educational
requirements for financial advisers aimed at professionalising the industry. A defining
feature of a profession is that members share common knowledge, skills and expertise
in a specialised field. Prior to the current requirements, the education and training of
financial advisers relied upon the Australian financial service licensee (licensee)
obligation 912A in the Corporations Act 2001. Under this obligation, licensees are
required to ensure that their representatives are 'adequately trained [ ... ] and competent
to provide those financial services'. The Australian Securities and Investments
Commission (ASIC) provided guidance for the minimum education standards for
financial advisers in Regulatory Guide 146: Licencing: Training of Financial Product
Advisers (RG 146). RG 146 required:
• Australian Qualifications Framework level 5 (diploma level) courses
• specialist knowledge about the specific products on which an adviser provides advice,
and their markets
• generic knowledge requirements, including training on the economic environment, the
operation of financial markets and financial products.
Evidence provided to the 2014 Parliamentary Joint Committee inquiry into proposals
to lift the professional, ethical and education standards in the financial services
industry (PJC Inquiry) indicated that the previous education requirements set under RG
146 did not deliver appropriate standards. ASIC's evidence to the PJC Inquiry outlined
that there were numerous and fragmented approaches to interpreting and implementing
the requirements in RG 146, and that training courses varied significantly in terms of
content and quality.
In response to evidence provided, the PJC Inquiry recommended that at a minimum
financial advisers hold a degree qualification at AQF level 7 (bachelor's degree level),
complete a structured professional year, pass an exam, and comply with ongoing
professional development requirements.
The Financial Adviser Standards and Ethics Authority (FASEA) was the standard
setting body established by the Corporations Amendment (Professional Standards of
Financial Advisers) Act 2017. FASEA was charged with setting the education, training
and ethical standards for licensed financial advisers including
• approving bachelor's degrees or equivalent qualifications and determining the bridging
courses requirements for existing advisers
• approving and administering the financial adviser exam
• determining the professional year requirements
• approval of foreign qualifications
• setting continuing professional development requirements
58
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
• making the code of ethics.
Over its lifespan, FASEA was heavily criticised for the framework it both developed
and implemented. Stakeholders were critical that the standards did not better recognise
prior learning and experience.7 The Financial Planning Association said FASEA 'got it
wrong with its one size fits all framework. Financial planners have entered with a
variety of degrees and prior career experience, and they shouldn't have to restudy what
they already know.'8
FASEA's function was transferred to ASIC and Treasury on 1 January 2022. Treasury
assumed control of the standard-setting obligations.
During the 2022 election, the government committed to addressing concerns about the
education requirements for existing providers and better recognise their on-the-job
experience. Specifically, by removing the tertiary education requirements for financial
advisers with 10 years' experience and a clean disciplinary record.
Currently, the relevant legislation and regulations provide transitional arrangements for
'existing providers' - those financial advisers who were authorised to provide financial
advice between 1 January 2016 and 1 January 2019. This cohort must also not have
been banned, disqualified, or subject of a court enforceable undertaking as of 1 January
2019 to be considered an existing provider.
Existing providers are currently required to comply with the following education
requirements to continue providing personal financial advice:
• hold, at most, an approved 8 unit graduate diploma by 1 January 2026 9
• passed the Financial Adviser Exam (exam) by 30 September 2022, if eligible for the
extension, otherwise by 31 December 2021
• undertake 40 hours of continuing professional development per year.
As stated in the Explanatory Memorandum to the Corporations Amendment
(Professional Standards of Financial Advisers) Act 2017, these provisions were
designed to allow flexibility for existing advisers and to ensure they 'undertake
adequate study to bring their qualifications in line with the new standard'.10
7
SIAA, September 4
8
IFA, February 2022.
9
Recognition of prior learning can reduce the number of required subjects, including if the
adviser holds an Advanced Diploma of Financial Planning or has completed coursework to
obtain a professional designation (e.g. Certified Financial Planner).
10
Explanatory Memorandum, Corporations Amendment (Professional Standards of Financial
Advisers) Bill 2017 [6.8]
59
Impact Analysis - Recognising experience in the financial advice industry
Timeline of legislation
Table 1 Timeline of Legislation
Date Description
23 November 2016 Corporations Amendment (Professional Standards of Financial
Advisers) Bill 2016 introduced into Parliament.
07 February 2017 Corporations Amendment (Professional Standards of Financial
Advisers) Bill 2016 passed House of Representatives.
09 February 2017 Corporations Amendment (Professional Standards of Financial
Advisers) Bill 2016 passed Senate.
22 February 2017 Corporations Amendment (Professional Standards of Financial
Advisers) Bill 2016 commenced.
24 June 2021 The Financial Sector Reform (Hayne Royal Commission
Response - Better Advice) Bill 2021 introduced into
Parliament
04 August 2021 The Financial Sector Reform (Hayne Royal Commission
Response - Better Advice) Bill 2021 passed the House of
Representatives
21 October 2021 The Financial Sector Reform (Hayne Royal Commission
Response - Better Advice) Bill 2021 passed the Senate
01 December 2021 The Corporations (Relevant Providers--Education and
Training Standards) Determination 2021 was registered
01 January 2022 The Financial Sector Reform (Hayne Royal Commission
Response - Better Advice) Act 2021
The problem
Since the introduction of the education requirements, there has been a decline in
adviser numbers. Between 2018 and 2022 the pool of advisers has reduced by more
than 11 646. The prescriptive nature of the education requirements has been frequently
cited as a key contributing factor. This has been widely reported, with an August 2022
article from Independent Financial Adviser stating that the 'current requirements have
been criticised by a number of groups within the sector, including the Financial
Planning Association, Association of Financial Advisers and The Advisers
Association, with CEO Neil Macdonald saying the industry will experience a "mass
60
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
exodus" by 2026 if changes are not made.'11 Figure 1 below shows this decline in
adviser numbers, using data from the Financial Advice Register. There has been a
29.63 per cent decline in the number of financial advisers between 2015 and 2023 and
a 41.65 per cent decline from the height of 2018.
Figure 1 Number of active financial advisers
30000
25000
20000
15000
10000
5000
0
2015 2016 2017 2018 2019 2020 2021 2022
It was not the intention of the education requirements to force advisers out of the
industry. Rather the requirements were intended to professionalise the industry by
ensuring that advisers had a common base level of knowledge.
However, in their current form, the education requirements have failed to strike the
right balance between ensuring consumers are receiving professional advice and
encouraging experienced advisers to stay in the industry. It is a reasonable
consideration for an experienced adviser, in deciding whether to undertake additional
study to consider the associated costs both financial and time expended, and the
expected return, including based on how long the adviser has before retirement.
Experienced advisers make a valuable contribution to the financial advice industry.
They play an integral role supervising new entrants during their professional year and
sharing their knowledge and experience more broadly. Experienced advisers have
worked during complicated economic periods such as the Global Financial Crisis and
the impacts of the COVID-19 pandemic.
As the number of new entrants has not matched the number of exiting advisers, a
decline in the number of advisers, given there has been no change in demand for
advice, is also likely to put upward pressure on the price of advice. Members of
industry have drawn links between the professional standards and costs of advice. For
example, the Financial Services Council's White Paper on Financial Advice says the
'regulatory framework designed to professionalise the industry ... is an unprecedented
11
IFA, August 2022.
61
Impact Analysis - Recognising experience in the financial advice industry
driver of costs for financial advisers and consumers.'12 While that paper pointed to
multiple aspects of the professionalisation framework as impacting the increases cost
of advice, the education requirements were identified as a contributing feature.13
Cost represents a barrier to consumers seeking advice. Research by ASIC suggests that
cost of advice was the most identified reason for participants not seeking financial
advice. 64 per cent of participants agreed that financial advisers were too expensive.14
The Quality of Advice Review also noted that declining number of advisers has meant
advice is increasingly only provided to high-net-worth individuals.15
Case for government action
As outlined above, the decline in adviser numbers, and the subsequent rise in advice
prices, could be, at least partially attributed to government intervention. As
implemented, the education requirements failed to appropriately recognise the lived
experience of certain financial advisers, meaning the requirements did not properly
balance the desire to professionalise the industry, with the benefits of retaining an
experienced skilled workforce. The government can address this issue by amending the
existing regulation.
As outlined above anecdotal evidence has indicated that the requirements create a
significant barrier to remain in the industry. Government action to change the
education requirements is not likely to reverse the decline of advisers but it can play a
part in stabilising the numbers. It is likely to ensure there is no significant exit of
advisers on 1 January 2026, meaning that new entrants can benefit from mentoring
from experienced advisers who may exit in a more orderly fashion.
Review or reform of the professional standards for financial advisers was outside the
Terms of Reference for the independent Quality of Advice Review. While evidence
gathered by the Review is useful for informing this policy, it did not make
recommendations on the education standards.
Policy options
As the proposed policy intervention is an election commitment, the only policy options
that will be considered are the commitment itself and the status quo. This is consistent
with guidance from the Office of Impact Analysis.
12
FSC, 2021. White Paper on financial advice
13
FSC, 2021. White Paper on financial advice
14
ASIC, 2019. Financial Advice: What consumers really think
15
Quality of Advice Review, 2022.
62
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Status quo
The status quo is that financial advisers who were authorised on the Financial Adviser
Register between 2016 and 2019 (existing advisers) are currently required to, at most,
complete an 8 subject graduate diploma. Prior learning, such as an Advanced Diploma
of Financial Planning or a professional designation such as a Certified Financial
Planner, can reduce the required subject load. This arrangement already provides
reduced transition arrangements for existing advisers in meeting the education
requirement of a bachelor's degree.
Election commitment - the 'experienced pathway'
The election commitment was to remove the tertiary education requirements for
financial advisers with 10 or more years' experience and a clean disciplinary record.
This commitment was made on 8 December 2021 in an address to the Association of
Independently Owned Financial Professionals by the now Assistant Treasurer and
Minister for Financial Services, the Hon Stephen Jones MP. This speech outlined 'that
an Albanese Labor government will properly recognise [advisers'] experience. If
you've been working for a decade as a financial advisor with a good record, a Labor
government will not ask to you take that bachelor's degree to keep your qualifications.'
16
Of the providers currently registered on the Financial Adviser Register, 10 030 were
first registered in 2011 or earlier, which is essential for meeting the 10 years of
experience. This is the upper bound for who would be affected by this policy, noting
that some of this cohort have already met the education requirements or have not
provided advice for 10 years. More detail on the effect cohorts is included in the cost-
benefit analysis section.
Under this option, advisers are still required to pass the financial adviser exam,
ensuring that all advisers have the same base level of knowledge.
10 years' experience
To fulfil this requirement, advisers will be required to have had 10 years of full-time
equivalent experience in the 15 years between 1 January 2007 and 31 December 2021
in Australia. The 10 years do not have to be consecutive. 10 years of full-time
equivalent experience out of a 15-year window allows consideration for time out of the
industry and part-time work. Importantly, the period between 1 January 2007 and 31
December 2021 covers significant economic events, such as the global financial crisis
and COVID-19, ensuring eligible experienced advisers have lived experience in
volatile economic conditions. Additionally, this ensures that the 10 years' experience is
16
Steven Jones, December 2021. Address to AOIFP conference dinner.
63
Impact Analysis - Recognising experience in the financial advice industry
contemporary, meaning advisers will have experience operating in and understanding
the current regulatory environment.
Clean record
To access the experienced pathway, advisers would be required to have a clean
disciplinary record. This criterion is intended to act as a quality assurance mechanism
to prevent advisers who have demonstrated misconduct from accessing favourable
arrangements, thereby protecting the integrity of the financial advice profession, and
ensuring consumer protection. The clean record criterion requires an adviser to have no
disciplinary actions or enforceable undertakings recorded against them on the Financial
Advisers Register.
Proof of eligibility
Advisers will be required to make a declaration of their eligibility for the pathway but
will not be required to attach evidence of their eligibility.
ASIC will have the capacity, at its discretion, to audit for compliance with the
eligibility criteria. As such, ASIC can decide to scrutinise a specific declaration from
an adviser where ASIC is aware that an adviser may be ineligible.
Cost-benefit analysis
In this section we will outline our data sources, the cohorts we used for our analysis
and the estimated costs the education requirements place on advisers. We analyse the
effects the election commitment would have on each stakeholder group.
Data sources
We have used 2 main data sources: the registration records of advisers on the Financial
Advisers Register maintained by ASIC, and survey data collected from 2 professional
organisations, the Association of Financial Advisers and the Financial Planning
Association. The Financial Advisers Register is the best source for understanding the
total number of practising advisers, but it does not have detailed and consistent
information on the education undertaken by an adviser or the education required to be
undertaken. The survey data was used to supplement the Financial Advisers Register.
The Financial Advisers Register is a publicly accessible register of people authorised to
provide personal advice to retail clients about financial products. The register records
where a financial adviser has worked, their training, memberships of professional
bodies and what products they are authorised to provide advice on. However, while the
Financial Advisers Register records the year in which an adviser first provided advice,
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
it does not provide an indication of full-time equivalent experience between that initial
date and the present date. In addition, while the Financial Advisers Register records
details of an adviser's current and previous appointments, this data only goes back to
March 2010. Further, while there is an obligation for licensees to update the Financial
Advisers Register when a financial adviser's details change, including obtaining
qualifications, it does not record how much study an adviser must still complete. As
such, our ability to identify a cohort that may be eligible to access the experienced
adviser pathway and how much additional study they are required to complete is
limited.
The Association of Financial Advisers and Financial Planning Association used
surveys to collect data on their members' education status, including whether they had
already met the education standard, and if not, whether they intend to meet it. Being
survey data, these sources present their own limitations, such as sample size and
response bias.
Determining affected cohorts
We must know the number of advisers with 10 years' experience, clean records, and
unmet education requirements to analyse the impact of each policy option. We also
need to know what proportion of these eligible advisers would take up a pathway if it
were introduced. We have constructed 3 different cohorts to estimate the size of the
effect group.
Number of Advisers with 10 or more years' experience
Analysis of the Financial Advisers Register indicates that 10 030 practising advisers
were first authorised in 2011 or earlier. All advisers eligible for the election
commitment are in this pool. This cohort is accurate as of March 2023.
However, this group could also include ineligible advisers because they have not
actively been providing advice through this period. Former advisers who were
authorised by their licensee over 10 years ago but who have not been providing advice
since then would be included in this group but would not be eligible for the election
commitment. Similarly, some advisers in this cohort may have already met the
education requirements which have been in place since 2017 and so while eligible for
the proposed experience pathway, they will not benefit from it.
Cohort 1: 6 520 advisers
Estimate of existing advisers who need to complete education
requirements
This cohort takes the 10 030 advisers with 10 years' experience and applies
Association of Financial Advisers and Financial Planning Association survey data to
exclude those who have already met the education requirements. These advisers will
not benefit from the election commitment. 30.1 per cent of the Association of Financial
65
Impact Analysis - Recognising experience in the financial advice industry
Advisers respondents and 40 per cent of the Financial Planning Association
respondents indicated they have already met the requirements17. Using 35 per cent as
the average, this would mean 3 510 existing advisers have already met the education
requirements and will not benefit from the election commitment. The inverse of this is
that an estimated 6 520 advisers will benefit from the requirement.
Cohort 2: 2 086 advisers
Estimate of advisers who would exit the industry on 1 January 2026 if
required to undertake additional education
This cohort takes the 10 030 advisers with 10 years' experience and applies
Association of Financial Advisers survey data to identify those advisers who have
indicated they had no intention of meeting the education requirements and would
instead exist the industry before 1 January 2026. 20.8 per cent of Association of
Financial Advisers respondents indicated they would not seek to meet the education
requirements. This would mean approximately 2 086 advisers were not intending to
remain in the industry after 1 January 2026. These advisers would benefit from the
election commitment as they would be able to continue working without the cost of
additional study and earning an income.
Cohort 2 is a subset of cohort 1.
Cohort 3: 4 434 advisers
Estimate of advisers currently undertaking education requirements ahead
of 1 January 2026 deadline
This cohort is estimated by taking the 6 520 advisers estimated to benefit from the
proposal (cohort 1) and subtracting the 2 086 advisers who were not intending to
undertake additional study (cohort 2) to determine those existing advisers who were
part way through their studies. This cohort will benefit from the election commitment
but the extent to which they will benefit will depend on the amount of education
already undertaken and the amount of education left to complete.
Impact on advisers
In considering the impact of the election commitment and how it will benefit advisers,
it is useful to understand the cost of the required courses. The compulsory ethics units
from a Registered Training Organisation (RTO) and a university will be used as a
proxy for the costs and time commitment of required units and are shown in table 2.
17
FPA, February 2022. Submission, and AFA, February 2022. Submission.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Table 2 indicative RTO and University course
Indicative RTO Indicative university
2022 fee $2 500 $3 518
Course duration 12 weeks 11 weeks
Indicative hours 120 total indicative hours 150 total indicative hours
Based on the above information an estimate of the potential cost of meeting the
education requirements for a financial adviser is set out in the table 3.
Table 3 Cost and time of study but number of courses to complete
Financial cost Required time in hours
Number of Indicative RTO Indicative Indicative RTO Indicative
courses fee university fee duration university
duration
8 $20 000 $28 000 960 1 200
7 $17 500 $24 500 840 1 050
6 $15 000 $21 000 720 900
5 $12 500 $17 500 600 750
4 $10 000 $14 000 480 600
3 $7 500 $10 500 360 450
2 $5 000 $7 000 240 300
1 $2 500 $3 500 120 150
To consider the impact of the election commitment on advisers we use the status quo
as the baseline and consider the impact against the identified cohorts who would be
affected.
As set out above, cohort 2 represents those advisers who are eligible for the election
commitment and who had indicated that they were not going to undertake any other
study and would therefore have to leave the industry by 1 January 2026. Given the
intention to leave, it could be assumed that the benefit of continuing to work in the
industry was considered less than the cost (up to $20 000 and 960 hours for 8 units of
study). The benefit to these advisers is the remuneration they can continue to receive
beyond 1 January 2026.
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Impact Analysis - Recognising experience in the financial advice industry
For cohort 3, those advisers who are eligible for the election commitment but who had
begun to complete the education requirements, the benefit of the election commitment
is the time and cost saving of not needing to do more education. However, the extent of
the benefit depends on how many subjects the adviser has already completed and how
many subjects are remaining. Assuming these advisers have at most 4 units of study to
complete (from a maximum of 8) advisers would save up to $10 000 and 480 hours.
Advisers who have invested time and money into already meeting the education
requirements may consider that a wasted expense as a result of the election
commitment. However, undertaking additional education can refresh an adviser's skills
and as the information can be recorded on the financial advisers register, could be seen
by consumers selecting between advisers as a plus. Indeed, an education provider has
observed that advisers are continuing their studies despite the election commitment.18
Impact on education providers
The cost to education providers will be the lost revenue from advisers no longer taking
their courses. An upper estimate, assuming education providers pocket 100 per cent of
their course fees, of this cost would be between $44 and $62 million, the inverse of the
aggregate of cohort 3's savings. Education providers have operating costs, so the true
cost will be lower than this.
Education providers might lose revenue, but this policy is unlikely to place a large cost
on them. The existing adviser cohort was finite so this as a revenue source was time
limited, even without the election commitment. Additionally, the courses experienced
advisers and new entrants must complete have overlap, so no upfront cost would have
been spent developing courses specifically for experienced advisers.
Impact on consumers
Research from Adviser Ratings illustrates that from 2018 to 2021 the median fee for
advice has increased from $2 510 to $3 528.19 Adjusting for inflation, the increase was
from
$2 820.15 to $3 760.64 in 2022 dollars.20 Further information on this trend is shown in
figure 2. The increasing cost of advice has been acknowledged by other reviews of
financial advice.21 The Quality of Advice Review highlighted that the regulatory
burdens imposed on financial advisers is a 'significant factor' in the cost of advice.22
Since the introduction of increased requirements in 2019, the cost of advice has
continued to rise.
18
Kaplan, February 2023. Kaplan Professional sees record enrolment numbers as advisers just
getting on with it
19
Adviser Ratings, 2022. Australian Financial Adviser Landscape.
20
Reserve Bank of Australia, 2023. Inflation Calculator.
21
KPMG, 2021. Cost Profile of Australia's Financial Advice Industry.
22
Quality of Advice Review, December 2022.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
The factors that contribute to the cost of financial advice to consumers are varied and it
is not possible to quantify the exact impact that this policy will have on advice costs.
But by retaining more advisers and increasing supply, this policy is likely to stabilise
advice fees in the short to medium term, benefiting consumers who acquire advice.
This election commitment has several safeguards built into the policy design that will
provide ongoing consumer protections. The clean record requirement ensures that
advisers cannot access the pathway if disciplinary action has been taken against them.
The requirement to make a declaration ensures that advisers are honest in their
assessment of eligibility. An adviser who is dishonest would contravene the law and
face penalties. There are other requirements that ensure that an adviser has a consistent
base level of knowledge, including the requirement to complete 40 hours of continuing
professional development and pass the exam. These safeguards are in addition to the
broader regulatory requirements which provide consumers with certainty knowing that
they have access to quality advice.
All new entrants to the industry must meet prescribed education requirements ensuring
that, in time, the number of experienced advisers will reduce as they retire. This means
that in due course all financial advisers will be similarly qualified.
Figure 2 Average and median client fees23
23
Adviser Ratings, 2022. Australian Financial Adviser Landscape.
69
Impact Analysis - Recognising experience in the financial advice industry
Consultation
Treasury consulted on the specifics of implementing this election commitment over a 4
week period from 23 August to 16 September 2022. 7 stakeholder roundtables were
held with industry groups representing financial planners, stockbrokers, accountants,
superannuation funds, licensees, and higher education providers. 77 written
submissions were also received for the consultation paper, with 30 from individuals, 22
from professional associations, 17 from businesses, 3 from government agencies or
not-for-profit entities and 4 from higher education providers. This is a broad group of
stakeholders that captures the diversity of financial planner specialties, the licensees,
educators and the government.
Stakeholders were presented with a proposed 'experienced adviser' pathway, which
would be available to advisers with 10 years equivalent full-time experience between
1 January 2004 and 1 January 2019 and a clean disciplinary record. The pathway is
detailed in the table 4.
The purpose of the consultation was to gauge stakeholders' opinion on how best to
implement the government's election commitment; what constituted 10 years'
experience and a clean record; and how to an adviser could demonstrate their
eligibility.
Table 4 Pathway presented in consultation period
Existing adviser Experienced adviser New entrant
Advisers with 10 years Individuals who
Who they are Registered on
full-time equivalent are not Existing Advisers
the Financial
Advisers experience in or Experienced
Register between Australia between Advisers.
1 January 2016 and 1 January 2004 and
1 January 2019. 1 January 2019.
Holds a clean
Do not meet the disciplinary record.
experienced advisers'
criteria.
At most, approved 8 No tertiary education Hold an approved
Education
unit graduate requirements. bachelor's degree (or
requirement
diploma (or higher qualification).
equivalent) by Undertake
1 January 2026. a professional year.
Reception from industry on the election commitment was mixed. 60 per cent of
submissions that engaged with the election commitment were supportive of the
approach, either unconditionally or with the inclusion of some additional requirements
or limitations. Professional associations, businesses and government agencies gave
mixed support. Higher education providers did not support the proposal.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Conditional support was usually caveated with the desire to ensure the inclusion of a
'sunset' date to only allow the experienced pathway to be available until a set time in
the future. The primary justification for this position was to ensure that advisers
currently in their 30s and 40s, who qualify for the experienced adviser pathway, were
precluded from being able to practise for decades without meeting any further
education requirements. Upon analysis of the data, a sunset date is not considered
necessary, and it would complicate the legislation. Data from the Financial Advice
Register shows that an estimated 5 800 advisers are in their late 40s or older and will
form the majority of advisers eligible for the experienced pathway. The proposed
sunset date was 15 to 20 years, when a majority of advisers would be retiring. There
was a trade-off between including this additional limitation and the complexity it added
to the system and legislation and any perceived protection it provided.
Consultation on the 10 years' experience
The 10 years' experience condition was widely supported. 46 submissions favoured the
10 years period, whilst 18 opposed it. Most concerns on this element indicated the
imperative for more contemporary experience to be recognised. An adjusted period of
experience from 2007 to 2021 was generally preferred. Stakeholders considered that
this aligned with the announcement of the commitment and captured more
contemporary experience, including of the impact of COVID-19. Because of this
consultation, the more contemporary period of experience from 1 January 2007 to
31 December 2021 was adopted.
Consultation on the clean record
There was strong in principle support for the clean record requirement. 45 submissions
supported a clean record requirement and 9 opposed it. But the only widely supported metric to
determine a clean record was using the Financial Advisers Register.
Other options tabled included whether an adviser's conduct has resulted in adverse findings
being made against their licensees at the Australian Financial Complaints Authority, continuing
professional development compliance, and disciplinary action taken by professional
associations against their member. But these methods received mixed support.
Due to the consultation, a more stringent definition of a clean record, using only action on the
Financial Advisers Register, was adopted. This is considered to be an easily identifiable and
consistent metric.
Consultation on the assessment of eligibility
Finally, the assessment of eligibility was examined, with the option of a self-assessment and
declaration of eligibility being presented. There was support for self-declaration with 33
submissions in support and 17 in opposition.
The stakeholders generally agreed that a formal mechanism should be used to indicate
an adviser's eligibility for the pathway, but no consensus could be reached on which
mechanism. Proposals ranged from an adviser making a statutory declaration, to a
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Impact Analysis - Recognising experience in the financial advice industry
licensee assessing a portfolio of evidence, to ASIC assessing each adviser's eligibility
on an application basis. ASIC as the regulator was presented as having the ability to
randomly audit applications as it saw fit to ensure compliance but there would not be a
person-by-person assessment.
Without a clear alternative being presented, the originally presented option of self-
assessment was maintained. This option does not place a large burden on ASIC or the
licensee, and with the more stringent definition of a clean record, the risks associated
with this method are reduced.
Conclusion
The declining number of financial advisers, in the face of sustained demand for
financial advice, will contribute to rising cost of financial advice in the absence of
government action. Addressing the increasing cost of financial advice will likely
require multiple policy responses.
However, the proposed option will remove a significant disincentive for experienced
advisers to stay in the industry, assisting to stabilise adviser numbers and ensure a pool
of advisers to mentor, supervise and upskill new entrants. This will support efforts to
increase the supply of advisers making advice more affordable and more accessible.
The pathway will achieve these goals without reducing consumer protection. The
experienced adviser maintains a high standard for advisers by requiring a clean record
and continues the professionalisation of the industry by testing a base level knowledge
through the financial adviser exam. For the above reasons the election commitment is
the preferred policy response compared to maintaining the status quo.
Consultation helped refine this pathway. A more contemporary period for the 10 years'
experience and a more relaxed definition of clean record were adopted due to industry
feedback.
Implementation and evaluation
Delivery of the election commitment requires changes to the primary legislation and
subordinate legislation.
Implementation will leverage existing processes and systems within industry. For
example, an Australian financial services licensee is already required to inform ASIC
on the education status of their authorised representatives. There are forms and IT
systems in place to support this requirement. This mechanism will be the avenue
through which a licensee will notify ASIC of an adviser's eligibility for the experience
pathway.
Licensees will be able to set up their own internal systems and processes as to the form
in which an adviser will declare that they are eligible for the election commitment.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Licensees and advisers will have until 1 January 2026 to establish eligibility for this
election commitment. This is the current date by which an existing adviser must meet
the education requirements while continuing to provide advice. An adviser who meets
the criteria will still be able to enter the industry at any time without needing to
complete additional education requirements as long as they have passed the exam.
ASIC would continue to monitor and enforce compliance with the education standards
consistent with existing practice. ASIC has guidance available on its website setting
out how it prioritises and identifies its regulatory activity. As outlined above, ASIC
will be able to scrutinise an adviser who uses the experienced pathway where they are
aware that an adviser may be ineligible.
ASIC currently maintains the Financial Advisers Register. Advisers are required to
update ASIC when their circumstances change. Further, ASIC will have the ability to
audit an adviser who has identified as eligible for the experienced pathway, ensuring
that their declaration of eligibility matches their data on the Financial Advisers
Register.
Further information on professional standards for financial advisers can be found at the
following address.
www.asic.gov.au/for-finance-professionals/afs-licensees/professional-standards-for-
financial-advisers/
Further information on how ASIC prioritises its regulatory activity can be found at the
following address.
www.asic.gov.au/about-asic/asic-investigations-and-enforcement/asic-enforcement-
priorities/
Success will be measured on the number of active advisers. A stabilisation of adviser
numbers will reflect that existing advisers remain in the industry, mentoring and
supervising new entrants. This will be observable in the number of advisers listed on
the Financial Adviser Register.
Glossary
ASIC - Australian Securities and Investments Commission
FASEA - Financial Adviser Standards and Ethics Authority
RTO - Registered Training Organisation
Licensee - Australian financial service licensee
New Entrant - A financial adviser who has entered the industry after 2019.
Existing Adviser - A financial adviser who was on the financial adviser's register
between 2016 and 2019.
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Impact Analysis - Recognising experience in the financial advice industry
References
Adviser Ratings, 2022. Australian Financial Advice Landscape Report.
ASIC. Financial Advisers Register.
https://asic.gov.au/for-finance-professionals/afs-licensees/financial-advisers-
register/fees-to-update-the-financial-advisers-register/
Association of Financial Advisers, February 2022. Submission.
https://www.afa.asn.au/wp-content/uploads/20220201_AFA-Submission-Education-
Standards-Final.pdf
Deakin University. Ethics for financial services course.
https://www.deakin.edu.au/courses/unit?unit=MAA769
Explanatory Memorandum, Corporations Amendment (Professional Standards of
Financial Advisers) Bill 2017 [6.8]
Financial Planning Association, February 2022. Submission.
https://fpa.com.au/wp-content/uploads/2022/02/20220201_Treasury_Education-
Standard-Proposals_FINAL-1.pdf
FSC, 2021. White Paper on financial advice
https://www.fsc.org.au/policy/advice/white-paper-advice
FT adviser, April 2022. Only 6% of advisers are under 30 years old.
https://www.ftadviser.com/investments/2022/04/04/only-6-of-advisers-are-under-30-
years-old/
IFA, February 2022. 'FASEA got it wrong': Government urged to change education
standards proposal https://www.ifa.com.au/news/30712-fasea-got-it-wrong-govt-
urged-to-change-education-standards-proposal
IFA, August 2022. Stephen Jones announces consultation on education standards and
adviser exam. https://www.ifa.com.au/news/31612-stephen-jones-announces-
consultation-on-education-standards-and-adviser-exam
Kaplan, February 2023. Record enrolment numbers as advisers just getting on with it.
www.kaplanprofessional.edu.au/press-releases/kaplan-professional-sees-record-
enrolment-numbers-as-advisers-just-getting-on-with-it/
Kaplan, April 2023. FPC002B Ethics and Professionalism in Financial Advice.
https://www.kaplanprofessional.edu.au/fpc002b-ethics-for-professional-advisers/#tab-4
KPMG, 2021. Cost Profile of Australia's Financial Advice Industry.
Reserve Bank of Australia, 2023. Inflation Calculator.
Steven Jones, August 2022. Consultation open financial adviser education standards.
https://ministers.treasury.gov.au/ministers/stephen-jones-2022/media-
releases/consultation-open-financial-adviser-education-standards
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Steven Jones, August 2022. Upcoming consultation financial adviser professional.
https://ministers.treasury.gov.au/ministers/stephen-jones-2022/media-
releases/upcoming-consultation-financial-adviser-professional
Steven Jones, December 2021. Address to AOIFP conference dinner.
https://www.stephenjones.org.au/media-centre/speeches/address-to-aoifp-conference-
dinner/
Quality of Advice Review, 2022. Final Report.
Royal Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry (Financial Services Royal Commission), Final Report vol 1.
Appendix A - Status of the RIS at each major
decision point
The government committed to this policy during the 2022 election.
The Department engaged with the Office of Impact Analysis (formerly the Office of
Beast Practice Regulation) throughout the policy development process. The regulatory
impact statement was in draft form during the education standards consultation which
ran from 23 August to 16 September 2022. This RIS was finalised following this
consultation.
75
Attachment 2: Impact Analysis -
Competition in the clearing and
settlement of cash equities
Table of Contents:
Competition in Clearing Australian Cash Equities: Conclusions, Council
of Financial Regulators report (December 2012) ................................. 78
Introduction and Executive Summary ............................................ 78
Review of Competition in Clearing Australian Cash Equities:
Conclusions, Council of Financial Regulators report (June 2015) ...... 86
Introduction and Executive Summary............................................. 86
Prospect of competition ................................................................. 88
Dealing with a continued monopoly ............................................... 89
Safe and Effective Competition in Cash Equity Settlement in Australia:
Response to Consultation .................................................................... 93
A Response to Consultation by the Council of Financial Regulators
...................................................................................................... 93
September 2017 ............................................................................ 93
Introduction and Background ......................................................... 93
Overview of Consultation Responses ............................................ 95
Response to Consultation Feedback ............................................. 99
Next Steps ................................................................................... 102
Regulatory Expectations for Conduct in Operating Cash Equity Clearing
and Settlement Services in Australia.................................................. 103
A Policy Statement by the Council of Financial Regulators ......... 103
As revised September 2017 ........................................................ 103
Background ................................................................................. 103
Regulatory Expectations .............................................................. 105
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Impact Analysis - Competition in the clearing and settlement of cash equities
Commercial, transparent and non-discriminatory access to CS
services - service levels, information handling and confidentiality108
Minimum Conditions for Safe and Effective Competition in Cash Equity
Clearing in Australia ........................................................................... 109
A Policy Statement by the Council of Financial Regulators ......... 109
As revised September 2017 ........................................................ 109
Background ................................................................................. 109
Minimum Conditions for Safe and Effective Competition in Clearing
.................................................................................................... 112
Minimum Conditions for Safe and Effective Competition in Cash Equity
Settlement in Australia ....................................................................... 117
A Policy Statement by the Council of Financial Regulators ......... 117
September 2017 .......................................................................... 117
Background ................................................................................. 117
Competition in Clearing Australian Cash
Equities: Conclusions, Council of Financial
Regulators report (December 2012)
Introduction and Executive Summary
On 15 June, the Council of Financial Regulators (the Council) released a discussion
paper on competition in the clearing and settlement of Australian cash equities. This
work, carried out by the Australian Securities and Investments Commission (ASIC), the
Reserve Bank of Australia (the Bank) and the Australian Treasury, in collaboration with
the Australian Competition and Consumer Commission (ACCC) - collectively, the
Agencies - arose out of the Council's broader review of financial market infrastructure
regulation. The particular focus of the work has been the clearing of ASX-listed
equities, reflecting interest emerging from several potential alternative providers in
offering competing central counterparty (CCP) services in this market.
This paper presents the Agencies' conclusions from analysis of stakeholder responses
to the discussion paper. Sixteen submissions were received from a range of
stakeholders, including clearing and settlement infrastructure providers, service
providers, industry associations and users of clearing and settlement services. Having
analysed these submissions, the Agencies have held a number of meetings with both
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
respondents and other interested stakeholders (including end-users of the financial
markets and buy-side market participants) to explore several of the issues raised.
After first providing some background, the paper discusses messages from these
submissions relevant to each agency's responsibilities. It draws out some key matters for
consideration in understanding the implications of competition and assessing licence
applications from competing providers of CCP services. Based on analysis of the issues
raised, the paper makes recommendations to government on how to approach
competition in clearing and settlement of the Australian cash equity market.
Stakeholders' Views on Competition in Clearing
Most respondents to the consultation viewed cash equity clearing as contestable,
having seen competition emerge in Europe. Several were strongly in favour of
competition in clearing, citing the following benefits:
• Lower clearing fees. According to an in-depth study of the European market
conducted in 2011 by an economic consultancy, Oxera, clearing fees on a per
transaction value basis fell for most CCPs. For those CCPs, the declines were
between 7 and 59 per cent, and averaged more than 30 per cent.
• Increased innovation and user responsiveness. Those in favour of competition
argued that it would encourage innovation. Several stakeholders also anticipated
that competition would encourage enhanced user input to the ongoing
development of the clearing and settlement infrastructure for the cash equity
market. This would ensure that its design and functionality continued to meet
participants' needs, including in response to global developments in messaging
protocols and value-added services such as custody.
• Support for competition in trading. By providing an alternative to the vertically
integrated incumbent, competition in clearing could improve the terms of
access for competing trading platforms, increasing their viability and allowing
the benefits of competition in trading to be more fully realised.
• Flow-on effects. The flow-on effects of competition in clearing to the market
more generally are difficult to quantify, but to the extent that the combination
of factors above lowered the costs of participating in the market, it was
suggested that, over time, increased interest might emerge from international
investors, contributing to deeper liquidity and tighter spreads.
Others were less convinced that competition in cash equity clearing would deliver a net
benefit. While supportive of competition in principle, these respondents noted that a
multi-CCP environment may entail additional costs to industry. A number of specific
concerns were raised:
• The scale of the Australian market. To date, competition in clearing has been
almost exclusively a European phenomenon, with the primary driver being
greater integration of European markets. Some stakeholders questioned whether
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Impact Analysis - Competition in the clearing and settlement of cash equities
this experience was relevant to the Australian context, particularly since
European markets are significantly larger in aggregate than the Australian
market. Given that the total revenue from cash market clearing earned by the
incumbent CCP, ASX Clear Pty Ltd (ASX Clear), was $46 million in 2011/12,
a 30 per cent reduction in clearing fees (which is not implausible, given the
experience in Europe) would yield aggregate direct savings for the industry of
around $15 million.
• Operational costs. Respondents were concerned that there might be large up-
front fixed costs associated with upgrades to connectivity, information
technology or staff, and ongoing costs associated with duplication in processes
and a loss of netting efficiencies. A particular concern was that such costs could
fall on the industry as a whole, especially given the application of best
execution rules.
• Costs of regulation. Partly informed by their perceptions of cost recovery for cross-
market supervision, and in the absence of details of a prospective supervision
model, participants were also mindful of a potential increase in regulatory costs
in a multi-CCP scenario.
A clear theme from consultation with stakeholders was that currently difficult market
conditions could exacerbate the impact of any operational and regulatory costs associated
with the introduction of competition in equity clearing at this time. Stakeholders
highlighted the presently low level of trading activity, the magnitude of regulatory
reforms recently undertaken or still underway, and the consequent pressure on
technology budgets and firm profitability. There was, therefore, little appetite and
capacity in the industry to accommodate significant further change.
Safe and Effective Competition
Since the existing legislative framework envisages multiple providers of clearing
services, the discussion paper took openness to competition as the starting point for its
analysis. In particular, the paper considered how regulators could ensure that the
benefits of competition could be realised without adverse implications for financial
system stability or the effective functioning of financial markets.
In accordance with this approach, the Agencies have examined actions that might need
to be taken, should competition emerge, to address the various issues identified in the
discussion paper. Such actions may be cast in terms of 'minimum conditions' for safe
and effective competition.
• Adequate regulatory arrangements. To ensure that competition did not
compromise financial stability or market functioning, appropriate regulatory
arrangements should be in place. In particular:
- All facilities, irrespective of their scale or domicile, should be
rigorously overseen against new Financial Stability Standards
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
(FSSs) determined by the Bank and other requirements, including
licence conditions, under the Corporations Act 2001.
- The Council's framework for regulatory influence over cross-
border clearing and settlement (CS) facilities should be
applied. Recently, the Bank has released new FSSs and ASIC
has updated its Regulatory Guide 211 Clearing and settlement
facilities: Australian and overseas operators. These reflect new
international standards developed by the Committee on Payment
and Settlement Systems (CPSS) and the International
Organization of Securities Commissions (IOSCO), as well as the
Council's framework for cross-border regulatory influence. In
accordance with this framework, if competition emerged from an
overseas-based CCP and its market share reached a specified
threshold, the CCP would be expected to establish a domestic
legal and operational presence. Given the central role played
by the cash equity market in the Australian financial system and a
competing CCP's potential connections to other components of
the domestic financial market infrastructure, this threshold
would be set at a relatively low level.
- Ex ante wind-down plans should be established. These plans
should be supported by a commitment to a notice period of no
less than one year prior to any commercially driven exit, and
additional capital sufficient to cover one year of operating
expenses, calculated on a rolling basis. A competing CCP
should also contribute to cross-market arrangements to ensure
continued provision of clearing services for less liquid securities.
Such measures would facilitate orderly exit should a
commercial decision be taken to withdraw from the market.
• Appropriate safeguards in the settlement process. The cash equity settlement
model in an environment with multiple CCPs should seek as far as possible to
preserve the efficiencies of the existing settlement infrastructure, while affording
materially equivalent priority to trades cleared through a competing CCP. It should
also minimise financial interdependencies between the competing CCPs in the
settlement process and facilitate appropriate default management actions. This
would require significant modifications to the existing settlement model,
although on the basis of preliminary discussions with stakeholders it should be
feasible to develop a model with these characteristics.
• Access to the existing securities settlement infrastructure on non-
discriminatory and commercial terms. Given that competition in the provision
of settlement services is unlikely to emerge, a competing CCP would require
access to the vertically integrated incumbent settlement facility, ASX Settlement
Pty Limited (ASX Settlement). For competition to be effective, such access would
need to be attainable on non-discriminatory and commercial terms. It is
recognised that regulatory action might be necessary to fully achieve this.
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Impact Analysis - Competition in the clearing and settlement of cash equities
The Agencies consider that establishing such minimum conditions is necessary to
support policy objectives around financial stability, and the integrity and efficiency of
financial markets. Outlining these conditions also provides guidance and certainty to
potential new entrant CCPs on the regulatory requirements they will face. That is,
providing a statement of these conditions should allow potential entrants to make
commercial decisions on the economic viability of entry to the Australian market, and
the nature of any service offerings.
The Agencies have also considered the implications of interoperability between CCPs. A
number of respondents to the consultation agreed with the proposition in the discussion
paper that giving participants of multiple trading venues a choice of clearing through a
single interoperable CCP could be a means of mitigating some costs associated with a
multi-CCP environment including the need to establish duplicate clearing connections.
Implementing interoperability would, however, introduce costs and risks and take
considerable time. As seen in European markets in which interoperability has emerged,
the interests of the parties negotiating an interoperability agreement are unlikely to be
aligned; it can therefore be difficult to reach mutually acceptable commercial terms
without regulatory intervention. Given the associated complexities and risks, the case for
any regulatory intervention to facilitate interoperability would need to be considered
carefully and the implications fully understood by the Agencies.
Conclusions and Recommendations
As a matter of principle, the Agencies are open to competition in financial markets and
would expect competition to deliver efficient outcomes in terms of pricing, innovation and
user responsiveness. This reflects the existing legislative framework for clearing and
settlement facilities in Australia, which sets out a licensing regime that contemplates
multiple service providers. It also reflects a general, underlying policy position that
competition is the most effective means of contributing to efficiency, innovation and
productivity across the economy.
The Agencies have consulted widely and have listened to the views of stakeholders.
While many stakeholders agreed that, in principle, competition for the clearing of cash
equities could be expected to deliver benefits, there was also scepticism around whether
those benefits would outweigh any associated costs. Perceptions about these costs and
benefits have been influenced by recent experiences with the introduction of
competition in the trading of ASX-listed securities, and the attendant changes to
industry and regulatory arrangements. The Agencies are also aware that some views
about the costs and benefits of CCP competition in the Australian market may reflect
individual commercial interests in the outcomes of the Council's work.
The Agencies recognise that making changes in accordance with the minimum
conditions to support CCP competition will involve costs, and that the benefits of
competition in the clearing of cash equities may not be readily quantifiable. For
instance, implementing safeguards in the settlement process would entail costs for both
ASX Group (ASX) and participants, including due to flow-on changes to participants'
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internal processes and systems. Also, while the absolute direct benefits in terms of
reductions in clearing fees alone may appear modest, it is more difficult to gauge the
magnitude of other benefits such as from product or service innovation, or flow-on
benefits to related markets.
These uncertainties are not, however, reasons to rule out the prospect of competition
for the clearing of cash equities entirely. The current legislative settings contemplate
competition, and a conclusion that CCP competition should not occur at all would
represent a significant change in policy; the scope of the current work has not extended to
considering such a fundamental reform.
At the present time, however, the Agencies acknowledge feedback from stakeholders
that now may not be the appropriate time for changes that will have further cost
implications for industry, especially given current market conditions and existing
pressures on participants to cut costs. The Agencies also recognise the magnitude of
regulatory changes already underway, not least in relation to Basel III and over-the-counter
(OTC) derivatives clearing and trade reporting.
Recommendation 1: Taking these factors into account, the Agencies
recommend that a decision on any licence application from a CCP seeking to
compete in the Australian cash equity market be deferred for two years.
Deferring a decision on any licence application from a competing CCP recognises the
legitimate industry concerns that have been raised. While it is recommended that a
licence decision be deferred, the Agencies' work has nonetheless clarified minimum
conditions for a new entrant CCP. The statement of these requirements should inform
decision-making by a potential entrant about whether entry to the market is
commercially viable.
Postponing CCP competition would, however, defer the benefits that the market might
expect from competition in clearing Australian cash equities. For example, by
perpetuating a de facto monopoly in cash equity clearing and settlement, alternative
market operators have no choice of supplier for those essential inputs to their service.
In other markets a regulated outcome is commonly sought in these circumstances. If a
decision were taken to rule out entirely the prospect of competition for the clearing (or
settlement) of cash equities, a presumption in favour of some form of regulation of
ASX's CS facilities could arise.
At this point in time, however, the Agencies favour a mechanism that preserves the
prospect of competition and/or further regulation in the future, while seeking to address
the principal concerns raised by stakeholders in the near term.
Recommendation 2: The Agencies recommend that ASX work with industry
stakeholders to develop a Code of Practice for Clearing and Settlement of Cash
Equities in Australia (Code). Developing the Code would give industry
stakeholders, including ASX, an opportunity to address the issues that have
been raised during the Agencies' consultation. In the immediate term, prior to
the establishment of the Code, there would be a strong case for ASX to commit
publicly to the process by endorsing a set of principles developed by the
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Impact Analysis - Competition in the clearing and settlement of cash equities
Agencies to govern the conduct and organisation of its cash equity market
clearing and settlement operations. These principles reflect merger conditions
and access provisions that have been developed in recent years to govern the
conduct of similar integrated market infrastructure providers in other markets,
including Canada and Europe, and would form the basis for the Code.
Importantly, these arrangements would apply only in the case of the Australian cash
equity market, and would not apply in relation to clearing and settlement services
supporting either exchange-traded or OTC derivatives markets or OTC debt markets.
Indeed, the Council reiterates its openness to the provision of OTC derivatives services by
one or more domestic or overseas-based CCPs, subject to those CCPs meeting all
regulatory requirements.
The Agencies see merit in setting ASX a clear timetable to implement the Code. It
would seem reasonable to set an expectation that the terms of the Code be finalised
within six months. This paper sets out some elements that the Agencies would, in
accordance with the principles, expect to be included in the Code. It would be strongly
preferred that ASX reach agreement on the Code with all relevant stakeholders prior to
submission to the Council for approval. An appropriate mechanism would then be
established by the Agencies to monitor ASX's adherence to the finalised terms of the
Code.
It is proposed that the principles, forming the basis for the Code, would include:
• User input to governance. To ensure responsiveness to users' evolving
needs, a formal mechanism should be established within ASX's
governance framework to give users a strong voice in strategy-setting
and system design, and to make ASX's CS facilities for cash equities
directly accountable to users. Users should be broadly defined to
include not only clearing and settlement participants, but also end-
users, alternative market operators, technology service providers and
other relevant stakeholders. As part of this, ASX should engage with
users to establish a clear and transparent medium-term program of
investment in the core clearing and settlement infrastructure, including
the Clearing House Electronic Sub-Register System (CHESS), that is
directed towards users' needs and adopts (if not exceeds) relevant
international best practice wherever practicable.
• Transparent and non-discriminatory pricing of clearing and settlement
services. ASX should strengthen transparency in the pricing of its services by
publishing detailed financial statements for its cash equity clearing and
settlement subsidiaries. Further, all prices of individually unbundled clearing
and settlement services, including rebates, revenue-sharing arrangements and
discounts applicable to the use of these services, should:
- be transparent to all users of the services, including end-users and
alternative market operators
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- not discriminate between ASX-affiliated and other users of
clearing and settlement services
- be made available to stakeholders in a form such that the
impact of pricing changes can be readily understood, including
the extent to which they have the potential to materially shift
revenue streams between trading, clearing and settlement
services.
Further, the Code should ensure there is a process for establishing an appropriate internal
cost allocation model and policies to govern the allocation of costs or transfer of prices
between ASX group entities. Compliance with these policies would be expected to be
subject to internal audit review, as well as periodic external review.
• Access to clearing and settlement services. In the absence of alternative
providers of cash equity clearing and settlement services, ASX should facilitate
access to the CHESS infrastructure on non-discriminatory and transparent
terms. In particular, ASX should adhere to a protocol for dealing fairly and in a
timely manner with requests for access, including timeframes for responding to
enquiries.
The Agencies acknowledge that ASX has recently made some advances in areas
contemplated by these principles and has committed to considerable investment in its
post-trade services. There has, for instance, been a high level of user engagement in
ASX's development of its proposed clearing service for OTC interest rate derivatives and
detailed fee schedules across ASX's businesses are already publicly available. Furthermore,
notwithstanding some dissatisfaction with the length and nature of commercial
negotiations around access for alternative market operators, and certain contractual terms,
access has in practice been granted via ASX's Trade Acceptance Service (TAS). The
Agencies, however, recommend seeking a public and transparent commitment to adhere to
a Code which embeds and enhances these practices, in accordance with the principles.
Recommendation 3: It is proposed that, at the end of the two years, the
Agencies carry out a public review of the Code's implementation and
effectiveness, and ASX's adherence to it. At the same time, the Agencies would
review the prospect of granting a licence to a competing CCP, or of pursuing
other regulatory outcomes.
Without pre-judging outcomes (which may be influenced by a range of factors),
possible recommendations from this review could be to maintain the Code for a further
period, to propose alternative regulatory arrangements for ASX, or to propose granting a
licence to a competing CCP. Experience and evidence gathered during the preceding two
year period will be considered in determining the outcome.
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Impact Analysis - Competition in the clearing and settlement of cash equities
Review of Competition in Clearing Australian
Cash Equities: Conclusions,
Council of Financial Regulators report (June
2015)
Introduction and Executive Summary
On 11 February 2015, the government announced that the Council of Financial
Regulators (CFR) and the Australian Competition and Consumer Commission (ACCC)
- together, the Agencies - would commence a review of the policy position on
competition in clearing Australian cash equities (the Review).
The Agencies previously carried out a review of competition in this market in 2012
(the 2012 Review).1 In light of stakeholder feedback, the CFR recommended that a
decision on any licence application from a competing cash equity central counterparty
(CCP) be deferred for two years. In the meantime, ASX was encouraged to develop a
Code of Practice for the Clearing and Settlement of Cash Equities in Australia (the
Code).2 The government endorsed these recommendations in February 2013 and ASX
published the Code in August 2013.3
Immediately following the announcement of the current Review, the Agencies released
a consultation paper, seeking stakeholder views on a range of potential policy
approaches.4
This paper presents the Agencies' conclusions from the Review. As in the 2012
Review, the particular focus of this work has been the clearing of ASX-listed cash
equity securities (ASX securities). After first providing some background on the
Review, the paper discusses key messages from the stakeholder consultation. Within
the context of these messages, the paper goes on to present some analysis carried out
by the Agencies on the costs, benefits and other implications of the alternative policy
approaches of competition and monopoly.
The last section of the paper draws together the key messages from the consultation
process and the Agencies' supporting analysis. The Agencies favour a policy approach
that is open to competition, while at the same time deals with industry concerns around
a continued monopoly, should competition not emerge. This approach is reflected in a
series of recommendations to the government, along with a discussion of regulatory
and legislative measures required to implement these recommendations.
Stakeholder Views and Analysis of Alternative Policy
Approaches
The CFR received written submissions from 19 stakeholders, including a wide range of
market participants and industry associations. Representatives of the Agencies also
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hosted bilateral discussions with 25 stakeholders. Respondents expressed mixed views
on the appropriate policy approach, drawing out a number of issues that the Agencies
had identified in their own analysis of the costs and benefits of the alternative policy
options.
1 A paper outlining the issues for consideration was issued in June 2012: see CFR (2012),
'Competition in the Clearing and Settlement of the Australian Cash Equity
Market: Discussion Paper', June. Available at
.
2 The CFR's advice on competition in clearing of the cash equity market and the final report of
the 2012 Review are available at
.
3 The government's response to the Agencies' recommendations is
available at
.
4 The consultation paper is available at .
The case for competition
Consistent with the Agencies' analysis, most respondents acknowledged that
competition in clearing could give rise to both benefits and costs. As in the 2012
Review, the main benefits cited were the prospect of lower clearing fees, improved
product and service offerings, and the creation of a platform for broader financial
market innovation. Unaffiliated market operators, in particular, saw competition in
clearing as a prerequisite for vibrant competition at the trading level.5 Unaffiliated
market operators also reported difficulties in negotiating clearing and settlement
arrangements with ASX as a vertically integrated incumbent. Accordingly, some
respondents were strongly in favour of lifting the moratorium on competition in the
clearing of Australian cash equities immediately.
Others were in favour of competition in principle, but proposed a further deferral of
competition for a period. This primarily reflected uncertainty about whether the
benefits of competition would exceed the costs in this market. And a small number of
respondents argued that a single provider was the best outcome for the Australian cash
equity clearing market.
As a general matter, the economics of central clearing favour the existence of relatively
few CCPs in a market. Multiple CCPs are most likely to coexist where the market size
is sufficiently large, where competing CCPs can leverage technology and operational
capacity in other products or markets, where the market is segmented, or where netting
benefits are preserved through interoperability. This is evidenced by the fact that to
date, competition in clearing has been almost exclusively a European phenomenon,
where it was primarily driven by the integration of multiple national markets.
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Impact Analysis - Competition in the clearing and settlement of cash equities
A number of respondents also noted that the issue of competition should be considered
in the context of the global financial system. Even if there was no competition within
the Australian clearing market, these respondents considered that ASX would still be
subject to competition from international cash equity markets.
Safe and effective competition
The Agencies have identified a number of implications that competition in clearing
could have for financial stability, the functioning of markets and access. Stakeholders
expressed a range of views about the potential costs and risks of a multi-CCP
environment and how these might best be managed. The principal costs cited were
fragmentation of liquidity, a loss of netting benefits and increased operational costs.
Stakeholders also agreed that competition could give rise to potential financial stability
risks, including instability in the event of a commercially driven exit of a CCP.
Many respondents felt, however, that the minimum conditions for safe and effective
competition proposed by the Agencies in the consultation paper would be sufficient to
address any concerns about financial stability and market efficiency in a multi-CCP
environment. These minimum conditions related to: (i) adequate regulatory
arrangements; (ii) appropriate safeguards in the settlement process; and (iii) access to
existing settlement infrastructure on non-discriminatory and transparent commercial
terms.
Consistent with the Agencies' analysis, many respondents agreed that interoperability
between competing CCPs would be desirable as a means of mitigating some of the
costs associated with a multi-CCP environment. In particular, since interoperability
would permit participants to concentrate their clearing in a single CCP, participants
may be able to avoid the potentially material costs of fragmentation, un-netting and
duplicated operational connections.
5 Unaffiliated market operators include alternative listing markets and competing trading venues
for ASX securities.
Prospect of competition
There was near consensus among stakeholders that, even if the moratorium were lifted,
a competing CCP would be unlikely to emerge in the near term - if at all. Many
stakeholders took the view that the proposed minimum conditions would materially
increase the cost of establishing a competing CCP. In particular, the application of the
CFR's framework for ensuring that domestic regulators retain sufficient regulatory
influence over cross-border clearing and settlement (CS) facilities operating in
Australia (the Regulatory Influence Framework) could be a barrier to entry. This
framework imposes domestic location requirements where a CS facility is both
systemically important and strongly domestically connected. In the case of the
Australian cash equity market, a provider of clearing services would be required to
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incorporate domestically at a relatively low threshold of activity. Together with a
number of other forces in favour of a single provider, including the relatively small
scale of the Australian market, the domestic location requirements could make any
business case for competition commercially unattractive, at least in the near term.
Nevertheless, a number of respondents agreed that these requirements were necessary
to manage potential financial stability risks, particularly in the event that an overseas
CCP entered insolvency.
As in the 2012 Review, respondents to the consultation generally agreed that
competition in the settlement space was unlikely to emerge.
Dealing with a continued monopoly
Since the threat of a competitor entering the clearing market could be weak, many
respondents felt that some interim measures were required to deal with an ongoing
monopoly until such time as competition emerged. Respondents that supported an
extension to the moratorium similarly suggested that safeguards should remain in place
for as long as ASX continued to operate as a monopoly provider of cash equity CS
services. There was a wide range of views about the appropriate 'interim' measures for
dealing with a continued monopoly in both clearing and settlement.
Respondents expressed mixed views about the effectiveness and usefulness of the
existing Code. While some saw the Code as having been beneficial in improving
transparency and user engagement, others questioned whether it had achieved its
intended purpose. Notwithstanding that ASX has recently committed to upgrade the
infrastructure supporting its cash equity CS facilities, a number of stakeholders
considered that various initiatives taken by ASX under the auspices of the Code were
just good business practice, and suggested that some of these should have been adopted
earlier.
Many respondents also suggested that the Code did not go far enough to address the
industry's concerns in the prolonged absence of competition. There was, for example,
some support for greater independence and market user representation on the ASX
Clear and ASX Settlement Boards. Unaffiliated market operators also called for 'open
access' measures, with some wider support for structural, operational or at least deeper
governance separation of the cash equity CS facilities.
There were mixed views about the appropriate level of direct regulatory intervention to
enforce such interim measures. Many respondents suggested that some enforceable
regulation or oversight would be necessary, and some acknowledged that this might
require the use of legislative tools. Most respondents did not consider that a 'full
regulation' approach would be necessary.
Conclusions from the Review
The Agencies have identified three core conclusions from the consultation process and
their supporting analysis:
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Impact Analysis - Competition in the clearing and settlement of cash equities
• The policy approach should be one of openness to competition. This policy
stance would recognise the potential benefits of competitive discipline. It
would also be consistent with the prevailing legislative settings in the
Corporations Act 2001 that envisage competition, and the orientation towards
competition in the 2014 Financial System Inquiry (FSI). Indeed, this policy
approach would reflect the environment in which ASX operated until February
2013, when the government supported the CFR's recommendation to defer any
consideration of competition in clearing cash equities. Taking the alternative
path of prohibiting competition and establishing a statutory monopoly in cash
equity clearing would be unprecedented internationally. To do so would
require an unequivocal conviction that a single provider was the optimal
market structure for cash equity clearing.
• Competition, even if permitted, may not emerge for some time, if at all. There
remain strong forces in favour of a single provider of clearing services. A
competing CCP may therefore never emerge (or at least not for some
considerable time). This could weaken the discipline on ASX from
contestability of clearing.
• The relevant regulators should have powers to deal with an ongoing
monopoly. If the moratorium were lifted, ASX could choose to withdraw the
Code. However, unless the threat of competition was sufficiently strong,
market forces alone might be unable to discipline ASX's conduct. This
suggests that the relevant regulators should be able to intervene as necessary to
address industry concerns arising from a continued monopoly.
Reflecting these views, the Agencies have developed a number of recommendations.
These include recommendations that the government implement legislative reforms
that would give the relevant regulators rule-making and arbitration powers both to
facilitate safe and effective competition in clearing, and to deal with the continued
monopoly provision of cash equity CS services until such time as competition
emerged.
Recommendation 1. Confirm a policy stance that supports openness to
competition in the clearing market for ASX securities, and implement legislative
changes to facilitate safe and effective competition in accordance with the
Minimum Conditions.
The evidence from the Agencies' consultation and supporting analysis leads to a
conclusion in favour of lifting the moratorium on consideration of a licence application
from a competing CCP. A policy stance that supports openness to competition would
recognise prevailing legislative settings in the Corporations Act as well as the potential
benefits of competitive discipline.
In order to clarify how the relevant regulators would manage the potential costs and
risks associated with a multi-CCP environment for clearing, the CFR would set out the
minimum conditions for safe and effective competition in a publicly stated policy.
Reflecting industry views and additional analysis carried out by the Agencies, these
minimum conditions would extend beyond those articulated in the consultation paper
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
to also require that appropriate interoperability arrangements be established prior to a
competing cash equity CCP commencing operations (together, the Minimum
Conditions). The Agencies anticipate publishing the stated policy in late 2015 or early
2016.
Since some aspects of the Minimum Conditions are not enforceable under the existing
regulatory framework, the Agencies recommend implementing legislative changes that
would allow the Australian Securities and Investments Commission (ASIC) and the
Reserve Bank of Australia (the Bank) (together, the Regulators) to implement and
enforce the Minimum Conditions if and when a competitor emerged.
The Regulators would be unable to advise in favour of a competing cash equity CCP
licence application until these measures had been implemented. The Agencies accept
that this process could take some time. Consistent with the position of openness to
competition, however, the Regulators would be prepared to engage with any potential
entrant in the interim and commence consideration of a licence application, should one
be submitted.
The proposed legislative framework to implement the Minimum Conditions would set
out the relevant high-level requirements, and would empower the relevant regulators to
make rules that impose specific obligations on CS facilities at a later stage through the
use of rule-making powers. These rules would not be implemented until such time as a
committed competitor emerged or was likely to emerge.
The Agencies recognise that the rule-making process and the need to make operational
arrangements to support a multi-CCP environment would further extend the length of
time between any submission of an application by a competitor and the commencement
of operations. However, to implement the rules with a requirement that operational
changes be made in advance would lead to redundant industry investment and
regulatory cost should a competitor never emerge. This is particularly important given
the rules will deal with matters such as interoperability and materially equivalent
settlement arrangements between the emerging competitor and incumbent CCP, which
could be costly to establish.
The Minimum Conditions would also need to be supported by an ACCC arbitration
power to ensure that a competing CCP was able to access ASX monopoly settlement
infrastructure on fair, transparent and non-discriminatory terms (see Recommendation
4).
Recommendation 2. The Agencies publicly set out regulatory expectations for
ASX's conduct in operating its cash equity clearing and settlement facilities until
such time as a competitor emerged.
Since the proposed legislative framework for safe and effective competition would not
be in place for perhaps a number of years, and since competition might not emerge for
some time even once the framework was in place, the effectiveness of the discipline
from the competitive threat could be limited. Accordingly, the discipline from the
competitive threat may need to be supplemented with other measures.
The Agencies would therefore publicly issue a set of regulatory expectations for the
conduct of ASX's monopoly cash equity CS operations, in support of the long-term
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Impact Analysis - Competition in the clearing and settlement of cash equities
interests of the Australian market. It is anticipated that these expectations would be
issued at the same time as the Minimum Conditions were set out as a publicly stated
policy (see Recommendation 1). These expectations would apply to the cash equity
clearing and settlement facilities (both of which are currently covered under the Code),
and would remain in place for each of these facilities for as long as each remained a
monopoly. The regulatory expectations would address the key governance, pricing and
access matters currently dealt with under the Code, as well as some additional matters
raised by stakeholders during the consultation and some of the new commitments
proposed by ASX in its submission to this Review.
Recommendation 3. Implement legislative changes that would allow the relevant
regulators to impose requirements on ASX's cash equity clearing and settlement
facilities consistent with the regulatory expectations if these expectations were either
not being met or were not delivering the intended outcomes.
As in the case of the Minimum Conditions, the regulatory expectations would not be
legally enforceable under the existing regulatory framework. Since the threat of
competition alone may not exert sufficient discipline on ASX, the Agencies consider it
important not only that the regulatory expectations remain in place until the emergence
of a competitor, but also that the relevant regulators would be able to impose
enforceable requirements on ASX where the regulatory expectations were either not
being met or not delivering the intended outcomes.
The Agencies therefore recommend further legislative change that would permit the
use of rule- making powers. These powers would be used to impose specific
obligations on ASX's cash equity CS facilities to act in accordance with the regulatory
expectations. The powers would be held in reserve and would be expected to be used
only in the event of a material deviation from the expectations or where ASX's conduct
was generating undesirable outcomes for the market but was not sufficiently severe to
trigger intervention by the ACCC under the Competition and Consumer Act 2010 (the
CCA). The rule-making powers would be used to address systematic problems, rather
than specific issues arising between particular parties.
Recommendation 4. Implement legislative changes to grant the ACCC an arbitration
power to provide for recourse to binding arbitration in disputes about the terms of
access to ASX's monopoly cash equity clearing and settlement services.
ASX will have incentives to discriminate in favour of its own operations when
providing monopoly CS services to its competitors in related markets. To address this
concern, the Agencies recommend legislative changes to implement an arbitration
regime administered by the ACCC. The arbitration power would complement the rule-
making powers proposed in Recommendations 1 and 3 by allowing for a more targeted
regulatory response to specific access issues.
Arbitration would be available to parties requiring access to ASX's monopoly cash
equity CS services in order to compete with ASX's operations in related markets; this
would include unaffiliated market operators, CCPs and settlement facilities. The
arbitration power would only be available for a material dispute where parties were
genuinely unable to agree on terms of access to ASX's monopoly cash equity CS
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services through commercial negotiation. The arbitration power would provide an
incentive for ASX to negotiate commercial and non-discriminatory terms of access,
and would otherwise provide for timely resolution of access-related disputes.
The Agencies consider that the threat of arbitration by a regulator would be likely to
provide an effective discipline on ASX. As the competition regulator, the ACCC would
be well placed to assume an arbitration role in relation to disputes on the terms of
access to ASX's monopoly CS services as a backstop to commercial negotiation. The
Agencies consider that having the competition regulator assume this arbitration role
would provide the greatest discipline on ASX and promote competition in related
markets.
Safe and Effective Competition in Cash Equity
Settlement in Australia: Response to
Consultation
A Response to Consultation by the Council of
Financial Regulators
September 2017
© Australian Prudential Regulation Authority, Australian Securities and Investments
Commission, Reserve Bank of Australia and the Department of the Treasury 2017. All
rights reserved.
The contents of this publication shall not be reproduced, sold or distributed without the
prior consent of the Australian Prudential Regulation Authority, Australian Securities
and Investments Commission, Reserve Bank of Australia and the Department of the
Treasury.
ISBN 978-0-6480470-4-9 (Online)
Introduction and Background
In March 2016, the Government endorsed the recommendations of a 2015 review of
competition in clearing cash equities in Australia (the Review), conducted by the
Council of Financial Regulators (CFR) in collaboration with the Australian
Competition and Consumer Commission (ACCC) (together, the Agencies).1 In October
2016 the Agencies released two policy statements: Regulatory Expectations for
Conduct in Operating Cash Equity Clearing and Settlement Services in Australia
(Regulatory Expectations); and Minimum Conditions for Safe and Effective
Competition in Cash Equity Clearing in Australia (Minimum Conditions (Clearing)).2
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Impact Analysis - Competition in the clearing and settlement of cash equities
These policy statements were developed based on the assumption that the prevailing
market structure in settlement (in which ASX Settlement Pty Limited (ASX
Settlement) is the sole provider of settlement services) would continue, at least for the
foreseeable future. However, the Agencies are aware that industry developments (such
as the emergence of new technologies) may challenge the previous assumptions
regarding the future market structure for settlement services. In addition, the statutory
framework (Part 7.3 of the Corporations Act 2001 (Corporations Act)) applies to both
clearing and settlement. This has prompted the Agencies to consider the need for
specific policy guidance in respect of competing securities settlement facilities
(SSFs).3
In March 2017, the Agencies released the consultation paper: Safe and Effective
Competition in Cash Equity Settlement in Australia (the Consultation Paper), which
sought views on whether the prospect of competition in the settlement of cash equities
in Australia may have increased, and invited feedback on the development of policy
guidance for such competition.4 The Consultation Paper did not review the policy case
for competition in settlement, noting that the Government has endorsed a position of
openness to competition.5
The Consultation Paper defined settlement as the transfer of securities in exchange for
payment (i.e. the delivery-versus-payment (DvP) process). The paper also
acknowledged that there are a range of services that are ancillary to settlement, and
sought feedback on the contestability of these services. The Consultation Paper
discussed a number of potential implications of competition in settlement, including for
the efficient functioning of markets, financial stability and access. It also presented
some potential controls to support safe and effective competition, should it emerge. In
developing these potential controls, the Agencies had regard to the structure of the
Minimum Conditions (Clearing).
1 See Review of Competition in Clearing Australian Cash Equities: Conclusions, A Report by
the Council of Financial Regulators, June 2015 available at:
.
2 The Regulatory Expectations apply to the Australian Securities Exchange's (ASX) engagement
with, and provision of services to, users of its monopoly cash equity clearing and settlement
services, for both ASX-listed and non-ASX-listed securities. The Minimum Conditions (Clearing)
establish a set of minimum conditions to support safe and effective competition should a
competing provider of clearing services emerge. These policy statements establish a flexible
policy framework so that if competition in clearing were to emerge, the Minimum Conditions
(Clearing) would apply while the Regulatory Expectations would continue to apply to the
provision of ASX's ongoing monopoly settlement service. The policy statements are available
at: .
3 The Agencies' consideration of the need for specific policy guidance was limited to the
circumstance when trades in the same listed cash equity security could be settled in more than
one SSF. The Agencies did not consider the need for policy guidance on the potential emergence
of competition in the settlement of other listed or unlisted products.
4 The Consultation Paper is available at:
.
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5 The media release announcing the Government's openness to competition is available at:
Impact Analysis - Competition in the clearing and settlement of cash equities
and reconcile information across multiple SSFs. Other concerns related to the
additional costs and risks of connecting to more than one SSF.
Most responses also suggested that the potential for shortened settlement cycles and,
particularly, differing settlement cycles across competing SSFs may increase
operational risks and costs.7 Approximately half of the respondents questioned whether
potential benefits of competition, such as lower prices, would be outweighed by
additional costs associated with increased complexity. However, almost half felt that
competition was desirable provided adequate regulatory safeguards were in place.
6 The Minimum Conditions (Settlement) are available at
.
7 The risks arising from real-time settlement and the optionality of shorter settlement
timeframes are not unique to a market structure with competing SSFs, but would also arise in
the event that a single SSF sought to offer such optionality. The concerns expressed by
stakeholders related to market fragmentation as a result of these differing timeframes and
are discussed further in section 2.4.
Some responses indicated it was possible competition would emerge for a subset of
settlement services. This may include the DvP settlement function of title transfer or
other Clearing House Electronic Sub- register System (CHESS) services which occur
in connection with this function, including corporate actions processing, sub-registry
services and payment facilitation.
Competition in Ancillary Services
The Consultation Paper noted that there are a number of services ancillary to
settlement, such as asset registration, safekeeping, issuer services (e.g. corporate
actions) and investor services. The respondents provided a range of comments on these
services, especially on their contestability and the interdependence with a DvP
settlement service. Most respondents believed a competing SSF would need to provide
at least some ancillary services in order to effectively provide a DvP settlement service.
However, some suggested that as long as a competing SSF had access to the data held
on the CHESS sub- register (or its replacement), it could effectively provide DvP
settlement without also providing ancillary services.8
Some respondents noted that the range of ancillary services provided by ASX
Settlement on a monopoly basis is limited, and that many ancillary services are already
offered through the registries on a competitive basis. There were mixed views on
whether competition has been beneficial for the provision of ancillary services. For
example, several submissions noted that each of the registries use different processes
and systems and that this results in some inefficiencies due to a lack of standardisation
and automation (e.g. corporate actions processing). On the other hand, other
stakeholders felt that competition among the registries had encouraged innovation - a
primary example being the provision of securities holding statements in electronic
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form. At the same time, some submissions noted that competitive pressures had led to
pricing benefits for certain services offered by the registries.
Some stakeholders noted that ASX's ongoing issuance of securities holding statements
in hard copy was evidence of a lack of innovation. Some stakeholders also considered
the fees charged for these statements to be excessive.
Several responses argued that, in order to improve the provision of ancillary services,
promoting competition in ancillary services independently of competition in DvP
settlement should be a priority.
Barriers to Entry - Access to Services (including data)
A large majority of stakeholders raised concerns over perceived barriers to entry for a
competing SSF. The two main themes across the submissions centred on access to the
data in the CHESS sub-register and concerns around ASX's vertically integrated
market structure. Some respondents also noted practical and commercial considerations
such as the small scale of the Australian cash equities market and the significant costs
of developing a settlement system.
Almost all respondents expressed the view that, for competition in settlement to be
effective, any competing SSF would need to be able to access data in the CHESS sub-
register or its replacement (e.g. holder identification and securities holdings data).9
Access to other ASX monopoly services deemed necessary for competition was also
mentioned by a majority of stakeholders. This may be required, for
8 Most corporate actions are currently performed by the registries and facilitated by access to
information contained in the CHESS sub-register. Examples of corporate actions performed by
registries include dividend payments, rights issues, share buy backs and capital reconstructions.
The Agencies acknowledge that the ASX project to replace CHESS may impact competition in
clearing and settlement. This is provided for in the Regulatory Expectations.
9 The listed cash equities supply chain begins with the issuer-requested registration of a cash
equity on an approved listing market and continues through the trading, clearing and/or
settlement functions, ending with the final registration of the (new) owner of the cash
equity on the CHESS sub-register (which subsequently updates the registries' records).
example, to ensure legal certainty of settlement. Such services may include securities
conversions and transfers between the CHESS and issuer sub-registries, and the
issuance of CHESS holding statements.
Some respondents also argued that the data currently held in the CHESS sub-register
should be provided by an independent utility service, in order to better facilitate
competition across the Australian cash equities market. Some respondents suggested
that settlement services more broadly (including DvP settlement) should be provided
by an industry utility.
A second theme that emerged from a majority of the responses was concern around the
current interdependency of the ASX Group's vertically integrated structure, which
provides listing, clearing, settlement, CHESS sub-registry and other ancillary services.
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Impact Analysis - Competition in the clearing and settlement of cash equities
These submissions argued that this structure inhibited competition and encourages anti-
competitive behaviour.
One submission suggested that, to facilitate genuine competition, the ASX Group
should be operated as distinct functional entities (e.g. one for each of trading, clearing,
settlement, registration) to address concerns around its vertically integrated structure.
Proposed Controls to Support Safe and Effective Competition
Stakeholder feedback generally supported the policy controls proposed in the
Consultation Paper to support fair and effective competition in settlement. However,
some respondents also argued the controls may need to go further. The majority of
submissions commented that establishing appropriate links between competing SSFs
would be required for effective competition. Some respondents argued that any policy
guidance needs to make appropriate arrangements for a set of common principles for
SSF rule-making, for instance to ensure certainty and integrity of legal title.
There were mixed opinions on whether new policy is needed to deal with default
management where, for example, a defaulting entity may be a settlement participant in
competing SSFs. While some respondents thought it was important that regulators be
involved, some instead considered default management to be primarily the
responsibility of the central counterparty. Some of the submissions highlighted the
difficulty in determining 'fair and reasonable pricing', and one wanted explicit
regulatory oversight of pricing. Another also specifically suggested a review of ASX's
pricing policies for non-Clearing and Settlement services.
The Consultation Paper asked for feedback about the potential effects of a competing
SSF providing the choice of settlement timeframe and/or SSF as part of contract
formation on a licensed market. Specifically, the Australian Securities and Investments
Commission (ASIC) had concerns that this model may fragment market liquidity (e.g.
from retail investors, institutional investors and proprietary traders), based on
preferences of settlement timeframe, and/or SSF. A majority of submissions agreed
with this concern.
More broadly, some stakeholders suggested that real-time settlement may only be
particularly beneficial for retail clients (who typically pre-deliver securities and cash to
their broker before placing orders). Stakeholders also broadly accepted that
institutional clients (particularly overseas clients) would prefer a longer settlement
cycle due to their trade netting and settlement matching needs. In contrast, one
stakeholder thought that, although fragmentation of liquidity is more likely in a
competitive post-trade environment, technology could overcome this problem with
improved reporting and system interoperability.
There were also some different views over whether settlement timeframes and changes
to other market infrastructure arrangements should move on a whole-of-market basis or
in a more fragmented manner driven by individual SSFs. In a similar vein, there were
differing views over which entities in the investment chain should make the choice of
which SSF to use and, potentially, the resultant settlement period.
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Other Issues
A number of other issues were raised by stakeholders:
• Almost half of the submissions made comments related to the CHESS
replacement project. For instance, there were some concerns the CHESS
replacement project will further entrench the monopolistic vertically integrated
structure currently in place.
• One stakeholder called for the Agencies to expand the scope of the current
consultation to include an end-to-end review of competition throughout the
equities market (from listing, through trading, clearing and settlement, to
registration).
• Some submissions commented on current registry arrangements, for example,
noting the costly nature of the fragmented sub-register system. In addition, one
respondent argued to change the Australian 'name-on-register' model to a
central securities depository model) - although other submissions supported
the current model.
• Some respondents expressed concerns that the Corporations Act and
Corporations Regulations 2001 (Regulations) need to be amended to allow the
licensing of an entrant SSF given the legacy references to ASX Settlement and
Transfer Corporation Pty Limited or ASTC (the former name of ASX
Settlement) in these instruments.
• Some respondents were concerned about the perceived suggestion in the
Consultation Paper that the Agencies were considering the mandatory
imposition of clearing for all markets. The Agencies would like to make clear
that they do not propose to impose mandatory clearing requirements for listed
securities over and above existing regulatory obligations for the clearing and
settlement of these securities.
• One submission suggested that licence conditions be imposed on ASX to
enforce compliance with the Regulatory Expectations and the Minimum
Conditions or, failing this, fast tracking the legislative amendments
recommended to the Government, in order to grant rule-making and arbitration
powers to the relevant Agencies.
Response to Consultation Feedback
Given strong stakeholder support for the development of policy guidance on the
possible emergence of competition in settlement, the Agencies have decided to extend
the existing policy framework for competition in clearing. Consequently, the Agencies
have published the Minimum Conditions (Settlement), to support safe and effective
competition in the settlement of cash equities, should it emerge.
Relatedly, as a result of the substantive feedback from stakeholders, the Agencies also
reviewed the Regulatory Expectations and Minimum Conditions (Clearing) to assess
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Impact Analysis - Competition in the clearing and settlement of cash equities
whether any consequential changes were required to address the potential emergence
of a competing SSF. Minimal changes were made to these policy statements, including
noting the increased likelihood of competition in settlement.
Similar to the Minimum Conditions (Clearing), the Minimum Conditions (Settlement)
aim to give prospective providers of settlement services sufficient clarity as to the
measures that ASIC and the Reserve Bank of Australia would require be taken before
they could advise in favour of a licence application.
The Minimum Conditions (Settlement) build off the controls proposed in the
Consultation Paper. In response to consultation feedback, the Agencies have amended
the controls as initially proposed, to incorporate a clarification and two additions, as
follows:
• Access on transparent, non-discriminatory, and fair and reasonable terms:
The Agencies acknowledge that in order to offer safe and effective settlement
services, competing SSFs are likely to require access to the data of other
Clearing and Settlement (CS) facilities. The Minimum Conditions (Settlement)
specifically address stakeholder concerns about access to certain data
necessary for the provision of settlement services by a competing SSF. CS
service providers will be required to facilitate access to their respective
services (including data) on a transparent and non- discriminatory basis, with
terms and conditions, including price, that are fair and reasonable. The
Agencies note that the Government is implementing legislative changes that
will grant the ACCC power to arbitrate disputes about the terms of access,
including pricing. The Agencies recognise that certain ancillary services are
necessary to support the provision of DvP settlement. Those ancillary services
necessary to DvP settlement will ultimately be a function of each SSF's
business model, and may change over time (including due to ASX's CHESS
replacement project).
• Appropriate arrangements for certainty of securities transfer and
administration: An additional control has been included to address concerns
regarding certainty of securities transfer and administration. There may be
circumstances under which registries, acting on behalf of issuers, receive
conflicting instructions from competing SSFs, related to the same listed
security. The registry will need to determine how to prioritise those
instructions to ensure the resulting change of title to the securities is legally
certain. Accordingly, the Agencies consider there is a case, if required, for
regulatory arrangements to support certain aspects of the legal relationship
between competing SSFs, registries and issuers.
• Appropriate regulatory arrangements for oversight of primary and secondary
markets: This additional control recognises ASIC's strong regulatory interest
in the potential impact on price formation, liquidity and fragmentation in
markets where there is a choice offered between settlement timeframes at the
point of trade execution. The purpose of the control is to alert potential entrant
SSFs that including a choice of settlement timeframe in their business case
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may have implications for any CS facility licence application. ASIC would
therefore have a regulatory role in any proposal in which the choice of
settlement timeframe and/or SSF might have potential market impacts.
Regarding stakeholder feedback on default management arrangements, the Agencies'
expectation is that application of the existing regulatory framework for CS facilities in
a multi-SSF environment should be sufficient to address any additional risks.
Stakeholder feedback suggests it is possible that competition could emerge from either
a competing full service SSF or from a facility which provides a select number of
settlement services only. In the latter case, the Regulatory Expectations will continue
to apply to the remaining subset of monopoly CS services. Complementing this, the
Minimum Conditions (Settlement) will apply to the contested settlement services.
Other Issues
As noted above, stakeholders also raised several broader points in their responses to the
consultation. The Agencies' responses are outlined below.
• Appropriate market structure for settlement services: Consistent with the
conclusions drawn from the Review, the Agencies consider that the most
appropriate market structure for SSF services should be determined by the
market. Comments related to current registry arrangements were considered by
the Agencies but remain outside the scope of the policy aims of the
consultation.
• Broader review on competition in listed cash equities markets: The Agencies'
view is that a broader end-to-end review on competition in listed cash equities
markets (i.e. from listing through trading, clearing and settlement, to
registration), is not in the scope of the current consultation. ASIC has
completed significant work on the structure of cash equity markets in
Australia, including the development and implementation of ASIC rules
to preserve market integrity following the introduction of competition
between market operators. ASIC's policy work in cash equity market structure,
including competition, is ongoing. This work, together with the Agencies'
published policy framework for competition in clearing and the proposed
Minimum Conditions (Settlement) effectively establishes a policy framework
for safe and effective competition in the listing, trading, clearing and
settlement of cash market equities in Australia. ASIC and the ACCC will
discuss stakeholder feedback relevant to the equity market structure in
Australia, and the potential for future policy collaboration on competition.
• Data access issues for settlement services: In its consideration of data access
issues, the Agencies were mindful of the recently released Productivity
Commission Inquiry Report on Data Availability and Use.10 The Agencies will
give consideration to the investor and market infrastructure data implications
with respect to future developments in the Government's data policy.
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Impact Analysis - Competition in the clearing and settlement of cash equities
• Productivity Commission Inquiry: The Productivity Commission is also
currently conducting a broader inquiry into competition in the Australian
financial system, having released a consultation paper on 6 July 2017. The
Productivity Commission has announced its intention to avoid overlap with
other active reviews. The Agencies will engage with the Productivity
Commission on the CFR's established policy framework on competition in
clearing and settlement for Australian cash equities and the Government's
announced reform package.
• CHESS replacement project: The Agencies acknowledge that ASX's CHESS
replacement project may have a significant impact on the market, and may
interact with the issues discussed in the Consultation Paper. The Regulatory
Expectations, which apply to ASX's engagement and provision of services to
users of its monopoly cash equity CS services, establish the Agencies'
expectation that ASX will provide commercial, transparent and non-
discriminatory access to its monopoly CS services.
• References in the Act and Corporations Regulations to ASX Settlement and
Transfer Corporation Pty Ltd: Treasury will consider changes to amend legacy
references (such as ASTC) in the Corporations Act and Regulations as part of
the development of draft legislation to implement the Government's
announced reform package.
Next Steps
Along with this response to consultation, the Agencies have concurrently published the
Minimum Conditions (Settlement), consequential amendments to the Regulatory
Expectations and the Minimum Conditions (Clearing).
The Agencies will work with the Government on the development of draft legislation
to fully implement the policies set out in the Regulatory Expectations, the Minimum
Conditions (Clearing) and the Minimum Conditions (Settlement). The draft legislation
will incorporate changes to the Corporations Act to implement rule-making powers for
the relevant Agencies and an arbitration power for the ACCC.
As noted above, the Agencies will engage with the Productivity Commission on the
Government's announced reform package to regulate both the ongoing provision of
ASX's monopoly CS facilities services for Australian cash equities, and the potential
emergence of competition in these services.
10 The Productivity Commission's Inquiry Report on Data Availability and Use is available at:
.
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Regulatory Expectations for Conduct in
Operating Cash Equity Clearing and Settlement
Services in Australia
A Policy Statement by the Council of Financial
Regulators
As revised September 2017
©Australian Prudential Regulation Authority, Australian Securities and Investments
Commission, Reserve Bank of Australia and the Department of the Treasury 2016. All
rights reserved.
The contents of this publication shall not be reproduced, sold or distributed without the
prior consent of the Australian Prudential Regulation Authority, Australian Securities
and Investments Commission, Reserve Bank of Australia and the Department of the
Treasury.
ISBN 978-0-9924944-5-2 (Online)
Background
On 30 March 2016, the Government endorsed the conclusions of a review of
competition in clearing Australian cash equities carried out by the Council of Financial
Regulators (CFR) and the Australian Competition and Consumer Commission (ACCC)
- together, the Agencies - in the first half of 2015. These conclusions are set out in the
Agencies' report, Review of Competition in Clearing Australian Cash Equities:
Conclusions (the Conclusions), published at the time of the Government's
announcement.1
Among the conclusions arising from the review, the Agencies undertook to publicly set
out regulatory expectations for ASX's conduct in operating its cash equity clearing and
settlement (CS) services until such time as a committed competitor emerged. The
Conclusions presented the core elements that the Agencies expected to be included in the
set of regulatory expectations. The core elements aim to address key governance,
pricing and access matters that are dealt with under ASX's pre-existing Code of Practice
for the Clearing and Settlement of Cash Equities in Australia (the Code), as well as
some of the additional commitments proposed by ASX in its submission to the review
and some gaps in the Code identified by stakeholders. Consistent with the Agencies'
commitment and drawing primarily on the core elements proposed in the Conclusions,
the Agencies released the Regulatory Expectations for the Conduct of Cash Equity
Clearing and Settlement Services in Australia (Regulatory Expectations) in October
2016.
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Impact Analysis - Competition in the clearing and settlement of cash equities
In the first half of 2017, the Agencies consulted on the prospect of competition in
settlement of cash equities in Australia. The stakeholders' responses are set out in the
Agencies' report, Safe and Effective Competition in Cash Equity Settlement in Australia:
Response to Consultation.2 The Agencies subsequently identified some aspects of the
Regulatory Expectations that required consequential amendments, and have therefore
issued these revised Regulatory Expectations in September 2017.
The Regulatory Expectations apply to ASX's engagement with, and provision of
services to, users of its monopoly cash equity CS services for both ASX-listed and
non-ASX-listed securities. Users are broadly defined to include participants of the ASX
CS facilities; end users; unaffiliated market operators, central counterparties and
settlement facilities; technology service providers; and other relevant stakeholders.
ASX is expected to act in accordance with these revised Regulatory Expectations. The
Agencies acknowledge that the Regulatory Expectations are not legally enforceable
under the existing legislative framework. Accordingly, the Conclusions recommended
that legislative changes be implemented to grant the relevant regulators rule-making
powers that would enable them to impose enforceable requirements on ASX consistent
with the Regulatory Expectations if these expectations were either not being met or
were not delivering the intended outcomes. These powers would be held in reserve and
would be expected to be used only in the event of a material deviation from the
Regulatory Expectations or where ASX's conduct was generating undesirable
outcomes for the market. In addition, the Conclusions recommended that the ACCC be
granted an arbitration power that would provide for binding resolution of material
disputes, arising where a user was seeking access to any aspect of ASX's monopoly
cash equity CS services, consistent with the Regulatory Expectations. The ACCC may
therefore have regard to the Regulatory Expectations when making a binding
determination under the proposed arbitration power. The Government has committed
to pursue legislative changes in accordance with these recommendations.
Should a committed competitor emerge for any aspect of ASX's cash equity CS
services, the Agencies will review and make any necessary changes to the scope of the
Regulatory Expectations. The Agencies also expect to review the Regulatory
Expectations periodically, including in the event of material changes to the operating
environment for these services. Such reviews may assess the ongoing appropriateness
of the Regulatory Expectations and their effectiveness in delivering the intended
outcomes, with consideration given to stakeholder feedback.
The Agencies will also establish structured arrangements for engaging with
stakeholders in relation to ASX's adherence to the Regulatory Expectations.
1 The Conclusions and the Government's response are available at
.
2 The Response to Consultation is available at .
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Regulatory Expectations
The Regulatory Expectations for the conduct of ASX's monopoly cash equity CS
services are intended to support the long-term interests of the Australian market by
delivering outcomes that are consistent with those that might be expected in a
competitive environment. In particular, the Regulatory Expectations seek to ensure that
ASX remains responsive to users' evolving needs and provides access to its monopoly
cash equity CS services on a transparent and non-discriminatory basis with terms and
conditions, including pricing, that are fair and reasonable.
ASX should maintain its Code, or should adopt another equivalent mechanism, to give
effect to the Regulatory Expectations. ASX has also, in its Code, committed to
submitting an annual external audit of its governance, pricing and access arrangements
to the Agencies and members of relevant user governance arrangements, benchmarked
against the Regulatory Expectations. This audit generally would not be required to
form a judgement on the more subjective matters contained in the Regulatory
Expectations, such as the promptness and efficiency of investments or the efficiency of
prices. Rather, such an audit should develop an evidence base of relevant actions taken
by ASX, and in particular provide assurance that it has policies and procedures in place
aligned with the Regulatory Expectations and that it has conducted its operations in
accordance with these policies and procedures. The outcomes of such audits are
expected to be discussed with the ASX Boards, the Agencies and members of relevant
user governance arrangements. The findings of such audits may be one input to any
decision by the relevant regulators to employ the rule-making or arbitration powers
once the supporting legislative framework is in place. The Agencies may additionally
periodically request that ASX commission more detailed reviews of how particular
aspects of its governance, pricing and access arrangements meet the Regulatory
Expectations, or indeed carry out such reviews themselves.
Consistent with its existing arrangements to comply with its broader obligations under
the Corporations Act 2001, ASX should continue to capture any complaints submitted
by users, as well as its corresponding responses, within its complaints-handling system.
The Regulatory Expectations comprise the elements set out below.
User input to governance
To ensure responsiveness to users' evolving needs, transparent formal mechanisms
should be maintained within ASX's governance framework to give users a strong voice
in strategy setting, operational arrangements and system design, and to make ASX's
monopoly cash equity CS services directly accountable to users. As part of this:
(a) ASX should make an explicit public commitment to investing promptly and
efficiently in the design, operation and development of the core CS infrastructure for
the Australian cash equity market, including the Clearing House Electronic Sub-
register System (CHESS) and any future replacement system. This commitment
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Impact Analysis - Competition in the clearing and settlement of cash equities
should be supported by governance processes that enable users to provide input on
the setting of the investment strategy. Investments should ensure that, to the extent
reasonably practicable, the performance, resilience, security and
functionality of the core CS infrastructure meet the needs of users, recognising the
diversity and differing needs of users. At a minimum, the core CS infrastructure
should accommodate internationally accepted communication procedures and
standards.
(b) ASX should ensure that the membership of its user governance arrangements is
representative of the user base of its CS services, and that members are able to have
a strong input into the agenda and format of meetings or other user governance
mechanisms and the setting of priorities.
(c) ASX should demonstrate that it has had regard to the views of members in setting the
terms of reference for the external audits of its governance, pricing and access
arrangements carried out in accordance with the Regulatory Expectations. This may
take the form of members' non- objection of the proposed terms of reference. These
terms of reference may change following any review of the Regulatory Expectations.
(d) ASX should maintain accountability arrangements that provide for regular public
attestations as to the effectiveness of its interactions with users. For example, the
following arrangements would be appropriate:
(i) ASX's user governance mechanisms operate on a 'comply or explain' basis;
that is, the relevant Board would take actions in accordance with
recommendations from the user governance mechanisms, or else explain why
such actions had not been taken.
(ii) ASX report, on at least an annual basis, the service developments and
investment projects that it has progressed and how it has taken into
consideration the views of users.
(e) ASX should formally commit to retaining a Board structure for ASX Clear and ASX
Settlement that comprises a minimum of 50 per cent of non-executive directors that
are also independent of ASX Limited, and where a subset of these independent
directors can form a quorum.
(f) ASX should establish governance structures and reporting lines at the management
and operational levels that promote access to its CS services on commercial,
transparent and non-discriminatory terms. These arrangements should ensure that
the interests of users are upheld in accordance with Regulatory Expectation 3. This
may be demonstrated, for example, through the key performance indicators set for
relevant management.
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Transparent, non-discriminatory, and fair and reasonable
pricing of CS services
ASX should publicly commit to an appropriate minimum level of transparency of
pricing across its range of monopoly cash equity CS services (including the provision
of data). The pricing of these services should not discriminate in favour of ASX-
affiliated entities (except to the extent that the efficient cost of providing the same
service to another party was higher). Other than where pricing is anti-competitive or
gives rise to financial stability or market functioning issues, the fees charged by ASX
are a commercial matter for ASX and its customers. Nevertheless, to ensure that the
fees charged by ASX for its cash equity CS services are transparent, non-
discriminatory, and fair and reasonable:
(g) ASX should ensure that all prices of individually unbundled CS services, including
rebates, revenue-sharing arrangements and discounts applicable to the use of these
services:
(i) are transparent to all users of the services
(ii) do not discriminate in favour of ASX-affiliated entities, except to the extent that
the efficient cost of providing the same service to another party was higher
(iii) are made available to stakeholders in a form such that the impact of pricing
changes can be readily understood.
(h) ASX should maintain an appropriate method for determining the prices of its CS
services so as to generate expected revenue that reflects the efficient costs of
providing those services, including a return on investment commensurate with the
commercial risks involved.
(i) ASX should make an explicit public commitment that any changes in the prices of
its CS services will not be implemented in a way that would materially shift revenue
streams between aspects of its trading, clearing and settlement services.
(j) ASX should publish any increases in its CS fee schedules along with an attestation
justifying their reasonableness. For the most material such increases, this attestation
would be expected to refer to relevant metrics and other evidence, such as the
calculated return on equity, benchmarked price lists, or an independent review of how
ASX's cash equity CS fees compare with those of CS facilities in other markets.
(k) ASX should maintain an appropriate model for the internal allocation of costs,
including the cost of allocated capital, as well as policies to govern the transfer
of prices between the relevant ASX Group entities. Compliance with the model and
policies would be expected to be subject to internal audit review. The model and
policies should be based on reasonable cost allocation principles. For example:
(i) where possible, costs should be directly allocated to the service(s) which give rise
to those costs
(ii) shared costs should be allocated based on appropriate and transparent metrics.
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Impact Analysis - Competition in the clearing and settlement of cash equities
(l) ASX should negotiate commercially and in good faith with unaffiliated market
operators and CS facilities regarding fees and other financial contributions charged
for any extensions to its monopoly CS services, and in particular those provided
under the existing Trade Acceptance Service and the Settlement Facilitation Service.
Commercial, transparent and non-discriminatory
access to CS services - service levels, information
handling and confidentiality
ASX should facilitate access to its cash equity CS services (including data) on
commercial, transparent and non-discriminatory terms. Non-discriminatory terms in
this context are terms that do not discriminate in favour of ASX-affiliated entities
(except to the extent that the cost of providing the same service to another party is
higher). As part of this:
(a) ASX should have objectives for its CS services that include an explicit public
overarching commitment to supporting access to its CS services on commercial,
transparent and non- discriminatory terms. ASX should maintain standard user terms
and conditions that are consistent with these objectives, taking into account the
legitimate business interests of ASX and any parties seeking access to its CS services.
(b) Service level agreements should commit ASX to providing access to its CS services
for unaffiliated market operators and CS facilities on operational and commercial
terms and service levels that are materially equivalent to those that apply to ASX as
a market operator or CS facility.
(c) ASX should publish and adhere to protocols for dealing fairly and in a timely manner
with requests for access. These protocols should include reasonable timeframes for
responding to enquiries and arrangements for dealing with disputes. Nothing in the
protocols should affect either party's right to refer a dispute to arbitration by the
ACCC once the arbitration regime is implemented.
(d) ASX should make an explicit commitment to ensuring that any investments in the
systems and technology that support its cash equity CS services do not raise barriers
to access from unaffiliated market operators or CS facilities. Announcements of any
material investments in the systems and technology that support ASX's cash equity
CS services should be accompanied by a public attestation that those investments will
be designed in a way that does not raise such barriers.
(e) ASX should retain, and periodically review, its standards for the handling of sensitive
or confidential information. Consistent with governance arrangements that promote
access on commercial, transparent and non-discriminatory terms (see Regulatory
Expectation 1(e)), these arrangements should ensure that conflict sensitive
information pertaining to the strategic plans of unaffiliated market operators or CS
facilities is handled sensitively and confidentially, and cannot be used to advance the
interests of ASX as a market operator or CS facility.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Minimum Conditions for Safe and Effective
Competition in Cash Equity Clearing in Australia
A Policy Statement by the Council of Financial
Regulators
As revised September 2017
© Australian Prudential Regulation Authority, Australian Securities and Investments
Commission, Reserve Bank of Australia and the Department of the Treasury 2016. All
rights reserved.
The contents of this publication shall not be reproduced, sold or distributed without the
prior consent of the Australian Prudential Regulation Authority, Australian Securities
and Investments Commission, Reserve Bank of Australia and the Department of the
Treasury.
ISBN 978-0-9805857-5-9 (Online)
Background
On 30 March 2016, the Government endorsed the recommendations of a review of
competition in clearing Australian cash equities carried out by the Council of Financial
Regulators (CFR) and the Australian Competition and Consumer Commission (ACCC)
- together, the Agencies - in the first half of 2015. These recommendations are set out
in the Agencies' report, Review of Competition in Clearing Australian Cash Equities:
Conclusions (the Conclusions), published at the time of the Government's
announcement.1
With the Government's endorsement of the Agencies' recommendations, a policy
stance of openness to competition has been confirmed. This stance recognises
prevailing legislative settings that are accommodative of competition, as well as the
potential benefits of competitive discipline. At the same time, the Conclusions
acknowledge that competition in clearing could have cost, risk and efficiency
implications for the functioning of markets, financial stability and access for
unaffiliated market operators and clearing and settlement (CS) facilities. Accordingly,
the Conclusions recommend legislative changes to facilitate a set of minimum
conditions for safe and effective competition in cash equity clearing (Minimum
Conditions (Clearing)).
As a first step, the Agencies have undertaken to set out the Minimum Conditions
(Clearing) in a publicly stated policy. This document fulfils this commitment. The
Conclusions recommend that the Minimum Conditions (Clearing) cover the following:
(i) adequate regulatory arrangements; (ii) appropriate safeguards in the settlement
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Impact Analysis - Competition in the clearing and settlement of cash equities
process; (iii) access to settlement infrastructure on non-discriminatory, transparent, fair
and reasonable terms; and (iv) appropriate interoperability arrangements between
competing cash equity central counterparties (CCPs).
The Minimum Conditions (Clearing) have been developed with reference to the
prevailing market structure in settlement - in which there is a sole provider of
settlement services. However, the Agencies conducted a consultation on safe and
effective competition in settlement of cash equities in Australia in the first half of 2017,
which found that the prospect of competition emerging may have increased since the
2015 review of competition in clearing. Accordingly, the Agencies released a set of
Minimum Conditions for Safe and Effective Competition in Cash Equity Settlement in
Australia (Minimum Conditions (Settlement)) in September 2017.2 The Agencies
subsequently identified some aspects of the Minimum Conditions (Clearing) that
required consequential amendments, and have therefore issued these revised Minimum
Conditions (Clearing) in September 2017.
The Minimum Conditions (Clearing) aim to give potential entrants sufficient clarity as
to the measures that the Australian Securities and Investments Commission (ASIC) and
the Reserve Bank of Australia (the Bank) would require be taken before they could
advise in favour of a licence application. This should assist in establishing the business
case for any competing provider. In addition to meeting existing licensing requirements
under the Corporations Act, any licence applicant would be expected to demonstrate
that it could viably provide services in this market in a manner consistent with the
Minimum Conditions (Clearing).
Some aspects of the Minimum Conditions (Clearing) are not enforceable under the
existing regulatory framework (such as requirements for materially equivalent
settlement arrangements and the establishment of interoperability). The Agencies will
therefore work with Government to implement legislative changes that would:
• allow the relevant regulators to implement and enforce the Minimum
Conditions (Clearing) through the use of a rule-making power if and when a
competitor emerged; and
• grant the ACCC power to arbitrate disputes regarding access to services
licensed under Part 7.3 of the Corporations Act. In the context of the current
settlement market structure, this would ensure that any competing CCP was
able to access ASX's settlement infrastructure on a transparent and non-
discriminatory basis with terms and conditions, including price, which are fair
and reasonable.
1 The Conclusions and the Government's response are available at
.
2 The Minimum Conditions (Settlement) are available at
.
Given the importance of the Minimum Conditions (Clearing) in ensuring that
competition did not adversely affect financial stability or effective market functioning,
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
ASIC and the Bank would be unable to advise in favour of a licence application until
these measures had been implemented. Consistent with the position of openness to
competition, however, ASIC and the Bank would be prepared to engage with any
potential entrant in the interim and commence consideration of a licence application,
should one be submitted.
The proposed legislative framework to implement the Minimum Conditions (Clearing)
would set out the relevant high-level requirements, leaving the relevant regulators to
impose any specific obligations at a later stage through the use of the rule-making
powers. It is envisaged that the new legislation would set the scope of the rule-making
powers and the circumstances in which these powers could be used. The accompanying
Explanatory Memorandum could provide further guidance on the nature of specific
requirements that might be imposed through the use of these powers. In the case of
interoperability, for instance, the rules would be likely to include such details as the
criteria against which a CCP would be obliged to consider an access request from a
competitor (and the acceptable grounds for rejecting such a request), the required scope
and operational functionality of a link, and the timeframe on which a request that met
the criteria should be granted.
Certain of the Minimum Conditions (Clearing) would need to be further supported by
operational changes and, once implemented, would rely on other aspects of the
regulatory framework. In the case of interoperability, for example, the rule-making
power would establish and enforce the access requirement; once in place, the relevant
regulators would monitor the operation of the link and the management of risks arising
from the link under existing powers. The Bank would need to elaborate additional
guidance to the Financial Stability Standard for Central Counterparties (CCP
Standards) that deals with the management of risks arising from interoperable links.3
At the same time, the Agencies would clarify arrangements for the regulatory oversight
of matters such as default management and CCP recovery in a multi-CCP environment.
To the extent possible, the relevant regulators would offer a prospective competitor
guidance on potential specific requirements through bilateral discussions prior to
submission of a licence application, but detailed specific requirements would not be
articulated or implemented until such time as a committed competitor emerged or was
likely to emerge. The Agencies recognise that the rule-making process and the need to
make operational arrangements to support a multi-CCP environment would defer the
commencement of operations by a competitor. However, to implement the rules and
require that operational changes be made in advance would lead to redundant industry
investment and regulatory cost should a competitor fail to emerge. This is particularly
important given that the rules will deal with matters such as interoperability and
materially equivalent settlement arrangements between the emerging competitor and
incumbent CCP, which could be costly to establish.
3 The Bank's CCP Standards are available at
Impact Analysis - Competition in the clearing and settlement of cash equities
Accordingly, ASX would not be required to make up-front operational changes to
accommodate competition until such time as a competing CCP committed to entry.
However, at the same time, the technological design of ASX's CS infrastructure should
not raise barriers to the potential future implementation of interoperability or access to
settlement arrangements by a competing CCP.
This statement should be read alongside the analysis on the costs and benefits of
competition detailed in the Conclusions. This statement should also be read alongside
the Regulatory Expectations for Conduct in Operating Cash Equity Clearing and
Settlement Services in Australia (Regulatory Expectations), which will continue to
apply in the case that ASX remains the sole provider of clearing or settlement
services.4 If competition in settlement were to emerge then, where appropriate, this
document should also be read alongside the Minimum Conditions (Settlement).
The Agencies also expect to review the Minimum Conditions (Clearing) periodically,
including in the event of material changes to the operating environment or market
structure for these services, such as the emergence of a competing settlement facility.
Minimum Conditions for Safe and Effective
Competition in Clearing
The Minimum Conditions (Clearing) relate to the following.
1. Adequate regulatory arrangements. These should include:
(a) rigorous supervision against the CCP Standards and other requirements
under the Corporations Act
(b) application of the CFR's framework for regulatory influence over cross-border
CS facilities
(c) ex ante wind-down plans
(d) appropriate arrangements for regulatory oversight in a multi-CCP environment.
2. Appropriate safeguards in the settlement process. The cash equity settlement model
applied in a multi-CCP environment should seek as far as possible to preserve the
efficiencies of the prevailing settlement model at the time a competitor emerged,
while:
(a) affording materially equivalent priority to trades novated to a competing CCP
(b) minimising financial interdependencies between competing CCPs in the
settlement process
(c) facilitating appropriate default management actions.
3. Access to securities settlement infrastructure on non-discriminatory, transparent, fair
and reasonable terms.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
4. Appropriate interoperability arrangements between competing cash equity CCPs.
Each of the Minimum Conditions (Clearing) identified above is considered in greater
detail in the remainder of this policy statement.
4 The Regulatory Expectations are available at
Impact Analysis - Competition in the clearing and settlement of cash equities
with sufficient certainty to support business plans and investment decisions. The
threshold would also be made transparent to market participants, market operators and
ASX, to ensure that all stakeholders had the necessary information to formulate
business plans with certainty.
5 The PFMI, published by the Committee on Payment and Settlement Systems (now known as the
Committee on Payments and Market Infrastructures (CPMI) and the International Organization of
Securities Commissions is available at
6 ASIC's Regulatory Guide 211 is available at
8 The international work on recovery and resolution of FMIs is currently ongoing. Domestically, in
February 2015, the government released a consultation paper on legislative proposals to establish
a special resolution regime for FMIs in Australia, available at
. The CFR's response to this consultation was published in
November 2015. This is available at
Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
became concentrated in less liquid products). The Agencies would therefore work with
the CCPs and relevant market operators to establish ex ante contingency arrangements to
ensure the continued provision of clearing services for less liquid securities in the event
that the incumbent CCP for those securities exited the market or reappraised its provision
of those services.
(d) Appropriate arrangements for regulatory oversight in a multi-CCP environment
The Agencies do not see a strong case for a material change in ASIC and the Bank's
supervisory responsibilities in a multi-CCP environment. This view is consistent with the
idea that participant oversight is central to a CCP's risk management activities, given the
proprietary risk exposure that a CCP assumes to its participants.
However, a more fragmented view of participants in a multi-CCP environment could
disrupt arrangements for monitoring and managing clearing risk, including perhaps most
notably in default management. As part of the Minimum Conditions (Clearing), the
Agencies would clarify arrangements for regulatory oversight, particularly in relation to
default management and CCP recovery, at such time as a committed competitor emerged.
Competition in clearing could also give rise to adverse selection in both products and
participants. For instance, a competing CCP may be motivated to only offer clearing
services in the most liquid securities or to structure their business so as to favour larger
participants over smaller participants. This could lead to the fragmentation of the market
along the lines of liquidity, with potential implications for the profile of exposures to be
managed by each CCP. If a competing CCP were to emerge, the Agencies might consider
steps to mitigate these effects, such as through closer oversight of product and participant
scope; it is acknowledged, however, that there could be practical challenges in
implementing such steps.
Appropriate safeguards in the settlement process
The entry of a competing cash equity CCP would have implications for the design,
operation and organisation of the settlement model. Any changes to the existing
settlement arrangements could potentially give rise to additional costs, as well as
financial and operational risks. In light of this, the Agencies see a case to set minimum
conditions around the design of the settlement model for a multi- CCP environment. As
far as possible, the new model would need to preserve the efficiencies of the prevailing
settlement model in a single-CCP environment, while affording materially equivalent
priority to a competing CCP. It should also minimise financial interdependencies
between CCPs in the settlement process and facilitate appropriate default management
actions.
Access to settlement services on transparent, non-
discriminatory, and fair and reasonable terms
In the absence of an alternative provider of cash equity settlement services emerging,
any new cash equity CCP would require access to the vertically integrated
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Impact Analysis - Competition in the clearing and settlement of cash equities
incumbent settlement services of ASX Settlement. To the extent that it remains the
sole provider of cash equity settlement services, ASX Settlement would be required to
facilitate the provision of access to its cash equity settlement infrastructure on a
transparent and non-discriminatory basis with terms and conditions, including price,
that are fair and reasonable. The Regulatory Expectations, outlined by the Agencies in
a separate policy statement, deal with access to ASX's monopoly CS services. The
relevant provisions in the Regulatory Expectations explicitly address access on
transparent, non-discriminatory, and fair and reasonable terms; these provisions would
also apply to ASX's provision of CS services to a competing CCP for cash equities
under the Minimum Conditions (Clearing). Additionally, following the proposed
legislative changes as previously noted, the ACCC will have the power to arbitrate
disputes in relation to price and/or non-price terms and conditions of access where
negotiations guided by the Regulatory Expectations fail.
Appropriate interoperability arrangements between competing
CCPs
Interoperability has been identified as a potentially effective mechanism for ensuring
that the benefits of competition are realised while mitigating some of the adverse
implications, including market fragmentation and increased operational costs for
participants. Based on analysis summarised in the Conclusions, the Agencies consider
that a requirement to establish appropriate interoperability arrangements between cash
equity CCPs, prior to a competing CCP commencing operations, would be a necessary
condition to support competition.
Given commercial and operational considerations, the incumbent CCP may have little
incentive to voluntarily develop interoperability arrangements with a new entrant.
'Open access' obligations or other regulatory measures may therefore need to be
imposed to facilitate the establishment of fair and effective interoperability between the
incumbent CCP and any new CCP seeking to enter the Australian cash equity market.
The Agencies also acknowledge that interoperability may give rise to additional
complexities and risks. Should a competing CCP emerge, an effective risk
management framework for interoperability arrangements would need to be put in
place in order to mitigate these incremental risks. Specifically, the Bank would need
to issue additional guidance to clarify how the requirements under CCP
Standard 19 (FMI Links) should be met for the purpose of establishing safe and
effective interoperable links.
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
Minimum Conditions for Safe and Effective
Competition in Cash Equity Settlement in
Australia
A Policy Statement by the Council of Financial
Regulators
September 2017
© Australian Prudential Regulation Authority, Australian Securities and Investments
Commission, Reserve Bank of Australia and the Department of the Treasury 2017. All
rights reserved.
The contents of this publication shall not be reproduced, sold or distributed without the
prior consent of the Australian Prudential Regulation Authority, Australian Securities
and Investments Commission, Reserve Bank of Australia and the Department of the
Treasury.
ISBN 978-0-6480470-3-2 (Online)
Background
In March 2016, the Government endorsed the recommendations of a review of
competition in clearing cash equities in Australia carried out by the Council of
Financial Regulators (CFR) and the Australian Competition and Consumer
Commission (ACCC) - together, the Agencies. Importantly, the Government's
endorsement included a policy stance of openness to competition. The conclusions
from that review are set out in the Agencies' report, Review of Competition in Clearing
Australian Cash Equities: Conclusions (the Conclusions).1
As per the recommendations from the Conclusions, the CFR released two policy
statements in October 2016: Regulatory Expectations for Conduct in Operating Cash
Equity Clearing and Settlement Services in Australia (Regulatory Expectations) and
Minimum Conditions for Safe and Effective Competition in Cash Equity Clearing in
Australia (the Minimum Conditions (Clearing)).2
These policy statements were developed with reference to the prevailing market
structure in settlement - in which there is a sole provider of settlement services.
However, the Agencies considered it appropriate to explore the prospect of competition
emerging in settlement and the need for additional policy guidance to support safe and
effective competition, should it emerge.
For this purpose, the Agencies released a consultation paper on Safe and Effective
Competition in Cash Equity Settlement in Australia in March 2017.3 The Agencies also
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Impact Analysis - Competition in the clearing and settlement of cash equities
met with a number of interested parties to discuss their views on the prospect of
competition and the need for policy guidance.
Feedback received from stakeholders during consultation acknowledged that the
prospect of competition in settlement had increased, but also highlighted some of the
barriers to entry, as well as some potential risks, cost and efficiency implications of
competition in settlement.4
Accordingly, to address the identified barriers and risks, the Agencies have undertaken
to set out Minimum Conditions for Safe and Effective Competition in Cash Equity
Settlement in Australia (Minimum Conditions (Settlement)). The Minimum Conditions
(Settlement) apply when the same equity security can be settled in more than one
Security Settlement Facility (SSF).
The Minimum Conditions (Settlement) aim to give prospective providers of settlement
services sufficient clarity as to the measures that the Australian Securities and
Investments Commission (ASIC) and the Reserve Bank of Australia (the Bank) would
require be taken before they could advise in favour of a licence application. This
should assist in establishing the business case for any competing provider. In addition
to meeting existing licensing requirements under the Corporations Act 2001 (the
Corporations Act), any licence applicant would be expected to demonstrate that it
could viably provide services in this market in a manner consistent with the Minimum
Conditions (Settlement).
1 The Conclusions and the Government's response are available at
.
2 The Minimum Conditions (Clearing) is available at <
https://www.cfr.gov.au/publications/cfr- publications/2016/minimum-conditions-
safe-effective-cash-equity/pdf/policy-statement.pdf>; The Regulatory Expectations are
available at
.
3 The consultation is available at .
4 A more detailed summary of the feedback received is available in the Agencies' report: Safe
and Effective Competition in Cash Equity Settlement in Australia: Response to Consultation,
available at
.
Some aspects of the Minimum Conditions (Settlement) are not enforceable under the
existing regulatory framework (such as access by a competing clearing and settlement
(CS) facility on transparent, non-discriminatory, and fair and reasonable terms).
Nevertheless, the Agencies expect that service providers of settlement services will
operate in a manner that is consistent with the Minimum Conditions (Settlement).
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
The Agencies will work with the Government to fully implement the Minimum
Conditions (Settlement) through legislative changes. It is proposed that the legislative
changes will include provisions that:
• allow the relevant regulators to implement and enforce the Minimum
Conditions (Settlement) through the use of a rule-making power; and
• grant the ACCC power to arbitrate disputes regarding access to services
(including data).
The proposed legislative framework to implement in full the Minimum Conditions
(Settlement) would set out the relevant high-level requirements, leaving the relevant
regulators to impose any specific obligations at a later stage through the use of the rule-
making powers.
Given the importance of the Minimum Conditions (Settlement) in ensuring that
competition does not adversely affect financial stability or effective market
functioning, ASIC and the Bank would be unable to advise in favour of a licence
application from a potential competitor until these legislative measures had been
implemented. Consistent with the position of openness to competition, however, ASIC
and the Bank would be prepared to engage with any potential entrant in the interim and
commence consideration of a licence application, should one be submitted. In the event
that a committed competitor submits an application for a CS facility licence, consistent
with past practice, a public consultation on the potential effects of the applicant's
services on the market may be conducted by the relevant agency, in order to ensure that
any potential risks have been adequately dealt with by stakeholders and the regulators.
To the extent possible, ASIC, in consultation with the Bank, would offer guidance to a
prospective competitor on potential specific requirements before the submission of a
licence application. However, detailed specific requirements would not be articulated
or implemented until such time as a committed competitor emerged, or was likely to
emerge.
Accordingly, ASX may not be required to make operational changes to accommodate
competition until such time as a competing SSF committed to entry. However, at the
same time, the technological design of ASX's CS infrastructure should not raise
barriers to entry or otherwise seek to frustrate access to data or services that are
necessary for the provision of settlement services by a competing service provider.
ASIC and the ACCC have a particularly strong interest in this outcome being
delivered.
The Agencies expect to review the Minimum Conditions (Settlement) periodically,
including in the event of material changes to the operating environment or market
structure for these services.
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Impact Analysis - Competition in the clearing and settlement of cash equities
Minimum Conditions for Safe and Effective Competition in
Settlement
The Minimum Conditions (Settlement) relate to the following.
1. Adequate regulatory arrangements:
(a) Rigorous oversight against the Financial Stability Standards and other
requirements under the Corporations Act
(b) Application of the CFR's framework for regulatory influence over cross-
border CS facilities
(c) Ex ante wind-down plans and associated commitments
(d) Appropriate arrangements for certainty of securities transfer and
administration.
2. Access on transparent, non-discriminatory, and fair and reasonable terms.
3. Appropriate links between competing SSFs.
4. Appropriate regulatory arrangements for oversight of Primary and Secondary
Markets.
Each of the minimum conditions identified above is considered in greater detail in
the remainder of this policy statement.
Adequate Regulatory Arrangements
(a) Rigorous oversight against the Financial Stability Standards and other
requirements under the Corporations Act
The Corporations Act gives ASIC and the Bank responsibility for the regulation of
CS facility licensees. The Bank is responsible for determining financial stability
standards for licensed CS facilities and assessing compliance by those facilities with
those standards and their obligation to do all other things necessary to reduce
systemic risk, to the extent that it is reasonably practicable to do so. The Bank's
Financial Stability Standards for Securities Settlement Facilities (SSF Standards)
are aligned with the financial stability-related requirements of the CPMI-IOSCO
Principles for Financial Market Infrastructure (PFMI), which establish an
international benchmark for the risk management and operational standards of CS
facilities.5 ASIC is responsible for ensuring CS facilities comply with other
obligations under the Corporations Act, as elaborated in ASIC's Regulatory Guide
211: Clearing and Settlement Facilities: Australian and Overseas Operators
(RG211).6
The Bank and ASIC consider that equivalent application of the regulatory
framework across competing SSFs should limit any scope for competition on the
basis of less onerous risk controls, such that the market continues to function in a
safe and effective manner.
Application of the existing regulatory framework for CS facilities in a multi-SSF
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
environment is also expected to be sufficient to address any additional risks to
central counterparties, for example from mismatches in timing of settlement across
SSFs and 'un-netting' of trades during the settlement process.
(b) Application of the CFR's framework for regulatory influence over cross-
border CS facilities
If a SSF was seeking to leverage existing capabilities in overseas markets, ASIC
and the Bank's supervisory approach would be guided by the CFR's Regulatory
Influence Framework.7 This is a framework for ensuring that Australian regulators
have sufficient influence over overseas providers of CS services in the Australian
market to support domestic policy objectives.
One measure under the Regulatory Influence Framework, which would apply
primarily where a CS facility was both systemically important in Australia and had a
strong domestic connection, is the requirement to incorporate locally and seek a
domestic CS facility licence. As articulated in the Regulatory Influence Framework, a
competing SSF that settles Australian securities would almost certainly have a strong
domestic connection as it would operate in a primarily domestic market, perhaps with
a high level of domestic retail participation. The Agencies consider this to be an
integral part of the Minimum Conditions (Settlement), at least until ASIC and the
Bank are comfortable with the arrangements for cross-border coordination and
management of financial market infrastructure recovery and resolution.
5 The PFMI, published by the Committee on Payment and Settlement Systems (now known as
the Committee on Payments and Market Infrastructures (CPMI) and the International
Organization of Securities Commissions is available at
.
The SSF Standards is available at .
(с) Ex ante wind-down plans and associated commitments
Since a commercially driven exit of an SSF in a competitive environment could
disrupt activity in the segment of market activity that it settled, the Agencies see a
case to include measures aimed at mitigating such market disruption within the
Minimum Conditions (Settlement).
In particular, all competing SSFs - including the incumbent and any new entrants -
could be required to commit ex ante to a notice period of at least one year before
any planned exit from the market. This should be supported by ring-fenced capital
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Impact Analysis - Competition in the clearing and settlement of cash equities
sufficient to cover any operating expenses for the duration of the notice period, as
well as clearly articulated wind-down plans.
Similar to the Minimum Conditions (Clearing), this condition would be more
stringent than the requirements for orderly wind-down envisaged in the SSF
Standards; Standard 12 on general business risk requires that 'at a minimum, a
securities settlement facility should hold, or have legally certain access to, liquid net
assets funded by equity equal to at least six months of current operating expenses'.
The Bank considers this difference to be appropriate, as this condition is intended
to provide for a planned exit for commercial reasons, while SSF Standard 12 seeks
to protect against exit due to the crystallisation of business risk.
(d) Appropriate arrangements for certainty of securities transfer and
administration
Each SSF, in compliance with the Corporations Act, will have its own operating
rules reflecting the settlement facility service it operates and other services it
provides. The operating rules of a SSF, along with the operating rules of the listing
market for the issuer, may govern the registration of legal title to, and in some cases
administration of, securities in respect of which the SSF provides settlement
services. Where there are competing SSFs, a registry acting on behalf of an issuer
may be subject to requirements imposed by more than one SSF. For example, there
may be circumstances under which registries, acting on behalf of issuers, receive
instructions from competing SSFs relating to the same listed security. The registry
will need to determine how to prioritise those instructions and ensure the resulting
change of title to the securities is legally certain, which may be challenging in
situations where the registry is not able to comply with, or reconcile the
requirements imposed on it by, competing SSFs.
Accordingly, the Agencies consider that, in the event of a competing SSF emerging,
there is a case for the relevant agency to have the ability, if required, to put in place
regulatory arrangements to support certain aspects of the legal relationship between
competing SSFs, registries and issuers. Such regulatory arrangements might
involve prescribing protocols, rules or regulations setting out common principles for
the transfer, registration and administration of securities.
Access on Transparent, Non-discriminatory, and Fair and
Reasonable Terms
To address concerns regarding access to services (including data) necessary for the
provision of settlement services by a competing SSF, the Agencies consider it
appropriate that CS service providers be required to facilitate access to services
(including data) on a transparent and non- discriminatory basis with terms and
conditions, including price, that are fair and reasonable. For example, ASX is expected
to comply with this requirement with respect to providing services (including data)
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Treasury Laws Amendment (2023 Measures No. 3) Bill 2023
necessary for the provision of settlement services by a competing service provider, and
vice versa.
This is consistent with the Regulatory Expectations, which deal with access to the
incumbent service provider's monopoly CS services. The relevant provisions in the
Regulatory Expectations explicitly address access on transparent, non-
discriminatory, and fair and reasonable terms should a competing provider of
settlement services emerge. Additionally, following the proposed legislative changes as
previously noted, the ACCC will have the power to arbitrate disputes in relation to
price and/or non-price terms and conditions of access to data and services where
negotiations guided by the Regulatory Expectations fail.
Appropriate Links between Competing SSFs
Further to the requirement for transparent, non-discriminatory, and fair and reasonable
access, in order to facilitate market functioning in a structure with competing SSFs, the
Agencies are of the view that it would be necessary to ensure that securities can be
accessed by, and moved between, all of the SSFs. The nature of this link will depend
on the particular model. It would also be necessary to have a process in place to
prevent the risk of the same security holding being used multiple times during
settlement.
Appropriate Regulatory Arrangements for Oversight of
Primary and Secondary Markets
Any SSF proposing to provide settlement services that will offer a choice in settlement
timeframe, should be aware that this may have implications for the functioning of any
licensed financial market for which it is permitted to settle trades and for the
participants and investors that use the market. There may also be implications for the
listed entities and the transactions they conduct.
It is important to note that ASIC would have a regulatory role in any proposal in which
the choice of settlement timeframe and/or facility occurred as part of contract
formation on a licensed financial market. Such a proposal may raise significant policy
considerations in respect of price formation, liquidity and fragmentation in the markets
for securities settled by the respective competing SSF. Such proposals would require
significant analysis to be undertaken by ASIC on the potential market impacts. A
prospective provider of settlement services that seeks to offer such services should
undertake bilateral dialogues with ASIC early in the development of its proposal.
123