Question 1

What is the meaning of a "Financial Service" under CA s766A?

Accepted Answer

CA s766A – Meaning of "Financial Service": A person provides a financial service if they: • provide financial product advice (see s766B); • deal in a financial product (see s766C); • make a market for a financial product (see s766D); • provide a custodial or depository service (see s766E); • operate a registered scheme under Chapter 5C; • provide a crowd‑funding service; • are a trustee company providing a traditional trustee company service under Chapter 5D (s766A(1A)); or • engage in conduct of a kind prescribed by the regulations for these purposes. Kevin Lewis: we look at the regulation of registered schemes under Chapter 5C in lecture 10. A detailed examination of the regulation of crowd funding services under Part 6D.3A and traditional trustee company services under Chapter 5D is beyond the scope of this course. CA s766A(3) provides that a person’s conduct is not the provision of a financial service if it is done in the course of work of a kind ordinarily done by clerks or cashiers. See generally ASIC Regulatory Guide 36 Licensing: Financial product advice and dealing and ASIC Regulatory Guide 175 Licensing: Financial product advisers – Conduct and disclosure.

Question 2

What is the meaning of "Financial Product Advice" under CA s766B?

Accepted Answer

CA s766B - "Financial Product Advice": ``` 'Financial product advice' means a recommendation or a statement of opinion, or a report of either of those things, that: (a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or ``` (b) could reasonably be regarded as being intended to have such an influence (s766B(1)). However, subject to s766B(1B), the provision or giving of an exempt document or statement is not to be taken to be a provision of financial product advice (s766B(1A)). Kevin Lewis: "Exempt document or statement" is defined in s766B(9) to include a document prepared in accordance with Chapter 7 (other than a Statement of Advice and any other document excluded by the regulations for these purposes) and any other document prescribed by the regulations to be an exempt document for these purposes. CR r7.1.08 specifies what are and are not exempt documents and statements for these purposes. CA s766B(1B) provides that s766B(1A) does not apply for the purpose of determining whether a recommendation or statement of opinion made by an outside expert, or a report of such a recommendation or statement of opinion, that is included in an exempt document or statement is financial product advice provided by the outside expert. There are exclusions from the definition of providing financial product advice covering advice by lawyers and tax agents in their professional capacity (s766B(5)) and limited responses to customer queries on price (ss766B(6) and (7)). Clerical-type advice would be excluded by s766A(3), mentioned in the notes to the previous slide. In ASIC v Oxford Investments (Tasmania) Pty Ltd [2008] FCA 980, the Federal Court held that the provision of training services about a computerised system for trading SFE futures amounted to carrying on a business of providing financial product advice requiring an AFSL. The services included one-on-one and seminar-style instruction on the system, as well as the provision of market data and a licence to use a computer program to interpret the data and apply the system. The court rejected an argument that it was necessary for the defendant to give advice about a particular transaction (ie whether to buy, sell or hold a particular security) to enliven section 766B. It pointed out that the defendant was effectively expressing an opinion that, in specified circumstances arising from a particular kind of market analysis, trading in a particular way was likely to be profitable. It was also providing technical aids to assist in identifying those circumstances from day to day. The combined effect amounted to the provision of financial product advice and that such advice could reasonably regarded as intended to influence the recipient in making a decision in relation to trade in a particular class of financial products (ie futures).

Question 3

What is the meaning of "Dealing" in a financial product under CA s766C(1) & s766C(2)?

Accepted Answer

CA s766C(1) and (2) - "Dealing": The following conduct (whether engaged in as principal or agent) constitutes 'dealing' in a financial product: applying for or acquiring a financial product issuing a financial product in relation to securities or managed investment interests - underwriting the securities or interests varying a financial product disposing of a financial product Arranging for a person to engage in conduct referred to above is also dealing, unless the actions concerned amount to providing financial product advice. Kevin Lewis: CA s766C(2A) provides that despite ss766A(1) and (2), providing a crowd‑funding service does not constitute dealing in a financial product. CA s761E defines when a financial product is issued to a person and who is the issuer of a financial product. These are important concepts, since issuing a financial product may not only give rise to a need to have an AFSL, it may also be the trigger point for a requirement to give a Financial Services Guide or Product Disclosure Statement. If a financial product is issued to a person, the person "acquires" the product from the issuer and the issuer "provides" the product to the person (s761E(1)). Generally, a financial product is issued to a person when it is first issued, granted or otherwise made available to a person (s761E(2)). Specific rules are made, however, for certain types of products (s761E(3)). Hence, a superannuation product is taken to be issued to a person when the person becomes a member of the fund concerned. An RSA product is taken to be issued to a person when the account concerned is opened in the person's name. A derivative is issued to a person when the person enters into the legal relationship that constitutes the derivative. And a margin lending facility is issued to a person when the person enters into the legal relationship that constitutes the margin lending facility, as the client under the facility. CA s761(3A) provides that, for the avoidance of doubt, none of the following is taken to give rise to the issue of a financial product to a client: (a) the client making a further contribution to a superannuation fund of which the client is already a member; (aa) an employer of the client making a further contribution, for the benefit of the client, to a superannuation fund of which the client is already a member; (b) the client making a further deposit into an RSA maintained in the client’s name; (c) the client making a further payment under a life insurance investment product; (d) the client making a further deposit into a deposit product; (e) the client engaging in conduct specified in regulations made for these purposes in relation to a financial product already held by the client.

Question 4

What are the exclusions from the definition of "Dealing" under CA s766C(3) to s766C(7)?

Accepted Answer

CA s766C(3)-(7) - 'Exclusions from Definition of "Dealing"': A person dealing in a product on their own behalf (whether directly or through an agent or other representative) – except where the person is an issuer of financial products and the dealing is in relation to one or more of those products (s766C(3)) A government or local government authority, public authority or instrumentality or agent of the Crown dealing in its own securities and, in the case of a government, in its own debentures, stocks or bonds (s766C(4)(a) and (b)) A body corporate or unincorporated body dealing in its own securities (s766C(4)(c)) – except where the body carries on an investment business and, in the course of that business, invests funds subscribed pursuant to an offer or invitation to the public (s766C(5)) A sub-underwriter subscribing for shares under a sub-underwriting agreement (s766C(6)) Conduct prescribed by the regulations as not amounting to dealing in a financial product (s766C(7)) Kevin Lewis: the so-called "self dealing" exclusions in s766C(3) and (4) are very important. They are the reason, for example, why a company does not require an AFSL simply to issue its own shares and debentures to investors (unless it is an investment company that falls within the exclusion in s766C(5)). They are also the reason why an investor who buys and sells securities on the stock market in their own name does not require an AFSL to do so. CA s766C(3A) provides that for the purposes of s766C(3), a person (the agent) who deals in a product as an agent or representative of another person (the principal) is not taken to deal in the product on the agent's own behalf, even if that dealing, when considered as a dealing by the principal, is a dealing by the principal on the principal's own behalf. Note that the self dealing exclusions do not apply to the responsible entity of a managed investment scheme issuing or otherwise dealing in interests in that scheme because of the carve-out for persons who are issuers of financial products, where the dealing is in relation to one or more of those products. ASIC also takes the view that they do not apply to a responsible entity of a managed investment scheme dealing in other financial products in its capacity as responsible entity, presumably on the basis that those dealings are not being done by the responsible entity on its own behalf but rather on behalf of, and for the benefit of, the members of the scheme (see, for example, para 87 of ASIC Regulatory Guide 2: AFS Licensing Kit: Part 2 - Preparing your AFS licence application and ASIC Corporations (Superannuation and Schemes: Underlying Investments) Instrument 2016/378). By extension, the same reasoning would apply to the trustee of a trust dealing in financial products in its capacity as trustee.

Question 5

What is the meaning of "Making a Market" under CA s766D(1)?

Accepted Answer

CA s766D(1) - "Making a Market": A person 'makes a market' for a financial product if: (a) either through a facility, at a place or otherwise, the person regularly states the prices at which they propose to acquire or dispose of financial products on their own behalf; (b) other persons have a reasonable expectation that they will be able to regularly effect transactions at the stated prices; and (c) the actions of the person do not, or would not if they happened through a facility or at a place, constitute operating a financial market because of the effect of s767A(2)(a). Kevin Lewis: CA s767A(2)(a) excludes from the concept of "financial market" a person making or accepting offers or invitations to acquire or dispose of financial products on the person's own behalf, or on behalf of one party to the transaction only (unless the regulations specify otherwise). This is intended to carve out OTC markets from the financial markets licensing requirements in CA Part 7.4. Instead operators of OTC markets are required to obtain a financial services licence under CA Part 7.6 authorising them to make a market. CA s766D(2) provides that s766D(1)(a) does not apply to a person stating prices at which they propose to acquire or dispose of financial products if: (a) the person is the issuer of the products; and (b) the products are superannuation products, managed investment products or financial products referred to in s764A(1)(ba) (interests in unregistered managed investment schemes).

Question 6

What is the meaning of "Providing a Custodial or Depository Service" under CA s766E(1)?

Accepted Answer

CA s766E(1) - "Providing a Custodial or Depository Service" A person (the provider) provides a custodial or depository service to another person (the client) if, under an arrangement between the provider and the client, or between the provider and another person with whom the client has an arrangement, (whether or not there are also other parties to any such arrangement), a financial product, or a beneficial interest in a financial product, is held by the provider in trust for, or on behalf of, the client or another person nominated by the client. Kevin Lewis: CA s766E(3) excludes from this definition: (a) the operation of a clearing and settlement facility; (b) the operation of a registered scheme, or the holding of the assets of a registered scheme; (c) the operation of a regulated superannuation fund, an approved deposit fund or a pooled superannuation trust; (ca) the operation of a statutory fund by a life company; (d) the provision of services to a related body corporate; and (e) any other conduct of a kind prescribed by the regulations for these purposes. There are further exclusions in CR r7.1.40. Note that ASIC initially expressed the view in an FAQ (since withdrawn, QFS 7: I am a trustee of an unregistered scheme. Do I need an AFS licence for providing a custodial or depository service?) that the trustee of an unregistered managed investment scheme which holds financial products itself as trustee rather than using a separate licensed custodian is likely to require an AFSL that authorises it to provide a custodial or depository service. Since then, ASIC has issued class order relief exempting trustees of wholesale equity schemes from having to hold an AFSL to provide custodial or depository services and dealing services, provided the manager of the scheme holds an AFSL (see Class Order [CO 07/74] Wholesale Equity Schemes: Licensing relief for trustees). See also ASIC Regulatory Guide 192 Licensing: wholesale equity venture capital schemes which explains this relief.

Question 7

When is an AFSL needed under CA s911A?

Accepted Answer

CA s911A – "Requirement to Hold a Licence": A person who carries on a financial services business in this jurisdiction must hold an AFSL covering the provision of the financial services unless: the person provides the services as a representative of an Australian financial services licensee or a person who is exempt from the licensing requirements (s911A(2)(a)); the person is a body regulated by APRA, the service is one in relation to which APRA has regulatory or supervisory responsibilities and is provided only to wholesale clients (s911A(2)(g)); the person is regulated by an overseas regulatory authority, the provision of the service by the person is covered by an exemption specified by ASIC in writing for this purpose published in the Gazette and the service is provided only to wholesale clients (s911A(2)(h)); the person is an offshore service provider who arranges for an AFSL holder to deal in a financial product on behalf of an offshore client (r7.6.01(f)); the person is an offshore service provider through whom the holder of an appropriate AFSL arranges a dealing in a financial product on behalf of an Australian client (r7.6.01(n)); the person is an offshore provider providing services outside Australia to an Australian citizen or resident, where the provider hasn't engaged in conduct that is intended to, or likely to, induce persons in Australia to use the service (s911A(2A)/r7.6.02AG); the person is an offshore provider providing services to a person in Australia in relation to a product issued by the provider (a) following an application by, or inquiry from, the client or (b) acquired by the client when they were outside Australia, where the provider did not actively solicit persons in Australia in relation to that product (s911A(2D)/r7.6.02AG); the person is an offshore provider providing services outside Australia to an AFSL holder, or to a person who is exempt from holding an AFSL under s911A(2)(h), acting on their own behalf (s911A(2C)/r7.6.02AG); the person is an offshore provider and is dealing in, advising on, or making a market in, derivatives, FX contracts, carbon units, Australian carbon credit units or eligible international emissions units for a professional investor (s911A(2E)/r7.6.02AG); the person is providing sub-custodial services to a master custodian who holds the requisite AFSL (r7.6.01(k)); or one of the other exemptions in s911A(2) or in r7.6.01 applies. Kevin Lewis: the exemption in s911A(2D) also covers services provided in relation to a supplementary or substituted product issued by the offshore provider in relation to the original product referred to in that exemption. The requirement in that exemption that the service provider not actively solicit persons in Australia does not preclude them from contacting the client in relation to the financial products in question. Note that the exemption in s911A(2)(h) requires a written exemption from ASIC before it applies. This may be granted on a one-off basis or to a category of offshore service providers under a class order. For an exposition of how ASIC exercises its powers in this regard, see ASIC Regulatory Guide 176 Licensing: Discretionary powers - wholesale foreign financial services providers. There are existing class orders that provide transitional relief until 22 September 2018 for financial services providers regulated by the UK FCA, US SEC, US Federal Reserve and OCC, US CFTC, Singapore MAS, Hong Kong SFC or German BaFin (see ASIC Corporations (Repeal and Transitional) Instrument 2016/396). Two of the requirements that ASIC typically imposes to qualify for this relief is that the foreign licensee disclose to clients that they are exempt from holding an AFSL and are regulated by the relevant overseas regulatory authority, and that they notify ASIC of material investigations and enforcement matters within a prescribed timeframe. Failure to comply with these conditions results in an automatic disqualification from the relief granted. For an example of ASIC taking action against a foreign licensee (Barclays) for breaching these requirements, see ASIC Media Release 17-077MR. The list of exemptions from the requirement to hold an AFSL on the slide above is by no means an exhaustive list of exemptions (there are many others) but these are the main ones for our purposes. Note that none of the exemptions applies if the service provided is the operation of a registered managed investment scheme or a traditional trustee company service (s911A(4)). In all cases, the operator of a registered managed investment scheme or provider of traditional trustee company service must have an AFSL. The various exemptions mentioned above for offshore providers are especially important for multi-national financial services groups, given the breadth and effect of s911D (see below). It is not uncommon for these groups to have a small number of flagship account carriers with substantial balance sheets. Typically, those carriers are headquartered and licensed in places like the US, UK and Japan. They will usually also have subsidiaries with much smaller balance sheets licensed in other jurisdictions where the group has a place of business. Generally they will want their client accounts, particularly large wholesale accounts, to be carried in the flagship entities rather than the local subsidiaries, as this is usually easier from a systems/infrastructure standpoint and has regulatory capital and netting advantages. Most larger customers, particularly wholesale customers, would usually prefer this as well from a credit and netting standpoint. So, even though a local Australian customer will deal with local sales staff as representatives of the local licensed entity, when it comes to write the business, it often gets "introduced to" and written in the name of an offshore flagship. This begs the question whether the offshore flagship is carrying on a financial services business in Australia that requires a licence. Before the FSR reforms, these groups often either ignored the licensing issue (based on an assumption/hope that the local regulators would be unlikely to take action because of the involvement of a locally licensed entity in the transaction) or they set up some pretty dubious structures based around CA s21(3)(e) – which we will look at shortly – to get around the issue. The exemption in r7.6.01(n) now provides a sounder basis for these types of arrangements, provided the group is careful to ensure that Australian customers are introduced to the flagship entity by a locally licensed entity. Of course, r7.6.01(n) only addresses the licensing issue. Booking business in the name of an offshore entity can raise serious tax issues. If employees here are authorised to enter into contracts on behalf of an offshore entity then that may constitute a permanent establishment here for tax purposes. That in turn may give rise to an obligation for the offshore entity to file a tax return here and to pay tax on any profits that are attributable to that permanent establishment. So if you see that sort of activity happening in a financial services organisation, get the tax experts to look at it. For ASIC's view on when a foreign financial services provider needs an AFSL to do business in Australia or with Australian customers, see ASIC Regulatory Guide RG121 Doing financial services business in Australia. The process for obtaining a financial services licence is outlined in ASIC Regulatory Guides RG1 AFS Licensing Kit: Part 1 — Applying for and varying an AFS licence, RG2 AFS Licensing Kit: Part 2 — Preparing your AFS licence application and RG3 AFS Licensing Kit: Part 3 — Preparing your additional proofs. See also ASIC Regulatory Guides RG104 Licensing: Meeting the general obligations, RG105 Licensing: Organisational competence and RG166 Licensing: Financial requirements for the conditions that have to be satisfied in order to obtain a financial services licence.

Question 8

When is a financial services business "taken to be carried on in this jurisdiction" under CA s911D?

Accepted Answer

CA s911D - "When a Financial Services Business is Taken to be Carried on in This Jurisdiction": A financial services business is taken to be carried on in this jurisdiction by a person if, in the course of the person carrying on the business, the person engages in conduct that is: (a) intended to induce people in this jurisdiction to use the financial services the person provides; or (b) is likely to have that effect; whether or not the conduct is intended, or likely, to have that effect in other places as well. Kevin Lewis: thus, persons based offshore who use the telephone, fax, email or internet to contact clients in Australia may still be considered to be carrying on business here even though they don't have a physical presence in the jurisdiction. ASIC Corporations (Foreign Financial Services Providers – Limited Connection) Instrument 2017/182 exempts providers (on a transitional basis until 27 September 2018) from the requirement to hold an AFSL where the person provides regulated financial services to wholesale clients only and where the only reason the person is taken to be carrying on a financial services business in Australia is as a result of CA s911D. It is generally relied on by those offshore providers who do not have any presence or staff in Australia and who cannot avail themselves of the class order relief for foreign financial service providers in s911A(2)(h) mentioned above.

Question 9

What is the meaning of "Financial Services Business" under CA s761A and at common law?

Accepted Answer

Meaning of Financial Services Business • Financial services business means a business of providing financial services (s761A). • At common law, business => system, repetition and continuity (Edgelow v MacElwee [1918] 1KB 205). • A one-off or isolated financial service is therefore unlikely to be caught (Hungier v Grace (1972) 127 CLR 210 and ASIC v Cycclone Magnetic Engines Inc & Ors [2009] QSC 58). • But it does not take much system, repetition or continuity to constitute a business (ASIC v McNamara (2002) 42 ACSR 488, ASIC v Young [2003] QSC 29 and Dunlop Pneumatic Tyre Co v Act Für Motor und Motorfahrzeugbau vorm Cudell & Co [1902] 1 KB 342). • In working out whether someone carries on a financial services business, Part 1.2 Division 3 needs to be taken into account. However, s21(3)(e) does not apply for the purposes of Chapter 7 (s761C). Kevin Lewis: in Edgelow v MacElwee, the question in issue was whether the plaintiff solicitor was carrying on the business of money-lending without the required registration. McCardie J observed (at p 206): "There must be more than occasional and disconnected loans. There must be a business of money-lending, and the word 'business' imports the notion of system, repetition and continuity ... The line of demarcation cannot be defined with closeness or indicated by any specific formula. Each case must depend on its own peculiar feature. It is ever a question of degree." In Hungier v Grace, H, an electrical contractor, was asked by G, a friend and timber merchant, to lend him money to purchase timber for his business. It was agreed that H and G would share equally the profit derived by G on each transaction funded. H made 32 loans aggregating $287,000 over a 6 year period. As agreed, the interest varied according to the profitability of the transaction for which the money was borrowed and ranged between 17% and 82%. G ultimately ran into financial difficulties and entered into a scheme of arrangement with his creditors. H’s proof of debt for outstanding loans plus interest was rejected by the trustee administering the scheme, asserting that H was carrying on business as an unregistered money-lender and therefore, by law, could not recover the money lent or any interest thereon. The High Court held that H was not carrying on a business of money-lending and therefore did not need to be registered. The fact that H and G were friends, the only loans H made were to G, and G requested each loan and set the period and amount of the repayments, were held to all point to H not carrying on a money-lending business. In ASIC v Cycclone Magnetic Engines Inc & Ors, the Supreme Court of Queensland held that a company raising seed capital for the conduct of its own business by offering and issuing shares to over 70 investors was not carrying on a financial services business. The court found that the act of offering shares to raise capital for a business was not itself carrying on a business and that, in any event, the conduct in question had taken place over a relatively short period and had not continued and was therefore of a "one-off" nature. In ASIC v McNamara, a limited partnership was formed to provide finance to a joint venture entity. Two individuals, acting on behalf of the general partner, sought and received subscriptions from 55 mostly retail investors for units in the limited partnership. The conduct in question spanned the transition date for the FSR reforms. The limited partnership was not registered as a managed investment scheme and neither the general partner nor the individuals acting on its behalf held a dealers licence under the former law or an AFSL under the current law. The Federal Court held that the offering of units to 55 investors was sufficiently "systematic, repetitious and continuous" that the general partner and the individuals concerned were all carrying on a securities business under the former law and a financial services business under the current law and had contravened the Corporations Act by not having the requisite licence. In ASIC v Young, it was held that the activities of real estate agents in raising finance from and selling property to participants in a so-called "Investors Club" constituted the unlawful operation of a managed investment scheme. The court found that the promotion of 7 property developments through the club was sufficient to mean that the schemes were promoted by a person in the business of promoting managed investment schemes and therefore the schemes required registration even though they each had less than 20 members. In Dunlop Pneumatic Tyre Co v Act Für Motor und Motorfahrzeugbau vorm Cudell & Co, it was held that a foreign car manufacturer which had hired a stand at the Crystal Palace to exhibit its goods at a cycle show and manned it with a single salesman for 9 days was carrying on business in the jurisdiction for the duration of the show and that the service of a writ on that salesman for breach of patent by the foreign company was therefore valid. One could argue that this case involved residence and service of process issues, where a court might naturally be expected to take a wider reading of when someone was carrying on business in the jurisdiction than for other purposes. However, in Kelty v Athertons (SA) Pty Ltd (1982) 6 ACLR 477, Sangster J (at p480) expressed the view that "it may well be that any foreign company carrying on business sufficient to make it a resident for jurisdictional purposes would come within the definition of a foreign company carrying on business in this State" for the purposes of the Corporations Act foreign company registration requirements.

Question 10

What is the meaning of "Carrying on Business" under CA Part 1.2, Div 3?

Accepted Answer

CA Part 1.2 Div3 - Meaning of "Carry on Business": Doesn’t matter that the business is not for profit (s18). Doesn’t matter that the business is carried on as part of, or in conjunction with, another business (s19). Doesn’t matter whether the business is carried on alone or with others (s20). If you have a place of business here, then you carry on business here (s21(1)). A body corporate carries on business here if it: establishes or uses a share transfer office or share registration office here; or administers, manages, or otherwise deals with, property situated here as an agent, legal personal representative or trustee, whether by employees or agents or otherwise (s21(2)).

Question 11

What are the exclusions from "Carrying on Business" under CA s 21(3)?

Accepted Answer

CA s21(3) - "Exclusions From Carrying On Business": Despite s21(2), a body corporate does not carry on business here merely because it: (a) is or becomes a party to a proceeding or effects settlement of a proceeding or of a claim or dispute here; (b) holds meetings of its directors or shareholders or carries on other activities concerning its internal affairs here; (c) maintains a bank account here; (d) effects a sale through an independent contractor here; (e) solicits or procures an order that becomes a binding contract only if the order is accepted outside Australia; (f) creates evidence of a debt, or creates a security interest in property ...; (g) secures or collects any of its debts or enforces its rights in regard to any securities relating to such debts here; (h) conducts an isolated transaction that is completed within a period of 31 days, not being one of a number of similar transactions repeated from time to time here; or (j) invests any of its funds or holds any property here. Kevin Lewis: CA s21(3)(e) formed the basis of a number of schemes used by offshore financial institutions in the past to avoid having to get a licence here. CA s761C now eliminates these avoidance techniques by disregarding 21(3)(e) for the purposes of Chapter 7.

Question 12

What are the consequences of failing to hold an AFSL when required?

Accepted Answer

Consequences of Failure to Hold Licence When Required: (1) Criminal offence – 200 penalty units and/or imprisonment for 2 years for individuals, 1,000 penalty units for bodies corporate (s1311 and schedule 3; s1312). (2) Client (if not themselves a licensee) may give a notice rescinding any agreement constituting or relating to the provision of a financial service by a non-licensee within a reasonable period of becoming aware that the service provider is not a licensee (s925A). (3) Service provider may not directly or indirectly enforce or rely on an agreement that is able to be, or is, rescinded (s925E). (4) Service provider not entitled to recover by any means (including set-off or quantum meruit) any brokerage, commission or other fee otherwise payable under an agreement that is able to be rescinded or that has been the subject of a notice of rescission (s925F). (5) Client entitled to recover any brokerage, commission or other fee paid under an agreement that is able to be rescinded or that has been the subject of a notice of rescission (s925H). Kevin Lewis: references above to an agreement that is able to be rescinded mean an agreement in relation to which a client is entitled to give a notice of rescission under s925A. The last 2 bullet points apply even where the notice of rescission is not actually effective to rescind the agreement under s925B (which prevents a notice of rescission taking effect if it would prejudice a right, or an estate in property, acquired by a person (other than the non‑licensee) in good faith, for valuable consideration and without notice of the facts entitling the client to give the notice). Note that this slide is an over-simplification of the law. There are various conditions that may disqualify the client, in whole or in part, from exercising their right of rescission. However, we do not need to go into that level of detail. It is sufficient for the purposes of this course that you know that failure to hold a licence when one is required carries serious penalties. Illustrating the point, in 2014, Interactive Brokers LLC, a US-based online brokerage firm, was forced to refund approximately $1.5 million in fees and commission payments to its retail margin lending customers, following an ASIC investigation that found that during the period July 2010 to August 2013, it did not hold an AFSL authorising the provision of margin loans. Approximately 3000 retail customers took out margin loans with Interactive Brokers during this period. See ASIC Media Release 14-336MR.

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Chapter 1: Licensing - What is a 'Financial Service'? Flashcards

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