This technical paper has been prepared for the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industries. Its purpose is to explain in general terms the legal framework within which financial advice is provided, and financial products are sold, to Australian households.
The legal framework comprises a complex and interlocking set of legal rules and remedies derived from the relevant legislation and the general law. The relevant legislation is the Corporations Act 2001 (Cth) (‘Corporations Act’) and the Australian Securities and Investments Commission Act 2001 (Cth) (‘ASIC Act’) and the (extensive) Regulations and other legislative instruments made pursuant to them. Chapter 7 of the Corporations Act governs (among other things) the provision of financial services and the offer and sale of financial products other than securities. Chapter 6D of the Corporations Act regulates the offer and sale of securities. Part 2, Division 2 of the ASIC Act deals with unconscionable conduct and consumer protection in relation to financial services and operates to the exclusion of the corresponding provisions in the Australian Consumer Law.1 Neither Act is expressed to operate as a code. The legislation co-exists with, and informs and is informed by, applicable general law including contract, tort and, where relevant, fiduciary principles.
The paper is concerned with the provision of ‘financial product advice’ and the sale of ‘financial products’ as those terms are defined in the Corporations Act. It does not deal with the provision of credit (except for margin lending) which is separately regulated. Nor does it cover direct investment in physical assets such as real estate, collectables or precious metals.
The paper is organised as follows. This first chapter is introductory and includes a highlevel overview of the participants in the wealth management sector and of the evolution of the current regulatory regime. Chapter 2 explains some of the key definitions that mark out the regulatory perimeter, including of financial product and financial product advice, and the distinction drawn in the legislation between retail and wholesale clients. Chapter 3 describes the legal framework governing the provision of financial product advice to households. Chapter 4 deals with the offer and sale of financial products. Chapter 5 looks specifically at the way in which the legal framework seeks to resolve conflicts of interest and duty that routinely arise in the context of those activities.