Professional Documents
Culture Documents
External websites
Kaplan’s subject notes contain links to the websites of other organisations. Kaplan does not necessarily endorse or support the views, opinions, standards or
information contained within these linked websites. Kaplan does not accept any responsibility or liability for any loss, damage, cost or expense you might
incur as a result of the use of, or reliance upon, the materials that appear at any linked site. Kaplan respects the intellectual property rights of others.
Be aware that material found on linked sites is likely to be protected by copyright and may also contain trademarks and other protected information.
It is your responsibility to use the material on each linked site in accordance with the site’s specific terms and conditions of use.
Topic 1-2: Legislation and codes of practice
Contents
Overview ........................................................................................................ 1-2.3
1-2
1 Important legal terms and concepts ..................................................... 1-2.4
1-2.2 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Overview
Professionals in the financial services industry (FSI) need to have sound general
knowledge of the industry and specific knowledge of issues related to the regulatory
framework that governs the consumer credit and mortgage industry.
As the finance industry in Australia is highly regulated and breaches of legislation can
result in severe penalties, knowledge of and compliance with the various applicable
laws, Regulations and codes of conduct are essential.
This topic provides an overview of the regulatory framework and environment in which
the industry operates. It looks at the regulators and industry bodies. Privacy protection
and the specific consumer protection under the National Consumer Credit Protection Act
1-2
2009 (Cth) (NCCP Act) are also examined.
1.1 Law
The term ‘law’ refers to the set of rules governing a society. According to Enright
(1991, p. 69)
The main primary sources of law are:
• statutes (also called Acts)
• common law (alternatively called case law)
• delegated legislation.
Common law consists of principles of law formulated by judges in cases
(a) in deciding disputes where there are no applicable statutes and
(b) in interpreting statutes and delegated legislation. Delegated legislation
is law made by some person or body to whom parliament has by statue
delegated law making authority. Statute is the superior type of law because
it overrides common law. Because delegated legislation is authorised by
statute it can also override common law.
The function of these laws is to regulate the conduct of governments and citizens.
Laws can be enforced by the courts and by the executive arm of government.
1.3 Legislation
Legislation is a law that has been enacted by a parliament. Legislation can have many
purposes. It can, for example, authorise, prohibit or regulate. In Australia, an item of
primary legislation is known as an Act of Parliament after enactment.
1-2.4 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1.4 Regulation
Regulation is a form of secondary legislation. Regulations are used to set out the detail
that gives effect to the intent and purpose of the primary legislation. Regulations are
used to specify the detail of how legislation will be implemented.
The responsibility for overseeing the implantation of and compliance with Regulations is
normally given to government departments or specific bodies established for the purpose.
1-2
an official body or a professional association to its members to help them comply with
its ethical standards’.
Unlike legislation, adoption and adherence to a code of practice may be voluntary and
might be initiated by joining a professional association or business body.
A code of practice may be a practical guide to achieve what is required under the
legislation and can provide duty holders with guidance on effective ways to manage
issues, achieve ethical or practical work standards or provide services.
For example, work health and safety (WHS) codes of practice can provide practical
guidance for people who have WHS duties to achieve the standards required under the
Work Health and Safety Act 2011 (Cth) (WHS Act). In most cases, following an approved
code of practice will achieve compliance with the WHS Act. However, the codes of
practice should not be regarded as exhaustive. Also, a code of practice does not have
the same legal weight as the WHS Act or Regulations, although it may be admissible in
court as evidence.
Common law
The common law system, derived from British law, forms the basis of Australian
jurisprudence. Common law, also known as case law or precedent, is law developed by
judges through a series of decisions of courts or similar tribunals. The chief feature of
the common law system is that judges’ decisions in pending cases are informed or
bound by the decisions of previously settled cases. The fundamental principle is that it is
unfair to treat similar cases differently on different occasions.
Enright (1991, p. 69) states that:
Common law consists of principles of law formulated by judges in cases
(a) in deciding disputes where there are no applicable statutes and
(b) in interpreting statutes and delegated legislation.
Mediation, arbitration and litigation processes can be argued within the context of the
common law and is ultimately decided by the courts.
1-2.6 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Civil law
Civil law is a legal system originating in Europe, intellectualised within the framework of
late Roman law, and whose most prevalent feature is that its core principles are codified
into a referable system that serves as the primary source of law. Civil law proceeds from
abstractions, formulates general principles, and distinguishes substantive rules from
procedural rules.
Civil law does not apply in Australia; however, it applies in a number of European states
with the exception of the UK.
Contract law
1-2
Bird (1983, p. 91) states that a contract is a:
… agreement enforceable by law. An essential feature of a contract is a
promise by one party to another to do or forbear from doing certain
specialised acts. The offer of a promise becomes an offer by acceptance.
Contract is that species of agreement whereby a legal obligation is
constituted and defined by the parties to it.
For a contract to be valid and legally enforceable, there must be:
• capacity to contract (i.e. the persona involved are of sound mind and
legal age)
• intention to contract
• consensus ad idem (agreement as to the same thing)
• valuable consideration (generally supply of money, property or services)
• legality of purpose
• sufficient certainty of terms.
Insurance law
Insurance law is a term that refers to the body of law that regulates the insurance
industry and insurance contracts within Australia.
The main Acts in insurance law are:
• Insurance Act 1973 (Cth)
• Insurance Contracts Act 1984 (Cth)
However, there are other pieces of legislation enacted by the states, private codes and
case law, all of which form this body of law.
2. Which laws prevail when there is any inconsistency between federal and
state or territory laws?
1-2.8 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
Table 1
Compliance tier Institution Function
Legal Commonwealth or Pass laws that create the regulatory environment.
state/territory parliaments
Judicial Courts and tribunals The judiciary operates at two levels — courts and
tribunals are the arena in which:
• government regulators prosecute
• aggrieved clients bring lawsuits.
Court decisions become established as precedents.
Such precedents become standards for practice.
Business Product and Product and service providers, in consultation with their
service providers associations, are able to develop business plans and
operational policies that can best ensure their success
and growth in the marketplace.
3 Legal compliance
The basis for the legal compliance is provided by the various Acts of the Commonwealth
Parliament. The main areas of law affecting the FSI, regulatory bodies or regulators and
the names of the pieces of legislation are listed in the tables below.
For more information, also see:
• ‘Codes of practice’ in Part 3 of this topic.
• ‘Regulatory and professional bodies’ in Part 4 of this topic.
3.1 Finance
Relevant body/regulator Main legislation
Australian Transactions and Reports • Financial Transactions Reports Act 1988 (Cth)
Analysis Centre (AUSTRAC): • Anti-Money Laundering and Counter-Terrorism Financing Act
<www.austrac.gov.au> 2006 (Cth) (AML/CTF Act)
Foreign Investment Review Board (FIRB): Foreign Acquisitions and Takeovers Act 1975 (Cth)
<www.firb.gov.au>
Australian Competition and Consumer Competition and Consumer Act 2010 (Cth) (CCA) (formerly the
Commission (ACCC): <www.accc.gov.au> Trade Practices Act 1974 (Cth))
3.3 Anti-discrimination
Relevant body/regulator Main legislation
Australian Human Rights Commission: • Disability Discrimination Act 1992 (Cth)
<www.humanrights.gov.au> • Australian Human Rights Commission Act 1986 (Cth)
1-2.10 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
3.5 Taxation
Relevant body Main legislation
Australian Taxation Office (ATO): The ATO regulates and administers a number of pieces of legislation in
<www.ato.gov.au> the areas of:
• income tax
• fringe benefits tax
• superannuation
• goods and services tax (GST)
• excise.
For full details, see <http://law.ato.gov.au/atolaw/index.htm>.
4 Regulatory compliance
The regulatory tier of compliance comprises:
• Commonwealth and state/territory parliaments
• regulators.
Regulations are made by parliament in line with the requirements of the laws they pass.
Different Acts require different degrees of Regulation.
Regulatory bodies have a wide range of duties to perform to ensure implementation of
relevant Acts and Regulations. Industry regulators, such as ASIC, often provide
guidelines for the industry. Regulatory bodies are also responsible for investigating
breaches of the Regulations and unlawful activities, and for prosecuting offenders.
Regulators such as ASIC and the ACCC may seek to impose severe penalties for
deliberate and major breaches of laws and Regulations.
Information on federal regulators can be found in Part 4, section 25, and includes the
following:
• ACCC
• APRA
• ASIC
• AUSTRAC
• FIRB
• Australian Human Rights Commission.
Previous state-based legislation controlling sections of the finance industry has largely
been replaced by the new national credit regime, the NCCP Act.
For more information, see ‘NCCP Act’ in Part 2, section 9.
5 Judicial compliance
Judicial compliance is enforced through the courts at federal and state levels.
There are two types of activity:
• criminal sanctions — government regulators prosecute for breaches of the
respective laws and Regulations
• civil litigation — clients may seek monetary compensation from the courts for
various reasons.
In the case of civil litigation, court decisions become precedents for future possible
litigation. As such, they form another basis for standards of practice.
Legal decisions can be complex and are best interpreted by legal professionals.
Exposure to potential litigation means that practitioners need to have professional
indemnity insurance for protection against significant financial loss.
1-2.12 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
6 Professional compliance
The professional tier of compliance is exercised through the various professional bodies
that have been established within the finance industry. Some are industry-specific while
others provide a much broader coverage. Relevant professional associations include:
• the ABA
• The Finance Brokers Association of Australia (FBAA)
• The Mortgage & Finance Association of Australia (MFAA)
• National Insurance Brokers Association of Australia (NIBA)
• The Australian Finance Conference (AFC)
• The Australian Equipment Lessors Association (AELA)
1-2
• The Commercial Asset Finance Brokers Association of Australia (CAFBA).
An important part of the work of professional associations is to work in consultation
with the other levels of compliance to set and uphold standards of practice that are
based on the requirements of the law and the Regulations. Consequently, they can be
influential in lobbying governments and regulators with regard to the forming of laws,
the framing of Regulations and the decisions of the courts.
Professional associations contribute as industry bodies, including establishing ethical
work standards that are expressed through codes of conduct. For example, the banking
industry is represented by the ABA, which has established the Code of Banking Practice.
This Code has been adopted by the majority of banks operating in Australia and by some
non-banking financial institutions.
The FBAA and the MFAA are particularly concerned with consumer protection and
practice issues. The FBAA has an extensive Code of Practice that addresses these issues.
The MFAA’s Code of Practice incorporates consumer protection principles with which all
members must comply.
7 Business compliance
Almost all financial intermediaries, whether they are independent or work within a
larger organisation, are required to address compliance issues at the business level.
Intermediaries include:
• financial institutions employing their own sales teams
• aggregators, such as AFG, PLAN and FAST
• franchises, such as Aussie, Express Mortgage Market and Mortgage Choice
• independent individual operators.
All the above operate within their own sets of guidelines. For the larger organisations,
compliance officers may be appointed to assist practitioners to meet compliance
standards. For individual operators, the standards with which they must comply may be
the code of practice of the professional association to which they belong. Regardless of
the size and level of sophistication, there is an expectation that all practitioners will
conduct their business activities ethically and with regard to the rights of others.
8 Banking Act
The Banking Act governs the operations of authorised deposit-taking Institutions (ADIs),
which include banks, building societies and credit unions. All ADIs are subject to the
same prudential standards but the use of ‘bank’, ‘building society’ and ‘credit union’ are
subject to the organisations meeting certain criteria.
APRA is responsible for bank supervision. APRA has adopted the prudential statements
previously issued by the RBA in relation to the supervision of banks. The prudential
statements establish the minimum prudential standards that banks are required to
observe. They were formulated after consultation with banks and after taking
supervisory policies that existed overseas into consideration.
APRA’s approach to the prudential supervision of banks is based on the view that the
prime responsibility for the prudent management of a bank’s business lies with the
board and management of the bank. It is their function to assess the risks in the
activities the bank undertakes, and to continually monitor and control these risks.
1-2.14 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
2. What are the three (3) main regulatory agencies for the
Australian financial system and their responsibilities?
1-2
3. What is the Banking and Financial Services Ombudsman?
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
9 NCCP Act
1-2.16 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
This regulatory system controls who may lend and how they behave as a lender through
licensing. Three of the key features imposed by the regulatory system with regard to
lending decisions are:
• Consumers should have all the required information they need to make a borrowing
decision.
• Implementing the concept of responsible lending with an emphasis on lenders
viewing lending decisions from the borrower’s point of view — gaining an
understanding of the borrower’s objective as well as their capacity to repay the loan.
• Lenders are required to have both internal and external dispute resolution (EDR)
processes and procedures.
There is an obligation on the credit assistant (i.e. the loan originator or broker), as well
as the lender to make a suitability assessment. This means that the lender cannot simply
1-2
rely on an initial assessment and must make its own.
The new regime calls for a suitability assessment to be made based not only on the
consumer’s ability to repay the loan, but must also take into account their objectives
and other factors. The assessment of the consumer’s ability to repay the loan extends to
being able to do so without financial hardship.
Transitional provisions
The date that determines whether a loan falls under the UCCC provisions or the new
NCC and is therefore classified as regulated or unregulated is the date of the credit
contract.
Loans previously regulated by the UCCC have now become subject to the NCC.
Residential investment loans that were unregulated loans under the UCCC and where the
loan contract was dated prior to 1 July 2010 are not subject to the NCC. However, where
an unregulated loan arrangement is changed, it is possible for it to become a regulated
loan under the NCC. Where additional advances are made on an unregulated loan, the
loan will remain unregulated providing the loan product does not change and the:
• advance does not exceed 50% of the total loan, or
• portion used for residential property does not exceed 50%.
1-2.18 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Purpose test
There is a presumption on the part of the NCC that it will apply to a loan. However,
this presumption can be overridden by a declaration from the borrower that the loan
being applied for is to be used primarily for ‘non-code’ purposes. That is, business or
non-residential investment purposes.
The declaration must be in a form prescribed by the NCC Regulations.
However, under the NCC, the presentation of a declaration only leads to another
presumption — that the loan is for the purpose stated. This is in contrast with the
UCCC where such a declaration was definitive.
If a matter went to court, the court would apply an objective test. This test would
1-2
involve determining what a reasonable person, in the position of the credit provider,
would understand the purpose of the loan to be. Therefore, simply accepting a
declaration from a borrower that the loan is for a non-code purpose is not sufficient if
there is evidence that this might be untrue.
Unjust transactions
A credit contract, mortgage or guarantee may be declared invalid if a court decides that
the conduct of the credit provider or its representatives was unjust around the time that
the contract was entered into by the borrower.
A court may also review a loan and can invalidate a loan agreement where it is found to
be an unjust transaction because of the borrower’s:
• age
• mental or physical condition
• lack of both understanding and access to independent advice
• having had unfair tactics used against them
• capacity to repay the loan
• understanding of the English language.
It is the representative’s responsibility to ensure that correct and complete credit
information is analysed, and that the borrower has the capacity to repay the loan.
In particular, the lender or its representative must ensure that all reasonable enquiries
into the purpose of a loan have been undertaken.
1-2.20 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
loan.
• Changes to interest rates
Changes to interest rates will affect minimum repayment amounts. Lenders are
required to disclose interest rate changes in an advertisement in a newspaper
circulating throughout each state and territory. Borrowers must receive notice in
writing at least 20 days before the new repayment amount becomes effective.
• Statements of accounts
The NCC requires statements of accounts to be provided:
– at least every six months for term loans and every 40 days for continuing credit
accounts (e.g. credit cards)
– within seven days of the borrower’s request if they are one-off statements.
A statement of account is not required if the interest rate on the loan is fixed for the
whole term of the loan.
• Statement of payout figure
The NCC requires that a statement of payout figure must be provided within seven days
of the borrower’s request.
Documentation
The NCC specifies certain Regulations regarding documentation, including:
• Application form
Lenders’ application forms must include:
– A declaration as to the purpose of credit needs to be signed if the loan is to be
used predominantly for business or investment purposes, and therefore not
subject to the NCC.
– Joint borrower nomination — the NCC requires that correspondence be sent to all
borrowers. However, borrowers living at the same address may nominate one of
the borrowers to receive documents and correspondence by completing the joint
borrower nomination form.
• Ongoing mortgage information
All borrowers and guarantors, if applicable, must be issued with a loan contract that
sets out the terms and conditions of the loan.
• Repayments
The NCC requires that full details of loan repayments are set out clearly in the loan
documentation.
1-2.22 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
• Advertising and marketing: Any advertisement stating or implying the availability of
credit is regulated by the NCC. The NCC is primarily concerned with any statement
regarding the cost of credit and the interest rate. If an advertisement refers to cost,
it can only contain the annual interest rate or rates. It must also contain a statement
that fees and charges are payable.
• A statement of the credit fees and charges that are or may become payable under
the contract, and when each fee or charge is payable. If this information is not
ascertainable, the method of calculation of the fee or charge.
• Information as to whether conditions, such as the interest rate, amount or frequency
of payment of credit fees, or charge or instalments payable under the contract may
be changed, or a new credit fee or charge may be imposed. The contract must state
how the borrower will be advised of any such changes.
• The frequency with which statements of account are to be provided (except where
the annual percentage rate is fixed for the whole term of the contract and there is no
provision for varying the rate).
• The default rate of interest which may be charged when payments are in default.
• The current default rate.
• A statement that enforcement expenses may be payable under the credit contract in
the event of a breach.
• Whether a mortgage or guarantee is to be or has been taken by the credit provider
and details of the guarantee.
• If a commission is to be paid by or to the credit provider in relation to the loan,
the amount of the commission and to whom it will be paid must be included in
the contract.
• If the credit provider knows that the debtor is to enter into a credit-related insurance
contract and that the insurance is to be financed under the credit contract, details of
that insurance.
• Any other information or warning required by the Regulations.
Pre-contract disclosure
Before a borrower offers to accept a credit contract or signs the credit contract under
the NCC, the credit provider must give the borrower:
• a pre-contractual statement setting out the matter that will be included in
the contract
• an information statement setting out the borrower’s rights and obligations.
1-2.24 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Pre-contractual statement
The pre-contractual statement essentially contains the information that will be
contained in the credit contract, however, the financial information must be in a table
format and shown separately from the rest of the information.
Information statement
The information statement, or statement of borrower’s statutory rights and obligations,
consists of 25 questions and answers which are specified in the National Consumer
Credit Protection Regulations 2010 (NCCP Regulations). The questions are:
• How can I get details of my proposed credit contract?
1-2
• How can I get a copy of the final contract?
• Can I terminate the contract?
• Can I pay my credit contract out early?
• How can I find out the payout figure?
• Will I pay less interest if I pay out my contract early?
• Can my contract be changed by my credit provider?
• Will I be told in advance if my credit provider is going to make a change in
the contract?
• Is there anything I can do if I think that my contract is unjust?
• Do I have to take out insurance?
• Will I get details of my insurance cover?
• If the insurer does not accept my proposal, will I be told?
• In that case, what happens to the premiums?
• What happens if my credit contract ends before any insurance contract on
mortgaged property?
• If my contract says I have to give a mortgage, what does this mean?
• Should I get a copy of my mortgage?
• Is there anything that I am not allowed to do with the property I have mortgaged?
• What can I do if I find that I cannot afford my repayments and there is a mortgage
over property?
• Can my credit provider take or sell the mortgaged property?
• If my credit provider writes asking me where the mortgaged goods are, do I have to
say where they are?
• When can my credit provider or its agent come into a residence to take possession of
mortgaged goods?
• What do I do if I cannot make a repayment?
• What if my credit provider and I cannot agree on a suitable arrangement?
• Can my credit provider take action against me?
• Do I have any other rights and obligations?
1-2.26 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Some of the reasonable enquiries that can be made to determine the borrower’s
objectives and requirements include determining:
• the amount of credit required
• the time frame for repayment
• the purpose of the credit and the benefit to the borrower
• whether the desired product has appropriate features and flexibility.
Some of the reasonable enquiries that can be made to determine a borrower’s financial
situation include the following:
• PAYG applicants: Standard evidence of income, such as pay slips, must be collected
and efforts made to confirm employment with the employer.
• Self-employed applicants: Standard evidence of income, such as tax returns,
1-2
BAS statements and/or documentation from an accountant, must be collected.
Additional verification may be required where the information provided is:
• inconsistent with information already held, or
• outside the range of acceptable benchmarks, for example, a shop assistant who
presents evidence of income far in excess of what might be expected.
Other reasonable enquiries that can be made relate to the borrower’s:
• appreciation of the risks associated with the features of a particular credit product,
given their circumstances
• domestic situation
• previous credit history
• income-producing activity, age and language skills
• savings history and expenditure patterns.
The principles of responsible lending also apply to refinances and loan variations,
for example, switching from a variable rate to a fixed rate.
1-2.28 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Credit facilities are specifically excluded from the definition of financial products in the
Financial Services Reform Act 2001 (Cth) (FSRA). However, advice about loans together
with advice about a financial product, may be covered. This may include things such as
comparisons between the merits of borrowing to invest in securities and borrowing to
invest in real estate.
1-2
11 Financial Services Reform Act
The FSRA commenced on 11 March 2002. The FSRA:
• repealed the Insurance (Agents and Brokers) Act 1984 (Cth)
• amended the:
– Insurance Act
– Life Insurance Act 1995 (Cth)
– Insurance Contracts Act.
The FSRA, which amended the Corporations Act, imposes:
• a single licensing regime for financial sales, advice and dealings in relation to financial
products
• consistent and comparable financial product disclosure.
An Australian financial services licence (AFSL) must be obtained by those looking to
provide financial services to clients, regardless of whether they are retail or wholesale
clients.
ASIC regulate the industry through the AFSL.
12 AML/CTF Act
The AML/CTF Act is Australia’s regulating legislation for the detection of money
laundering and terrorism financing. The AML/CTF Act brings Australia’s prevention and
reporting regime for money laundering and terrorism financing into line with
international standards.
The AML/CTF Act compliance relies on a risk-based approach for reporting entities and
their agents. Any risk that a credit provider might facilitate money laundering or
terrorism financing must be identified, mitigated and managed. This includes an
obligation for ongoing client due diligence.
1-2.30 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
• allowing clients access to all personal information held about them
• referral procedures that ensure client approval has been obtained for referral.
1-2.32 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
• Notification of the collection of personal information to ensure individuals are aware
that information has been collected and by whom.
• Use or disclosure of personal information to restrict the use and disclosure of
information held by an entity.
• Direct marketing to limit the use of sensitive information.
• Cross-border disclosure of personal information to ensure as much as possible that
foreign entities treat information disclosed to them in line with APPs.
• Adoption, use or disclosure of government-related identifiers to limit the use of
government identifiers by other entities.
• Quality of personal information requires the collecting entity to check that
information is accurate, up to date and complete.
• Security of personal information requires an entity to protect the personal
information held by an entity.
• Access to personal information generally requires the entity to give the individual
access to the information it holds.
• Correction of personal information — the entity must correct information that is
inaccurate, out of date, incomplete, irrelevant or misleading or that has been
requested by the individual to be changed.
1-2.34 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
2. Who has responsibilities under the Privacy Act?
3. List the government agencies or bodies not covered by the Privacy Act.
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
14 Superannuation
14.1 Legislation
There are a number of pieces of legislation and subordinate legislation which govern the
operation of the superannuation system.
The key pieces of legislation relevance are the:
• Superannuation Act 1976 (Cth)
• Superannuation (Resolution of Complaints) Act 1993 (Cth) (SRC Act),
which establishes the Superannuation Complaints Tribunal (SCT)
• Superannuation Industry (Supervision) Act 1993 (Cth) (SIS Act), which makes provision
for the prudent management of certain superannuation funds and supervision by
APRA, ASIC and the Commissioner of Taxation
• Superannuation Industry (Supervision) Regulations 1994 (Cth) (SIS Regulations).
14.2 Regulation
The superannuation system is regulated by several key federal government agencies:
• ATO:
– administers the relevant legislation for self-managed superannuation funds
(SMSFs)
– assists SMSF trustees to comply with their obligations
– ensures that the right amount of tax is taken from the superannuation savings of
all Australians.
• ASIC:
– regulates financial services to protect consumers, including monitoring
compliance with the FSRA
– ensures that trustees of superannuation funds comply with their obligations
regarding the provision of information to fund members during their membership
– is responsible for consumer protection in the financial services area,
including superannuation
– manages the MoneySmart website to help people make smart choices about their
personal finances, including superannuation.
• APRA:
– is responsible for ensuring that superannuation funds behave in a prudent
manner
– regulates superannuation funds other than SMSFs
– reviews compliance with the SIS Act
– provides guidance to trustees in relation to the early release of superannuation
entitlements on the basis of severe financial hardship
• Department of Human Services (DHS), in particular Medicare, which is responsible for
the administration of applications for early release on compassionate grounds.
Individual superannuation funds also have internal regulatory mechanisms and there are
superannuation peak bodies that while not necessarily serving a regulatory function,
provide funds with guidance and training.
1-2.36 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
The FSRA is designed to provide standardisation within the FSI. It is governed and
administered by ASIC. It provides a new regime for the regulation of financial products
and services and aims to enhance consumer protection by adding to financial safety and
market integrity.
The FSRA commenced on 11 March 2002. The FSR amendments to the Corporations Act
introduced a single licensing regime for financial advice and dealings in relation to
financial products. An entity that operates a financial services business must now hold
an AFSL or be authorised by a licensee.
The Corporations Act also seeks to provide consistent and comparable disclosure in
relation to financial products and services (including) advice, and a single authorisation
procedure for financial markets and clearing and settlement facilities.
The regulatory framework covers a wide range of financial products, including securities,
derivatives, general and life insurance, superannuation, managed investments,
deposit accounts, non-cash payments and foreign exchange contracts.
1-2.38 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
with/regulators/pages/whs-regulators>.
• WHS guidance material and fact sheets, viewed 13 March 2017,
<http://www.safeworkaustralia.gov.au/sites/swa/model-whs-
laws/guidance/pages/guidance-material>.
2. What are the ways you can eliminate or mitigate these hazards?
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
16 Consumer law
1-2.40 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Legislation
The full text of the ACL is set out in Schedule 2 of the CCA.
Coverage
The ACL includes:
• a national unfair contract terms law covering standard-form consumer contracts
• a national law guaranteeing consumer rights when buying goods and services
• a national product safety law and enforcement system
• a national law for unsolicited consumer agreements covering door-to-door sales and
1-2
telephone sales
• simple national rules for lay-by agreements
• new penalties, enforcement powers and consumer redress options.
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
1-2.42 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
17 Anti-discrimination legislation
Discrimination occurs when a person is treated unfairly or unequally due to their:
• disability
• race
• religion
• gender
• sexuality and sexual preference.
The Commonwealth Government and the Australian state and territory governments
have enacted anti-discrimination law to help protect people from discrimination
and harassment.
1-2
Discrimination can be both direct and indirect:
• Direct discrimination occurs when a person is treated differently, unfairly or
unequally because of their membership of one of the relevant groups.
• Indirect discrimination occurs when there is a requirement that is nominally the
same for all persons, but which has an unequal or disproportionate effect on certain
groups as compared to other groups.
For example, discrimination in lending could occur in the process of approving a loan.
Anti-discrimination legislation is designed to prevent this kind of discrimination.
Anti-discrimination laws
As it stands, there are at least 14 different federal, state and territory anti-discrimination
and equal opportunity laws that are in operation throughout Australia. However, the
laws that are most substantial at the federal level are listed below and the Australian
Human Rights Commission has statutory responsibilities under them:
• Age Discrimination Act 2004 (Cth)
• Australian Human Rights Commission Act 1986 (Cth)
• Disability Discrimination Act
• Racial Discrimination Act 1975 (Cth)
• Sex Discrimination Act 1984 (Cth).
Commonwealth laws and the state and territory laws generally cover the same grounds
and areas of discrimination. However, there are some gaps in the protection offered
between different states and territories and at a Commonwealth level.
In addition, there are circumstances where only the Commonwealth law would apply or
where only the state law would apply.
1-2.44 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
<https://www.humanrights.gov.au/our-work/race-discrimination>.
• Sex discrimination, viewed 13 March 2017,
<https://www.humanrights.gov.au/our-work/sex-discrimination>.
• State Library of NSW 2010, Hot topics 75: discrimination,
NSW Government, viewed 13 March 2017,
<http://legalanswers.sl.nsw.gov.au/discrimination-hot-topics-series-no-
75>.
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
1-2.46 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
19 ePayments Code
The ePayments Code commenced on 20 September 2011. It regulates consumer
electronic payment transactions, including:
• ATM
• EFTPOS
• credit card transactions
• online payments
• internet
• mobile banking
• BPAY.
It was formerly known as the EFT Code that has existed since 1986.
ASIC is responsible for the administration of the ePayments Code, including compliance
monitoring and reviewing it regularly.
Virtually all banks, credit unions and building societies currently subscribe to the
ePayments along with a number of non-banking subscribers. The ePayments Code
continues to be a voluntary code of practice.
1-2.48 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
Further resources: Insurance Brokers Code of Practice
• Insurance Brokers Code of Practice (ASIC), viewed 13 March 2017,
<http://www.asic.gov.au/for-consumers/codes-of-practice>.
• NIBA website, viewed 13 March 2017, <http://www.niba.com.au>.
24 Basel III
Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on bank
capital adequacy, stress testing and market liquidity risk. It was agreed on by the
members of the Basel Committee on Banking Supervision in 2010–11 and was scheduled
to be introduced from 2013 until 2015. However, changes from 1 April 2013 extended
implementation until 31 March 2018 and then again was extended to 31 March 2019.
The third instalment of the Basel Accords (see Basel I, Basel II) was developed in
response to the deficiencies in financial regulation revealed by the late-2000s financial
crisis. Basel III was supposed to strengthen bank capital requirements by increasing bank
liquidity and decreasing bank leverage.
1-2.50 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
25.1 Australian Prudential Regulation Authority
Role
APRA is the prudential regulator of the Australian FSI.
APRA oversees:
• banks
• credit unions
• building societies
• general insurance
• reinsurance companies
• life insurance
• friendly societies
• most members of the superannuation industry.
APRA is funded largely by the industries that it supervises. It was established on
1 July 1998.
Legislation
Legislation relating to ADIs:
• Banking Act
• Banking Regulations 1966 (Cth)
• Financial Sector (Shareholdings) Act 1998 (Cth)
• Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth)
• Transfer Rules No. 1 of 2004
• Transfer Rules No. 1 of 2007
• Financial Sector (Collection of Data) Act 2001 (Cth)
• Financial Sector (Collection of Data — Consequential and Transitional Provisions)
Act 2001 (Cth)
• Authorised Deposit-Taking Institutions Supervisory Levy Imposition Act 1998 (Cth).
1-2.52 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Legislation
1-2
ASIC administers the following legislation or relevant parts of it, as well as relevant
Regulations made under it:
• ASIC Act
• Corporations Act
• Business Names Registration Act 2011 (Cth)
• Business Names Registration (Transitional and Consequential Provisions) Act 2011
(Cth)
• Insurance Contracts Act
• SRC Act
• SIS Act
• Retirement Savings Accounts Act
• Life Insurance Act
• NCCP Act
• Medical Indemnity (Prudential Supervision and Product Standards) Act 2003 (Cth).
Role
The ACCC is an independent statutory authority that:
• promotes competition and fair trade in markets to benefit consumers,
businesses and the community
• regulates national infrastructure services.
Legislation
The ACCC regulates the CCA.
This legislation covers most areas of the market, including:
• product safety and labelling
• unfair market practices
• price monitoring
• industry codes
• industry regulation — airports, electricity, gas, telecommunications
• mergers and acquisitions.
Role
AUSTRAC’s purpose is to protect the integrity of Australia’s financial system and
contribute to the administration of justice through its expertise in countering money
laundering and the financing of terrorism. AUSTRAC’s role is to:
• oversee the compliance of Australian businesses and their compliance requirements
• provide financial information to state, territory and Australian law enforcement,
security, social justice and revenue agencies and certain international counterparts.
Legislation
• AML/CTF Act
• Financial Transaction Reports Act 1988 (Cth)
• Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy
Act 2011 (Cth)
• Australian Transaction Reports and Analysis Centre Supervisory Cost Recovery Levy
(Collection) Act 2011 (Cth).
1-2.54 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Role
Freedom of information
The OAIC has FOI functions, including the:
• oversight of the operation of the FOI Act
• review of decisions made by agencies and ministers under the FOI Act
• provision of information and advice on FOI to individuals and agencies.
Privacy
The OAIC is responsible for privacy functions that are conferred by the Privacy Act and
1-2
other laws. Under the Privacy Act, a person can make a complaint about the handling of
their personal information by Australian government agencies or private sector
organisations covered by the Privacy Act.
The OAIC has the power to:
• conduct an assessment of whether an entity is maintaining and handling personal
information in accordance with the Privacy Act
• request an entity to develop an enforceable code
• direct an agency to give the OAIC a privacy impact assessment about a proposed
activity or function
• recognise EDR schemes to handle particular privacy-related complaints.
The OAIC has a range of responsibilities under other laws, including laws relating to
data matching, e-health, spent convictions and tax file numbers.
The OAIC provides information and advice on privacy to individuals,
businesses and agencies.
Information policy
The OAIC oversees government information policy functions.
Legislation
• FOI Act
• Freedom of Information (Charges) Regulations 1982 (Cth)
• Freedom of Information (Miscellaneous Provisions) Regulations 1982 (Cth)
• Privacy Act.
Role
Human rights recognise the inherent value of each person, regardless of background,
location, appearance, beliefs or ideas. Human rights are based on principles of dignity,
equality and mutual respect, which are shared across cultures, religions and
philosophies. They are about being treated fairly, treating others fairly and having the
ability to make genuine choices in our daily lives.
The Universal Declaration of Human Rights, adopted by the United Nations on
10 December 1948, sets out the basic rights and freedoms that apply to all people. It is a
foundation document that has prompted many legally binding international human
rights laws.
The Australian Human Rights Commission has a responsibility to monitor Australia’s
performance in meeting its international human rights commitments.
The Commission has a president and seven commissioners:
• Aboriginal and Torres Strait Islander Social Justice Commissioner
• Age Discrimination Commissioner and Acting Disability Discrimination Commissioner
• Children’s Commissioner
• Human Rights Commissioner
• Race Discrimination Commissioner
• Sex Discrimination Commissioner.
Legislation
• Australian Human Rights Commission Act
• Age Discrimination Act
• Disability Discrimination Act
• Racial Discrimination Act
• Sex Discrimination Act.
1-2.56 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Role
The role of the FIRB is to:
• examine proposed investments in Australia that are subject to the policy,
the Foreign Acquisitions and Takeovers Act and supporting legislation, and to make
recommendations to the Treasurer and other Treasury portfolio ministers on
1-2
these proposals
• advise the Treasurer on the operation of the policy and the Act
• foster an awareness and understanding, both in Australia and abroad, of the policy
and the Act
• provide guidance to foreign persons and their representatives or agents on the policy
and the Act
• monitor and ensure compliance with the policy and the Act
• provide advice to the Treasurer on the policy and related matters.
Legislation
• Foreign Acquisitions and Takeovers Act
• Foreign Acquisitions and Takeovers Regulations 1989 (Cth).
Role
The WHS regulator in each jurisdiction can provide information and advice on:
• complying with WHS laws
• reporting a workplace incident
• renewing or applying for licences
• workers compensation claims
• registering plant and plant designs.
1-2.58 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
Role
1-2
The ABA works to:
• address a range of public policy issues
• build a regulatory environment that promotes growth in the banking industry and
the wider economy through, for example:
– development of industry codes and standards, the continuing development of the
Code of Banking Practice and other standards
– prudential and payments system reform to ensure a safe financial system
– working with banks, government sector representatives, private sector, police and
card schemes to look at ways of preventing fraud, improving bank services and
taxation reform.
MFAA objectives
The MFAA aims to:
• support and represent professional credit advisers
• develop and deliver services that enhance the professional skills and careers of
professional credit advisers
• promote MFAA professional credit advisers to consumers
• lobby for the interests of professional credit advisers
• facilitate stakeholder engagement.
1-2.60 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
The association has previously been known as the Mortgage Industry Association of
Australia (MIAA), the Mortgage Industry Association of Australasia and the
Mortgage Bankers Association.
1-2
• fosters members’ professionalism and supports brokers’ roles in the insurance
transaction
• lobbies government, regulators, consumers and business
• offers a wide variety of professional services.
1-2.62 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
CIO is an incorporated company with an independent chair and an equal number of
consumer and industry representatives on the board. It has also been approved by
ASIC as an EDR service. The day-to-day management of the scheme is conducted by the
Australian Commercial Disputes Centre (ACDC).
28 Information sources
1-2.64 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
29 Activities
1-2
Networking with people within the FSI industry in person remains an important way to
keep informed and remain up to date. Not only does it provide an opportunity to meet
new people within the industry, hear their opinions and share stories, it provides an
opportunity to ask questions, gain insights and understand how other people in the
industry may be approaching implementing changes.
29.4 Conferences
Conferences in the FSI are an important way of networking, meeting people within the
industry and staying informed on current topics.
Apart from professional associations, websites such as Banking Day
<www.bankingday.com/nl06_about.php> or Financial Standard
<www.financialstandard.com.au/events> provide banking and finance news as well as
notices on upcoming FSI conferences.
3. What are the methods used to ensure that any literature complies with
current legislation?
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
1-2.66 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
30.1 Policy
Policies are statements of principles, guidelines or rules about how things are done in an
organisation. Policy may:
• establish clear standards for acceptable behaviour
• provide goals and objectives
• acknowledge legal and regulatory responsibilities
• contribute to the culture of the workplace, reinforcing norms and values.
Examples of internal business policies include safety policy or human resources policy.
30.2 Procedure
Procedures are a set of steps that are performed to obtain a specified outcome.
The words procedure and process are often used interchangeably or may have specific
meanings within the context of an organisation.
All organisations have operational policies and procedures documentation of some kind,
but there various levels of comprehensiveness, quality or currency across organisations.
31 Record keeping
In the FSI, keeping records is important for legislative, ethical and accountancy reasons.
It is required by law and it is good business practice.
It is important for an organisation to establish procedures for records management to
ensure records are:
• easily located, legible, identifiable and traceable
• stored and maintained in line with privacy legislation, for more information,
see ‘The Privacy Act’ in Part 2, section 13.
• current, while obsolete records are archived.
Anti-money laundering and other legislation require that a financial services operator to
know their customer. This includes keeping adequate records about the financial
services business, and if financial services are provided to retail clients, records:
• personal circumstances of the client
• enquiries made into the personal circumstances
• consideration and investigation in relation to the subject matter of the advice
• the advice, including why you think it was appropriate.
Records must be kept for the required statutory period, whether in a material,
electronic or other form.
Records may include statutory records, tax records and training records.
ASIC sees keeping proper records of advice as a key component of ensuring
financial services are provided ‘efficiently, honestly and fairly’ and will take action
against businesses who fail in this regard.
1-2.68 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
32 Customer charter
A customer charter details the level and type of service that a customer can expect from
the organisation. A customer charter may:
• outline the organisation’s values and beliefs
• describe the organisation’s commitment to the customer
• specify how the organisation aims to deliver the specified level and type of
customer service.
1-2
• Business.gov.au: Customer Service Charter, viewed 13 March 2017,
<http://www.business.gov.au/about-businessgovau/Pages/customer-
service-charter.aspx>.
• Customer Service Institute of Australia: Customer Charter,
viewed 13 March 2017,
<http://www.csia.com.au/customer_charter.php>.
Note: You can access ‘Suggested answers’ for this activity at the end of this topic.
References
Australian Bankers’ Association Inc. (ABA) 2011, Industry standards, ABA,
viewed 13 March 2017,
<http://www.bankers.asn.au/Banks-of-Australia/Industry-Standards>.
Bird, R 1983, Osborn’s concise law dictionary, 7th edn, Sweet & Maxwell, London.
BusinessDictionary.com 2015, viewed 13 March 2017,
<http://www.businessdictionary.com>.
ComLaw n.d., Acts, Australian Government, viewed 13 March 2017,
<https://www.comlaw.gov.au/Content/WhatIsIt>.
Enright, C 1991, Studying law, 4th edn, Branxton Press, Acton, ACT.
Parliamentary Education Office (PEO) n.d., Fact sheet — separation of powers:
parliament, executive and judiciary, PEO, viewed 13 March 2017,
<http://www.peo.gov.au/learning/fact-sheets/separation-of-powers.html>.
Suggested answers
1-2.70 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
Code. ASIC also has responsibility for enforcing company law and the licensing and
conduct of corporations.
3. The Banking and Financial Services Ombudsman (BFSO) is not a regulator as such,
nor is it a government agency — it is a dispute resolution scheme that is part of the
regulatory framework.
4. The bank undertakes to receive money and to collect bills for its customer’s account.
The bank borrows the money and proceeds from the customer and undertakes to
repay them:
• on demand
• at the branch of the bank where the account is kept, during ordinary working
hours.
The bank promises to repay any part of the amount due against the unambiguous
written order of the customer addressed to the branch of the bank where the
account is kept.
Conversely, the bank will not pay away any part of the amount due to the customer
without such order or other compulsion recognised by law.
Any written order by the customer which requires the bank to pay a greater amount
than the balance standing to the credit of the customer or an agreed overdraft limit
may be wholly declined.
The bank will not cease to do business with the customer except on
reasonable notice.
The bank undertakes to observe secrecy with respect to the customer’s account,
information acquired from the account, and other information acquired in the
character of the customer’s banker (subject to certain exceptions).
The custom and usage of bankers is implied into the contract (if known
and accepted).
Both parties are bound by any statutory responsibilities or rights.
5. Under common law, the customer has only two duties:
• To use reasonable care in drawing cheques so as not to mislead the bank or
facilitate forgery.
• To notify the bank of known forgeries or misuse of the account.
1-2.72 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
• public schools (except ACT public schools)
• in some circumstances, the handling of employee records by an organisation in
relation to current and former employment relationships
• small business operators, unless an exception applies (see above)
• media organisations acting in the course of journalism if the organisation is
publicly committed to observing published privacy standards
• registered political parties and political representatives.
1-2.74 CIVMB_IK_T1-2_v3
Topic 1-2: Legislation and codes of practice
1-2
Apply your knowledge 7: Keeping up with legislative change
1. Some of the methods of keeping up to date with legislative changes in the
FSI include:
• joining a professional body or association within the FSI
• reviewing websites of regulators such as APRA or ASIC
• reading financial services news on newspapers or websites regularly
• face-to-face networking within your industry
• working with a mentor
• attending conferences within the FSI
• reviewing trusted websites and blogs in the FSI
• using social networking sites such as Twitter or LinkedIn
• professional training on related FSI topics.
2. • Presentations and training sessions on impending changes.
• Sharing useful websites, blogs or social networking sites.
• Encouraging others to join professional associations.
• Encouraging attendance at professional conferences or trade fairs.
• Mentoring programs.
• Networking with others in the industry.
3. Some methods include:
• regular auditing and updating of policy, procedure and training materials to
ensure legislative compliance
• regular updates of websites and customer materials in line with any
legislative change
• planning for any legislative change in advance to ensure that documentation
is updated.