New financial era

A new era dawned for the financial sector this week with the implementation of the Financial Services Reform Act 2001, but some of those most affected may not yet have woken to this.

Under the new legislation, up to 14,000 businesses engaged in the provision of a range of financial services will be required to obtain a new Australian Financial Services Licence during a two-year transitional period.

Allens Arthur Robinson special counsel Pamela Hanrahan said while many companies and institutions could explain the general changes the new legislation would generate, others were yet to realise how some of their activities would be affected.

Financial service businesses which introduced new services or processes after March 8 could need a new licence immediately, rather than having the luxury of a transition period.

Much had been heard about the new regulatory environment for financial service providers, but the changes covered a much wider range of financial market participants involved in banking and foreign exchange activities, the issue of titles and the transfer of securities.

According to Ms Hanrahan, wholesale and institutional banking could expect “an interesting time ahead”. Insider trading now applied to a much wider range of issues than before, and there were some very interesting issues yet to be visited in the wholesale world, particularly in the purchasing and sale of vehicles and whitegoods.

Understanding the definitions of financial product, financial market and financial service would be the key to interpreting the legislation.

And while the list of those needing a licence – those who dealt in a financial product; made a market in a financial product; operated a registered managed investment scheme or provided a custodial or depository service – appeared simple, there may be more than a few surprises in store for many businesses.

Offering one example of the surprise element, Ms Hanrahan said many would not have expected Australia Post to have come under the new licensing arrangements, but as it issues money orders, it too will need to apply to the Australian Securities and Investments Commission for a licence.

The legislation was not intended to be an administrative nightmare for business, however. Rather, it was designed to deliver efficiency and opportunity to the financial sector as well as greater transparency to consumers.

p Businesses unsure of how the legislation will affect them can refer to For the Record, page 29.

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