Division 2, subdivision B of the Australian Securities and Investments Commission Act 2001 sets out the definitions that apply to unconscionable conduct and consumer protections relating to financial services – which are outlined in the divisions that follow.
Section 12BAA forms part of that subdivision and contains the definition of ‘financial product’ for the purposes of the Act.
The section is extracted below.
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Definition of financial product
General definition of financial product
(1) Subject to subsection (8), for the purposes of this Division, a financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:
(a) makes a financial investment (see subsection (4));
(b) manages financial risk (see subsection (5));
(c) makes non-cash payments (see subsection (6)).
(2) Subject to subsection (8), for the purposes of this Division, a particular facility that is of a kind through which people commonly make financial investments, manage financial risks or make non-cash payments is a financial product even if that facility is acquired by a particular person for some other purpose.
(3) A facility does not cease to be a financial product merely because:
(a) the facility has been acquired by a person other than the person to whom it was originally issued; and
(b) that person, in acquiring the product, was not making a financial investment or managing a financial risk.
Meaning of makes a financial investment
(4) For the purposes of this section, a person (the investor ) makes a financial investment if:
(a) the investor gives money or money’s worth (the contribution ) to another person and any of the following apply:
(i) the other person uses the contribution to generate a financial return, or other benefit, for the investor;
(ii) the investor intends that the other person will use the contribution to generate a financial return, or other benefit, for the investor (even if no return or benefit is in fact generated);
(iii) the other person intends that the contribution will be used to generate a financial return, or other benefit, for the investor; and
(b) the investor has no day-to-day control over the use of the contribution to generate the return or benefit.
Note 1: Examples of actions that constitute making a financial investment under this subsection are:
(a) a person paying money to a company for the issue to the person of shares in the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company); or
(b) a person contributing money to acquire interests in a registered scheme from the responsible entity of the scheme (the scheme uses the money to generate financial or other benefits for the person and the person, as a member of the scheme, does not have day-to-day control over the operation of the scheme).
Note 2: Examples of actions that do not constitute making a financial investment under this subsection are:
(a) a person purchasing real property or bullion (while the property or bullion may generate a return for the person, it is not a return generated by the use of the purchase money by another person); or
(b) a person giving money to a financial services licensee who is to use it to purchase shares for the person (while the purchase of the shares will be a financial investment made by the person, the mere act of giving the money to the licensee will not of itself constitute making a financial investment).
Meaning of manages a financial risk
(5) For the purposes of this section, a person manages financial risk if they:
(a) manage the financial consequences to them of particular circumstances happening; or
(b) avoid or limit the financial consequences of fluctuations in, or in the value of, receipts or costs (including prices and interest rates).
Note 1: Examples of actions that constitute managing a financial risk are:
(a) taking out insurance; or
(b) hedging a liability by acquiring a futures contract or entering into a currency swap.
Note 2: An example of an action that does not constitute managing a financial risk is employing a security firm (while that is a way of managing the risk that thefts will happen, it is not a way of managing the financial consequences if thefts do occur).
Meaning of makes non-cash payments
(6) For the purposes of this section, a person makes non-cash payments if they make payments, or cause payments to be made, otherwise than by the physical delivery of Australian currency in the form of notes and/or coins.
Note: Examples of actions that constitute making non-cash payments are:
(a) making payments by means of a facility for direct debit of a deposit account; or
(b) making payments by means of a facility for the use of cheques; or
(c) making payments by means of a purchased payment facility within the meaning of the Payment Systems (Regulation) Act 1998 , such as a smart card; or
(d) making payments by means of traveller’s cheques in Australian currency.
Specific things that are financial products (subject to subsection (8))
(7) Subject to subsection (8), the following are financial products for the purposes of this Division:
(a) a security;
(b) any of the following in relation to a managed investment scheme:
(i) an interest in the scheme;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i) or (ii);
(c) a derivative;
(d) a contract of insurance (see subsection (9)) other than:
(i) health insurance provided as part of a health insurance business (as defined by Division 121 of the Private Health Insurance Act 2007 ); or
(ii) insurance provided as part of a health-related business (as defined by section 131- 15 of that Act) that is conducted through a health benefits fund (as defined by section 131-10 of that Act);
(e) a life policy, or a sinking fund policy, within the meaning of the Life Insurance Act 1995 , that is not a contract of insurance (see subsection (9));
(f) a beneficial interest in a superannuation fund (as defined by section 10 of the Superannuation Industry (Supervision) Act 1993 );
(g) an RSA (retirement savings account) within the meaning of the Retirement Savings Accounts Act 1997 ;
(h) any deposit-taking facility made available by an ADI (within the meaning of the Banking Act 1959 ) in the course of its banking business (within the meaning of that Act), other than an RSA (RSAs are covered by paragraph (g));
(i) a debenture, stock or bond issued or proposed to be issued by a government;
(j) a foreign exchange contract;
(k) a credit facility (within the meaning of the regulations);
(l) an Australian carbon credit unit;
(la) an eligible international emissions unit;
(m) anything declared by the regulations to be a financial product for the purposes of this subsection.
Note 1: Even though something is expressly excluded from one of these paragraphs, it may still be a financial product (subject to subsection (8)) either because:
(a) it is covered by another of these paragraphs; or
(b) it is covered by the general definition in subsection (1).
Note 2: A notified foreign passport fund is a managed investment scheme for the purposes of this Act and the Corporations Act, see subsection 5(2) of this Act and section 1213E of the Corporations Act.
Specific things that are not financial products
(8) Despite anything else in this section, the following are not financial products for the purposes of this Division:
(a) an excluded security;
(b) health insurance provided as part of a health insurance business (as defined in Division 121 of the Private Health Insurance Act 2007 );
(ba) insurance provided as part of a health-related business (as defined by section 131- 15 of that Act) that is conducted through a health benefits fund (as defined by section 131-10 of that Act);
(c) State insurance or Northern Territory insurance, including insurance entered into by:
(i) a State or the Northern Territory; and
(ii) some other insurer;
as joint insurers;
(d) a facility:
(i) that is an approved RTGS system for the purposes of the Payment Systems and Netting Act 1998 ; or
(ii) for the transmission and reconciliation of non-cash payments (see subsection (6)), and the establishment of final positions, for settlement through an approved RTGS system within the meaning of the Payment Systems and Netting Act 1998 ;
(e) a facility that is a designated payment system for the purposes of the Payment Systems (Regulation) Act 1998 ;
(f) a facility for the exchange and settlement of non-cash payments (see subsection (6)) between providers of non-cash payment facilities;
(g) a facility that is:
(i) a financial market; or
(ii) a clearing and settlement facility; or
(iii) a payment system operated as part of a clearing and settlement facility; or
(iv) a derivative trade repository;
(h) so much of an arrangement as is not a derivative within the meaning of the Corporations Act because of paragraph 761D(3)(a) of that Act;
(i) an arrangement that is not a derivative within the meaning of the Corporations Act because of paragraph 761D(3)(b) of that Act;
(j) an arrangement that is not a derivative within the meaning of the Corporations Act because of subsection 761D(4) of that Act;
(k) any of the following:
(i) an interest in something that is not a managed investment scheme within the meaning of the Corporations Act because of paragraph (c), (e), (f), (k), (l) or (m) of the definition of managed investment scheme in section 9 of that Act;
(ii) a legal or equitable right or interest in an interest covered by subparagraph (i);
(iii) an option to acquire, by way of issue, an interest or right covered by subparagraph (i);
(m) a deposit-taking facility that is used for State banking;
(n) equipment or infrastructure by which something else that is a financial product is provided;
(o) a funeral benefit;
(p) a facility, interest or other thing declared by regulations made for the purposes of this subsection not to be a financial product.
(9) For the purpose of paragraphs (7)(d) and (e), contract of insurance includes:
(a) a contract that would ordinarily be regarded as a contract of insurance even if some of its provisions are not by way of insurance; and
(b) a contract that includes provisions of insurance in so far as those provisions are concerned, even if the contract would not ordinarily be regarded as a contract of insurance.
(10) To avoid doubt, a funeral expenses facility is not a funeral benefit for the purposes of this Act.
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All NSW Courts
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