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Financial Disclosure Obligations Under Chapter 7 Of The Corporations Act 2001 (Cth)

Introduction

The Corporations Act 2001 (cth) (the “Act”), under Chapter 7, sets strict financial disclosure obligations for Financial Services Licensee’s (“FSL”) which provide financial services to retail clients. A FSL simply means a person who holds an Australian Financial Services License.

The disclosure obligations imposed by Chapter 7 of the Act requires a FSL to give to their clients two types of documents when providing them with financial or personal advice; a Financial Services Guide (“FSG”) and a Statement of Account (“SoA”).

Non disclosure of either of these documents, or disclosure which is defective, amounts to an offence under the Act and can result in civil penalties.

1.   The Financial Services Guide

When must a FSG be provided?

An FSL is obliged to give a person a FSG when they provide that person with financial advice as a retail client. The FSG must be given as soon as practicable after it becomes clear that the services will or are likely to be provided.

What must a FSG include?

The Act sets out a variety of information which must be included in a FSG. This information includes, but is not limited to:

  • a statement setting out the name and contact details of the FSL;
  • a statement setting out how the client may provide instructions to the FSL;
  • information about the financial services which the FSL has authority by its license to provide;
  • information about who the FSL acts for when providing the authorised services; and
  • information about the remunerations (including commission) or other benefits that various entities, including the FSL, is to receive when providing the authorised services.

2.   The Statement of Advice

When must a SoA be provided?

A FSL is obliged to give a person a SoA when they provide that person with personal advice as a retail client. Personal advice means financial product advice given to a person in circumstances where the provider of the advice (the FSL) has considered the person’s objectives, financial situation or needs, or alternatively in situations where a reasonable person would have expected the FSL to consider any such matter.

The SoA can be either the means by which the advice is provided or merely a record of the advice. If the SoA is not the means by which the advice is provided, the SoA must be given to the client when the advice is provided or as soon as practicably after.

What must a SoA include?

Like with a FSG, the Act sets out information which must be included within a SoA. This information includes, but is not limited to:

  • a statement setting out the advice;
  • information about the basis on which the information is or was given;
  • the name and contact details of the FSL; and
  • information about the remunerations (including commission) or other benefits that various entities, including the FSL, is to receive when providing the advice.

Consequences for Breaching Financial Disclosure Obligations under Chapter 7 of the Act

Offences

Under the Act, certain breaches and omissions in the disclosure obligations placed upon a FSL can amount to offences. These offences include, but are not limited to:

Failing to give a FSG or SoA

Under the Act, a FSL commits an offence if they are required to provide a FSG or SoA to a client, and they do not do so by the required time.

Providing clients with a defective FSG or SoA

It is an offence under the Act for a FSL to provide a client with a defective FSG or SoA.  A FSG or SoA can be deemed ‘defective’ for a variety of reasons. These include, but are not limited to:

  • that the document(s) contain any misleading or deceptive statement; and/or
  • that there is an omission of any of the information which must be included in either document.

Importantly, it does not matter whether or not the FSL knew the document was defective at the time it was provided.

Failure to Comply with Specific Requirements

The Act sets out that if certain specific requirements are not complied with in terms of the FSG or SoA that the FSL who issued them has committed an offence. These specific requirements include, but are not limited to;

  • ensuring that the FSG or SoA is correctly titled on the first page;
  • ensuring that the FSG is dated and the date shown is the date when the FSG was prepared or its preparation was completed. If a material alteration is made to the FSG, the date must be changed to the date on which the alteration was made; and
  • ensuring that the FSG and SoA are not combined in a single document (unless the regulations specify otherwise).

Civil Penalties

Breaches of the above obligations can also lead to civil action for loss or damage.

Under the Act, if a person suffers loss or damage because they were either not provided with a FSG or SoA, or provided with a defective FSG or SoA, they may be able to recover the amount of loss or damage sustained due to the FSL being in breach of their disclosure requirements.

Conclusion

In order to ensure that a FSL does not commit an offence under the Act or incur any civil liability, it is important that they have a good understanding of when they are required to issue a FSG and SoA to their clients, and what to include in them to ensure they are not defective.

If you are a FSL and would like to know more about your financial disclosure obligations under Chapter 7 of the Act, please contact Berrigan Doube Lawyers on (02) 9251 6699.