Chapter 7 of the Corporations Act 2001 (Cth) provides a regulatory scheme for the operation of financial services and markets in Australia.

The important elements of the regulatory scheme are:

• licensing, regulation and supervision of financial markets;

• licensing and regulation of financial services businesses which typically deal with a wide range of financial products and regulation of other matters relating to the issue, sale and purchase of financial products;

• financial product disclosure and regulation of other matters relating to the issue, sale and purchase of financial products; and

• prohibiting market misconduct and certain other conduct relating to financial products and financial services.

The Corporations Act 2001 (Cth) is administered by the Australian Securities and Investments Commission (ASIC) which is set up under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

ASIC has a number of functions and powers conferred on it by the Corporations Act and ASIC Act. In the area of financial services and markets, ASIC is the markets and financial services regulator and its responsibilities include:

• regulation of licensed financial markets to assess their effectiveness in complying with their legal obligations to operate fair, orderly and transparent markets;

• supervision of operators of licensed markets and of market participants (who are mainly brokers) on licensed financial markets;

• regulation of financial services through licensing and monitoring financial services businesses to ensure that they operate efficiently, honestly and fairly; and

• enforcement of laws prohibiting misconduct relating to financial products and financial services including misconduct such as market manipulation, false trading and insider trading (see Australian Securities and Investments Commission website).

ASIC is also given power under Pt 2 of the ASIC Act to protect consumers in relation to financial products and services. Part 2 includes provisions prohibiting:

• unfair terms in consumer contracts;

• unconscionable conduct;

• conduct in relation to financial services that is misleading or deceptive;

• false or misleading representations in connection with the supply or promotion of financial services; and

• other unfair practices.

Part 2 of the ASIC Act also implies certain terms into contracts for the supply of financial services to a consumer.

Many of the provisions in Pt 2 are similar to those found in the Australian Consumer Law which is Sch 2 to the Competition and Consumer Act 2010 (Cth) and which contains the consumer protection provisions of that Act.

The regulatory scheme provided by Ch 7 is complex. This is so for a number or reasons:

• The “interlocking and interconnected definitional structure” of the Corporations Act 2001 (Cth) referred to in Joffe v R; Stromer v R at [35] is particularly evident in Ch 7.

• As a plurality of the High Court observed in International Litigation Partners Pte Ltd v Chameleon Mining NL (Receivers and Managers appointed) at [5] the regulatory scheme is characterised by —

The complexity of the regulatory scheme has led to one judge saying that Ch 7 does not act as an effective guide to conduct: Casaclang v WealthSure Pty Ltd at [236].

Section 760A sets out the main objects or purposes of the regulatory scheme contained in Ch 7 . Section 760B then provides a part-by-part outline of the chapter. There are also definitions of key concepts and commonly occurring expressions used in the chapter set out in Div 2 of Pt 7.1 but the most important definitions are:

• “financial product”;

• “financial service”; and

• “financial market”.

Section 761H states that a reference to “this Chapter” in Ch 7 includes a reference to regulations or other instruments made for the purposes of Ch 7 . Relevant regulations and other instruments include:

• the Corporations Regulations 2001 (Cth) (mainly Ch 7 ); and

• legislative instruments/class orders issued by ASIC.

There is also some other law as well as regulatory documents issued by ASIC which have relevance to the regulatory scheme in Ch 7 . In particular, ASIC has issued a large number of regulatory guides in relation to Ch 7 and the courts and tribunals will often have regard to these when considering whether there has been compliance with the law.

See Main objects and outline of regulatory scheme.

The term “financial product” is critical to the operation of the regulatory scheme in Ch 7 . It is often relevant when considering whether a person provides a “financial service”. It is relevant to financial product disclosure. A financial market is broadly defined as a facility through which offers or invitations to buy or sell financial products are regularly made or accepted. In addition, Ch 7 prohibits various conduct relating to financial products (and services).

Division 3 of Pt 7.1 sets out the meaning of “financial product”. There is:

• a general definition of “financial product”;

• a number of specific inclusions of kinds of facilities that are financial products (whether or not within the general definition); and

• there are specific or overriding exclusions, that is, facilities that are not financial products even if they are within the general definition or the class of facilities specifically included.

See Financial product.

The term “financial service” is important because, unless exempted, any person who carries on the business of providing financial services in Australia must hold an Australian financial services licence from ASIC covering the provision of the financial services or have some other authorisation to do so and must comply with certain obligations in providing those services.

Division 4 of Pt 7.1 sets out the meaning of “financial service”.

Generally, a person provides a financial service if they:

• provide financial product advice, that is, make a recommendation or give a statement of opinion that is intended to influence a person in making a decision in relation to a financial product or could be reasonably regarded as being intended to have such an influence;

• deal in a financial product, which includes acquiring, issuing, varying and disposing of a financial product; and

• engage in certain other specified conduct.

There are a number of exceptions when conduct does not constitute the provision of a financial service.

See Financial service.

The term “financial market” is important because to operate a financial market in Australia, unless exempted, a person must have an Australian market licence and must comply with certain obligations.

Division 5 of Pt 7.1 sets out the meaning of “financial market”. In broad terms, a “financial market” is a facility through which offers or invitations to buy or sell financial products are regularly made or accepted. However, certain conduct does not constitute operating a financial market and some examples are provided of types of operations that fall within and outside the definition of “financial market.”

See Financial market.