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Briefly outline the distinguishing features of the legal and regulatory regime governing the offering of financial products and services. How does the law characterize the philosophy of this regime? Essay Example

Regulatory Regime Governing Offering Of Financial Products & Services3

FEATURES OF LEGAL & REGULATORY REGIME GOVERNING OFFERING OF FINANCIAL PRODUCTS & SERVICES

Introduction

The process of identifying the commonest functional elements of financial products and services is deemed to be a challenging task since existing legal frameworks established to define these products and services are outdated in many instances (Commonwealth of Australia Explanatory Memoranda, 2001). There has been no single legal definition of the term financial product and services within the law especially in regards to four well-known financial products and services like deposits, securities, insurance and investments. It is important to note that these financial products and services are indeed supervised and sustained by the immediate existing regulatory platforms that are deemed to apply to specific institutions offering them at any given moment. The paper seeks to explore the features of legal and regulatory frameworks that are effective in the course of offering financial products and services as well as indicates the characterization of the philosophy the entire regime. These features of the legal and regulatory framework are discussed as below;

  1. Financial Product Regulation and Disclosure

One distinctive feature of the financial product and services offering rests with the product being offered, which might be in form of a deposit, security, investment or even a service like insurance policies (Commonwealth of Australia Explanatory Memoranda, 2001). Product regulatory framework is solely focused on the basic product features that involve interest rates, redemption features as well as contractual rights and commitments of the parties at hand. Due to these instruments, there exist a significant number of product disclosures to numerous products and services being offered since consumers are left with a challenging task of comparing functionally similar but different products (Commonwealth of Australia Explanatory Memoranda, 2001)

Under the FSR proposed solution, it is required that application of a consistent disclosure requirement be put in place for all financial products; with slight adjustments within the legislation to allow for distinctive differences between the different products (Commonwealth of Australia Explanatory Memoranda, 2001). The underlying requirements is made up of point of sale disclosures through different items that might include; product disclosure statements, periodic reporting and advertising requirements as well as a commitments to avail possible conformation of overall transactions. The disclosure regime is set to restore a significant number of existing disclosure regimes related to the numerous financial products like the SIS and RSA Acts. In this regard, the emergence of a consistent disclosure standard needed for the application of all comparative information on financial products and services is the sole objective of the regime, which also strives to attain industry-specific efficiency as well as the lowering of compliance costs associated with this process (Fein, 2007).

  1. Licensing & Conduct of the Providers of Financial Product & Services

Under this feature, the existing providers of financial products and services are perceived to be product-specific who are thus regulated in much different ways in relation to both Acts and non-legislative stipulations (Fein, 2007). The specific product legislation however results to potential competition being limited from venturing into the financial markets by the complexities at hand while the consumers are also hindered by this regulatory framework given that they cannot be ascertained of the immediate conduct of the financial product or service under possible minimum stipulations (Commonwealth of Australia Explanatory Memoranda, 2001).

Under this feature, the FSR Bill 2001 set to propose the introduction of a single licensing regime that could be applied to all providers. The rather single licensing regime is set to overstate the existing requirements that include; Proposed Corporations Act, Insurance as well as Banking regulatory acts (Commonwealth of Australia Explanatory Memoranda, 2001). Thus, in general, as a way of increasing efficiency and competition and also, to ensure the reduction of regulatory hindrances on all providers of financial products and services, there regime is set to introduce a single licensing framework.

  1. Markets & Clearing & Settlement Facilities

The fundamental challenge attributed to this legal and regulatory feature rests with the lack of imminent competition within the financial sector due to two main reasons that reasons that include; a limited number of approved securities exchange markets operating within the larger Australian market as well as only two clearing agencies like the Securities Clearing House SCH as well s SFE Clearing House (Commonwealth of Australia Explanatory Memoranda, 2001).

The government is set to introduce a new regulatory framework in order to improve on competition in such cases the lowering of barriers to entry as well as encouraging new entrants into competing financial markets and facilities (Fein, 2007). The new regime will put a stop to the existing distinction that arises between securities exchanges by the introduction of single licensing regimes for the entire financial markets. It is important to understand that the new regime will ensure to enhance competition in relation to the clearing and settlement features by way of emulating capacities to conduct electronic transfers of trades (Fein, 2007). Notwithstanding, the new regime is set to allow full participation of overseas financial markets as well as other facilities within Australia.

  1. Market Misconduct

The existing market misconduct feature is set to involve the aspects related to overall market manipulation, false trading and market rigging activities, provision of information that relates to the illegal transactions, as well as fraudulent induction of person in a given deal. Presently, there are only two known sets of provisions; dealing with securities and another with future contracts (Fein, 2007). Furthermore, the underlying general market misconduct provisions as well as aspects related to insider trading provision fail to include all financial products and services that could be traded within a given financial market.

The current regime proposes a consolidation of different types of provisions while still widening these sets to include most, if not all, of the financial products and services that could be traded within a financial market (Fein, 2007). In relation to the changes that are set to be carried out by the FSR Bill, there seems to be no other reliable provision than just to engage in the amendment of market misconduct. It thus goes without saying that the regime of this feature is set to assist with the consolidation of different forms of the overall market misconduct as well as attributes related to trading while at the same time applying them to a larger array of financial products, which is deemed to be necessary for bringing about useful changes relating to policy goals and objectives of the entire FSR Bill (Fein, 2007). In addition this, the regime ascertains that possible breaches of market misconduct as well as insider trading provisions should undergo punishments as a way of deterring them from future engaging in the act hence maintain the integrity of the larger Australian financial markets as a whole (Fein, 2007). ASIC’s capacity to emphasise on these sets of provisions will further be improved by way of ensuring that they form a section of the overall civil penalty framework in place.

  1. Telephone Monitoring

Telephone monitoring is yet another feature that outlines legal and regulatory framework in the course of offering financial products and services within the overall financial markets. It is concerned with the provision of effective and professional mode of communication between providers of financial products and services as well as the individual shareholders especially during fundamental takeover bids.

Currently, the ASIC has put up proposals to improve on this feature by way of formulating alternative mode of proposals for which bidders, target firms and their respective agents will be prevented from ensuring communication by telephone without a need to consent with ASIC.

  1. Safety & Soundness Regulation

The feature evaluates the immediate safety and soundness of the firm that has taken to offering the financial products and services, which might include; banks, securities and insurance entities (Fein, 2007). In fact, for this feature the sole focus is on the providers of financial products and services overall financial situation, capital adequacy as well as the capacity to satisfy its overall commitments in relation to the product-based agreements as well as other notable regulations.

  1. Consumer Protection Regulation

The feature is solely focused on entire processess adopted to avail a financial product or service to most of the customers. This ASIC feature sets to ensure the protection of the immediate users of these financial products and it is focused on such aspects as qualifications, conduct and supervision of the providers, adequacy of the financial product and services disclosures as well as notable accuracy of promotional strategies (Fein, 2007).

Philosophy Regime

The overall philosophical perspective of the regime is not entirely related to changes attributed for its own growth but rather, it is focused on establishing an effective and reliable balance between attaining competitive market structures while still ensuring to improve and sustain a safety and market integrity platform (Commonwealth of Australia Explanatory Memoranda, 2001). In Australia, the three fundamental aspects proposed by the regime within the extensive FSR Bill include; product and service disclosures, the aspect of licensing for both financial markets as well as providers of financial products and services.

References List

Commonwealth of Australia Explanatory Memoranda. 2001. Financial Services Reform Bill 2001. Retrieved from http://www.austlii.edu.au/au/legis/cth/bill_em/fsrb2001252/memo1.html

Fein, ML 2007 The convergence of financial products and the implications for regulatory convergence, American Enterprise Institute. Retrieved from http://www.law.yale.edu/documents/pdf/cbl/Fein_Convergence_Financial.pdf