Toolkit Introduction
Welcome to the CALIA+ toolkit, designed to provide our CGI advisers and dealer groups with all the necessary information, tools and resources to prepare for 1 January 2011.
This Toolkit will enable you to:
- Learn about the changes we're making to our business, the drivers for these changes and what they mean for dealer groups and advisers
- Learn about how the changes are being implemented
- Understand how the CALIA+ application form is changing and the transition process
- Learn about the changes to the Terms & Conditions of CALIA+ and understand what the key changes are
- Learn about the introduction of a Product Disclosure Statement for Margin Loan sub-accounts under CALIA+
- Access the new documents you need from 1 January 2011
Specific impacts to you are called out in bold text.
Background
Effective 1 July 2010, ASIC assumed responsibility for the regulation of consumer credit, including mortgage broking, under the National Consumer Credit Protection Act 2009 (National Credit Act).
Additionally, on 1 January 2010, the Corporations Legislation Amendment (Financial Services Modernisation) Act commenced and a new regulatory regime for margin loans was established by including margin lending as a financial product in Chapter 7 of the Corporations Act 2001 (Chapter 7).
This will make margin lenders and advisers subject to various obligations under Chapter 7 including new licensing, disclosure and conduct requirements.
CALIA+ contains facilities regulated by both the National Credit Act and Chapter 7.
Changes scheduled for 1 January 2011
Licensing
Under the new credit regime, as of 1 January 2011, in order for CGI to accept any new applications or for us to engage in any form of credit activity with dealer groups, they must be registered for credit and subsequently obtain an Australian Credit Licence (ACL).
Advisers who operate under the dealer group's credit registration/ACL need to have been appointed as credit representatives unless they are a director or employee of the licensee or a credit representative of the licensee. Additionally, advisers are also able to apply for their own ACL.
Applications for an ACL need to be submitted to ASIC by 31 December 2010.
A timeline for the licensing changes is below:
| Date | Action |
|---|---|
| 30 June 2010 | Deadline for registration with ASIC for an ACL. |
| 1 July 2010 | Registered persons have 6 months to apply for an ACL, between 1 July and 31 December 2010. |
| 31 December 2010 | You must have applied for an ACL by this date. If you have not, you must stop engaging in credit activities until you have an ACL. If you have applied for an ACL, you can continue engaging in credit activities until ASIC makes a decision on your application. |
| 30 June 2011 | All persons engaging in credit activities must:
|
Accordingly, we are not able to accept applications for CALIA+ from 1 January 2011 unless we can confirm that these requirements have been met.
Responsible Lending
New responsible lending requirements will also come into effect on 1 January 2011.
As a result, issuers of margin lending facilities will be required to:
- make reasonable inquiries about the client's financial situation, including whether the client has taken out a loan to fund the equity contribution (double gearing);
- verify that information; and then
- make an assessment, based on the information collected, the facility is "not unsuitable" for the client, before issuing or increasing the credit limit of an existing margin lending facility.
The CALIA+ Application form and CALIA+ Credit Limit Increase application form have been updated to capture this information.
For full details on how to complete the application form, click here
Statement of Advice (SoA)
From 1 January 2011, we require the Statement of Advice used to recommend the facility to be no older than 90 days at the time of assessment.
The new CALIA+ application form requires advisers to declare that an SoA has been provided, and to record the SoA date of issue.
The loan recommended in the SoA must be assessed by us within 90 days of the SoA date of issue, or a new application form will be required to be completed.
Margin Loan Sub-accounts under CALIA+
Licensing
An important obligation for dealer groups and advisers who wish to provide margin lending products and services to their clients is the requirement to have the appropriate Australian Financial Services Licence (AFSL) authorisation for margin lending in place before 1 January 2011.
An adviser linked to a margin loan must be specifically authorised to deal in, or provide advice on, a margin lending facility by an AFS licensee, and will be required to be:
- an authorised representative of an appropriately authorised AFS Licence holder; or
- an employee or director of an appropriately authorised AFS Licence holder or of a related body corporate of an AFS Licence holder; or
- an employee of an authorised representative of an appropriately authorised AFS Licence Holder.
Advisers or dealer groups who applied for a new licence or a variation to an existing licence before 1 July 2010 may continue to provide margin lending advice until such time as the licence application is approved or declined. However, if a licence application was not lodged prior to 1 July 2010, they may not advise on margin lending facilities until a licence has been approved.
Disclosure requirements
Margin loans become regulated financial products from 1 January 2011.
This means a margin loan Product Disclosure Statement (PDS) must be provided to a client by the adviser each time a recommendation is made to apply for a margin loan.
The PDS is a concise, short form A4 document available here.
Financial Services Guide (FSG)
It is your responsibility to ensure that your FSG has been updated to include margin lending and that you distribute it to a potential client with the PDS when advising on a margin loan.
An unsuitable margin lending facility
As part of the responsible lending requirements, CGI has also updated our "Not Unsuitable Test" for new clients, to ensure that the margin lending facility is "not unsuitable" for them.
A margin lending facility will be "unsuitable" for a client if, should the facility go into margin call, the client would be unable to comply with their financial obligations around a margin call, or would only be able to do so with substantial financial hardship.
This assessment may also apply when clients apply for a credit limit increase on an existing margin loan. If a margin loan or margin loan credit limit increase is deemed unsuitable for a client's current financial situation, it must not be provided.
Statement of Advice (SoA)
From 1 January 2011, we require the Statement of Advice used to recommend the facility to be no older than 90 days at the time of settlement.
The new CALIA+ application form requires advisers to declare that an SoA has been provided, and to record the SoA date of issue.
The loan recommended in the SoA must have settled within 90 days of the SoA date of issue, or a new application form will be required to be completed.
Margin Call Notifications
From 1 January 2011, in the interests of transparency, CGI's policy will be to take reasonable steps to notify clients in each case of a margin call.
Advisers will receive an email that includes a consolidated list of all margin calls sent to their clients on that particular day.
In order to effectively receive timely notification of margin calls (and also 'Buffer' notices), dealer groups and advisers are required to ensure that the contact details we hold for them are current. Any updates to contact details should be sent to marginlending-adviserservices@cba.com.au.
More information
You can find out more about the margin lending and consumer credit regulatory changes on the ASIC website.
Important information - This material is not legal advice and is not financial product advice and is not to be relied upon by any party external to Colonial Geared Investments. Any such party should seek their own legal advice regarding the effect of the amendments to the Corporations Act 2001 (Cth) relating to the regulation of margin lending facilities and the National Consumer Credit Protection Act 2009.