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02 Feb 2012

CAMAC releases report on derivatives regulation

by Louise McCoach, Vittorio Casamento

CAMAC's conclusions are a welcome endorsement of Australia's existing regulatory regime for derivatives.

In November 2010, the Australian Government commissioned the Corporations and Markets Advisory Committee (CAMAC) to review the existing Australian regulatory regime for derivatives and consider the appropriateness of the regime in today's economic environment. CAMAC was also asked to examine the definition of "derivative" in the Corporations Act and consider whether it should be amended to reduce the complexity of the law in this area.

Following consultation with a number of industry participants, CAMAC released its report on 24 January 2012.

The report contains a useful overview of the existing regulatory framework for derivatives under the Corporations Act, including:

  • the classification of a derivative as a financial product for the purposes of Chapter 7 of the Corporations Act; and
  • the application of the financial services licensing and disclosure regime to persons that deal in derivatives and the availability of exceptions under the regime.

CAMAC concluded that the existing regulatory framework under the Corporations Act is appropriate to regulate the Australian derivatives markets and that there are no fundamental problems that would warrant the need for immediate change.

Following a review of existing case law on the meaning of "derivative" under the Corporations Act, CAMAC also concluded that the definition of derivative was not unduly complex. Although recognising that the definition was very broad, CAMAC observed that this was intentional to ensure that the definition was sufficiently flexible to capture new or innovative products. Any unintended consequences of a broad definition could be addressed by making regulations to exclude certain things from the definition of derivative rather than to embark on a re-write of the definition itself.

Overall, CAMAC's conclusions are a welcome endorsement of Australia's existing regulatory regime for derivatives.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.