Glossary

Term

Definition

accrued default amount (ADA)

An amount of superannuation accumulated in a situation where (a), the member has not given the fund’s trustee any direction about how the amount is to be invested, or (b), the amount is invested in the fund’s ‘default’ investment option.

anti-hawking provisions

Provisions set out in Sections 736, 992AA and 992A of the Corporations Act 2001 ( Cth ) that prohibit offering financial products for issue or sale during, or because of, an unsolicited meeting or telephone call with a retail client.

Australian Credit Licence (ACL)

A licence issued under the National Consumer Credit Protection Act 2009 ( Cth ) that authorises a licensee to engage in particular credit activities.

Australian financial services licence (AFSL), Australian financial services licensee

A licence under the Corporations Act 2001 ( Cth ) that authorises a person who carries on a financial services business to provide financial services. A licensee is the person who provides the services.

authorised deposit-taking institution (ADI)

A body corporate authorised under the Banking Act 1959 ( Cth ) to carry on a banking business in Australia.

Bank Bill Swap Rate (BBSY)

An interest rate used as a benchmark when pricing financial products.

Banking Executive Accountability Regime (BEAR)

A piece of legislation set out in Part IIAA of the Banking Act 1959 ( Cth ) and enacted in February 2018, the BEAR establishes accountability obligations for authorised deposit-taking institutions (ADIs) and their senior executives and directors. It is administered by APRA.

buyer of last resort (BOLR)

Arrangements whereby a licensee or an authorised representative acquires the business of another representative. The purchase price is determined using a specific formula.

conflicted remuneration

Any benefit, whether monetary or non-monetary, given to a financial services licensee , or their representatives, who provides financial product advice to retail clients that, because of the nature of the benefit or the circumstances in which it is given could reasonably be expected to influence the choice of financial product recommended by the licensee or representative or could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative: see Section 963A of the Corporations Act 2001 ( Cth ).

enforceable undertaking (EU)

An undertaking enforceable in a court. Issued under the Australian Securities and Investments Commission Act 2001 ( Cth ) and the National Consumer Credit Protection Act 2009 .

external dispute resolution (EDR)

An independent service for resolving disputes between consumers and providers of financial products and services, as an alternative to the court system.

financial product

Under the Corporations Act 2001 ( Cth ), a facility through which, or through the acquisition of which, a person makes a financial investment, manages financial risk and/or makes non-cash payments.

financial services entity

Defined by the Letters Patent as (among other things) ‘an ADI ( authorised deposit-taking institution ) within the meaning of the Banking Act 1959 ’, ‘a person or entity required by section 911A of the Corporations Act 2001 to hold an Australian financial services licence , or who is exempt from the requirement to hold such a licence by virtue of being an authorised representative’, and ‘a person or entity that acts or holds itself out as acting as an intermediary between borrowers and lenders’.

Financial Services Guide (FSG)

A guide that contains information about the entity providing financial advice, and explains the services offered, the fees charged and how the person or company providing the service will deal with complaints.

financial services licensee

An individual or business that has been granted an Australian financial services licence (AFSL) by ASIC.

Future of Financial Advice ( FoFA )

A 2012 package of legislation intended to improve the trust and confidence of Australian retail investors in the financial services sector and ensure the availability, accessibility and affordability of high quality financial advice.

grandfathering arrangements, grandfathered commission

Grandfathering arrangements allow for commissions to continue to be paid to intermediaries who sold financial products prior to the Future of Financial Advice ( FoFA ) reforms that would otherwise be classified as conflicted remuneration . This source of revenue is known as a grandfathered commission.

group life insurance

Life insurance where a group of people (for example, members of a superannuation fund) are covered by the one contract.

Household Expenditure Measure (HEM)

A measure of what families spend on different types of household items, calculated quarterly by the Melbourne Institute of Applied Economic and Social Research.

mortgage aggregator

An intermediary between mortgage brokers and lenders. Mortgage aggregators have contractual arrangements with lenders that allow brokers operating under the aggregator to arrange loans from those lenders.

mortgage broker

An intermediary between borrowers and lenders of home loans.

MySuper products

Low-cost, simple superannuation products for members who make no active choice about their superannuation.

registrable superannuation entity (RSE)

A category of superannuation entity, regulated by APRA, that includes regulated superannuation funds, approved deposit funds and pooled superannuation trusts, but does not include self-managed superannuation funds (SMSFs) .

successor fund transfer (SFT)

Where a member’s benefits are transferred to a successor fund. This is one of the few situations where benefits can be transferred without the member’s consent and is subject to strict regulation.

third party guarantor

A person or business other than the borrower who guarantees to pay back a loan if the borrower does not.

Tier 1 Capital

Capital against which losses can be written off while an authorised deposit-taking institution (ADI) continues to operate and can absorb losses should the ADI ultimately fail.

trail commission

A regularly recurring commission to an intermediary, such as a broker, based on a proportion of the current or average loan balance and payable periodically after the loan is made/drawn. Distinct from a commission that is paid up front.

vertical integration

A description of the relationship between entities where financial advice, platforms and funds management are controlled by a single entity.

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