Bill: Draft Redmont Commerce and Finance Act

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CONGRESS OF THE
COMMONWEALTH OF REDMONT
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A BILL TO
Restate the Standards of Commerce
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The people of the Commonwealth of Redmont, through their elected Representatives in the Congress and the force of law ordained to that Congress by the people through the constitution, do hereby enact the following provisions into law:
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PART I — PRELIMINARIES

1. Short Title and Enactment
(1) This Act may be cited as the 'Redmont Commerce and Finance Act' or the 'RCFA'.
(2) This Act shall be enacted immediately upon its signage.
(3) This Act has been authored by President Theory Fontaine, Commerce Secretary Planke Fontaine, and FRB Governer Coshjlose.
(4) This Act has been co-sponsored by Senator ElegantAlly.
(5) This Act repeals and replaces the following acts:
(a) Commercial Standards Act
(b) Financial Institutions Enforcement Act
(c) Banking Income Tax Act
(6) This Act amends the following acts:
(a) Taxation Act
(b) Criminal Code Act
(c) Redmont Civil Code Act
(d) Bankruptcy Act
(7) This Act is to be read with the Legal Entity Act, which governs the formation, governance and dissolution of legal entities.

2. Reasons and Intent

(1) The rules that govern commerce in Redmont are spread across four Acts that amend each other in both directions. The same institution can be told to report monthly in one Act, quarterly in another, and to a schedule set by rule in a third.

(2) The financial regulation added by the Financial Institutions Enforcement Act works, but it sits outside the standards Act it was written to support, and its enforcement ladder cannot be found by the businesses it applies to.

(3) The list of financial institutions has been closed at four types since it was written. Payment services, custody, insurance and managed funds have no licence to apply for, so they either operate unregulated or do not operate at all.

(4) Reporting has grown faster than the economy that produces it. A one player company listed on an exchange currently owes the same monthly statements, prepared by a licensed accountant, as the largest bank in Redmont.

(5) This Act therefore restates commercial standards in one place, opens the list of financial institutions to a licence class ladder, replaces every separate reporting obligation with one tiered return, and states the Department's enforcement powers as a single ordered escalation.

3. Definitions

(1) For the purposes of this Act:

(a) Administrative Sanction. A coercive and non punitive measure imposed by the Department to compel compliance, including a penalty, a disgorgement order and a restitution order.

(b) Advertising Puffery. A vague or wildly exaggerated claim that no reasonable person would take seriously.

(c) Client Funds. Money or value a person receives and holds for or on behalf of a customer that is not a deposit, including funds held for custody, escrow, brokerage, settlement, investment under mandate or as a customer account balance.

(d) Commercial Advertisement. An advertisement intended to benefit or harm a privately owned or operated business.

(e) Deposit. An arrangement under which a person receives funds or value and is obligated, whether legally, contractually or in practice, to repay or return money or equivalent value, where one or more of the following applies:

(i) the principal is fixed, determinable or represented to be stable, and repayable at or near its original value on demand or within a determinable period;

(ii) the funds are withdrawable, redeemable or transferable on demand or on limited notice;

(iii) the holder is not exposed to a material risk of loss of principal under normal or reasonably foreseeable conditions;

(iv) the return is fixed, guaranteed, administratively determined or otherwise not materially dependent on the recipient's performance; or

(v) the arrangement is marketed or functions as a store of value, passive income, cash equivalent or means of payment.

(f) Department. The Department of Commerce.

(g) False Advertisement. A commercial advertisement containing untrue information that would deceive a reasonable person, where the advertiser acted knowingly. Where the information is publicly accessible, the advertiser is presumed to have been aware of it.

(h) Financial Institution. A person carrying on regulated financial activity, whether or not licensed and whether or not incorporated.

(i) Financial Product. Any instrument, token, account, contract or arrangement offered to the public that in substance constitutes a deposit, a security, an investment or another regulated financial interest, whatever it is called, and includes a depositary receipt issued under the Legal Entity Act.

(j) Fund. An arrangement pooling money or assets from more than one investor for collective investment, including an Exchange Traded Fund.

(k) Licence. An authorisation granted by the Department under Part V to carry on a class of regulated financial activity.

(l) Misleading Advertisement. A commercial advertisement containing true information presented in a way that may confuse or mislead a reasonable person, including by omitting information a reasonable person would consider in their decision making, by using ambiguous language, or by omitting the non serious or satirical intent of the advertisement.

(m) Operator. A person who carries on, controls, directs, manages, finances or materially participates in regulated financial activity, including an individual who receives, holds or disburses customer funds.

(n) Person. An individual or a legal entity, including a group of persons acting in concert.

(o) Political Advertisement. An advertisement intended to promote a political message, influence public opinion on a social issue, or persuade a person to support a candidate, party or policy.

(p) Public Company. A company whose securities are listed on a registered Stock Exchange in Redmont.

(q) Regulated Financial Activity. Carrying on, or holding oneself out as carrying on, the business of any of the following, whether or not it falls within a licence class under Part V: taking deposits; holding money or assets for another; lending or providing credit; dealing in, arranging deals in, or advising on financial products; managing money or assets for another; operating a trading venue, exchange or fund; underwriting or selling insurance; or providing payment, settlement or escrow services. Where an activity is within this definition but within no licence class, the Department shall allocate it to a class under section 17.

(r) Union. An organised association of workers formed to protect and advance their rights and interests.

(s) Whistleblower. A person with inside knowledge of an organisation who reports misconduct, dishonesty or illegal activity that may have occurred within it.

4. Interpretation

(1) For the purposes of this Act:

(a) the economic substance and practical effect of a transaction, instrument or arrangement prevails over its legal form, label or characterisation;

(b) a transaction includes a series of transactions or steps, whether or not documented, and rights or expectations may be express or implied and may arise from conduct, practice or marketing;

(c) designating a payment as a purchase, sale, donation, commodity, token or investment does not exempt it where it functions in substance as a deposit or another regulated financial product;

(d) carrying on regulated financial activity in contravention of this Act is a continuing course of conduct, and each day it continues is a fresh contravention; and

(e) where a provision admits more than one reading, the reading that best protects customers and prevents avoidance prevails.

(2) Any arrangement entered into wholly or mainly to avoid the application of this Act is disregarded, and this Act applies as if it had not been made. The use of a sham entity, nominee or intermediary to obscure the true Operator does not defeat liability or enforcement.

PART II — THE DEPARTMENT OF COMMERCE

5. Functions

(1) The Department is responsible for:

(a) the licensing and supervision of financial institutions;

(b) the integrity of markets and the protection of customers and depositors;

(c) the collection of the taxes imposed by Part IX;

(d) the investigation of commerce related white collar crime, findings being referred to the Department of Justice for prosecution; and

(e) the administration of the Company Register under the Legal Entity Act.

(2) Where it is unclear which department should investigate a crime, the matter is referred to the Department of Justice.

6. General Powers

(1) The Department may, subject to the notice and appeal procedure in section 54 and the escalation duty in section 44:

(a) monitor financial transactions and publish generalised reporting on transaction statistics;

(b) access the accounts of licensed financial institutions on request for the purpose of monitoring compliance;

(c) conduct random spot checks of gaming machines to verify advertised odds, non compliance being fraudulent trading;

(d) disband an in game company that does not meet the requirements to be a company, or that is used to carry on or disguise activity in contravention of this Act; and

(e) exercise the supervisory and enforcement powers in Part X.

(2) An employee of the Department engaged in the regulation of securities exchanges may not hold a security for less than 30 days.

7. Rulemaking

(1) The Department may make rules to give effect to this Act, including rules on licensing, fit and proper standards, client fund segregation, reporting forms, market conduct, and the operation of exchanges and funds.

(2) A rule must serve a legitimate governmental purpose and be reasonably tailored to achieve it, and must not conflict with this Act.

(3) A rule takes effect on publication.

(4) The Department may by rule impose a filing, a record keeping obligation or a periodic return on any person carrying on regulated financial activity, and on any Public Company or person operating a Fund. A rule doing so shall:

(a) state the burden it imposes and the purpose that burden serves;

(b) exempt a Tier 3 reporting person, unless the rule addresses the safety of customer funds; and

(c) not require information the person has already filed, or that is already available to the Department.

(5) A rule may not require a report from a person who is not carrying on regulated financial activity and is not a Public Company, a person operating a Fund or a tax exempt non-profit.

(6) Where the Department reasonably believes an emerging practice poses an immediate risk to customers or the financial system, it may issue an emergency temporary rule effective on publication, which lasts up to 60 days and may then be renewed or replaced only through ordinary rulemaking.

(7) Congress may disallow a rule by resolution of both chambers, and a rule so disallowed ceases to have effect and may not be remade in substantially the same terms in the same Congress.

8. Service Standards and Deemed Approval

(1) Where a person applies to the Department for a licence, a registration, a variation, an exemption, an advance ruling or the registration of a disclosure document, the Department shall decide the application within 14 days.

(2) The Department may, once per application, extend that period by a further 14 days by notice stating why.

(3) Where the Department does not decide within the applicable period, the application is deemed granted on the terms applied for, and the grant is provisional and revocable by the Department within a further 30 days.

(4) Deemed approval under subsection (3) is not available for:

(a) a licence in a class permitted to take deposits;

(b) an exemption, waiver or variation of any requirement of Part VI;

(c) a non objection to a qualifying holding under section 18(5); or

(d) the registration of a disclosure document under section 27.

(5) A refusal must state the reason and the steps required to cure it.

(6) This section does not apply where the applicant has failed to provide information the Department has requested, and the period is suspended until that information is provided.

9. Rights of Regulated Persons

(1) Information the Department requires from a person must satisfy a need to know principle. The Department does not always need the identity of account holders, and must have a reasonable justification for the data it requests, which it need not share.

(2) The Department may compel the production of information only in the course of its official duties.

(3) The Department and the Federal Reserve Bank shall treat the data of financial institutions as commercial in confidence, the sole exception being the use of strictly necessary data in a public report, and only to the extent required to describe and justify a regulatory or enforcement action.

(4) Data shared with the Department may also be shared with the Federal Reserve Bank, and with the Department of Justice or the Department of Homeland Security for the purposes of investigation, prosecution or financial stability.

PART III — EMPLOYMENT AND UNIONS

10. Employee Protections

(1) Unfair dismissal is the unjust termination of an employee. In determining whether a termination was unjust, the following must be considered:

(a) whether the termination made financial sense given the regular business activities and the necessity of maintaining operations;

(b) whether the employee's continued employment would have been a detriment to the workflow, reputation or legal standing of the business;

(c) whether the dismissal was made primarily on the basis of a personally identifiable characteristic, including gender, race or political affiliation, except where that characteristic is integral to the function of the employment; and

(d) any other metric a court finds necessary to consider, consistent with what a reasonable person would consider unfair dismissal and with the intent of this section.

(2) A court may not construe this section so as to produce a result that is odd, absurd or otherwise inconsistent with its intent.

(3) A worker cannot be held legally accountable where there is a deficiency in training provided by the employer and training would reasonably be required.

(4) A worker cannot be sued for their individual actions taken in accordance with lawful organisational directions and policy. The employer assumes all legal liability where its policy was followed or its policy was unlawful.

11. Unions

(1) Every employee in Redmont has the right to create or apply to register a union.

(2) Unions do not have to follow a democratic structure, but are encouraged to.

(3) An employer may not discriminate against an employee for being involved in a union.

(4) An employer may not involve itself in the democratic processes of its employees' union.

(5) An employer that takes action to disrupt or prevent the formation of a union, or engages in conduct to dismantle a union, including by terminating employees who try to start one, is guilty of Union Busting.

12. Whistleblowers

(1) Whistleblower protections are the protections provided to a whistleblower to enable them to come forward without fear of retribution or personal detriment.

(2) A person who in good faith reports a contravention of this Act is a whistleblower and is entitled to those protections and to the protections of the Criminal Code Act.

(3) No person may retaliate against a whistleblower.

(4) The Department may recommend to the Department of Justice the reduction or waiver of sanctions for an Operator or employee who voluntarily discloses a contravention and cooperates fully before being notified of an investigation.

PART IV — ADVERTISING AND FAIR TRADING

13. Advertising

(1) A person may not publish, or authorise the publication of, a false advertisement or a misleading advertisement.

(2) A person authorises an advertisement by displaying it of their own volition, or by agreeing to have another person display it on their behalf.

(3) The following are exempt from the definitions of false and misleading advertisement:

(a) advertising puffery; and

(b) political advertisements.

14. Financial Promotions

(1) A person may not make a false or misleading representation as to the safety, return, insurance or licensing status of a financial product.

(2) A person may not promote a deposit or financial product using representations of fixed, guaranteed, insured or risk free returns unless those representations are true and reasonably substantiated at the time they are made.

(3) A person may not represent, by name, advertising or conduct, that they are a bank, a licensed financial institution or an insured or government backed institution, unless they are licensed as such.

PART V — LICENSING OF FINANCIAL INSTITUTIONS

15. Requirement to be Licensed

(1) No person may carry on, or hold themselves out as carrying on, regulated financial activity unless that person is:

(a) an Incorporated Entity in good standing under the Legal Entity Act; and

(b) licensed by the Department for that activity.

(2) A person who receives deposits or client funds otherwise than through a licensed and incorporated financial institution contravenes this Act, notwithstanding any disclaimer, terms of service or characterisation of the funds as anything other than a deposit.

(3) Compliance with this Act does not relieve a person of any obligation under any other enactment.

(4) A licence states the classes the holder may carry on. A holder may apply at any time to add or surrender a class.

16. Licence Classes

(1) The licence classes are:

(a) Class A, Commercial Bank. May take deposits, lend and invest them for its own account, operate a reserve of less than 100%, and carry on any activity within Classes C to G.

(b) Class B, Credit Union. A member governed deposit taker formed as a cooperative or non-profit under the Legal Entity Act, whose leadership is democratically elected and whose surplus is distributed to members or reinvested for the benefit of all members. May carry on any activity within Classes C to E.

(c) Class C, Investment Firm. May broker securities, invest for clients under mandate, advise on investments, and lend. May not take deposits. May charge for its services.

(d) Class D, Custody and Payment Institution. May hold client funds and assets in custody, operate escrow and settlement, and process, route or store value for payment purposes. May not take deposits, lend client funds or invest them for its own account.

(e) Class E, Fund Manager. May establish, operate and manage a Fund, including an Exchange Traded Fund, and may market interests in it.

(f) Class F, Stock Exchange. The sole class able to list Redmont based securities for public trading. May charge commissions.

(g) Class G, Insurer. May underwrite and sell contracts of insurance, being contracts under which the insurer accepts a defined risk of a customer in exchange for a premium, and may hold and invest reserves against those contracts.

(h) Class H, Credit Provider. May lend to the public on its own account. May not take deposits or hold client funds. A Credit Provider shall make the disclosures required by the Credit Standards Act on every extension of credit, and shall not charge interest, fees or charges in excess of the limit in Section 20 of Part VII of the Criminal Code Act.

(2) A person may not carry on an activity reserved to a class it does not hold.

(3) An Investment Firm may not hold a taxation exemption on in game balances, but does not pay the Financial Institution Depositor Insurance Tax.

(4) The Department may attach to any licence conditions on permitted and prohibited activities, capital, reserves, client fund segregation, reporting and fit and proper standards, and may vary them on notice.

(5) An applicant for a licence shall hold, and a licensed institution shall maintain at all times, capital of not less than:

(a) $750,000 for a Class A Commercial Bank;

(b) $300,000 for a Class G Insurer;

(c) $250,000 for a Class F Stock Exchange;

(d) $150,000 for a Class D Custody and Payment Institution;

(e) $100,000 for a Class B Credit Union; and

(f) $75,000 for a Class C Investment Firm, a Class E Fund Manager or a Class H Credit Provider.

(6) Where an institution holds more than one class, the highest applicable figure applies.

(7) Capital for the purposes of subsection (5) must be equity within the meaning of section 36(4), must be paid up, and may not consist of client funds or deposits, of money borrowed from a connected person, or of a claim against a connected person. A connected person is an owner, Operator or related party within the meaning of section 38, or a person acting in concert with any of them.

(8) An institution shall hold the capital required by subsection (5) in unencumbered liquid assets. It may not lend, pledge, distribute or otherwise return that capital to an owner, Operator or connected person, and a transaction that has that effect is voidable at the instance of the Department. An applicant shall satisfy the Department as to the source of its capital, and shall not dispose of it for 90 days after the licence is granted.

(9) Capital counted towards the requirement for one institution may not be counted towards the requirement for another.

(10) The Department may by rule raise a figure in subsection (5), set an ongoing own funds requirement expressed as a proportion of an institution's assets or liabilities, and set a figure for a class of institution it designates under section 17. It may not lower a figure in subsection (5) for a class named in that subsection.

(11) An institution whose capital falls below the applicable requirement shall notify the Department within 48 hours and submit a plan to restore it. The Department may restrict the institution's activities, prohibit distributions, require the institution to stop taking new customers, or act under Part X until the requirement is met.

(12) The Department may by rule set fees for each licence class, as follows:

(a) an application fee, not exceeding 1% of the capital figure for that class in subsection (5);

(b) a supervisory fee, payable on the same cycle as the institution's reporting period under section 31, of not less than 1% and not more than 5% of that capital figure in aggregate over any 12 month period;

(c) the rate under paragraph (b) must be uniform for every institution holding the same licence class, and the Department shall publish the rate in force for each class;

(d) a fee must be proportionate to the supervisory burden the class imposes, and the Department may reduce or waive it for an institution in its first reporting period after licensing, or one that is winding down following the surrender or revocation of its licence;

(e) a supervisory fee is charged pro rata where an institution holds its licence for part of a period only, and is payable with the report due under Part VIII;

(f) a fee is a regulatory and compliance cost for the purposes of section 37(2)(d);

(g) fee revenue is directed to the DCGovernment account; and

(h) an unpaid fee is recoverable as a debt and is a ground for action under section 18(3).

(13) A Stock Exchange licence may not be held by, or by an affiliate of, an institution whose securities are listed on that exchange or that deals on it. An institution holding a Class F licence together with any other class shall keep the exchange function operationally separate, shall execute customer orders ahead of its own, and shall disclose any interest it has in a listed security. The Department may by rule set further conflict of interest and order handling requirements.

17. Designation of New Classes and Instruments

(1) The Department may by rule create, define, recognise and regulate a new licence class in addition to those in section 16, and may set the requirements that apply to it.

(2) This power is deliberately broad. The Department may bring within regulation any business dealing in deposits, investments, lending, custody, escrow, insurance, payments, funds or any other financial activity, however described, structured or labelled.

(3) The Department may by rule classify, define and regulate financial instruments, products and arrangements, including deposits, bonds, notes, securities, derivatives, foreign exchange, funds and tokens, and determine how any of them is treated under this Act.

(4) Where it is unclear whether an arrangement is a deposit, a security, an investment or another instrument, the Department may determine its classification by reference to its economic substance, and that determination governs unless set aside on appeal or by a court.

(5) A designated class or classified instrument carries the protections, obligations and enforcement consequences of this Act, and a person carrying on the activity without a licence contravenes this Act.

(6) A rule under this section may not create a new criminal offence, and may not apply retrospectively to conduct completed before its publication.

18. Fit and Proper Persons and Bar Orders

(1) The Department may assess whether a person seeking a licence, or acting as an Operator of a licensed institution, is fit and proper, having regard to honesty, prior contraventions and any Bar Order.

(2) A person subject to a Bar Order may not hold a licence, or operate, control or materially participate in any financial institution, for the duration of the Order.

(3) The Department may refuse, condition, suspend or revoke a licence where an Operator is not fit and proper or where continued operation would endanger customer funds.

(4) The Department may deregister a licensed institution for persistent non compliance, having considered investigatory and legal due diligence, the best interests of depositors, and restraint.

(5) A person shall notify the Department and obtain its non objection before acquiring, alone or acting in concert, a qualifying holding in a licensed financial institution, being an interest carrying 20% or more of its voting power, or an interest that makes that person its parent within the meaning of the Legal Entity Act.

(6) The Department shall decide within 14 days, and section 8 applies. It may object only where the acquirer is not fit and proper, where the acquisition would endanger the sound and prudent management of the institution or the safety of customer funds, or where the source of the funds for the acquisition has not been satisfactorily explained.

(7) Voting power acquired in contravention of subsection (5) is suspended until the Department gives its non objection, and the Department may direct the disposal of the holding.

(8) A licensed institution shall notify the Department within 7 days of becoming aware of a change in the identity of a person holding a qualifying holding in it.

19. Prohibited Conduct

(1) A person may not:

(a) take deposits, or offer interest, yield, payout or any return on a deposit, without a Class A or Class B licence;

(b) invest or manage funds for others, or offer a financial product to the public, without the appropriate licence; or

(c) contravene section 14.

(2) A person may not knowingly facilitate regulated financial activity carried on in contravention of this Act, including by hosting its infrastructure, processing or routing its payments, or advertising or promoting it. Accessory and accomplice liability under the Criminal Code Act applies.

(3) Nothing in this Act prohibits the issuance of bonds, notes or other debt instruments to raise capital for the issuer's own business, or dealing in securities, derivatives or foreign exchange, where conducted by or through an appropriately licensed institution or as the Department provides by rule. Such instruments are regulated as securities or investments and not as deposits, unless in substance they constitute deposit taking.

20. Advance Rulings

(1) A person may apply to the Department for a determination whether a proposed product, service or activity is regulated financial activity or requires a licence.

(2) The Department may issue a binding ruling, which it may make subject to conditions, and on which the applicant may rely while it remains in force.

(3) The Department may vary or revoke a ruling, with effect only from the date of variation or revocation, where the facts or the law have changed.

21. Regulatory Sandbox

(1) The Department may permit a person to test a new or innovative financial product, service or model under supervision, on conditions and for a limited period it sets, with such modifications to the requirements of this Act as it considers appropriate.

(2) Participation does not exempt the person from liability to customers, and the Department may end participation at any time.

(3) The Department may set the eligibility, safeguards and customer protections that apply.

PART VI — CLIENT MONEY, DEPOSITS AND GUARANTEE

22. Client Funds

(1) A licensed institution other than a Commercial Bank or Credit Union that receives client funds shall:

(a) hold them as liquid cash or on deposit with a Commercial Bank or Credit Union;

(b) keep them fully segregated from its own funds; and

(c) not lend, pledge, invest or otherwise use them for its own account or to meet its own liabilities or operating costs.

(2) Client funds may be invested only as agent under the customer's mandate, with the customer bearing the investment risk, and only by an institution licensed for that activity.

(3) Client funds are the property of the customer, do not form part of the institution's estate, and are not available to its creditors.

(4) An institution holding client funds shall identify each customer's entitlement in its records, and shall not hold with any one Commercial Bank or Credit Union an amount of client funds exceeding what the deposit guarantee would cover for the customers concerned. Where a bank holding client funds fails, the shortfall is borne by the customers pro rata, and the holding institution is liable for any part of the shortfall attributable to its breach of this subsection.

(5) The Department may by rule set the manner of segregation, reconciliation and reporting of client funds, may determine what constitutes client funds and permitted use, and may grant an exemption from any requirement of this section other than subsections (1)(b), (1)(c) and (3).

23. Deposits

(1) Only a Commercial Bank or a Credit Union may take deposits, and only a Commercial Bank may lend or invest deposits for its own account and operate a reserve of less than 100%.

(2) A Credit Union shall operate the reserve its licence conditions require.

(3) The Federal Reserve Bank sets and enforces reserve ratios and monetary reserve requirements for deposit taking institutions. Where this Act empowers the Department to set a reserve requirement, the Department shall act in consultation with the Federal Reserve Bank and consistently with the requirements it sets. This does not affect the Department's authority over client fund segregation, licensing, conduct or enforcement.

(4) A Commercial Bank is owned by an owner or group of owners who may make all decisions regarding the bank, its investments, employees and rates. Its profits are shared among its owners as its constitution provides.

24. Deposit Guarantee

(1) The Federal Government guarantees deposits of up to $100,000 per person, per licensed deposit taking institution.

(2) For the purposes of subsection (1):

(a) a person and their alternate accounts are one person;

(b) all accounts a person holds at the same institution are aggregated; and

(c) the covered amount is reduced by any amount that person owes the institution and that is due or capable of set off.

(3) The guarantee does not cover:

(a) a deposit held by, or for the benefit of, an owner, Operator, related party or connected person of the institution, or a person acting in concert with any of them;

(b) a deposit made by a person who caused or materially contributed to the failure of the institution;

(c) a deposit of funds known to the depositor to be derived from criminal activity; or

(d) a deposit taken by a person who was not licensed to take it.

(4) Where a licensed institution holds client funds on behalf of identified customers in accordance with section 22, the guarantee applies to each of those customers separately and not to the holding institution as a single depositor.

(5) Every licensed deposit taking institution is automatically covered. Coverage continues for 30 days after deregistration, surrender of the licence, or the institution ceasing to take deposits, whichever occurs first.

(6) The guarantee is Financial Institution Depositor Insurance and is compulsory for the stability of the financial system. It is funded by the Financial Institution Depositor Insurance Tax imposed by section 34(2) and by any contribution the Department sets by rule under subsection (7). Contributions offset past and future payouts but do not imply an exhaustive fund.

(7) The Department may by rule require a licensed deposit taking institution to pay a contribution calculated by reference to the covered deposits it holds and the risk it presents, and may set a lower contribution for an institution that holds capital above the requirement in section 16(5).

(8) A licensed deposit taking institution may not hold covered deposits exceeding ten times the capital it is required to hold under section 16(5) unless the Department approves the excess and imposes additional capital or conditions to match it. An institution that exceeds the limit shall notify the Department within 48 hours, and the Department may restrict its taking of further deposits or act under Part X.

(9) Where an institution fails, the Department shall determine each covered depositor's entitlement and pay it within 14 days of the failure, or within 14 days of the depositor establishing their entitlement, whichever is later. A depositor who does not claim within 3 months of the failure ceases to be entitled under the guarantee, but keeps their claim against the estate.

(10) On paying a depositor under this section, the Government is subrogated to that depositor's claim against the institution to the extent of the payment, and ranks as a Class 2 claim under Part VI of the Bankruptcy Act. A depositor may not recover the same loss twice.

(11) The Department may recover the cost of a payout from the institution, and may sell a collapsed institution or part of one to another party where that is in the best interests of depositors.

(12) The Department may recover the cost of a payout from a director, manager or Operator of the failed institution only where that person is liable under section 53 of this Act, section 11(6) or section 73 of the Legal Entity Act, or by order of the Federal Court. A recovery under this subsection shall be effected with the least practicable disruption to the estate targeted.

(13) Once subsections (11) and (12) are exhausted, the Department is pre authorised to use unappropriated Government funds to satisfy the guarantee. Where the amount required exceeds ten times the capital the institution was required to hold under section 16(5), the excess requires an appropriation by Congress.

(14) The Department may apply to the Federal Court to dismiss or stay a bankruptcy petition by or against a licensed financial institution, and may instead proceed under section 25 or section 50 of this Act. Where a petition has been accepted, the Department may apply within 14 days to set it aside on the ground that it was obtained by concealment or misrepresentation. A decision or application under this subsection is subject to section 54 and does not affect a right acquired in good faith in reliance on the earlier position.

(15) Where the Department disbands an in game company under section 6(1)(d), all customer funds and client funds held through it shall first vest in a receiver appointed under section 50, and the disbandment takes effect only once that receiver has been appointed.

(16) A licensed deposit taking institution shall state, wherever it advertises or offers a deposit, that deposits are guaranteed up to $100,000 per person and that the guarantee is subject to this section.
25. Commandeering

(1) In extraordinary circumstances, including insolvency, near insolvency, financial crisis, or where continued operation poses a systemic risk to the financial system or to depositors, the Department may take temporary control of a financial institution.

(2) Control under this section lasts no longer than 72 hours unless extended by the Federal Court on an application for receivership under section 50.

PART VII — MARKETS, SECURITIES AND FUNDS

26. Stock Exchanges

(1) The Department may monitor the operations of a Stock Exchange with full access to its trading channels and data.

(2) A Stock Exchange may not calculate the market price of shares in a Public Company using any factor other than the market supply of and demand for those shares, and is responsible for updating those prices without further input from the company.

(3) Each listed company must have its price updated at least once every 30 days.

(4) The Department may make rules for the operation of Stock Exchanges for the purpose of preserving their stability and preventing or investigating illicit activity.

27. Offering Disclosure

(1) A person may not offer a security or financial product to the public unless a disclosure document in the form the Department requires has been filed with and registered by the Department.

(2) The disclosure document shall fairly present the nature of the offering, the risks, the use of funds and the financial position of the issuer.

(3) The Department may refuse, suspend or revoke the registration of a disclosure document that is inadequate, inaccurate or misleading.

(4) The following are exempt from subsection (1):

(a) an offering made only to persons who have held an interest in the issuer, acquired for value, for at least 90 days;

(b) an offering made to fewer than 10 persons, counted together with every other offering by the issuer and its affiliates in the preceding 12 months;

(c) an offering with a total value of less than 500 penalty units, counted together with every other offering by the issuer and its affiliates in the preceding 12 months; and

(d) any offering or class of offering the Department exempts by rule or order.

(5) An exemption from subsection (1) is not an exemption from section 14.

28. Funds

(1) A Fund may be operated only by a Class E Fund Manager.

(2) An Exchange Traded Fund is a Fund whose interests are listed for trading on a Stock Exchange.

(3) A Fund Manager shall hold the assets of a Fund separately from its own and from those of any other Fund it manages, and section 22 applies to those assets.

(4) The Department may by rule set the valuation, redemption and disclosure requirements of Funds.

29. Trading Suspension and Product Intervention

(1) The Department may by order suspend or halt trading in a security, financial product or listing where it reasonably believes the available information is inadequate or inaccurate, the market is disorderly, or suspension is necessary to protect customers or investors.

(2) The Department may by order prohibit, suspend or restrict the offering of a financial product or arrangement that it reasonably believes poses a risk of harm to customers or the financial system. The order may apply to a named product or person or to a class.

(3) An order under this section takes effect on publication and remains in force for the period stated, which the Department may extend or lift.

PART VIII — REPORTING AND AUDIT

30. Single Reporting Regime

(1) This Part states the whole of the periodic reporting owed to the Department, to a Stock Exchange and to the public by a licensed financial institution, a Public Company and a person operating a Fund.

(2) No other periodic report may be required of such a person by rule, by an exchange, or by a licence condition, except a report the Department requires from a single named institution for a stated supervisory reason and for a stated period.

(3) A single report satisfying the requirements of this Part satisfies every obligation to report the same information, however arising.

31. Reporting Tiers

(1) A reporting person falls into a tier by the greater of its own total assets and the total client funds and Fund assets it holds or administers, averaged over the reporting period:

(a) Tier 1, total assets of $1,000,000 or more, or holding a Class A or Class F licence: reports monthly;

(b) Tier 2, total assets of $100,000 or more but less than $1,000,000: reports monthly;

(c) Tier 3, total assets of less than $100,000: reports quarterly.

(2) A tax return under Part IX is filed on the same cycle as the reporting person's tier, and a taxation period for a Tier 2 or Tier 3 institution is its reporting period.

(3) The Department may move a person to a higher tier by notice stating a supervisory reason, and may move a person to a lower tier on request where it has met the threshold for a full reporting period.

(4) A person that has moved between tiers reports on its new cycle from the start of the next reporting period.

32. Contents of a Report

(1) A report shall contain:

(a) a balance sheet;

(b) an income statement;

(c) a statement of changes in equity, for a Tier 1 reporting person only;

(d) a cash flow statement, for a Tier 1 reporting person only; and

(e) a management discussion and analysis addressing, so far as applicable:

(i) significant changes in financial condition, operations or performance since the last report;

(ii) a summary of investment activity, capital resources and major assets, liabilities and financing arrangements, and for a Fund, its strategy, allocation, major holdings, performance, distributions and change in total value;

(iii) any regulatory action, legal proceeding, contractual dispute or other material event that may affect the person's position or operations; and

(iv) the person's compliance status with applicable requirements.

(2) A Tier 3 reporting person may satisfy subsection (1)(e) with a short narrative and is not required to address a matter that does not apply to it.

(3) A report shall be prepared in accordance with generally accepted accounting standards or, at the person's election, International Financial Reporting Standards.

(4) A report is due within 30 days of the end of the reporting period.

(5) The report of a Public Company or a Fund shall be made publicly available in a downloadable form through the Stock Exchange on which it is listed and, where applicable, its Discord.

33. Accountants and Audit

(1) The report of a Tier 1 or Tier 2 reporting person shall be prepared and submitted by a licensed accountant with their name attached.

(2) The report of Tier 3 reporting person may be prepared by any person, and shall be signed by a director or manager who certifies that it is true to the best of their knowledge.

(3) A Public Company shall disclose its audit status alongside its report, being:

(a) Audited, where it has received a statutory audit in the previous 6 months, stating the date of that audit and who conducted it; or

(b) Unaudited, where it has not.

(4) A statutory audit shall give a fair and impartial assessment of the financial health of the person audited, validate its reported statements, and confirm compliance with financial law. It must verify the existence and fair valuation of each item on the balance sheet, and the existence and legitimacy of the cash flows on each line of the income statement.

(5) An assessment that does not meet subsection (4) may not be labelled an audit by a Public Company or a Stock Exchange.

(6) Records supporting a report shall be retained for not less than 12 months, and indefinitely where they relate to a matter under investigation.

PART IX — TAXATION OF FINANCIAL INSTITUTIONS

34. Tax Imposed

(1) A Financial Institution Tax of 15% is imposed on the taxable income of every licensed financial institution for each taxation period.

(2) A Financial Institution Depositor Insurance Tax of 10% is imposed on the taxable income of every licensed deposit taking financial institution for each taxation period.

(3) Both taxes apply to the same taxable income.

(4) Licensed deposit taking financial institutions are exempt from all balance taxes under the Taxation Act from the point of licensing. The Department may withdraw the exemption where the institution does not meet the requirements of this Act.

(5) A licensed deposit taking financial institution that holds a balance tax exemption pays instead a deposit tax of 1% monthly.

(a) The tax is charged on the average balance held in the accounts of the institution over the taxation period, measured by daily sampling or by such other method as the Department sets by rule.

(b) The following are excluded from the base of the deposit tax:

(i) capital the institution is required to hold under section 16(5);

(ii) any reserve the Federal Reserve Bank requires it to hold; and

(iii) client funds held for identified customers under section 22.

(c) Lending, investing, paying out, or otherwise deploying deposits in the ordinary course of the institution's business is not avoidance of the deposit tax.

(d) A transfer made wholly or mainly to reduce the deposit tax, including a transfer to a related party or to another account that is reversed after the end of the taxation period, is disregarded, and the amount transferred is included in the base.

(e) The deposit tax is administered by plugin, or by the Department if no plugin is implemented, and the Department may make rules necessary to enforce it.

(f) The deposit tax does not apply to an institution while it is in receivership under section 50, while a bankruptcy case under the Bankruptcy Act is on foot in respect of it, or while it is winding down following the surrender or revocation of its licence. Relief under this paragraph ends when that process ends.

35. Taxation Period

(1) A taxation period is a calendar month for a Tier 1 institution, and otherwise the institution's reporting period under section 31.

(2) Taxable income is determined separately for each taxation period.

36. Computation of Income

(1) Accounting income for a taxation period is the net increase in the institution's equity arising from all increases in assets and all decreases in liabilities, other than contributions of capital by an owner, and is increased by the amount of every dividend, distribution, buyback, redemption, deemed dividend and other transfer of value to an owner or related party made during the period.

(2) Taxable income is accounting income as adjusted by this Part.

(3) An unrealised gain, and any other amount that is not realised, is excluded from taxable income.

(4) For the purposes of this Part, an interest in an institution is equity only if it:

(a) exposes the holder to a genuine and unrestricted risk of loss of principal;

(b) provides returns that are variable and materially dependent on the institution's performance;

(c) is not redeemable, retractable, repurchaseable or callable at a fixed, guaranteed or predetermined amount other than on dissolution or bankruptcy;

(d) gives no contractual, implied or practical entitlement to liquidity, withdrawal or repayment on demand or within a determinable period;

(e) is fully subordinated in all circumstances to the claims of depositors and other creditors; and

(f) contains no feature, side agreement or understanding whose purpose or effect is to preserve capital, act as a store of value or otherwise replicate a deposit.

37. Deductions

(1) An institution may deduct only expenses that are incurred for the purpose of earning income and are reasonable in the circumstances and in amount.

(2) Without limiting subsection (1), the following are deductible:

(a) interest expenses;

(b) ordinary operating and administrative expenses;

(c) employee compensation up to $25,000 per employee, and only where the employee performed genuine services of at least that value;

(d) regulatory and compliance costs; and

(e) credit losses, to the extent realised in the taxation period.

(3) No deduction may be made for:

(a) a dividend or other distribution to an owner;

(b) a share buyback, redemption or other equity repurchase;

(c) so much of an amount paid or payable to a related party as exceeds fair market value for the goods, services or use of money actually provided, fair market value being the price that would be agreed between parties dealing at arm's length;

(d) an expense providing a direct or indirect benefit to an owner or related party, including housing, vehicles, luxury goods or services, memberships, subscriptions, private services, or entertainment not strictly required for business operations;

(e) employee compensation above $25,000 per employee;

(f) the acquisition or improvement of a capital asset, being property acquired or held for continuing use in the business and not held primarily for resale, except that the institution may deduct one twelfth of the cost of the asset in each of the twelve months following its acquisition; or

(g) an expense lacking economic substance or incurred primarily to reduce taxable income.

38. Related Parties and Deemed Dividends

(1) A related party is:

(a) an owner holding 10% or more of the equity of the institution, or exercising control over it;

(b) an entity controlled by, or at least 50% owned by, such a person; and

(c) an entity controlled by, or at least 50% owned by, the institution itself.

(2) Control is the ability, whether direct or indirect and whether exercised or not, to determine, influence or direct the strategic, financial or operational decisions of an entity, whether through voting interests or contractual rights. A person is not a related party by reason only of being a customer, depositor or lender of the institution on ordinary commercial terms.

(3) An amount paid or payable as salary, wages, bonus or other compensation to a person described in subsection (1)(a) is deemed to be a dividend and is not deductible.

39. Losses

(1) A loss may be carried forward and offset against income in the following three months.

(2) A loss not applied within that period expires.

40. Filing and Payment

(1) An institution shall file a tax return with the Department for each taxation period, in the form the Department prescribes, within 30 days of the end of the period. The return is filed together with the report required by Part VIII and forms part of it.

(2) Tax is payable within 30 days of the end of the taxation period.

(3) Where a return has not been filed by the time tax becomes payable, the amount due is the tax payable for the preceding taxation period, or the institution's reasonable estimate for the current period.

(4) Interest accrues daily at 1% per day on tax that remains unpaid after the due date, and is payable and enforceable as tax.

(5) Interest on a deficiency runs from the original due date, whether or not a return was filed and whether or not the amount paid was based on a reasonable estimate.

(6) Where the amount paid exceeds the tax payable, the Department shall refund the excess within 30 days of receiving the return.

(7) An institution that fails to file a return is liable to a penalty of $1,000 per day from the filing deadline, rising to $2,500 per day on a repeated failure. The penalty may not exceed the greater of $25,000 and the tax payable for the period to which the return relates.

41. Records, Assessment and Appeal

(1) An institution shall maintain records sufficient to establish its accounting income, its taxable income, the nature and amount of each deduction claimed, and its compliance with this Part.

(2) The burden of establishing the correctness of a return and the entitlement to a deduction rests on the institution. Where an institution fails to provide sufficient evidence of an amount, the Department may disregard it and determine the tax consequences accordingly.

(3) The Department may inspect, examine or audit the books, records and affairs of an institution, and may require it to produce documents, provide explanations and reconciliations, identify the parties to a transaction, demonstrate the commercial purpose of a transaction, and establish the source and nature of any payment, receipt, asset or liability. Failure to comply permits the Department to draw adverse inferences.

(4) Where the Department is not satisfied with the accuracy or completeness of a return, it may determine the income and tax payable, and in doing so may deny an unestablished deduction, include an unreported amount, recharacterise a transaction according to its economic substance, substitute fair market value for a non arm's length transaction, and disregard an artificial or avoidance arrangement. A determination may be based on available records, reasonable assumptions and estimates.

(5) The Department may assess or reassess tax, interest and penalties, and shall issue a notice stating the period, the amounts and the basis of the assessment in reasonable detail. An assessment is presumed correct unless the institution establishes otherwise.

(6) The Department may reassess a return within 12 months of its filing, and at any time where the return was knowingly filed incorrectly.

(7) An institution may appeal an assessment by filing a notice of appeal with the Department within 7 days of the notice of assessment, specifying the grounds and including the material relied on. An appeal may be brought only on the ground that the assessment contains a factual error, misapplies this Act, or is unreasonable on the available evidence.

(8) An appeal is reviewed by the Secretary of the Department, or by a designated officer not involved in the original assessment where practicable, who may confirm, vary or vacate the assessment. One further administrative appeal lies against a reassessment, after which the decision is final for the purposes of this Act.

(9) An institution dissatisfied with a final decision may seek relief before the Federal Court. Tax remains payable and continues to accrue interest during any appeal unless the Court orders otherwise.

42. Voluntary Disclosure

(1) An institution, or a director, officer or employee of one, may make a voluntary disclosure to the Department of any understatement of income, overstatement of deductions, failure to report, or other non compliance with this Part.

(2) A disclosure is valid only where it is made voluntarily and before the person is notified of an audit or investigation into the subject matter, receives an assessment relating to it, or becomes aware that enforcement action is intended, and where it is complete and accurate and the person cooperates fully in correcting the deficiency.

(3) Where a disclosure is valid:

(a) no prosecution may be commenced under the Criminal Code Act in respect of the disclosed conduct;

(b) any penalty may be reduced or waived at the Department's discretion; and

(c) the institution shall be given a reasonable period to file amended returns, provide records and pay the tax owing.

(4) Relief does not apply where the disclosed conduct involved deliberate fraud, falsification of records or intentional deception, or where the disclosure is incomplete or misleading, but the Department may grant partial relief where the disclosure substantially assists in resolving non compliance and it is in the public interest to do so.

PART X — SUPERVISION AND ENFORCEMENT

43. Investigation

(1) The Department may supervise, investigate and enforce compliance with this Act in respect of any person reasonably suspected of carrying on regulated financial activity, whether or not licensed or incorporated, and may exercise its powers against an Operator personally.

(2) The Department may by notice require such a person or Operator to produce records, transaction logs, communications and account data, to identify all persons, accounts, customers and amounts involved, and to account for the location and disposition of all customer funds.

(3) On the opening of an investigation or the service of a notice, the person and every Operator shall preserve all relevant records and data and shall not delete, alter, conceal or destroy them.

(4) Failure to comply permits the Department to draw adverse inferences and to proceed on any reasonable basis.

(5) The Department may conduct test transactions, including by posing as a customer, to verify compliance, and information so obtained may be used in any investigation, sanction or proceeding.

44. Escalation

(1) The powers in sections 45 to 50 are an escalation. The Department shall use the least intrusive power adequate to the risk, and shall record in the notice why a more intrusive power was necessary where it uses one.

(2) Nothing in subsection (1) prevents the Department acting immediately where customer funds are at risk of dissipation, concealment or loss.

45. Independent Audit and Monitors

(1) The Department may require a licensed institution, or a person reasonably suspected of carrying on regulated financial activity, to obtain and submit an independent audit of its accounts, funds and customer liabilities, prepared by a licensed accountant and at the expense of the person audited.

(2) The Department may appoint an independent monitor to a licensed institution to observe, report on and supervise its compliance, where its concerns fall short of requiring receivership. The institution shall give the monitor full access to its records, accounts and personnel and shall bear the monitor's reasonable costs.

(3) Failure to comply with, or obstruction of, an audit or a monitor permits the Department to draw adverse inferences and to proceed on any reasonable basis.

46. Enforceable Undertakings

(1) The Department may accept a written undertaking from a person to do, or refrain from, any act in order to remedy or prevent a contravention, including to cease activity, segregate or return funds, or compensate customers.

(2) An accepted undertaking is binding, and the Department may apply to the Federal Court to enforce it.

47. Cease and Desist Orders

(1) Where the Department reasonably believes a person is carrying on regulated financial activity in contravention of this Act, it may issue a binding Cease and Desist Order requiring that person to stop the activity, the related advertising and the acceptance of further funds immediately, and may require the person to honour outstanding withdrawal or repayment requests.

(2) The Order takes effect on service and remains in force unless stayed or set aside.

48. Freeze Orders and Third Party Directions

(1) Where the Department reasonably believes customer funds are at risk of dissipation, concealment or loss, it may issue a Freeze Order restraining the transfer or disposal of specified funds or assets held by or on behalf of an Operator, including funds in an Operator's personal balance.

(2) A Freeze Order may be issued without prior notice, takes effect immediately on service, and shall be limited to the amount reasonably necessary to protect customer funds and satisfy potential restitution.

(3) A Freeze Order lapses 72 hours after service unless within that period the Department applies to the Federal Court to extend or confirm it. The Court may extend, vary, confirm or discharge it and make any further order necessary to preserve customer funds.

(4) The Department may direct any third party holding funds, assets, records or infrastructure of or for an Operator, including an exchange, payment provider, custodian or host, to freeze, preserve, produce or deliver them. A third party that complies in good faith is immune from liability for doing so.

49. Asset Tracing and Recovery

(1) The Department may trace customer funds through any account, balance or transaction, including funds moved to an Operator's personal balance or to a third party.

(2) The Department may seize the assets of an Operator, with the least practicable disruption to their estate, and apply them to the restitution of customers and the costs of enforcement.

(3) Where a third party received customer funds otherwise than in good faith and for fair value, the Department may recover those funds from that third party for the benefit of customers.

(4) This section operates alongside the Proceeds of Crime provisions of the Criminal Code Act and the Knowing Receipt provisions of the Redmont Civil Code Act.

50. Receivership

(1) Where the Department reasonably believes it necessary to protect customer funds, it may apply to the Federal Court to place an operation carrying on regulated financial activity, together with the relevant assets of its Operators, into receivership, whether or not the operation is licensed or incorporated.

(2) A receiver so appointed has, in addition to the powers of a receiver under the Legal Entity Act, the power to take control of all customer funds and operational assets, suspend the activity and wind down the operation.

(3) The receiver shall apply recovered assets first to the restitution of customers, and thereafter to creditors, penalties and the costs of the receivership.

(4) Pending a receivership application the Department may act under section 25.

51. Sanctions, Disgorgement and Restitution

(1) Administrative sanctions under this Act are coercive and not punitive.

(2) Where the Department determines that a person has contravened this Act, it may impose a proportionate administrative penalty, order the disgorgement of any profit or benefit derived from the contravention, and order restitution to affected customers.

(3) Amounts recovered, including frozen, seized and disgorged funds, are applied first to the restitution of customers and thereafter to penalties and enforcement costs.

(4) An administrative sanction may be contested before a judicial officer in accordance with the Redmont Civil Code Act, and does not bar criminal prosecution for the same conduct.

52. Public Warnings, Bar Orders and the Public Register

(1) The Department may issue public warnings identifying an unlicensed person or operation and stating that it is unlicensed and uninsured.

(2) The Department may by Bar Order prohibit a named individual from operating, controlling or materially participating in any financial institution for a specified period, where that individual has operated an unlicensed scheme or seriously or repeatedly contravened this Act.

(3) The Department shall maintain a public register of licences, Cease and Desist Orders, Freeze Orders, Bar Orders, product intervention orders and trading suspensions.

53. Personal Liability of Operators

(1) Every Operator of an operation that carries on regulated financial activity in contravention of this Act is personally, jointly and severally liable for the repayment of customer deposits and for any penalty, disgorgement or restitution ordered.

(2) Where the activity is carried on without a licensed and incorporated entity, no limitation of liability applies and the Operators are liable as principals.

(3) Liability is not avoided by characterising the funds as a purchase, investment, commodity or token, by the resignation, removal or substitution of an Operator after the conduct, by the transfer or purported transfer of ownership or control, or by reliance on terms to which customers did not demonstrably and knowingly assent.

54. Notice, Appeals and Court Recourse

(1) On issuing an order or sanction, the Department shall serve notice stating the order, the conduct concerned and the basis for it in reasonable detail. Service in respect of an unincorporated operation may be effected on any Operator.

(2) A person subject to an order or sanction may appeal to the Secretary of the Department, or to a designated officer not involved in the original decision, within 7 days of service. The reviewing authority may confirm, vary or set aside the order.

(3) A person dissatisfied with the decision on appeal may seek relief before the Federal Court.

(4) An order or sanction remains in force during an appeal unless stayed by the Secretary or the Federal Court, and nothing in this section limits the Court's power to grant urgent relief or to preserve customer funds.

(5) The Department acts on reasonable belief. Where a sanction is contested before a judicial officer, the standard of proof is that set by the Redmont Civil Code Act for administrative violations.

55. Delegation and Immunity

(1) The Secretary may delegate any power under this Act to an officer or delegate of the Department, except the power to make rules.

(2) The Department, its officers and any receiver or monitor appointed under this Act are immune from civil liability for acts done in good faith in the exercise of their powers. The immunity does not apply to criminal conduct or to acts outside the scope of their authority.

PART XI — OFFENCES AND CIVIL VIOLATIONS

56. Amendments to the Criminal Code Act

(1) Part VII of the Criminal Code Act is amended by adding the following sections, numbered sequentially after the last existing section of that Part:

Operating an Unlicensed Financial Institution
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.

A person commits an offence if the person carries on, operates, or knowingly facilitates regulated financial activity, including taking deposits or offering interest, yield or a payout on funds received, without the licence and incorporation required by the Commercial Standards Act.​

Aggravated Operation of an Unlicensed Financial Institution
Offence Type: Indictable
Penalty: Up to 1500 Penalty Units; Up to 60 minutes imprisonment; Restitution.

A person commits an offence if the person commits the offence of Operating an Unlicensed Financial Institution and one or more of the following applies:

(a) the total customer funds taken or placed at risk exceed 500 Penalty Units in value;

(b) the scheme targeted new players or otherwise exploited the inexperience of customers;

(c) customer funds were dissipated, concealed or moved to a personal balance; or

(d) the person had previously been warned, sanctioned or barred in respect of similar conduct.​

Operating a Ponzi or Pyramid Scheme
Offence Type: Indictable
Penalty: Up to 2000 Penalty Units; Up to 60 minutes imprisonment; Restitution; Disgorgement of any benefit derived.

A person commits an offence if the person:

(a) operates, promotes or induces participation in an arrangement; and

(b) returns, payouts or yields to existing participants are paid wholly or substantially from contributions made by new participants rather than from genuine revenue or investment profit.
This offence shall not occur where:

(c) the returns are genuinely and substantially derived from the lawful trading or investment activity of a licensed financial institution.​

Misuse of Client Funds
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Restitution of the funds or their value.

A person commits an offence if the person:

(a) receives or holds client funds as defined in the Commercial Standards Act; and

(b) lends, pledges, invests, encumbers or otherwise applies them for the person's own account or to meet the person's own liabilities or operating costs, or fails to keep them segregated as required by that Act.
It is a defence if the person:

(c) applied the funds strictly as agent under the customer's mandate, with the customer bearing the investment risk.​

Breach of a Cease and Desist Order
Offence Type: Indictable
Penalty: Up to 750 Penalty Units; Up to 45 minutes imprisonment.

A person commits an offence if the person continues, resumes or causes the continuation of an activity after being served a Cease and Desist Order under the Commercial Standards Act. Each day of continued contravention is a separate offence.​

Dissipation of Frozen Funds
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment.

A person commits an offence if the person transfers, withdraws, conceals or disposes of funds or assets in contravention of a Freeze Order issued under the Commercial Standards Act.​

Breach of a Product Intervention or Trading Suspension Order
Offence Type: Indictable
Penalty: Up to 750 Penalty Units; Up to 45 minutes imprisonment. Each day of continued contravention is a separate offence.

A person commits an offence if the person offers, deals in or trades a financial product or security in contravention of a product intervention order or a trading suspension order issued under the Commercial Standards Act.​

Obstruction of Financial Regulation
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

A person commits an offence if the person obstructs, hinders or misleads the Department of Commerce in the exercise of its powers under the Commercial Standards Act, fails to comply with a lawful order, direction, requirement, undertaking or audit demand under that Act, or deletes, alters, conceals or destroys records the person is required to preserve.​

Tipping Off
Offence Type: Indictable
Penalty: Up to 300 Penalty Units; Up to 30 minutes imprisonment.

A person commits an offence if the person:

(a) knows or suspects that an investigation under the Commercial Standards Act is being, or is likely to be, conducted; and

(b) discloses information to the subject of the investigation, or to any other person, in a manner likely to prejudice the investigation.​

False Representation as a Financial Institution
Offence Type: Indictable
Penalty: Up to 400 Penalty Units; Up to 30 minutes imprisonment.

A person commits an offence if the person:

(a) represents, whether by name, advertising, conduct or otherwise, that the person is a bank, a licensed financial institution or an insured or government backed institution; and

(b) the person is not licensed as such under the Commercial Standards Act.​

Unlawful Offering of a Security or Financial Product
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

A person commits an offence if the person:

(a) offers a security or financial product to the public without a disclosure document registered by the Department of Commerce; or

(b) offers a security or financial product on the basis of a disclosure document the person knows, or ought reasonably to know, is materially false or misleading.
This offence shall not occur where:

(c) the offering, or a class of offerings to which it belongs, is exempt from the disclosure requirement under the Commercial Standards Act.​

Reckless Facilitation of Unlicensed Financial Activity
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment.

A person commits an offence if the person:

(a) hosts the infrastructure of, processes or routes payments for, or advertises or promotes, regulated financial activity carried on in contravention of the Commercial Standards Act; and

(b) is reckless as to whether that activity is unlicensed.
It is a defence if the person:

(c) took reasonable steps to verify the licensing status of the activity before providing the facilitation.​

Operating or Participating While Barred or Disqualified
Offence Type: Indictable
Penalty: Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Extension of the Bar Order or disqualification by up to 2 months.

A person commits an offence if the person:

(a) is subject to a Bar Order under the Commercial Standards Act or to a disqualification order under the Legal Entity Act; and

(b) operates, controls, manages, finances or materially participates in a financial institution or legal entity in a capacity prohibited by that Order, whether directly or through a nominee, intermediary or other person.
This offence shall not occur where:

(c) the person acted with the prior written authorisation of the Department of Commerce.​

Wash Trading and Matched Orders
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment; Disgorgement of any benefit derived.

A person commits an offence if the person:

(a) enters into a transaction in a security or financial product that involves no change in beneficial ownership; or

(b) enters an order to buy, or to sell, knowing that a matching order of substantially the same size and price has been or will be entered by the same person or by a person acting in concert with them; and

(c) does so for the purpose of creating a false or misleading appearance of trading activity or price.​

Front Running
Offence Type: Indictable
Penalty: Up to 500 Penalty Units; Up to 30 minutes imprisonment; Disgorgement of any benefit derived.

A person commits an offence if the person:

(a) knows that a customer, employer or client has placed, or intends to place, an order in a security or financial product that is likely to affect its price; and

(b) deals in that security or product, or causes another to do so, ahead of that order for the benefit of themselves or a person other than the customer.​

(2) Section 17 (Persistent Corporate Violation), in Part X of the Criminal Code Act, is amended as follows:

(c) has received more than three warnings from the DOC within 2 weeks.​

(c) has received more than three warnings from the DOC concerning the same or related conduct, or has persistently violated the Legal Entity Act.​

(3) The penalties for the following offences in Part VII of the Criminal Code Act are amended as follows:

Section 2 (Market Manipulation): Up to 500 Penalty Units; Up to 60 minutes imprisonment.
Section 4 (Third-Party Misrepresentation): Up to 400 Penalty Units; Up to 30 minutes imprisonment.
Section 6 (Embezzlement): Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Restitution of the misappropriated assets or their value.
Section 7 (Fraud): Up to 1000 Penalty Units; Up to 60 minutes imprisonment; Restitution of the loss or its value.
Section 8 (Concealment of Criminal Proceeds): Up to 1000 Penalty Units; Up to 60 minutes imprisonment.
Section 10 (Exploitation of New Players): Up to 500 Penalty Units; Up to 30 minutes imprisonment.
Section 14 (Tax Evasion): Up to 500 Penalty Units; Up to 30 minutes imprisonment.
Section 15 (Market Allocation): Up to 500 Penalty Units; Up to 30 minutes imprisonment.
Section 16 (Bid Rigging): Up to 500 Penalty Units; Up to 30 minutes imprisonment.
Section 17 (Price Fixing): Up to 500 Penalty Units; Up to 30 minutes imprisonment.
Section 18 (Monopolisation): Up to 500 Penalty Units; Up to 30 minutes imprisonment; Forced divestiture of entities.
Section 21 (Unrecognized Foreign Exchange): Up to 500 Penalty Units; Up to 60 minutes imprisonment.
Section 22 (Foreign Exchange Fraud): Up to 500 Penalty Units; Up to 60 minutes imprisonment.​

(4) Sections 26 to 30 of Part VII of the Criminal Code Act, being the offences inserted by Part V of the Banking Income Tax Act, are amended by substituting a reference to Part IX of the Commercial Standards Act for every reference to the Banking Income Tax Act, and Section 30 (Liability of Directors and Officers) is further amended as follows:

(a) A financial institution commits an offence under Sections 26 to 29; and​

(a) a financial institution, or an operation carrying on regulated financial activity, commits an offence under Sections 26 to 29 or under any offence inserted by the Commercial Standards Act; and​

(5) The offences inserted into Part VII of the Criminal Code Act by Section 34(1) of the Financial Institutions Enforcement Act are repealed, being:

Operating an Unregistered Financial Institution; Aggravated Operation of an Unregistered Financial Institution; Operating a Ponzi or Pyramid Scheme; Misuse of Client Funds; Breach of a Cease and Desist Order; Dissipation of Frozen Funds; Breach of a Product Intervention or Trading Suspension Order; Obstruction of Financial Regulation; Tipping Off; False Representation as a Financial Institution; Unlawful Offering of a Security or Financial Product; Reckless Facilitation of Unregistered Financial Activity; Operating or Participating While Barred or Disqualified; Liability of Operators, Directors, and Officers.​

(6) The offences added by subsection (1) replace those repealed by subsection (5). Conduct occurring before the enactment of this Act remains chargeable under the offence in force at the time it occurred, in accordance with Part I, Section 6(3) of the Criminal Code Act.

(7) Nothing in this section affects Section 3 (Insider Trading), Section 20 (Usury) or Section 31 (Violation of the Credit Standards Act) of Part VII, or Sections 32 to 39 of Part VII, being the offences inserted by the Bankruptcy Act.

57. Amendments to the Redmont Civil Code Act

(1) Part X of the Redmont Civil Code Act is amended by adding the following violations, each with the Commercial Standards Act as its Relevant Law:

Breach of the Commercial Standards Act
Violation Type: Administrative
Remedy: Up to 250 Civil Penalty Units; Compliance order; Disgorgement; Restitution; Receivership

A person commits a violation if the person:

(a) carries on or facilitates regulated financial activity in contravention of the Commercial Standards Act; or

(b) fails to comply with a lawful order or sanction of the Department of Commerce under that Act.
This violation shall not occur where:

(c) the person is taking reasonable steps to remedy their compliance.​

Failure to Licence a Financial Institution
Violation Type: Administrative
Remedy: Up to 250 Civil Penalty Units; Compliance order

A person commits a violation if the person:

(a) carries on regulated financial activity without being licensed and incorporated as required by the Commercial Standards Act.
This violation shall not occur where:

(b) the person is taking reasonable steps to obtain a licence, or to cease the activity and return customer funds.​

Breach of Client-Fund Segregation Duty
Violation Type: Strict Liability
Remedy: Restitution; Up to 250 Civil Penalty Units; Disgorgement

A person commits a violation if the person:

(a) receives or holds client funds; and

(b) fails to segregate them from the person's own funds, or applies them otherwise than as permitted under the Commercial Standards Act.
This violation shall not occur where:

(c) the funds were applied strictly as agent under the customer's mandate.​

Failure to Honour Withdrawal or Redemption
Violation Type: Strict Liability
Remedy: Specific performance; Restitution; Up to 200 Civil Penalty Units

A person commits a violation if the person, without lawful excuse, fails to honour a customer's valid withdrawal, redemption or repayment request within the time required by the agreement or by law.
This violation shall not occur where:

(b) performance was prevented by a Freeze Order, court order or other lawful restraint.​

Mis-selling of a Financial Product
Violation Type: Intentional/Negligent
Remedy: Rescission; Restitution; Up to 250 Civil Penalty Units

A person commits a violation if the person:

(a) recommends, sells or supplies a financial product to a customer;

(b) the product is unsuitable for that customer, or is supplied without fair disclosure of its risks, returns, fees or the possibility of loss of principal; and

(c) the customer suffers loss as a result.
This violation shall not occur where:

(d) the customer was a sophisticated party who did not rely on the person's recommendation.​

Misleading Promotion of a Financial Product
Violation Type: Intentional/Negligent
Remedy: Up to 250 Civil Penalty Units; An order for corrective disclosure

A person commits a violation if the person:

(a) promotes a deposit or financial product using representations of fixed, guaranteed, insured or risk free returns; and

(b) those representations are false, or are not reasonably substantiated at the time they are made.
This violation shall not occur where:

(c) the representation constitutes puffery on which no reasonable person would rely.​

Failure to File a Required Report or Return
Violation Type: Administrative
Remedy: Up to 100 Civil Penalty Units per failure; Compliance order

A person commits a violation if the person, being required to report under Part VIII or Part IX of the Commercial Standards Act, fails to file within the time required.​

Failure to Comply with an Audit Demand
Violation Type: Administrative
Remedy: Up to 250 Civil Penalty Units; Adverse inference

A person commits a violation if the person fails to obtain and submit an independent audit required under the Commercial Standards Act, or obstructs such an audit or an independent monitor.​

PART XII — REPEALS, AMENDMENTS AND TRANSITION

58. Amendments to Other Acts

(1) Section 5 (Alternative Financial Institution Taxes) of the Taxation Act is repealed, its subject matter being restated in section 34 of this Act.

(2) Section 6 (Powers of the Department of Commerce) of the Taxation Act is repealed, its subject matter being restated in Parts II and X of this Act.

(3) Section 7 (Deposit Guarantee) of the Taxation Act is repealed, its subject matter being restated in section 24 of this Act.

(4) Section 8 (Financial Institution Rights) of the Taxation Act is repealed, its subject matter being restated in section 9 of this Act.

(5) A reference in the Taxation Act or any other enactment to the taxation of financial institutions, or to the computation of their income, is read as a reference to Part IX of this Act.

(6) Section 25(1)(b) of the Bankruptcy Act is amended as follows:

Class 2: Customer deposits, up to the deposit guarantee limit under the Taxation Act, as that limit may be set from time to time;​

Class 2: Customer deposits and client funds, up to the deposit guarantee limit under the Commercial Standards Act, as that limit may be set from time to time. Client funds held in accordance with section 22 of that Act are the property of the customer and do not form part of the estate at all.​

(7) Section 32(1) of the Bankruptcy Act is amended as follows:

Where the debtor is a Financial Institution, the Department of Commerce retains primary authority under the Taxation Act and the Seizure and Insurance Adjustment Act.​

Where the debtor is a Financial Institution, the Department of Commerce retains primary authority under the Commercial Standards Act and the Seizure and Insurance Adjustment Act.​

(8) Section 32(3)(b) of the Bankruptcy Act is amended by substituting a reference to the Commercial Standards Act for the reference to the Taxation Act.

(9) Section 18(1) of the Bankruptcy Act is amended by deleting the words "including sole proprietorships", sole proprietorships being dealt with under Section 18(2) of that Act and not being Incorporated Entities under the Legal Entity Act.

(10) The Credit Standards Act continues in force and applies to every extension of credit by a Class H Credit Provider and by any other licensed institution. A failure to make the disclosures that Act requires is a contravention of this Act as well as an offence under Section 31 of Part VII of the Criminal Code Act.

59. Continuity of Licences and Registrations

(1) A person registered as a financial institution immediately before the enactment of this Act holds a licence for the corresponding class, being:

(a) Commercial Bank, Class A;

(b) Credit Union, Class B;

(c) Investment Bank, Class C; and

(d) Stock Exchange, Class F.

(2) A person who, immediately before the enactment of this Act, was lawfully carrying on an activity that this Act brings within a new licence class has 30 days to apply for that licence, and may continue the activity while the application is pending.

(3) A registration, exemption, order, undertaking, ruling, warning, Bar Order or sanction made under a repealed Act continues in force as if made under the corresponding provision of this Act.

(4) A rule made under a repealed Act continues in force so far as it is consistent with this Act.

(5) An institution licensed under subsection (1) has 90 days from the enactment of this Act to meet the capital requirement in section 16(5), and shall file a plan to do so within 30 days. This period is a maximum and the Department may not extend it.

(6) An institution that does not meet the requirement within the applicable period shall either surrender its licence and return customer funds in an orderly manner, or apply for a licence class whose requirement it does meet. The Department may act under Part X where it does neither.

(7) Section 18(5) does not apply to a qualifying holding acquired before the enactment of this Act, but the holder shall notify the Department of it within 30 days.

60. Transition

(1) This Act applies to regulated financial activity carried on before, on or after its enactment, and to all outstanding customer funds and deposits, regardless of when the activity commenced or the funds were received.

(2) The supervisory, recovery and remedial powers in Part X and the liability in section 53 apply to conduct, activity and funds arising before or after the enactment of this Act.

(3) A person carrying on regulated financial activity without a licence shall, within 7 days of the enactment of this Act, either apply for a licence or cease the activity and return all customer funds. A person who has applied within that period may continue the activity while the application is pending unless the Department directs otherwise.

(4) An offence under Part XI is committed only where the relevant conduct occurs on or after the enactment of this Act.

(5) A taxation period that commenced before the enactment of this Act continues to be governed by the law as it stood immediately before that time. A loss arising under the repealed Banking Income Tax Act or the Taxation Act is carried forward for no more than 3 months from the enactment of this Act.

(6) An amendment made to another Act by a repealed Act named in Section 1(5) survives the repeal except where this Act expressly provides otherwise, and a reference in any surviving amendment to a repealed Act is read as a reference to the corresponding provision of this Act.

(7) The first report due under Part VIII from a Tier 2 or Tier 3 reporting person is due at the end of its first full reporting period after the enactment of this Act.

(8) Nothing in this Act affects an existing legal action or a liability already accrued.

61. Relationship to Other Acts

(1) This Act supplements and does not limit the Redmont Corporate Entities Act, the Criminal Code Act or the Redmont Civil Code Act.

(2) Where this Act and another enactment both address the substance of a deposit or a financial product, they are read consistently and in favour of preventing avoidance.

(3) A reference in any enactment to the Commercial Standards Act, the Financial Institutions Enforcement Act or the Banking Income Tax Act is read as a reference to this Act.

62. Severability

(1) If any provision of this Act is held invalid or unenforceable, the remainder continues in full force and effect.