The Corporations Act's financial product definition:

1. What is it, how does it work and what is its role and significance?

According to the Corporations Act 2001 of Australia s 763A, a financial product is a facility through which or through the acquisition of which a person does one or more of the following:

1. Makes a financial investment
2. Manages financial risk
3. Makes non-cash payments

Financial products can be classified as an investment, debt or risk based on products

1. How was the definition derived and why was it created and drafted the way it was?

1. What criticisms are there of it and what are your views on these criticisms?

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Financial product definition The financial product definition is the most fundamental definition in the financial services regime. The definitions of financial services, financial markets, financial product advice etc are all based on the financial product definition. Financial product definition has 3 parts: - General definition - Specific inclusions - Specific exclusions General definition Financial product's general definition has three limbs (s 763A) o Facility (ie an arrangement or agreement) for: Making a financial investment Managing financial risk Making non-cash payments General definition Facility for making a financial investment (s 763B) 'Making a financial investment' means: An investor gives money to another person and: The other person uses the money to generate a financial return for the investor, or e The investor intends the other person will use that money to generate a financial return for the investor, or The other person intends to use that money to generate a financial return for the investor. Eg: A person joins a superannuation fund and contributes money each fortnight. General definition Facility for managing financial risk (s 763C) 'Managing financial risk' means: A person managing the financial consequences to them of particular circumstances happening, or To avoid or limit the financial consequences of fluctuations in receipts or costs (including prices and interest rates). Eg: A wheat farmer enters into three-month futures contract re the price of wheat to hedge against any price fluctuation in the market price of wheat he intends to sell after he harvests it in three months. Eg: The farmer buys car insurance for his car Eg: The farmer hires security guards to guard is property against thieves. (Not a financial product). General definition . Facility for making non-cash payments (s 763D) . 'Making non-cash payments' means: . A person makes payments otherwise than by physical delivery of Australian or foreign currency notes or coins . Eg: A supermarket has eftpos machines for customers to pay for their groceries.Financial product definition: Specific inclusions A list of specific inclusions is set out in s 764A These include, for eg: Securities Managed investment scheme interests Superannuation interests General insurance contracts Life insurance contracts Derivatives (exchange traded and over-the-counter) Foreign exchange contracts Bank deposit accounts etc Anything declared by Regulations Many of these are then defined in Part 7.1 or Chapter 1 These categories are important as ASIC limits financial services licences to specific categories. Financial product definition: Specific exclusions o A list of specific exclusions is set out in s 765A e These include, for eg: o Credit facilities e Health insurance e Funeral benefit . etc Anything declared by Regulations or by ASIC. Financial product definition: Interaction between the three parts e The interaction between the general definition, the specific inclusions and specific exclusions is set out in s 762A The specific inclusions add to the general definition The specific exclusions override the general definition and specific exclusions