38ACharges relating to derivatives

#### 38A Charges relating to derivatives (1) For the purposes of paragraph 38(3)(aa), a life company may charge an asset of a statutory fund if: (a) the charge complies with subsection (2), (3) or (4) of this section in relation to: (i) a derivative to which the life company is a party; or (ii) a derivative to which a person (other than the life company) is a party on behalf of, on the instructions of, on account of, or for the benefit of, the life company; or (iii) in the case of subsection (3)—a derivative that relates to a derivative to which subparagraph (i) or (ii) of this paragraph applies; and (b) the charge relates to an investment; and (c) the life company has a risk management statement that sets out: (i) policies for the use of derivatives that include an analysis of the risks associated with the use of derivatives within the investment strategy of the company; and (ii) controls on the use of derivatives that take into consideration the expertise of staff; and (iii) compliance processes to ensure that the controls are effective (for example, reporting procedures, internal and external audits and staff management procedures); and (d) the investment to which the charge relates is made in accordance with the life company’s risk management statement. Charges given to comply with rules and laws (2) The charge complies with this subsection in relation to a derivative if the charge is given for the purposes of complying with a requirement that is: (a) a requirement to secure the performance of an obligation in relation to the derivative; and (b) a requirement under: (i) rules governing the operation of an approved body; or (ii) a law of the Commonwealth, a State, a Territory or a foreign country (including a part of a foreign country) that applies to dealings in the derivative. Charges given to agents etc. (3) The charge complies with this subsection in relation to a derivative if: (a) the charge is given in favour of a person (the agent) who: (i) is a party to the derivative on behalf of, on the instructions of, on account of, or for the benefit of, the life company; or (ii) enters into the derivative on behalf of, on the instructions of, on account of, or for the benefit of, the life company; and (b) the agent is obliged under either of the following to keep the property of the life company separate from the property of the agent: (i) rules governing the operation of an approved body; (ii) a law of the Commonwealth, a State, a Territory or a foreign country (including a part of a foreign country) that applies to dealings in the derivative; and (c) the agent is: (i) obliged; or (ii) but for a netting‑off, would be obliged; to transfer property to another entity in relation to the derivative if particular circumstances arise; and (d) the charge is given for the purposes of securing the performance of an obligation in relation to the derivative. Charges over financial property (4) The charge complies with this subsection in relation to a derivative if: (a) the asset over which the charge is given is financial property; and (b) the charge secures any of the following obligations: (i) an obligation of the life company that relates to the derivative; (ii) an obligation of the life company to pay interest on an obligation covered by subparagraph (i) of this paragraph; (iii) an obligation of the life company to pay costs and expenses incurred in connection with enforcing a charge given in respect of an obligation covered by subparagraph (i) or (ii) of this paragraph; and (c) the financial property is transferred or otherwise dealt with so as to be in the possession or under the control of: (i) the secured person; or (ii) another person (who is not the life company), on behalf of the secured person, under the terms of an arrangement evidenced in writing. (5) For the purposes of paragraph (4)(c), and subject to subsection (7), financial property is taken not to be in the possession or under the control of a person mentioned in that paragraph if, under the charge mentioned in paragraph (4)(a), the life company is free to deal with the financial property in the ordinary course of business until the person’s interest in the financial property becomes fixed and enforceable. (6) For the purposes of paragraph (4)(c), and subject to subsection (5), financial property is taken to be in the possession or under the control of a person if: (a) both: (i) there is an issuer of the financial property; and (ii) the person is registered by, or on behalf of, the issuer as the registered owner of the financial property; or (b) both: (i) the financial property is intermediated financial property in relation to an account; and (ii) the person is the person in whose name the intermediary maintains the account. > Note: For the account referred to in paragraph (b) of this subsection, see the definition of intermediated financial property in Schedule 1 to this Act and paragraph (h) of the definition of financial property in section 5 of the Payment Systems and Netting Act 1998. (7) For the purposes of paragraph (4)(c), financial property is taken to be in the possession or under the control of the secured person mentioned in that paragraph if: (a) the financial property is intermediated financial property in relation to an account; and (b) the intermediary is not the life company (but may be the secured person or any other person); and (c) there is an agreement in force between the intermediary and one or more other persons, one of which is: (i) the secured person; or (ii) the life company; and (d) the agreement has one or more of the following effects: (i) the person in whose name the intermediary maintains the account is not able to transfer or otherwise deal with the financial property; (ii) the intermediary must not comply with instructions given by the life company in relation to the financial property without seeking the consent of the secured person (or a person who has agreed to act on the instructions of the secured person); (iii) the intermediary must comply, or must comply in one or more specified circumstances, with instructions (including instructions to debit the account) given by the secured person in relation to the intermediated financial property without seeking the consent of the life company (or any person who has agreed to act on the instructions of the life company). > Note: For the account referred to in this subsection, see the definition of intermediated financial property in Schedule 1 to this Act and paragraph (h) of the definition of financial property in section 5 of the Payment Systems and Netting Act 1998. (8) Subsections (6) and (7) do not limit paragraph (4)(c). (9) The fact that the life company retains a right of one or more of the following kinds does not of itself stop paragraph (4)(c) from applying: (a) a right to receive and withdraw income in relation to the financial property; (b) a right to receive notices in relation to the financial property; (c) a right to vote in relation to the financial property; (d) a right to substitute other financial property that the parties agree is of equivalent value for the financial property; (e) a right to withdraw excess financial property; (f) a right to determine the value of financial property.