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The purpose of this Chapter is to provide some high-level options for consideration. When public reaction to the issues raised in the preceding Chapters of this paper has been assessed, more detailed options can be prepared. |
- No compensation arrangements required
314. This option involves no additional obligations or costs on industry and no regulatory costs in enforcing them. It would allow for self-regulation or industry codes, and the use of compensation arrangements by particular financial services licensees, market licensees or segments of the industry as a marketing tool. It involves dismantling the National Guarantee Funds and exchange fidelity funds.
315. However, particularly in the light of the current compensation arrangements, it may not be acceptable to the Government and the public.
- Financial service providers be required to have, for example, professional indemnity insurance
- No obligation on market operators
- No statutory scheme
316. This option is simple and brings home the responsibility to financial services licensees. It leaves market licensees to decide whether they wish to provide compensation arrangements and does not require the establishment and maintenance of a new statutory scheme.
317. However, its disadvantages include:
- any difficulties being experienced in obtaining the necessary insurance;
- any difficulties clients have in pursuing their claims;
- any absences of expected cover when claims are made, particularly on insolvency; and
- any reduction in cover for clients of market participants following the dismantling of the National Guarantee Fund and the exchange fidelity funds.
- Obligation on financial service providers to have, for example, professional indemnity insurance
- Statutory scheme
- No obligation on market operators
318. This option would potentially provide for a harmonised scheme across the financial services sector and impose responsibility on financial services licensees. It avoids any problems involved in multiple market operators having multiple schemes. However, it involves establishing and funding a statutory scheme, and deciding the future of the National Guarantee Fund.
319. The relationship between the two layers of this option would work much as the current arrangements do - that is, having paid the claim, the scheme operator is subrogated to the rights of the claimant and is likely to claim from the licensee which is backed by professional indemnity insurance.
- Market operators to have compensation arrangements
- Financial service providers to have, for example, professional indemnity insurance
- No broad statutory scheme
320. This option encompasses both the `do-nothing' approach, and various degrees of reforming the current requirements. It requires no structural change as it does not require the establishment and maintenance of a statutory scheme. Instead it allows for refining the current arrangements. A variation of this option would be to provide a consolidated market compensation scheme.
321. The relationship between the two mechanisms included in this option would work much as the current arrangements do. (Currently the exchanges require that participating organisations have professional indemnity insurance.) The division of responsibility between market licensees (and the question of market responsibility for a particular transaction) could be based on rules regarding linkage of the transaction with the particular market (as Part 7.5 attempts).
- Market operators to have compensation arrangements or a consolidated market compensation scheme
- Financial service providers to have, for example, professional indemnity insurance
- Broad statutory scheme
322. This option involves a multiplicity of avenues for the consumer. It would necessitate the careful division of responsibility between the market schemes and the broad statutory scheme - for example:
- all financial services (or securities) business of stockbrokers could be covered by the market scheme and not covered by the broad scheme;
- alternatively, the obligation on market licensees could be limited to providing compensation arrangements for wholesale clients.
323. The result is that it may involve different results for the consumer depending on whether the transaction is market-related or not. The professional indemnity insurance would be accessible by all relevant scheme operators.
- Market operators be required to have compensation arrangements or a consolidated market compensation scheme
- No obligation on financial service providers
- No broad statutory scheme
324. Adoption of this option would not prevent market operators or industry associations requiring professional indemnity insurance.
325. It would, however, provide no cover in relation to conduct unrelated to formal markets. It does not impose responsibility on the financial services licensee. Market operators would not welcome it and it involves the existing distinctions between market-related and other transactions (and possibly between the ASX and other markets).
- Statutory scheme
- No obligations on market operators
- No obligation on financial service providers
326. This option is simple but it involves establishing and maintaining a statutory scheme. In addition, it is not clear that it imposes suitable responsibility on the financial services licensees or that it should be considered in the absence of evidence regarding the availability, cost and adequacy of professional indemnity insurance and other mechanisms which may be required for financial services licensees.
- No obligation on financial service providers
- Market operator to have compensation arrangements or a consolidated market compensation scheme
- Statutory scheme
327. Again, it is not clear that this brings home responsibility to individual licensees appropriately. Further, problems regarding which transaction falls within which scheme and differences between current market schemes would need to be addressed.