September 2002

© Commonwealth of Australia 2002

ISBN 0 642 74164 6

This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth available from the Department of Communications, Information Technology and the Arts. Requests and inquiries concerning reproduction and rights should be addressed to:

The Manager
Copyright Services
Info Access
GPO Box 2154

or by e-mail:


The Government is seeking comments from interested parties on the issues and options raised in this paper. Comments should be sent to:

Ms Ruth Smith
Financial System Division
The Treasury
Langton Crescent

Or by fax: 02 6263 2882 or email:

The closing date for submissions is 8 November 2002.

Copies of this document are available from the Info Access bookshops and on the Treasury website

It is envisaged that one or more meetings will be held during the consultation period to discuss the issues raised in this paper. If you are interested in attending, please notify Ms Smith.


It will be assumed that submissions are not confidential and may be made publicly available. If you want your submission, or any part of it, to be treated as `confidential', please indicate this clearly. A request made under the Freedom of Information Act 1982 (Cth) for a submission marked confidential to be made available will be determined in accordance with that Act.

Printed by Canprint Communications Pty Ltd


Senator the Hon Ian Campbell

I am pleased to release an issues and options paper on compensation for loss in the financial services sector. Only minor reforms were made to the market compensation provisions of Chapter 7 of the Corporations Act 2001 in the Financial Services Reform Act 2001. However, we now have the opportunity to examine from first principles the broader issues involved in compensation arrangements for a failure in the provision of financial services.

The aim of this paper is to promote discussion of the basic issues — the justification and purpose of compensation arrangements in this sector, the conduct causing loss for which compensation should be payable, the persons on whom the obligation to make such arrangements should fall and the mechanisms available.

The ambit of the paper is wide — compensation for financial loss suffered by clients in connection with the provision of financial services. It therefore encompasses financial services in relation to all financial products - market-traded products, those traded outside formal markets and those for which there is no secondary market. It includes services in relation to financial products which are in the nature of investments as well as those which manage risk. However, it should be noted that the focus is on financial services — the paper does not consider loss caused by market fluctuations, or the failure of the institution which issued the product.

It poses many questions on which you are encouraged to respond. Appropriate policy cannot be formed in a vacuum. We need your views and experience to inform it. More specifically, it is only with your assistance on the costs and benefits of the various possible courses that we can, in due course, assess more detailed options.

I hope that a wide cross-section of the community will enter into this debate — by attending one of the meetings that Treasury is to conduct, or by sending in a submission. In this way we can work towards a compensation framework which is understandable and appropriate, to complement the reforms implemented through the Financial Services Reform Act 2001.

Senator the Hon Ian Campbell signature

Senator the Hon Ian Campbell
Parliamentary Secretary to the Treasurer
Parliament House