Table of contents
Abbreviations and terms used
Structure of the paper
The problem and `Is requiring compensation arrangements the way to address it?'
The current compensation arrangements
How should the requirements for compensation arrangements be reformed?
Options and conclusion
Financial services licensees
A broad statutory scheme?
If a statutory scheme were warranted
Chapter 1: Introduction
A: The compensation review
What is the purpose of this review?
What triggered the review?
What is the purpose of this paper?
What does this review address and what is outside its ambit?
B: Origins of the review
The Corporate Law Economic Reform Program, CLERP 6 and the Financial Services Reform Act 2001
Request to the Companies and Securities Advisory Committee (CASAC)
CASAC's Consultation Paper
Responses to CASAC's Consultation Paper
CASAC's interim report
Senator Campbell's announcement
C: This issues and options paper
D: The consultation process
Chapter 2: The problem and objective
A: What is the problem to be addressed?
Concepts: Financial services licensees, financial service, financial products
What is the nature and size of the problem? — Evidence of wrongdoing and losses
B: Why is government action needed to correct the problem?
What protection and redress is available (apart from compensation arrangements)?
Current avenues for redress — some limitations
C: What is the objective of government action?
D: Will compensation arrangements help to achieve this objective?
E: Should compensation arrangements be required by legislation?
Reasons for compensation arrangements
Is mandating compensation arrangements consistent with the role of regulation?
What about the `moral hazard' involved in requiring compensation arrangements?
Chapter 3: Current Australian compensation requirements
Chapter 4: The purpose and design of compensation arrangements
A: What is the purpose of a compensation regime?
B: Designing a compensation regime
Ease of access
Simplicity for consumers
Chapter 5: Coverage
A: The conduct
Possible acts or omissions causing loss
B: The cause of the loss
(i) Defalcation and fraud
(ii) Loss of property (including funds) entrusted to the licensee
(iii) Deficiency (on insolvency/inability to pay) in funds and financial products held on trust
(iv) Failure to enter into and complete transactions according to instructions
(v) All the specific obligations of the financial services licensee imposed by new Chapter 7
(vi) All the actions you could have taken against the licensee in his capacity as a licensee (on insolvency/inability to pay)
C: The claimants
Referral business and excluded claimants
D: Measure and nature of compensation
E: Mechanisms to provide compensation
Chapter 6: Financial services licensees
Professional indemnity insurance
Should all licensees be treated the same way in any requirement for compensation arrangements?
The current professional indemnity insurance market
C: What should the mechanism adopted be required to cover?
All the obligations of the financial service provider under new Chapter 7
Chapter 7: Market licensees
A: Should market licensees be required to make compensation arrangements?
An assessment of the general features of current Australian compensation funds
Questioning the current requirements
B: If market licensees continue to be required to make compensation arrangements
C: A consolidated market scheme?
D: CS (clearing and settlement) facility licensees
Chapter 8: Is a broad statutory scheme warranted?
A: Is a broad statutory scheme warranted?
B: In what circumstances should a broad statutory scheme apply?
Solvency/insolvency/inability to pay
The grounds on which it would pay claims
C: The CASAC proposal
Responses to CASAC's Consultation Paper
D: Overseas schemes
Chapter 9: Subsidiary issues relating to statutory schemes
A: Who would operate the scheme?
B: Reporting and governance issues
C: Would the one scheme cover all financial services and all financial products?
D: How would it be funded?
E: What should be its statutory powers?
Chapter 10: Other issues
A: Treatment of APRA-regulated bodies and those with high financial requirements
B: Measure and nature of compensation
Accounting for profits
Interest, costs, contributory negligence
C: Should there be capping of payments?
D: What form of capping is appropriate?
What will not be recovered through subrogation
Actions which prejudice subrogation
F: Connection with Australia
G: Relationship with external dispute resolution schemes
Requirement for licensees to be members of external dispute resolution schemes
Features of external dispute resolution schemes
Roles of external dispute resolution schemes and compensation arrangements
H: Excess funds
I: Should there be time limits for claiming?
J: Level of detail in the legislation
Chapter 11: Options
Chapter 12: Conclusion
Attachment A: Outline of financial services licensing regime
A: Licensing of financial service providers
B: Financial service provider conduct and disclosure
Attachment B: Current compensation mechanisms in the financial services sector in Australia
A: Requirements imposed on exchanges/financial markets
(i) Before the Financial Services Reform Act 2001
(ii) After the Financial Services Reform Act 2001
B: Requirements imposed on financial services providers
(i) Requirements before the Financial Services Reform Act 2001
(ii) Requirements after the Financial Services Reform Act 2001
Attachment C: The origins of the National Guarantee Fund
Sydney Stock Exchange
Melbourne Stock Exchange
The Securities Industry Act 1975
National Guarantee Fund - establishment
National Guarantee Fund - operation
Attachment D: Comparison of international compensation schemes
Attachment E: The current professional indemnity insurance market