The Commonwealth Treasury


COMPENSATION FOR LOSS IN THE FINANCIAL SERVICES SECTOR ISSUES AND OPTIONS September 2002

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Chapter 3: Current Australian compensation requirements

The purpose of this Chapter is to provide an outline of the current compensation requirements and problems with them.

A more detailed description of the requirements for compensation arrangements before and after the commencement of the Financial Services Reform Act is to be found in Attachment B.

A: Description

100. The requirements for compensation arrangements included in the new Chapter 7 are:

101. A more complete description of the requirements on financial service providers and market operators, both before and after the commencement of the Financial Services Reform Act, is provided in Attachment B.

B: Problems

102. As indicated in paragraph 4, the criticisms made during the exposure period of the Financial Services Reform Bill related particularly to the continuing requirement for market licensees to have compensation arrangements and the perceived overlap between this requirement and the requirement in section 912B for financial services licensees to have compensation arrangements.

103. The circumstances were not such that any comprehensive criticism of the regime was provided.

104. In brief, some of the problems with the compensation requirements in the new Chapter 7 are:

105. However, the purpose of this review is not just to address the identified problems, but to revisit the whole compensation regime. The following chapters therefore take a wider approach than simply trying to cure identified problems.

30 Section 912B.

31 Division 4 of Part 7.5 (and the relevant Corporations Regulations).

32 Division 3 of Part 7.5.