Financial Services Reform Act 2001 (122 of 2001)

Schedule 1   Financial Services and Markets

Part 1   Main amendments

Corporations Act 2001

1   Chapter 7 - Part 7.5 - Division 4

Division 4 - NGF Compensation regime

Subdivision A - Application of Division

887A Markets to which this Division applies

This Division applies to a financial market that is operated by:

(a) a body corporate that is a member of the SEGC; or

(b) a body corporate that is a subsidiary of such a member;

other than any such market that the regulations state is not covered by this Division.

Subdivision B - Claims for and payment of compensation

888A The situations in which compensation may be claimed

(1) The situations in which compensation may be claimed in respect of a loss that is connected with a financial market to which this Division applies are as specified in the regulations.

(2) Without limiting subsection (1), a loss is connected with a financial market if it is caused by a participant, or past participant, in the market.

888B Kinds of compensation available

The regulations may provide that compensation under this Division is to take the form of a payment of money or some other form (for example, a transfer of financial products).

888C Amount of compensation payable

(1) The amount of compensation (including the value of any non-monetary compensation) to which a person is entitled in respect of a claim that is allowed is to be as determined in accordance with the regulations.

(2) Without limiting subsection (1), the regulations may do all or any of the following:

(a) provide for the amount of compensation to be determined by agreement with the claimant, or by arbitration if agreement cannot be reached; and

(b) provide for the payment of interest on the amount of the claimant’s loss; and

(c) provide for the amount of compensation to be reduced by reference to a right of set-off available to the claimant or by reference to the extent to which the claimant was responsible for causing the loss; and

(d) impose an upper limit on the amount of compensation to which a person is entitled in respect of a claim in particular circumstances, or an upper limit on the total amount of compensation to which persons are entitled in respect of claims referable to a particular event or circumstance.

(3) An upper limit referred to in paragraph (2)(d) may be specified in the regulations or determined by a method specified in the regulations.

(4) The regulations may also provide for a claimant to be paid an amount in respect of the claimant’s reasonable costs of, and disbursements incidental to, the making and proof of the claim (whether or not the claim is allowed in whole or in part).

(5) The regulations may also provide for a claimant to be paid an amount in respect of the claimant’s reasonable costs of, and disbursements incidental to, attempting to recover the loss (whether or not the claim is allowed in whole or in part).

888D Payment of compensation

(1) The regulations may provide for the compensation to be paid in a lump sum or by instalments.

(2) The regulations may make other provisions in relation to how compensation is to be paid.

888E Making and determination of claims

(1) Claims are to be made and determined in accordance with:

(a) the regulations; and

(b) any relevant provisions of the SEGC’s operating rules.

(2) Without limiting subsection (1), the regulations, or the SEGC’s operating rules, may do all or any of the following:

(a) require a person making a claim to pay money, or transfer other property, to the SEGC in support of a claim;

(b) provide for claims to be disallowed unless persons exercise rights of set-off;

(c) set time limits for the making of claims;

(d) provide for claims to be partially allowed (including, for example, in a case where the SEGC considers that the claimant’s conduct contributed to the loss).

(3) The regulations, or the SEGC’s operating rules, may impose other requirements to be complied with by the SEGC in relation to claims (including, for example, requirements to notify claimants whether their claims have been allowed).

(4) If a provision of the SEGC’s operating rules is wholly or partly inconsistent with regulations made for the purposes of this section, the provision of the SEGC’s operating rules is, to the extent of the inconsistency, of no effect.

888F The SEGC has power to determine claims

The SEGC has power to determine claims in accordance with this Division.

888G Allowing a claim does not constitute an admission of any other liability

If the SEGC allows a claim, neither the allowance of the claim, nor any other act done by SEGC as a result of allowing the claim, constitutes an admission (by anyone) of any liability, other than the liability to provide compensation in respect of the claim in accordance with this Division.

888H Claimant may apply to Court if claim disallowed

(1) If the SEGC has disallowed a claim, the claimant may bring proceedings in the Court to establish the claim. The proceedings must be brought within 3 months of notice of the disallowance of the claim.

(2) If the SEGC has neither allowed nor disallowed a claim within a reasonable period after it was made, the claimant may bring proceedings in the Court to establish the claim.

(3) If, in proceedings under subsection (1) or (2), the Court is satisfied that the claim should be allowed, the Court:

(a) must, by order, make a declaration accordingly and direct the SEGC to allow the claim and deal with it in accordance with this Division; and

(b) may, at any time after the order is made, on application made (whether before or after the order is made) by the claimant or the SEGC, give such directions relating to the claim as the Court thinks just and reasonable.

(4) In proceedings to establish a claim, all questions of costs are in the discretion of the Court.

888I Non-NGF property of the SEGC not available to meet claims

Money or other property of the SEGC that is not part of the NGF is not available to be applied in respect of a claim that has been allowed by the SEGC, whether or not under an order of the Court.

888J The SEGC may enter into contracts of insurance or indemnity

(1) The SEGC may enter into a contract with a person (the insurer ) carrying on a fidelity insurance business under which the SEGC will be insured or indemnified against liability in respect of claims to the extent and in the manner provided by the contract.

(2) The contract may relate to all claims or only to certain claims as specified in the contract. The contract may, for example, exclude claims relating to the conduct of a particular financial services licensee.

(3) The following persons each have qualified privilege in respect of the publication of a statement that the contract does not apply with respect to claims relating to the conduct of a particular financial services licensee:

(a) the SEGC and the members of its board;

(b) any body corporate that is a member of the SEGC;

(c) any subsidiary of such a member;

(d) any employee of a body covered by paragraph (a), (b) or (c).

(4) A person who has made a claim does not have a right of action against the insurer in respect of the contract or a right or claim in respect of money paid by the insurer in accordance with the contract.

888K NGF may be used to acquire financial products to be transferred as compensation

The SEGC may pay money out of the NGF to acquire financial products for the purpose of providing compensation (in accordance with the regulations) that takes the form of a transfer of financial products.

Subdivision C - The NGF

889A Continuation of the National Guarantee Fund

The National Guarantee Fund that continued to exist under section 928B of this Act before the repeal of that section by theFinancial Services Reform Act 2001 continues in existence as the National Guarantee Fund for the purposes of this Part.

889B Compensation to be provided out of the NGF

Compensation payable under this Division is to be paid out of the NGF.

889C The SEGC to keep the NGF

(1) The SEGC must keep and administer the NGF.

(2) The assets of the NGF are the property of SEGC, but must be kept separate from all other property and must be held on trust by the SEGC for the purposes of this Division.

889D What the NGF consists of

The NGF consists of:

(a) money and other property constituting the NGF before the commencement of this Chapter; and

(b) money paid into the NGF in accordance with section 889J or 889K; and

(c) money paid to the SEGC in accordance with regulations referred to in section 888E in support of a claim; and

(d) money paid to the SEGC under a contract of insurance or indemnity referred to in section 888J; and

(e) money paid into the NGF under subsection 889F(2); and

(f) the interest and profits from time to time accruing from the investment of the NGF; and

(g) money recovered by or on behalf of the SEGC in the exercise of a right of action that the SEGC has by virtue of a provision of this Part; and

(h) money and other property paid or transferred to the SEGC for inclusion in the NGF in accordance with regulations referred to in section 891B; and

(i) all other money and other property lawfully paid into, or forming part of, the NGF.

889E Power to borrow etc. for purposes of the NGF

(1) If the SEGC considers that, in the interests of the sound financial management of the NGF, money should be borrowed for the purpose of meeting a payment due out of the NGF, the SEGC may borrow money for that purpose on such terms and conditions as the SEGC thinks appropriate.

(2) The SEGC may give security, including over the assets of the NGF, in respect of the SEGC’s obligations in relation to a borrowing under subsection (1).

(3) If:

(a) money borrowed under subsection (1) is a loan from a body corporate that is a member of the SEGC; and

(b) the body corporate borrowed money for the purpose of making the loan to the SEGC;

the SEGC may give security, including over the assets of the NGF, in relation to the body corporate’s obligations in respect of the borrowing referred to in paragraph (b).

889F Money borrowed and paid to the SEGC

(1) This section applies if money borrowed by the SEGC under subsection 889E(1) is paid to the SEGC.

(2) The SEGC must pay the money into the NGF.

(3) If:

(a) the money was borrowed for the purpose of meeting a payment due out of the NGF; and

(b) the borrowed money has been paid into the NGF; and

(c) the payment due out of the NGF has not yet been made;

then, for the purposes of section 889J, the amount in the NGF is taken to be reduced by the amount of the borrowed money.

889G Money borrowed and not paid to the SEGC

(1) This section applies if money borrowed by the SEGC under subsection 889E(1) is not paid to the SEGC but is payable to other persons at the direction of the SEGC.

(2) The SEGC must not direct that any of the money be paid to a person unless the payment is of a kind that can, under section 889H, be made out of the NGF.

889H Payments out of the NGF

Subject to regulations made for the purposes of this section, the following are to be paid out of the NGF, in such order as the SEGC considers appropriate:

(a) amounts, including costs, disbursements and interest, that any provision of this Part requires to be paid in connection with claims;

(b) all legal and other expenses incurred:

(i) in investigating or defending claims; or

(ii) in relation to the NGF; or

(iii) in the exercise by the SEGC of the rights and powers vested in it by any provision of this Part in relation to the NGF;

(c) money payable out of the NGF under regulations referred to in subsection 892G(2);

(d) amounts to be paid to acquire financial products as mentioned in section 888K;

(e) premiums payable in respect of contracts of insurance or indemnity entered into by the SEGC under section 888J;

(f) payments of principal, interest and other amounts payable by the SEGC in respect of money borrowed, and security given, under section 889E;

(g) the expenses incurred in the administration of the NGF, including the salaries and wages of persons employed by the SEGC in relation to the NGF;

(h) amounts to be paid to a body corporate in accordance with a direction of the Minister under section 891A;

(i) any other money payable out of the NGF in accordance with a provision of this Part.

889I Minimum amount of the NGF

(1) The minimum amount in relation to the NGF is:

(a) unless paragraph (b) applies - $80,000,000; or

(b) if a determination is in force under subsection (2) - the amount specified in the determination.

(2) The SEGC may, in writing, determine an amount (whether greater than, or less than, $80,000,000) to be the minimum amount in relation to the NGF. The determination does not come into force until it has been approved by the Minister.

(3) The SEGC must publish in theGazettenotice of a determination that has come into force under subsection (2). The notice must specify the date when the determination came into force.

(4) If the amount in the NGF falls below the minimum amount, the SEGC must consider what action needs to be taken.

889J Levy by the SEGC

(1) If the amount in the NGF is less than the minimum amount applicable under section 889I, the SEGC may determine in writing that:

(a) the operators of all, or a class, of the financial markets to which this Division applies; or

(b) all, or a class, of the participants in any of these markets;

must pay a levy to the SEGC.

(2) The levy is payable to the SEGC, as agent for the Commonwealth, in accordance with this section.

Note: For the imposition and amount of the levy, see theCorporations (National Guarantee Fund Levies) Act 2001.

(3) A levy payable under this section must be paid within the period and in the manner determined in writing by the SEGC.

(4) Whenever an amount of levy (the levy amount ) is paid under this section, or under subsection 6(2) of theCorporations (National Guarantee Fund Levies) Act 2001, to the SEGC as agent for the Commonwealth:

(a) the SEGC must pay an amount equal to the levy amount to the Commonwealth; and

(b) the Consolidated Revenue Fund is appropriated by that amount for the purpose of payment to the SEGC; and

(c) the Commonwealth must pay the amount so appropriated to the SEGC; and

(d) the SEGC must pay the amount it receives under paragraph (c) into the NGF.

(5) Whenever an amount of levy (the levy amount ) is paid under subsection 6(1) of theCorporations (National Guarantee Fund Levies) Act 2001, to the operator of a financial market as agent for the Commonwealth:

(a) the operator must pay an amount equal to the levy amount to the SEGC; and

(b) the SEGC must pay an amount equal to the amount so paid to it to the Commonwealth; and

(c) the Consolidated Revenue Fund is appropriated by that amount for the purpose of payment to the SEGC; and

(d) the Commonwealth must pay the amount so appropriated to the SEGC; and

(e) the SEGC must pay the amount it receives under paragraph (d) into the NGF.

(6) A payment of an amount to the SEGC as required by paragraph (4)(c) or (5)(d) in respect of a particular levy amount is subject to a condition that, if the Commonwealth becomes liable to refund the whole or a part of the levy amount, the SEGC must pay the Commonwealth an amount equal to the amount that the Commonwealth is liable to refund. The SEGC may pay, out of the NGF, any amount so required to be paid to the Commonwealth.

(7) TheFinancial Management and Accountability Act 1997 does not apply in relation to the payment of an amount of levy under this section to the SEGC, or the operator of a financial products market, as agent for the Commonwealth. However, the operation of that Act in relation to the following payments is not affected:

(a) the payment of an amount to the Commonwealth as required by paragraph (4)(a) or (5)(b); or

(b) the payment of an amount by the Commonwealth as required by paragraph (4)(c) or (5)(d).

The SEGC must, in accordance with the regulations, notify the Commonwealth of payments of levy it receives as agent for the Commonwealth, and the operator of a financial market must, in accordance with the regulations, notify the Commonwealth of payments it receives as agent for the Commonwealth as mentioned in paragraph (5)(a).

(8) An amount payable by the SEGC as required by paragraph (4)(a) may be set off against an amount payable to the SEGC as required by paragraph (4)(c), and an amount payable by the SEGC as required by paragraph (5)(b) may be set off against an amount payable to the SEGC as required by paragraph (5)(d).

889K Levy by market operator

(1) An operator of a financial market who must pay an amount of levy (the primary levy amount ) under section 889J may determine in writing that participants in the market must pay a levy (the contributory levy ). The determination must be such that the total of the amounts of contributory levy payable by the participants does not exceed the primary levy amount. The contributory levy is payable to the operator as agent for the Commonwealth.

Note: For the imposition and amount of the levy, see theCorporations (National Guarantee Fund Levies) Act 2001.

(2) If a determination is made under subsection (1), the contributory levy is payable by each participant in the market who, when the determination is made, is in a class of participants in the market determined in writing by the operator for the purposes of the levy.

(3) The amount of contributory levy payable by a participant under a determination under subsection (1) must be paid within the period, and in the manner, specified in writing by the operator either generally or in relation to particular participants or classes of participants.

(4) Whenever an amount of levy (the levy amount ) is paid under this section, or under subsection 6(3) of theCorporations (National Guarantee Fund Levies) Act 2001, to the operator of a financial market as agent for the Commonwealth:

(a) the operator must pay an amount equal to the levy amount to the Commonwealth; and

(b) the Consolidated Revenue Fund is appropriated by that amount for the purpose of payment to the SEGC; and

(c) the Commonwealth must pay the amount so appropriated to the SEGC; and

(d) the SEGC must pay the amount it receives under paragraph (c) into the NGF; and

(e) the operator’s liability to pay the primary levy amount is reduced by the amount paid into the NGF under paragraph (d).

(5) A payment of an amount to the SEGC as required by paragraph (4)(c) in respect of a particular contributory levy amount is subject to a condition that, if the Commonwealth becomes liable to refund the whole or a part of the contributory levy amount, the SEGC must pay the Commonwealth an amount equal to the amount that the Commonwealth is liable to refund. The SEGC may pay, out of the NGF, any amount so required to be paid to the Commonwealth.

(6) TheFinancial Management and Accountability Act 1997 does not apply in relation to the payment of an amount of levy under this section to the operator of a financial market as agent for the Commonwealth. However, the operation of that Act in relation to the following payments is not affected:

(a) the payment of an amount to the Commonwealth as required by paragraph (4)(a); or

(b) the payment of an amount by the Commonwealth as required by paragraph (4)(c).

The operator must, in accordance with the regulations, notify the Commonwealth of payments of levy it receives as agent for the Commonwealth.

Subdivision D - The SEGC

890A Minister to nominate the SEGC

(1) Subject to subsection (3), the Minister may nominate in writing as the Securities Exchanges Guarantee Corporation a body corporate (whenever incorporated) that is, for the purposes of the national corporate laws, a company limited by guarantee.

(2) ASIC must cause a copy of a nomination by the Minister under subsection (1) to be published in theGazette.

(3) The Minister may only nominate a body corporate under subsection (1) if he or she is satisfied that:

(a) the Australian Stock Exchange Limited is a member of the body corporate; and

(b) each of the other members of the body corporate is a market licensee; and

(c) the body corporate’s constitution provides that only market licensees may become or remain members of the body corporate; and

(d) the body corporate will, if nominated under subsection (1), be able to perform and exercise the SEGC’s functions and powers under this Division adequately and with due regard to the interests of the public; and

(e) the body corporate has obtained, or will within a reasonable period after being nominated under subsection (1) obtain, indemnity insurance in respect of its liabilities for:

(i) negligence in; and

(ii) defalcation, or fraudulent misuse of property, by an officer, employee or agent of the body corporate in connection with;

the performance or exercise of the SEGC’s functions or powers under this Division, or has made or will make other satisfactory provisions for meeting those liabilities; and

(f) the body corporate’s business rules make satisfactory provision:

(i) for ensuring the safety of property received by the body corporate; and

(ii) generally for the protection of the interests of the public.

890B The SEGC’s functions and powers

(1) In addition to the legal capacity and powers it has because of section 124, the SEGC has such functions and powers as are conferred, or expressed to be conferred, on it by or under this Part.

(2) Section 125 does not apply in relation to a function or power conferred, or expressed to be conferred, as mentioned in subsection (1) of this section.

(3) The SEGC is to perform the functions, and may exercise the powers, that are conferred on it by or under this Part.

(4) The SEGC is to administer the arrangements constituted by this Division.

890C Delegation

(1) Subject to this section, all decisions of the SEGC in relation to the performance of its functions, and the exercise of its powers, under this Part must be made by the board of the SEGC.

(2) The board of the SEGC must not delegate any of the following powers of the SEGC:

(a) the power to borrow under section 889E;

(b) the power to determine the order of payments under section 889H;

(c) the power to determine a minimum amount under section 889I;

(d) the power to make operating rules under section 890D;

(e) the power (or duty) to make a payment under section 891A.

(3) Otherwise, the board of the SEGC may delegate any of their powers under this Part in accordance with section 198D.

890D Operating rules of the SEGC

The SEGC may make rules ( operating rules ) relating to the performance or exercise of its powers or duties under this Part, or relating to matters permitted by this Part to be dealt with in its operating rules.

890E Legal effect of the SEGC’s operating rules

The SEGC’s operating rules have effect as a contract under seal between the SEGC and each member of the SEGC under which each of those persons agrees to observe the operating rules to the extent that they apply to the person and engage in conduct that the person is required by the operating rules to engage in.

890F Enforcement of the SEGC’s operating rules

(1) If a person who is under an obligation to comply with or enforce any of the SEGC’s operating rules fails to meet that obligation, an application to the Court may be made by:

(a) ASIC; or

(b) the SEGC; or

(c) a member of the SEGC; or

(d) a person aggrieved by the failure.

(2) After giving an opportunity to be heard to the applicant and the person against whom the order is sought, the Court may make an order giving directions to:

(a) the person against whom the order is sought; or

(b) if that person is a body corporate - the directors of the body corporate;

about compliance with, or enforcement of, the operating rules.

890G Changing the SEGC’s operating rules

(1) As soon as practicable after a change is made to the SEGC’s operating rules, the SEGC must lodge with ASIC written notice of the change.

(2) The notice must:

(a) set out the text of the change; and

(b) specify the date on which the change was made; and

(c) contain an explanation of the purpose of the change.

(3) If no notice is lodged with ASIC within 21 days after the change is made, the change ceases to have effect.

890H Disallowance of changes to the SEGC’s operating rules

(1) As soon as practicable after receiving a notice under section 890G, ASIC must send a copy of the notice to the Minister.

(2) Within 28 days after ASIC received the notice under section 890G, the Minister may disallow all or a specified part of the change to the SEGC’s operating rules.

(3) As soon as practicable after all or part of a change is disallowed, ASIC must give notice of the disallowance to the SEGC. The change ceases to have effect, to the extent of the disallowance, when the SEGC receives the notice.

Subdivision E - Other provisions relating to compensation under this Division

891A Payment out of the NGF to prescribed body with arrangements covering clearing and settlement facility support

(1) If the Minister is satisfied that a body corporate specified in regulations made for the purposes of this section has made adequate arrangements covering all or part of the clearing and settlement system support that this Division provides for, the Minister may, in writing, direct the SEGC to pay a specified amount to that body corporate out of the NGF.

(2) The Minister may, in writing, impose conditions to be complied with by the SEGC or the body corporate, or both, in relation to the payment.

(3) The SEGC and the body corporate must comply with the direction and with any applicable conditions to which the direction is subject.

(4) Before giving a direction under subsection (1), the Minister must be satisfied that, after the payment is made, the NGF will still have an adequate amount of assets to meet claims.

891B Markets operated by bodies corporate that become members of the SEGC - regulations may deal with transitional provisions and other matters

(1) In this section:

joining market means a financial market that:

(a) is operated by a body corporate that becomes a member of the SEGC after the commencement of this Division, or by a subsidiary of such a body corporate; and

(b) is a financial market to which this Division applies.

(2) The regulations may make provisions of a transitional or saving nature dealing with the transition, in relation to a joining market, from the compensation regime previously applicable in relation to the market to the arrangements constituted by this Division.

(3) Without limiting subsection (2), the regulations may require money or other property (including money or other property in a fidelity fund) to be paid or transferred to the SEGC for inclusion in the NGF.

(4) The regulations may also provide for the allocation of part of the NGF as being for use for the purposes of claims arising in connection with the joining market.

(5) The regulations may make modifications of provisions of this Division and Division 5 that are necessary or convenient to take account of allocations of a kind referred to in subsection (4).

891C Regulations may make different provision in respect of different markets etc.

Regulations made for the purposes of a provision of this Division may make different provision in respect of different financial markets to which this Division applies and in respect of different circumstances.