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 5
Division 5 - Provisions common to both kinds of compensation arrangements
892A Definitions
In this Division:
regulated fund means:
(a) a fidelity fund that is the source, or a source, of funds under Division 3 arrangements; or
(b) the NGF; or
(c) an account kept as required by subsection 892B(3).
relevant authority , in relation to Part 7.5 arrangements, means:
(a) if the arrangements are Division 3 arrangements of a financial market - the operator of the market; or
(b) if the arrangements are Division 4 arrangements - the SEGC.
892B How regulated funds are to be kept
(1) Money in:
(a) a fidelity fund that is the source, or a source, of funds under Division 3 arrangements; or
(b) the NGF;
must, until applied in paying claims or otherwise spent for the purposes of this Part, or invested in accordance with section 892C, be kept by the relevant authority in an account or accounts:
(c) with an Australian ADI; or
(d) of a kind prescribed by regulations made for the purposes of this paragraph;
separate from any account or accounts in which other money is kept.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) The regulations may impose additional requirements to be complied with in relation to the keeping of a regulated fund that covers 2 or more financial markets.
(3) If:
(a) a source of funds under Division 3 arrangements for a financial market is something other than a fidelity fund; and
(b) the operator of the market, or a person involved in the administration of the arrangements, receives money from that source of funds;
the money received must, until applied in paying claims or otherwise spent for the purposes of this Part, or invested in accordance with section 892C, be kept by the relevant authority in an account or accounts:
(c) with an Australian ADI; or
(d) of a kind prescribed by regulations made for the purposes of this paragraph;
separate from any account or accounts in which other money is kept.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
892C Money in regulated funds may be invested
(1) Money in a regulated fund that is not immediately required for the purposes of meeting claims may be invested in any way in which trustees are for the time being authorised by law in force in a State or Territory in this jurisdiction to invest trust funds.
(2) The relevant authority may, with the approval of ASIC, appoint a person to invest on behalf of the relevant authority money to which subsection (1) applies.
(3) ASIC must not grant approval to the appointment of a person under subsection (2) unless it is satisfied that:
(a) the person has appropriate qualifications and expertise to perform the duties of the appointment; and
(b) the relevant authority has adequate indemnity insurance in respect of its liabilities for any negligence, or any defalcation or fraudulent misuse of property, by the person in the performance of those duties, or has made other satisfactory provisions for meeting those liabilities.
(4) A person appointed under subsection (2) must perform the duties of the appointment in accordance with the directions of the relevant authority and subject to such conditions (if any) as the relevant authority imposes.
892D Powers of relevant authority to require production or delivery of documents or statements
(1) The relevant authority in relation to Part 7.5 arrangements may require a person:
(a) to deliver to the relevant authority documents or copies of documents, including documents of, or evidencing, title to financial products; or
(b) to make out and deliver to the relevant authority a statement of evidence;
that the relevant authority considers will assist it in determining a claim for compensation that has been made, or that the relevant authority considers are necessary for the purpose of exercising the subrogated rights and remedies it has in relation to a claim (see section 892F).
(2) The requirement must be made by notice in writing given to the person. The notice must:
(a) so far as it requires documents or copies referred to in paragraph (1)(a) - identify or describe the documents or copies that are required; and
(b) so far as it requires a statement referred to in paragraph (1)(b) - describe the matters in relation to which the person’s evidence is required, and set out any requirements to be complied with in relation to how the statement is made out.
(3) The person must comply with the requirement.
(4) If the person fails, without reasonable excuse, to comply with the requirement, the relevant authority may apply to the Court for, and the Court may make, an order that the person comply with the direction.
(5) If the person fails, without reasonable excuse, to comply with the requirement, the relevant authority may disallow a claim made by the person.
Note: This subsection would not apply if the person subject to the requirement were someone other than a claimant.
(6) The relevant authority may, in writing, delegate the power given by this section to a person involved in the administration of the Part 7.5 arrangements.
(7) The relevant authority must return any documents (other than copies of documents) provided to it under this section as soon as practicable after the claim referred to in subsection (1) has been determined, and any proceedings relating to the determination of the claim (including any arising from the subrogation of the relevant authority for the claimant) have been completed.
(8) Subsection (7) does not apply if:
(a) another law prohibits or prevents the return of the documents; or
(b) the documents are no longer in the custody of the relevant authority; or
(c) the person tells the relevant authority that the person does not want the documents back.
892E Power to require assistance for purpose of dealing with a claim
(1) If Division 3 arrangements give responsibilities (as mentioned in paragraph 885I(2)(c)) to a person acting under an arrangement with the operator of the market concerned, the person may give the operator a written request to give such assistance as the person requires for the purpose of fulfilling the person’s responsibilities under the arrangement.
(2) The SEGC may give a member of the SEGC, or a subsidiary of a member of the SEGC, a written request to give such assistance as the SEGC requires for the purpose of:
(a) dealing with a claim; or
(b) the assessment of risks to the NGF.
(3) A requirement for assistance under subsection (1) or (2) must be reasonable.
(4) A person who is required under this section to give assistance must give the assistance.
(5) If the person fails to give the assistance, the person who required the assistance may apply to the Court for, and the Court may make, an order that the other person give the assistance.
892F Relevant authority’s right of subrogation if compensation is paid
(1) If compensation in respect of a claim is paid under Part 7.5 arrangements, the relevant authority in relation to the arrangements is subrogated, to the extent of that payment, to all the claimant’s rights and remedies in relation to the loss to which the claim relates.
(2) The relevant authority may also recover from the participant or participants who caused the loss the costs it incurred in determining the claim.
892G Excess money in compensation funds
(1) The regulations may determine, or provide a method for determining, when there is excess money in a regulated fund.
(2) The regulations may make provision in relation to how excess money in a regulated fund may be, or is to be, dealt with. The regulations may make different provision in relation to different funds.
892H Accounting and reporting for regulated funds
(1) The relevant authority in relation to Part 7.5 arrangements must, in relation to each regulated fund established in connection with the arrangements, keep written financial records that:
(a) correctly record and explain the fund’s transactions and financial position and performance; and
(b) would enable true and fair financial statements to be prepared and audited;
and must retain the financial records for 7 years after the transactions covered by the records are completed.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(2) Within 2 months after the end of each financial year of the relevant authority, the authority must cause financial statements and notes to those financial statements (within the meaning of section 295) for the regulated fund to be made out as at the end of that financial year.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(3) A registered company auditor must be appointed to audit the accounts of the regulated fund in accordance with whichever of the following paragraphs applies:
(a) if there is only one relevant authority for the fund, that relevant authority must appoint a registered company auditor to audit the fund’s accounts;
(b) if there is more than one relevant authority for the fund:
(i) each of those relevant authorities must ensure that a registered company auditor is appointed in accordance with subparagraph (ii) to audit the fund’s accounts; and
(ii) the appointment is to be made by one or more of the relevant authorities, with the consent of such of the relevant authorities (if any) as do not make the appointment; and
(iii) a relevant authority must not purport to appoint a person to audit the fund’s accounts unless each other relevant authority (if any) who has not also made the appointment has consented to the appointment.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(4) If there is more than one relevant authority for a fund and they cannot agree on which auditor to appoint, ASIC may, on the written application of any of the authorities, appoint an auditor who consents to being so appointed.
(5) The auditor must:
(a) audit the accounts of the regulated fund and the financial statements; and
(b) do the things required by sections 307 and 308 in relation to those documents, as if the audit were being done under Chapter 2M.
(6) The relevant authority for the regulated fund must, within 14 days after receiving the auditor’s report, lodge with ASIC a copy of the report and a copy of the financial statements. If there is more than one relevant authority for the regulated fund, the copy must be given to ASIC by at least one of those authorities, or else they all contravene this subsection.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
(7) If the regulated fund is the NGF, the relevant authority (being the SEGC) must:
(a) give a copy of the audited financial statements to each member of the SEGC; and
(b) cause a copy of the audited financial statements to be laid before the annual general meeting of each member of the SEGC next following the making of that report.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).
892I Division 3 arrangements - reporting in situations where compensation does not come out of a regulated fund
The regulations may impose reporting requirements to be complied with by the relevant authority in relation to Division 3 arrangements in relation to situations in which compensation under the arrangements is provided otherwise than out of a regulated fund.
892J Regulations may provide for qualified privilege in respect of certain matters
The regulations may provide for specified persons to have qualified privilege in respect of specified things done:
(a) under compensation rules forming part of Division 3 arrangements; or
(b) under regulations made for the purposes of a provision or provisions of Subdivision B of Division 4.
892K Risk assessment report
(1) For the purposes of monitoring compliance with, and the operation of, this Part, the Minister may, by giving the operator of a financial market written notice, require the operator:
(a) to cause a risk assessment report to be prepared in relation to the market in accordance with the requirements specified in the notice; and
(b) to give that report to the Minister by the time specified in the notice.
(2) The operator must comply with the notice.
Note: Failure to comply with this subsection is an offence (see subsection 1311(1)).