CORPORATIONS ACT 2001

CHAPTER 7 - FINANCIAL SERVICES AND MARKETS  

PART 7.5 - COMPENSATION REGIMES FOR FINANCIAL MARKETS  

Division 3 - Approved compensation arrangements  

Subdivision D - Are compensation arrangements adequate?  

SECTION 885C   THE LOSSES TO BE COVERED  

885C(1)   [ Losses covered]  

Subject to section 885D , the compensation rules must cover losses ( Division 3 losses ) of a kind described in the following paragraphs:


(a) a person (the client ) gave money or other property, or authority over property, to a person (the participant ):


(i) who was a participant in the market at that time; or

(ii) who the client reasonably believed to be a participant in the market at that time and who was a participant in the market at some earlier time; and


(b) the money or other property, or the authority, was given to the participant in connection with effecting a transaction, or proposed transaction, covered by provisions of the operating rules of the market relating to transactions effected through the market; and


(c) the effecting of the transaction through the market constitutes or would constitute the provision of a financial service to the client as a retail client; and


(d) the client suffers a loss because of:


(i) if the client gave the participant money or other property - the defalcation or fraudulent misuse of the money or other property by the participant; or

(ii) if the client gave the participant authority over property - the fraudulent misuse of that authority by the participant.

885C(2)   [ Relevance of conviction or prosecution]  

The compensation rules must provide that a claim relating to an alleged loss caused by defalcation or fraudulent misuse may be allowed even if:


(a) the person against whom the defalcation or misuse is alleged has not been convicted or prosecuted; and


(b) the evidence on which the claim is allowed would not be sufficient to establish the guilt of that person on a criminal trial in respect of the defalcation or fraudulent misuse.

885C(3)   [ Exclusions]  

The compensation rules may exclude losses of a kind described above that occur in specified situations. However, the compensation arrangements will not be adequate unless the Minister is satisfied that those exclusions are appropriate.


 

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