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1998-1999-2000-2001
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
CORPORATIONS (COMPENSATION ARRANGEMENTS LEVIES) BILL 2001
EXPLANATORY MEMORANDUM
(Circulated by authority of the Minister for Financial
Services & Regulation,
the Hon J.B. Hockey, MP)
ISBN: 0642 458901
Table of Contents
Contents Page
1. Outline 1
2. Regulation and Financial Impact Statements 2
3. Explanatory Notes 3
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1
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1.1 The Corporations (Compensation Arrangements Levies) Bill 2001 is one of a package of bills which will complement the Financial Services Reform Bill 2001. The other bills are:
• the Financial Services Reform (Consequential Provisions) Bill 2001;
• the Corporations (National Guarantee Fund Levies) Amendment Bill 2001;
• the Corporations (Fees) Amendment Bill 2001.
1.2 The object of this package is to put in place a competitively neutral regulatory system for the financial services industry. The new regime provides for licensing, conduct and disclosure in the financial services industry. It will replace Chapters 7 and 8 of the proposed Corporations Act 2001 and certain insurance and superannuation legislation.
1.3 Further background on these reforms is included in the explanatory memorandum to the Financial Services Reform Bill 2001.
1.4 The purpose of the Corporations (Compensation Arrangements Levies) Bill is to support levies by the operators of financial markets to fund compensation arrangements (other than the National Guarantee Fund) required to be made by a new Part 7.5 which will be inserted in the proposed Corporations Act 2001 by the proposed Financial Services Reform Act 2001.
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2
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2.1 The Corporations (Compensation Arrangements Levies) Bill 2001 is needed as a consequence of amendments included in the Financial Services Reform Bill. It supersedes the proposed Compensation (Securities Industry Levies) Act 2001 and the proposed Compensation (Futures Industry Levies) Act 2001.
2.2 On that basis, the Office of Regulation Review has advised that a Regulation Impact Statement is not required for this Bill.
2.3 There is no financial impact to the Commonwealth as a result of these measures.
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3
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3.1 The Financial Services Reform Bill 2001 includes amendments to the regulation of securities and futures markets. Instead of their separate regulation under Chapters 7 and 8 of the Corporations Law (and the proposed Corporations Act 2001), all financial markets will be regulated under the one set of provisions (in proposed Part 7.2).
3.2 The Financial Services Reform Bill 2001 also includes amendments to the compensation arrangements for financial markets which are not covered by the National Guarantee Fund. These provide flexibility:
• in the compensation arrangements which can be approved (rather than requiring a fidelity funds);
• in the procedure for handling claims; and
• in the funding of the arrangements - rather than requiring an initial contribution and an annual payment, and setting upper limits (as the law currently does).
3.3 In summary, the arrangements required must provide for compensation to be paid to retail clients of market participants where those clients suffer loss as a result of defalcation or fraud in relation to property entrusted to those participants for the purpose of a market transaction. The relevant provisions, Division 3 of Part 7.5, provide for the making of compensation rules by the relevant market operator (and these rules form part of the compensation arrangements which must be approved by the Minister). Amendments to these rules must be lodged with the Australian Securities and Investments Commission and are disallowable by the Minister.
3.4 In the light of these changes the proposed Corporations (Securities Exchanges Levies) Act 2001 and the Corporations (Futures Organisations Levies) Act 2001 are to be superseded and replaced by the proposed Corporations (Compensation Arrangements Levies) Act 2001. Their repeal will occur at the end of the two year transition period. Relevant amendments to these two proposed Acts are included in the Corporations (Consequential Provisions) Bill 2001.
3.5 The superseded legislation supports levies for the fidelity funds required to be held in connection with certain authorised stock and futures markets under the proposed Corporations Act 2001.
3.6 The Corporations (Compensation Arrangements Levies) Bill 2001 addresses the same issues as the superseded legislation but in the light of the reforms included in the Financial Services Reform Bill:
• the expressions used in the Bill which are defined in Division 3 of Part 7.5 (to be inserted by the proposed Financial Services Reform Act 2001 into the proposed Corporations Act 2001) have the same meaning in this context (clause 3);
• any levy payable under section 883D (to be inserted by the proposed Financial Services Reform Act 2001 into the proposed Corporations Act 2001) is imposed by clause 4;
• the amount (or a method for determining the amount) of the levy is to be specified in the compensation rules (clause 5); and
• levies payable under the previous legislation as at the commencement of this proposed Act become payable by virtue of clause 6.
3.7 The relevant provisions are included in a separate Bill to meet the requirements of section 55 of the Constitution.
3.8 The proposed Corporations (Compensation Arrangements Levies) Act 2001 will commence at the same time as Part 1 of Schedule 1 to the Financial Services Reform Act 2001 (clause 2).