Financial services compensation arrangements

Chris Pearce, the Parliamentary Secretary to the Treasurer, has announced that a regulation to complement section 912B of the Corporations Act 2001 (the Act) is expected to be made by 1 July 2007 (when the current class order giving transitional relief ends).

The Act requires financial services licensees that provide financial services to retail clients to have in place appropriate compensation arrangements. The arrangements must either be approved by ASIC, or satisfy the requirements specified in the regulations.

The proposed regulation will specify that section 912B is satisfied if licensees have professional indemnity insurance in place. Certain bodies which are regulated by the Australian Prudential Regulation Authority will be exempt from this requirement.

The regulation will also include transitional provisions and provisions relating to the return of the security bonds held by the Australian Securities and Investments Commission (ASIC).

The regulation will be supplemented by ASIC guidance. The draft guidance note, which will assist licensees to put appropriate arrangements in place, will be released by ASIC for public consultation at the time the regulation is made.

A draft regulation was issued in November 2006.

The draft regulation will be amended in the light of the submissions received.  Changes generally relate to areas of misunderstanding and ambiguity in the draft regulation, and the proposed requirement for licensees to disclose their arrangements in their Financial Services Guide.