Since its announcement, the Government's proposed compensation scheme of last resort (CSLR) has attracted criticism and concern regarding its projected costs, scope and consumer impact.
Not long ago, the FSC challenged what it suggested was an excessively conservative estimate of how much the CSLR would cost on an ongoing basis. Before that, Labor MP Stephen Jones described the proposed scheme as "four years late" and said it $150,000 compensation cap fell far below recommendations made by the Royal Commission.
One of the biggest and most consistent concerns expressed by advice industry bodies, though, was the narrow range of products and services included in the CSLR's remit. As the name implies, the CSLR is intended as a final recourse for consumer compensation in circumstances where a determination by AFCA remains unpaid.
Confusingly, however, certain financial products - such as managed investment schemes - have been excluded from the scope of claims the CSLR can consider, despite being well within AFCA's broad remit. As an "astonished" AFA noted when the draft legislation was opened for consultation, "the Government has provided no justification for why that is the case."
The exclusion of certain financial products from the CSLR could have a material impact on the advice sector - both because advisers could end up on the hook for product failure complaints by default and because, as per the CSLR's funding model, the industry will be paying substantially more in levies than the other products and services included in the scheme.
This is why the AFA, along with 14 other consumer groups and professional associations - this list includes the FPA, CHOICE, the Consumer Action Law Centre and Chartered Accountants Australia and New Zealand - have jointly requested that the Government expand the CSLR beyond its current scope.
In the joint statement, FPA CEO Dante De Gori said that consumers of financial products "deserve the same protections and access to compensation, regardless of where they make their purchase. A last resort compensation scheme must operate equally and fairly across the entire sector to ensure consumers have faith in the system."
He added that "product manufacturers who profit from consumers’ investments [must] also contribute to compensation."
On the consumer side, CHOICE CEO Alan Kirkland said the current CSLR will "exclude victims of managed investment scheme collapses, like the many elderly Australians who lost their savings through the collapse of Sterling First. It will also exclude consumers from First Nations communities who were tricked into paying for funeral expenses policies by the Aboriginal Community Benefit Fund, now trading as Youpla."
He continued: "One of the reasons we had a Banking Royal Commission was because thousands of victims of financial misconduct had been left without compensation. The establishment of a compensation scheme was one of the Royal Commission’s most important recommendations. The Government’s proposals fail to live up to the spirit and letter of the Royal Commission’s recommendations."
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