Major associations rally for stronger compensation scheme
The SMSF Association has united with major industry and consumer associations to call for a broad financial compensation scheme, as legislation is expected to be introduced into Federal Parliament in the coming weeks.
A diverse coalition of 15 organisations, including consumer groups, professional financial advice associations, financial counsellors, professional accounting associations, and community legal centres are calling on the federal government to expand the proposed compensation scheme of last resort (CSLR).
The letter was co-signed by 15 organisations, including CHOICE, Chartered Accountants Australia and New Zealand, SMSF Association, the Association of Financial Advisers (AFA), Council of the Ageing (COTA), and Financial Rights Legal Centre.
The groups are calling for the proposed legislation to be expanded to provide compensation for all financial products and services that fall under the jurisdiction of the Australian Financial Complaints Authority (AFCA).
The government’s draft bill will exclude vast segments of the financial industry, including managed investment schemes and the funeral expenses industry, leaving many victims of financial institutions, including product providers who are not required to contribute to the costs of compensation.
“When the government announced its response to the Banking Royal Commission, we welcomed the commitment to establish a compensation scheme. Now, some 32 months after that commitment, the scheme proposed by the government is incredibly disappointing. It will leave too many victims of financial misconduct without access to the compensation they deserve,” Alan Kirkland, chief executive officer of CHOICE, said.
“The government’s proposal 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.
“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.”
The Financial Services Royal Commission recommended the establishment of a compensation scheme of last resort to compensate consumers once all other avenues had been exhausted.
This would cover five defined financial products and services areas, including financial advisers and mortgage brokers, but would exclude other products such as financial product manufacturers and managed investment schemes.
This means that manufacturers whose products are poorly designed and improperly fail won’t have to contribute to the compensation scheme.
As a result, industry bodies fear that the responsibility for consumer losses and complaints would not be shared evenly across the sector.
Dante De Gori, CEO of the Financial Planning Association of Australia, stressed that consumers purchase financial services and products from a broad range of product providers, manufacturers, and professionals.
“They deserve the same protections and access to compensation, regardless of where they make their purchase,” he stated.
“A last resort compensation scheme must operate equally and fairly across the entire sector to ensure consumers have faith in the system.”
The legislation is expected to be introduced into Parliament in the next sitting fortnight and will be reviewed by the Senate economics committee.
Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.
Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.