In a recent submission to Treasury, the SMSF association and accounting bodies have called on the government to make amendments to the draft legislation for the compensation scheme of last resort (CSLR).
“We are concerned that the scheme proposed in the Bill has significant short comings, including its narrow scope, that it appears to provide inadequate coverage to consumers and that it does not look to address the underlying causes of unpaid determinations,” the submission stated.
“Further, the proposed scheme will arguably add significant cost and complexity to the financial services sector, at the same time when efforts are being made to improve access to affordable quality financial advice.”
The submission stated that all product providers and advisers, not just those in the retail finance sector, should have a shared responsibility to lift the confidence and trust in the sector.
It also pointed out that unless the scope of the CSLR as proposed in the package of Bills before Parliament is amended to include all financial products, not all consumers who engage with an ASIC regulated financial product, with or without seeking professional advice, will have access to adequate compensation and redress.
“For example, the narrow scope of the proposed CSLR means that managed investment schemes (MIS) and other complex financial products will be excluded,” it stated.
“This exclusion will leave many consumers who invest directly into financial products including MIS, without first seeking professional advice, unable to seek appropriate compensation or redress in the event of a future collapse.”
Where losses are incurred due to misconduct, misrepresentation or fraud on the part of a product issuer or manufacturer, the submission argued that consumers should have a right to be protected.
“The proposed exclusion of this group is of concern given the significant losses that have been suffered by direct investors in the past,” it said.
The submission stated that the scope of the CSLR should be amended to ensure consumers are adequately protected by including all Australian Financial Services (AFS) licensees who are legally required to be a member of the Australian Financial Complains Authority (AFCA) as part of their respective AFS licence conditions.
“The levy payable to fund the CSLR could then form part of the annual AFCA membership invoice, which would also streamline the administration and associated operation costs of the scheme,” it said.
The industry associations also noted that one of the contributing factors for the need to have the CSLR is the failure of professional indemnity insurance to respond appropriately to disputes, leaving awarded decisions by AFCA remaining unpaid.
“Accessibility and affordability of PII for the retail personal financial advice sector have been challenges for many years, with the impact of the Financial Services Royal Commission resulting in some PII providers exiting the market,” it noted.
The submission said that ASIC should require all AFS licensees to to submit their PII cover details as part of their existing annual compliance obligations.
“ASIC should audit a random sample across market participants to ensure there is adequate consumer protection for the users of financial products and advice,” it suggested.
