The Financial Accountability Regime Bill 2021 and Financial Services Compensation Scheme of Last Resort (“CSLR”) Levy Bill 2021 and related bills were referred to the Senate Economics Legislation Committee (“Committee”) for inquiry and report by 15 February 2022.
The CSLR will cover unpaid determinations arising from personal financial advice, credit activities and dealing in securities (other than issuing securities).
The FSC’s submission to the Committee supports a targeted CSLR. With the scheme covering financial advice, which historically has been the greatest source of unpaid determinations, the scheme is consistent with the Royal Commission and Ramsay Review recommendation to establish a limited and carefully targeted CSLR.
Whilst the CSLR will seek to provide a consumer safety net where the provider they are dealing with does not have the financial means to pay compensation owed, we have continued to raise concerns that more needs to be done to ensure the scheme lives up to its name of being truly last resort. This requires addressing the source of the problem and reducing the risk of unpaid determinations in the first place.
This includes:
- Strengthening advice licensees’ ability to meet compensation claims by introducing minimum capital requirements for advice licensees, phased in over a suitable transition period to streamline financial impact on businesses; and
- Greater ASIC oversight and enforcement over existing laws – namely professional indemnity insurance and adequate financial arrangements held by advice licensees.
These measures, if implemented appropriately, will better place advice licensees to meet compensation obligations to consumers, should they have a determination from AFCA. This would reduce the consumer risk of unpaid determinations occurring and place greater onus on the licensee responsible for the misconduct to pay the compensation owed, instead of socialising the cost onto other well-resourced and responsible financial advice businesses and consumers.
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