Protecting financial services consumers
You have won compensation from financial misconduct, but the company’s gone bankrupt, and you lose it all. Thankfully, you’ll soon be better protected.
Key points
Bills to introduce the Compensation Scheme of Last Resort have been introduced into parliament.
The scheme aims to give consumers greater redress to compensation for misconduct.
Advocates say it does not go far enough.
Australia has a robust financial services complaints system. The Australian Financial Complaints Authority provide consumers and small businesses with fair, free, and independent dispute resolution for financial complaints about credit and loans, insurance, banking deposits and payments, investments and financial advice and superannuation.
You can make a complaint online or free call 1800 931 678.
However, the Banking Royal Commission identified a serious system deficiency for consumers who had successfully complained, but the financial firm had gone insolvent. In that case, there was little a consumer could do to recoup their money.
The federal government’s fix for this is the introduction of a Compensation Scheme of Last Resort (CSLR).
The CSLR arose from the previous government’s commitment to implement Recommendation 7.1 of the Banking Royal Commission.
It will allow victims to be compensated by up to $150,000 with the financial services industry to cover the cost.
The bills to establish the scheme are now before parliament, and opinions are divided.
Some stakeholders, including the Opposition and consumer advocacy groups, have criticised the CSLR and argued that the proposed scheme watered down the recommendations of the Banking Royal Commission.
The Australian Financial Review reports the scheme will not include managed investment funds.
The Consumer Action Law Centre (CALC) and the Australian Financial Complaints Authority (AFCA) have welcomed the legislation as the missing piece in consumer protection.
However, the CALC wants the scheme to be broader and cover all regulated products and services so that consumers do not face a gap in compensation.
For that to happen, the CALC says compensation caps should align with the awards made by the Australian Financial Complaints Authority.
The AFCA compensation caps are set to $524,500 for most individual complaints.
Other consumer advocates want the CSLR to include victims of failed managed investment schemes and funeral expense providers.
As the name suggests, the CSLR compensates consumers as a last resort in specific circumstances. This means that the Australian Financial Complaints Authority has decided in favour of the consumer who experienced financial misconduct and the financial institution in dispute has not paid following the AFCA determination (typically because of insolvency).
The CSLR will only apply to unpaid AFCA determinations. Unpaid victims of financial misconduct, as determined by court and tribunal rulings, will not be covered by the CSLR.
The CSLR’s maximum compensation for each AFCA determination caps at $150,000.
The CSLR will consider claims for unpaid AFCA determinations when the financial complaint is made to AFCA after 1 November 2018 (the day AFCA commenced operations).
