The Financial Planning Association (FPA) has made clear it will not support a compensation scheme of last resort (CSLR) unless it involves all segments of the industry because it does not want to see financial advice become a “proxy for failures across the entire financial services industry.
In a strongly-worded submission to Treasury on Government proposals to implement a CSLR, the FPA stated that “until the regulatory and compensation framework is set to make each provider individually responsible and financially accountable to the end consumer for the provider’s legal and ethical obligations, the FPA is unable to support the introduction of a CSLR”.
It said that although the FPA understood the reasons some stakeholders wanted to introduce such a scheme, it believed further analysis or an inquiry needed to be conducted as to why there are so many unpaid Financial Ombudsman Service (FOS) determinations “before bolting on a costly scheme that does not actually address the underlying reasons as to why there are unpaid determinations”.
The submission pointed to the final St John report which, having examined the need and costs and benefits of a CSLR concluded that it would be counter-productive to do so without first seeking to strengthen existing compensation arrangements.
In doing so, the FPA pointed to “significant limitations in using professional indemnity (PI) insurance as a compensation mechanism including that total funds under a policy might not cover all of the compensation awarded against the insured.
However on the broader question of how a CSLR would work, the FPA said that it’s funding should include all financial services participants with costs “distributed appropriately across the sector to ensure the viability of the scheme and not disadvantage any particular group of providers”.
“It should not exclude self-insured entities, product providers, research houses and other providers of services that influence, either directly or indirectly a consumer’s financial decisions,” it said.