There are two areas where Minister for Financial Services, Stephen Jones, has the power to change the Compensation Scheme of Last Resort (CSLR) without the need for law changes.
Speaking on a Financial Advice Association Australia (FAAA) webinar, chief executive Sarah Abood discussed the organisation’s advocacy around the CSLR and its levy.
This particularly focuses on the impact of Dixon Advisory, the higher funding levy for financial advisers which is expected to exceed $20 million, and compensation sources.
While some areas such as phoenixing by AFSLs would require a change in law to prevent them, and where the FAAA has sought legal advice, there are two other areas which could be changed by the minister.
Abood said: “There are things the minister himself can change or make decisions on that don’t require an act of Parliament. In terms of urgency, we’re really focusing on those elements now because we don’t know when the next election’s going to be. It’s possible that we could be going into ‘caretaker mode’ as soon as March next year, depending on when an election is called and held.”
These areas are how the levy is split between different professions and whether the CSLR compensation could be reduced if the member has received compensation from another source.
“What happens if the levy for our sector is above the $20 million cap for the next financial year? At the moment, it looks quite likely that it will be, a lot depends on how quickly AFCA is able to process these complaints, but insofar as the amounts are above the cap, we’re arguing strongly they shouldn’t be attributed to our sector.
“The minister has the power to decide what happens to those amounts. We’ve suggested they could be, for example, evenly split across all the subsectors that ASIC regulates, but essentially the minister can choose what happens to that amount.
“The other matter that we think needs urgent attention, for example, is that any CSLR compensation needs to be reduced if the member has received compensation from another source, like a class action.
“This is very relevant for the Dixon case because of course, we have a class action that was recently concluded, and many of the members who have made claims, via AFCA and potentially the CSLR, will be receiving money from that class action, so it’s not appropriate that that be in addition to what they would receive from the CSLR. It’s meant to be a scheme of last resort.”
At its annual conference in Brisbane last month, FAAA general manager for policy, advocacy and standards, Phil Anderson, called for the compensation funding of Dixon to be shared by the wider professions.
He said: “The losses that we are paying for are not just advice-related, they are much broader than this.
“The business model was that decisions were made about how much each client would invest by an investment management committee, not by the individual adviser; this was an organised process of forcing clients to effectively invest in an in-house product.
“This is much bigger than an advice issue.”
