The Australian Financial Complaints Authority (AFCA) has welcomed the introduction of Compensation Scheme of Last Resort (CSLR).
The Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill 2023 [and associated bills] passed both houses on 22 June. The bills propose to establish a CSLR that will provide compensation to victims of financial misconduct who have received a determination in their favour from the AFCA but who have not been paid.
AFCA chief executive and chief ombudsman, David Locke, said: “The establishment of a CSLR was an important recommendation from both the Ramsey review of 2017 and the Hayne royal commission of 2019 and one we have long supported.”
The body would now begin reviewing the status of complaints that had been placed on pause because they involved insolvent firms. AFCA said there are 4,875 paused complaints as of 1 June 2023, including matters that are closed because there has been an AFCA determination but no payment made.
An independent not-for-profit CSLR company would be responsible for managing access to compensation under the scheme if a firm did not pay an AFCA determination. The company would have its own board with funding arrangements put in place by the federal government.
The government would also fund the costs of the first levy period to the end of the 2023/24 financial year. After this, it will be funded by the industry.
The CSLR will provide compensation of up to $150,000 to eligible consumers who have an unpaid determination from AFCA relating to personal financial advice, credit intermediation, securities dealing, and credit provision.
Consumers will be able to lodge claims for compensation from April 2024, with the first compensation payments to follow shortly.
Eligible consumers will be those who have an unpaid determination from AFCA relating to:
- Personal financial advice provided to retail clients on relevant financial products;
- Dealing in securities for retail clients (but not issuing securities);
- Providing credit (where a financial firm provides funds); and
- Arranging credit (where someone like a mortgage or finance broker arranges funds)
However, the following will be outside of the scope:
- Managed investment schemes (a form of collective investment where investors pool money to be managed by a third party, such as a property fund or agricultural scheme);
- Dealing in foreign exchange or derivatives;
- Arranging insurance (e.g. through a broker); and
- Funeral insurance
Minister for Financial Services, Stephen Jones, said: “The Albanese government is committed to strong consumer protections in the financial sector. The successful implementation of the CSLR will further strengthen consumer trust and confidence in Australia’s financial system.”
Complainants would be notified by AFCA as the work progresses.
Dixon Advisory complaints
Earlier this year, Money Management wrote how significant volumes of complaints related to Dixon Advisory Superannuation Services (DASS) are on pause with AFCA. DASS’ Australian financial services licence was suspended in April last year for alleged conflicts, best interests failures, and inappropriate advice, with the corporate regulator commencing civil penalty proceedings against the firm.
Over 1,700 investment and advice complaints received by AFCA last year related to the collapse of Dixon Advisory, representing three-quarters of total sector complaints.
With the CSLR now having passed, AFCA said it would whether an ‘open’ complaint was within AFCA’s jurisdiction and within the scope of the CSLR. AFCA said the high number of ‘open’ complaints on pause meant the initial review and consideration of the merits of individual complaints would take some time.
“We are pleased for those people who will be eligible to lodge a claim with the CSLR, as set out by the legislation. We also acknowledge that others will be very disappointed if they do not qualify,” it said.
“There are nearly 5,000 complaints currently on pause at AFCA, so this review will take some time to complete.”
Dixon Advisory would need to maintain AFCA membership until 8 April 2024 as complaints could only be made against firms that are members of AFCA.
