The maximum proposed compensation scheme of last resort (CSLR) compensation cap of $150,000 will be inadequate to cover the financial losses of Sterling Group victims, according to a Sterling Action Group (SAG) survey.
The CHOICE-affiliated volunteer led group represented victims of the collapse of the Sterling Group and had conducted a variety of short online survey of 55 victims who suffered financial losses associated with the collapse of the Sterling Group.
In its submission filed with the Senate Economics Legislation Committee into the CSLR bill, SAG revealed that 66% of victims suffered losses greater than the proposed cap, with 23% at losses between $151,000 and $200,000, 32% at $201,000 to $250,000 and 11% over $251,000.
“Whilst we acknowledge the proposed maximum compensation amount for the CSLR is broadly aligned with the United Kingdom’s financial services compensation scheme’s maximum of £85,000 [$160,000]; this cap does not align with the Federal Government’s agreement to implement a CSLR consistent with the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” SAG said in its submission.
“The Ramsey Review recommended aligning compensation limits of the CSLR with those imposed by the Australian Financial Complaints Authority [AFCA], which is currently $542,500 compensation in most claims of direct financial loss.
“The proposed CSLR cap of $150,000 equates to less than 30% of the limit recommended, and agreed upon, by the Federal Government.”
The Sterling First Group strongly opposed setting a CSLR compensation cap but said it if was to be imposed, it should be aligned with AFCA claim limits, be indexed accordingly to increase, and continue to align over time.
SAG made the following recommendations:
- The scope of the CSLR should include managed investment schemes and be clearly prescribed in primary legislation;
- If the previous recommendation was not viable, eligible AFCA cases and unpaid determinations associated with managed investment schemes that arose between 1 November, 2018, and before scheme establishment, to be funded as part of the one-off ‘accumulated unpaid determinations’ levy; and
- The Government should align CSLR compensation limits with AFCA claim limits and ensure prescribed CSLR compensation limits are indexed accordingly to increase and remain aligned with AFCA claim limits in the future.
- If the previous recommendation was not viable, CSLR compensation limits should be set at 80% of the maximum AFCA claim limit (i.e., the maximum compensation to be paid would be 80% of the current AFCA limit of $542,500 for direct financial loss) and indexed with AFCA claim limits.
- The scope of the CSLR should include disputes where misconduct is proven by AFCA investigation.
- If the previous recommendation was not viable, CSLR compensation limits to be aligned with APRA Financial Claims Scheme limit of $250,000.
- Current and prospective members of AFCA should provide a copy of their current personal indemnity insurance policy to be deemed eligible for an AFCA membership.
In November, Senator Jane Hume said the CSLR should not be expanded to cover managed investment schemes as she believed it would balloon the cost of funding it.
“The CSLR is not an insurance designed to pay compensation to any consumer who has lost money in an investment,” Hume said.
“It is only intended to cover unpaid compensation awarded because of misconduct relating to a targeted range of products and services.”
Consumer advocacy group CHOICE and the Association of Independently Owned Financial Professionals (AIOFP) had previously urged the Government to expand the CSLR to include managed investment scheme collapses.