Consumer advocacy group CHOICE is urging the government to expand the Compensation Scheme of Last Resort (CSLR) so it includes all financial services covered by the Australian Financial Complaints Authority (AFCA).
Appearing before the Senate Economics Committee, CHOICE chief executive, Alan Kirkland, said putting in place a broad compensation scheme was fundamental for restoring trust in the system.
He said there were a few key things that needed to be improved to restore trust and align with the Ramsay Review, starting with expanding the CSLR to all financial services.
“Or as an absolute minimum, managed investment schemes, funeral insurance policies and debt management firms,” said Kirkland.
According to Kirkland, a large number of victims of the Sterling First collapse would have had access to compensation if managed investments schemes were included in the CSLR.
Kirkland said this would ensure the scheme covered both court and tribunal decisions as well as AFCA decisions.
The decision to expand the scope to include managed investment schemes had also been brought up by the Self-Managed Superannuation Fund (SMSF) Association who said investors had suffered substantial losses from these schemes.
Kirkland also called on the Government to align compensation caps, which the Government limited to $150,000, with AFCA compensation caps of up to $542,500.
As the Hayne Royal Commission included the recommendations of the Ramsay Review in its final report, then agreed upon by the Government, Kirkland said the above changes would mean the Government would be following through with its Hayne commitments.
Kirkland said it may be necessary, should there be a concern that investment firms market their products on the basis that there will be compensation recourse through the CSLR, that the CSLR bill be amended to make it an offence to advertise in this way.
“Ultimately, this scheme is about who bears the costs of misconduct in the system and unless parliament improves the scheme proposed by the Government, we will continue to see people with the least resources [bearing] the cost of misconduct as we saw in the years leading up to the Royal Commission,” Kirkland said.
He said an effective Financial Accountability Regime (FAR) should go part and parcel with the CSLR.
“Unless we have clear conduct and accountability obligations on executives and senior managers, with consequences of breaching those obligations…, then then we won’t have completed the full suite of measures we need in order to reduce risk to consumers engaging with the system.”
