Government to introduce Financial Claims Scheme
The Federal Government is set to introduce legislation to establish a Financial Claims Scheme (FCS) that will afford added protection to depositors and general insurance policyholders in the event of a financial institution failure.
The FCS will be administered by the Australian Prudential Regulation Authority (APRA) and enable eligible customers to quickly recover money in accounts with failing authorised deposit-taking institutions (ADIs). Customers will be able to recover money up to a specified cap, with the remainder to be recovered when the ADI is liquidated.
“To avoid the need for ad hoc arrangements of the sort established in the wake of the HIH failure, the FCS will also provide compensation to policyholders who have valid claims with a failed general insurer,” said Federal Treasurer Wayne Swan.
The Government has also agreed to enable the regulators to act more quickly and decisively in relation to failing ADIs. These changes to the regulatory framework will also enhance the regulators’ ability to recapitalise a distressed bank, credit union, building society or general insurer.
“Although Australia’s financial system is sound and Australians have rarely suffered losses as a result of financial institution failure, these enhanced crisis management arrangements will give customers even greater certainty when dealing with APRA-regulated financial institutions,” said Swan.
The Commonwealth Government will fund payments under the FCS, with costs to be recovered via the liquidation of the failed entity. Should liquidation not enable the Government to fully recover costs, a levy may be applied to relevant financial institutions.
Swan also announced that the Government will maintain the ‘Four Pillars’ policy for the banking sector.
“The Government considers that Australia is best served by a stable banking system that can continue to draw on the strength and risk management skills of the four major banks, rather than a lesser number,” he said.
“Accordingly, whatever the outcome of the banking merger now under consideration, the Government sees no case for changing the Four Pillars policy that has served Australia well.”
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