Hold entire advice chain accountable: PIS
Any financial services statutory compensation scheme that fails to hold product providers, auditors, trustees, management and directors together with researchers and advisers equally accountable cannot be deemed appropriate or equitable, according to big dealer group, Professional Investment Services (PIS).
In a submission to the Government’s review on compensation arrangements, the dealer group said the Government needed to consider the reason for client losses, which very often stemmed from corporate failures and the insolvency of product providers rather than advice-based failures.
“The current review, however, does not propose to deal with loss or damage suffered as a result of investment failure which has the potential to limit the effectiveness of any proposed compensation arrangements and is not likely to address the issue of client loss,” the submission said.
PIS made clear it would not be able to support a statutory compensation scheme of last resort if it was intended only to cover loss or damage as a result of licensee misconduct.
“We are concerned that a statutory compensation scheme for advice-based failures, or losses associated with licensee conduct, may simply be addressing a symptom instead of using the opportunity of assessing consumer protection and compensation arrangements to recognise and address the wider problems associated with corporate failures,” the submission said.
PIS then went on to reference corporate failures and market failures, not least among agribusiness managed investment schemes, along with the failures of directors and management and the role of auditors in signing off accounts shortly ahead of a business collapse.
“Each of these components are key stakeholders in the value chain which may in fact contribute to the loss suffered by consumers,” it said.
“Where these key players fail to perform their role in accordance with their legal and professional requirements then they should be held accountable and liable for their involvement in the overall failures, similar to the measures taken by the Australian Securities and Investments Commission (ASIC) with respect to Westpoint in commencing compensation action against the directors, the auditor, trustee and financial advisers,” the PIS submission claimed.
It said failure by the Government to provide such a regime would not provide consumers with adequate protection or provide appropriate compensation under the statutory compensation scheme for losses arising from licensee misconduct.
AUTHOR
Mike Taylor
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