Consumer group Choice wants a voice on a Treasury taskforce, funded by the Government, to implement the policy reforms recommended by the Banking Royal Commission, arguing that self-regulation has demonstrably failed.
At the same time, the consumer group pointed to the exit of the major banks from the financial planning industry and has argued that they may be replaced by smaller groups less capable of compensating consumers.
In a pre-Budget submission filed with Treasury, Choice has claimed it is essential that consumer groups are recognised as “key stakeholders”.
“What is clear from the evidence of the Financial Services Royal Commission is that self-regulation - that is, banks writing their own unenforceable rules - has demonstrably failed and has led to widespread consumer harm,” the submission said. “Well-funded industry lobbyists will seek to hijack the policy process, and water-down consumer protections.”
The submission said that this had been evidenced by the “industry’s attempts to water down protections in the Future of Financial Advice (FoFA) reforms, and in the final result of a year’s worth of consultations on the Life Insurance in Superannuation Code (the final result being a voluntary, unenforceable code)”.
“It is essential that consumer groups are supported to take the lead in this reform process and that Treasury resources allow for time to engage with consumer groups and properly review industry claims,” the Choice submission said.
On the question of funding a compensation scheme of last resort, Choice pointed to the heightened risk of “an environment where large financial providers with significant capital holdings move away from the advice sector”.
“Taking their place is likely to be a series of smaller advice businesses who is many cases will not have the resources to compensate consumers for improper advice which leads to loss,” it said.
“This is best evidenced in the collapse of Dover Financial Services, an entity that arguably folded due to revelations of misconduct made public in their appearance before the Royal Commission. Dover Financial Services had an estimated 40,000 to 50,000 clients,” the submission said. “These clients are now not able to access external dispute mechanisms, such as the Australian Financial Complaints Authority. If any of these clients had a complaint against the company, they will struggle to get fair compensation.”