The Australian Financial Complaints Authority (AFCA) may only have been around since 2018 but it can already point to 40 compensation determinations which have gone unpaid due to the insolvency of financial firms.
The authority has used its submission supporting the implementation of a Compensation Scheme of Last Resort to argue that it should funded by and encompass the entire financial services industry including managed investment schemes (MISs).
It said that the scheme should cover unpaid compensation arising from the provision of any financial service and product that came under AFCA jurisdiction and all forms of regulated financial services financial advice or financial products.
The AFCA submission said that while many of the unpaid determinations that arose related to financial advice, evidence indicated non-compliance with determinations was not confined to financial advice firms but also credit providers, MIS operators, finance brokers, mortgage brokers, securities dealer and derivatives dealers.
On the question of the status of professional indemnity (PI) insurance compulsorily held by financial advisers and others, the AFCA submission said it was a separate issue in circumstances where “PI covers business risk and is not a consumer compensation mechanism”.
“Notwithstanding any need for further PI reform in relation to how firms meet their legal obligation to have adequate compensation arrangements in place, there is a need for a CSLR to cover loss where PI will not respond. These circumstances include fraud, amounts above PI limits and other situations where PI does not provide coverage or is not available,” it said.