Last resort compensation scheme a step closer

The Federal Government has moved further towards the implementation of a last resort compensation scheme for the financial services industry on the back of the Carnell report into banking practices.

The implementation of a last resort compensation scheme is regarded as having implications professional indemnity insurance regime applying to financial planners.

Faced with a number of adverse findings within the report, the Minister for Revenue and Financial Services, Kelly O'Dwyer has escalated the processes around a last resort compensation scheme by empowering the Ramsay Committee Review of external dispute resolution (EDR) arrangements to formally examine the issue and make recommendations.

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The implementation of a last resort compensation scheme has been strongly pursued by the Financial Ombudsman Service (FOS) but resisted by some element of the industry who have been concerned about funding for such a regime.

In a formal response to the Carnell report, O'Dwyer said she had "strengthened the Ramsay Review terms of reference to allow the expert panel to make recommendations, rather than observations, on the merits and potential design of a last resort compensation scheme, and to consider the merits and issues involved in providing access to redress for past disputes".

"The panel will consult with stakeholders and will produce an additional report, with recommendations on a possible compensation scheme, by the end of June this year," she said.

O'Dwyer also signalled the Government's continued pursuit of a "one stop shop" EDR regime, notwithstanding load demands from the superannuation industry for the retention of the superannuation complaints tribunal (SCT).

"The Government has committed to putting in place a one-stop-shop for consumer complaints that will provide speedy access to justice, have the power to make binding determinations and to provide compensation," she said.

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Good, but don't let the consumer treat this as a guaranteed return of capital mechanism. Should be there for cases of fraud or malpractice, in particular fraud or negligence at fund manager level....or are they excluded as usual.

Sounds like a forgone conclusion of guilty until proven innocent for advisers. Always target the little guys first because they can least afford the defense. If an adviser is guilty, then fair enough, but if not, then who compensates for the mental and financial burden? Certainly not the government!

Where's the justice system when politicians are caught red-handed and guilty of rorting taxpayer funds for personal business?
Whats good for the goose........

If they put the burden on advisers then it will be very interesting. There are basically NO PI insurance companies in Australia willing to cover advisers, and no laws to force them to provide cover. So if oversea's companies look at the result and take the same attitude ....... Surely it has to be a risk assessed cost and determined between the fund and the insurance company, because the fund manager is the only entity to have both control and knowledge of the actual investments.

The committee does not seem to have anyone with expertise in financial advice, or financial products, 2 law experts, and one consumer representative with neither legal nor financial expertise. I don't fully understand how this group can assess the trade off between the cost of a "last resort insurance" and the impact on normal investment returns for prudent investors, who do not want nor need to pay for insurance. I am waiting for the result with interest.

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