A series of financial scandals have left many Australians out of pocket and in some cases, resulted in the loss of the family home or a secure retirement. Scandals have not just occurred in relation to financial advice; many people have suffered uncompensated loss from the mis-selling of complicated investment products, collapse of managed investment schemes and predatory conduct by credit providers. When the loss goes uncompensated, the impact on individuals and families can be severe, with flow-on costs for the community, Government and trust in the financial system.
A compensation scheme of last resort must be established to prevent the well-documented harm caused by uncompensated losses, and to rebuild trust and confidence in Australia’s financial system. It is the missing piece of our financial services regulatory architecture.
To build trust and confidence in the financial system, the compensation scheme must be broad in its scope and apply to all:
- financial service providers, including credit licensees and operators of managed investment schemes; and
- unpaid external dispute resolution determinations, and orders of courts and tribunals.
All legacy unpaid determinations of the Financial Ombudsman Service and Credit & Investments Ombudsman must be paid, either as part of a last resort compensation scheme or a separate one-off levy on industry.
Redress for past disputes is complex but achievable. We support a separate past disputes forum that:
- is funded by industry with a contribution by Government;
- is open for applications for a period of at least two years;
- considers disputes from at least the last 10 years to capture the harm suffered by victims of financial misconduct who could not recover from firms that collapsed during the Global Financial Crisis and other financial scandals; and
- in the event that the forum is not able to fully compensate all people affected, applies a rationing approach on the basis of financial hardship to ensure compensation for those who need it most.
Consumer Action, together with Financial Rights Legal Centre, Care Inc Financial Counselling Service and the Consumer Credit Legal Service WA made a joint submission to the Ramsay EDR Review Supplementary Issues Paper on last resort compensation and redress for past disputes.Joint consumer submission - EDR Review Supplementary Issues Paper