A coalition of consumer groups has welcomed the Federal Government’s commitment to establish a compensation scheme of last resort.
Uncompensated losses arising from financial misconduct can cause a range of lasting impacts on people, including the loss of a family home, bankruptcy, the collapse of the family business, mental and physical ill-health, and relationship breakdown. When the Australian Securities and Investments Commission (ASIC) investigated the impact of monetary loss in 2011, it found that almost one in six people affected by uncompensated losses were living below the poverty line and had either lost their home or were perilously close to losing it.
These impacts are likely to be even more acute in the current economic climate, in which many people continue to suffer from the impact of losing work due to the COVID-19 pandemic. A well-designed compensation scheme of last resort (CSLR) is a missing link in the financial services architecture in Australia.
Organisations dealing with casework witness first-hand the impact of the lack of a CSLR on the Australian community. It is a disillusioning and unjust experience for families who suffer a loss to go through the lengthy dispute resolution process and have compensation awarded in their favour, only to be told they won’t receive any money.
It is essential that the Government gets the design of the CSLR right in the first instance to ensure that the Australian community is protected and trust is restored to the financial sector. This is the opportunity to set a strong and fair foundation that works for the Australian community.
When the Government announced in its response to the Banking Royal Commission that it would establish a compensation scheme that extended beyond financial advice, we welcomed it. Consumer groups recommend the scope of the scheme be expanded to include all financial services products and services that come within the Australian Financial Complaints Authority’s (AFCA) jurisdiction, including funeral expenses providers, managed investment schemes and debt management firms.
We also support expanding the scheme to include court and tribunal decisions and to include voluntary AFCA members. The purpose of the CSLR is to stop people from falling through the cracks, so we must not design a system with cracks from the outset.
Read the recommendations in the full submission (PDF).210812 Joint consumer submission to Treasury – Compensation scheme of last resort