The Government has released the Supplementary Final Report to the “Review of the financial system external dispute resolution and complaints framework”, which includes recommendations for the establishment of a limited financial services compensation scheme of last resort (CSLR). Background.
While the Royal Commission to investigate allegations of misconduct by Australian banks and other financial services providers will not affect the establishment of the Australian Financial Complaints Authority (AFCA), the new Banking Executive Accountability Regime or reforms to whistleblower protection regimes, the Royal Commission will examine many of the issues that have been considered as part of the supplementary Ramsay report and as a result, the Government has announced will defer its consideration of, and response to, the Report until the Royal Commission has concluded.
The Report recommended that a limited and carefully targeted CSLR be introduced for future unpaid compensation in parts of the financial services sector where there is evidence of a significant problem of compensation not being paid.
The Report recommends that a CSLR should initially be restricted to financial advice failures where a financial adviser has provided personal and/or general advice on ‘relevant financial products’ to a consumer or small business. This means that only advice given by a ‘relevant provider’, as defined in section 910A of the Corporations Act, would be covered by a CSLR. Relevant financial products include, for example, financial advice on investments in managed investment schemes, superannuation and banking products that are not basic banking products.
The Report considers it essential that a CSLR be the last resort within the financial system’s dispute resolution framework. That is, a CSLR should act as the final safety net to ensure consumers and small businesses are able to receive compensation after all other avenues have been exhausted.