Financial planners say they continue to have reservations about the proposed Compensation Scheme of Last Resort (CSLR) and the Financial Accountability Regime (FAR) after legislation for the two measures backed by the Hayne Royal Commission was introduced in the House of Representatives last week.
Finance Services Secretary Stephen Jones last week introduced the bills, which represent the latest tranche of the remaining reforms recommended by the Hayne Royal Commission in its final report in 2019.
Mr Jones says the Commonwealth will fund the establishment of the compensation scheme, which is due to be operational from December this year if the bill passes both houses of Parliament by March. The Commonwealth will also fund the commissioning of the program by June 30, 2024.
He says a backlog of complaints filed with the Australian Financial Complaints Authority (AFCA) that are likely to be eligible will be funded by a one-off levy to Australia’s 10 largest banking and insurance groups.
From July 1, 2024, the costs of the compensation scheme are to be financed entirely by industry-financed levies. There will be a levy framework providing an ongoing annual levy for companies falling within a sub-sector within the scope of the scheme.
“The CSLR is designed to be financially sustainable and to provide certainty to the relevant sub-sectors of the financial markets about the likely maximum amount to be charged,” Mr Jones said in Parliament last week.
The Financial Planning Association (FPA) says an effective CSLR will boost consumer confidence in financial advice by ensuring there is a compensation mechanism when retail clients have lost money due to poor advice.
“However, the legislation has not changed significantly from previous drafts and many of the concerns we previously raised remain,” said FPA CEO Sarah Abood.
She says the scope of CSLR needs to be expanded to ensure consumers are covered for all matters considered by the AFCA, including managed investment schemes (MIS).
“We recognize that a review of the regulatory structure of MIS has been announced and this is a positive step,” said Ms Abood.
FPA is also concerned about the cost of the CSLR and what it means for FPA members.
“We are very pleased to see that advisers are not required from the outset to fund compensation for past misdeeds,” said Ms Abood.
“However, the proposed $20 million sector cap could result in future levies of over $1,250 per advisor based on our current numbers.
“This is a significant burden for consultants who are already facing increased costs from the unfrozen ASIC levy, professional indemnity premiums and the general increased costs that all businesses are facing in the current environment of high inflation.”
