- The proposed CSLR is to provide a pathway for eligible consumers to receive unpaid compensation from an AFCA determination
- CA ANZ supports the concept of a scheme but disagrees with the design of the proposed one as it will add significant costs to the industry
- If this scheme is to be industry funded, then more industry participants such as product providers should be included
CA ANZ supports the compensation scheme of last resort (CSLR) concept as an important measure to ensure consumer protection and believes it is an important component of providing professional financial services.
However, we do not support the CSLR in its current proposed form and would like to contribute to improvements.
CA ANZ continues to advocate and support the professionalism of the financial advice industry and as such, we are very concerned with the overwhelming increase in regulatory costs that are driving people out of the advice space.
This is a concerning trend, as increasing costs to provide advice are leading to inevitable increases in the cost of advice for clients at a time when more and more people want and need access to affordable advice.
CA ANZ believes the funding of the proposed CSLR will add additional red-tape with significant associated additional costs and, as such, we would like to see amendments to this Bill.
Summary of the proposal
The levy framework creates a tax to be levied against relevant industry entities to fund the CSLR.
The CSLR operates to create a pool of funds from which eligible claimants who have suffered loss or damage as a result of inappropriate advice or action of a financial advice firm can access compensation even if, for example, the financial advice firm has become insolvent.
Under the scheme, a complainant who has been provided a determination by AFCA will be able to seek the determined compensation, up to A$150,000, from the operator.
CA ANZ has raised the following concerns in the proposed CSLR:
- The level of levy requested from advisers needs to be sustainable, particularly for smaller and medium sized businesses that have been overwhelmed with ever-increasing regulatory costs that are making the cost of running a sustainable advice business prohibitive.
- There is also an issue arising from the prevalence of COVID-19 lockdowns in parts of Australia: many advisers have experienced declining incomes. The implementation timeframes should take account of the stage our nation has reached in terms of COVID recovery.
- The quantum of the proposed CSLR is considered to be quite high.
- Ensuring the CSLR is not overwhelmed or overburdened with high and unnecessary administrative costs, including the proposed reimbursement of AFCA fees,
- The CSLR should be a scheme of last resort for clients who can be remediated in no other way.
- The possibility of the scheme becoming a potential moral hazard needs to be addressed, as this could be a consequence of the currently proposed CSLR. As an example, licensees who may otherwise have been captured by the scheme may start to reduce their number of advisers to ensure they are no longer captured by the scheme.
- The need to include product providers, as in the past, product failures have led to compensatory action. The current proposal places an unfair burden on the advice component of the industry.
- Incorporating PI Insurance reform to ensure the proposed CSLR is workable with the PI insurance system. This is to allow for the possibility of insurance covering claims either in full or in part and some of the regulatory expenses
Read about our licensing advocacy
The CA ANZ financial advice advocacy team in Australia is currently working on a review of limited licensing to develop an effective and permanent model for the provision of limited financial advice by accountants.Read more
See media coverage
AccountantsDaily: Peak bodies fear compensation scheme could be last straw for advice industryRead more