Eight industry associations linked to financial advice have protested against the design of the proposed compensation scheme of last resort (CSLR), amid concerns the scheme will be misused and fails to address the causes of unpaid consumer protection.
In a note sent to media outlets Friday morning authorised by Chartered Accountants Australia and New Zealand, CPA Australia, the Financial Planning Association, the Institute of Public Accountants, the SMSF Association, the Association of Financial Advisers, the Stockbrokers and Financial Advisers Association and the Boutique Financial Planning Principals Association, the group said the CSLR could be the “last straw” for a financial advice industry already reeling from an ASIC levy that has increased 230 per cent in three years.
The CSLR was proposed in the Hayne Royal Commission final report as a means to recompense consumers once all other avenues have been exhausted.
While the group is behind the concept of a CSLR, it believes the design outlined in draft legislation is flawed.
“All eight associations support a truly last resort compensation scheme,” the note states. “However, the associations do not support the way the scheme is structured to include Australian Financial Complaints Authority’s (AFCA) outstanding expenses in addition to failing to address the causes of unpaid consumer compensation.
“The associations are concerned the scheme may not be used purely as a last resort. This is a major and unwarranted departure from the Royal Commission’s intent.”
The design adds unnecessary cost complexity by tying the scheme to the complaints authority, the group believes. If taken in its current form, the CSLR proposal will contradict the government’s stated desire to reduce red tape and the cost to serve for advisers.
“The proposed scheme will add significant cost and complexity, which is at odds with this commitment.”
Further, the release states, the proposed scheme gives an unwarranted free pass to some industry participants including product manufacturers.
“This means that manufacturers whose products are poorly designed and improperly fail won’t have to contribute to the compensation scheme,” the release states.
The associations will make individual submissions to the government regarding the scheme, and are collectively pushing for the government to amend the draft legislation “to ensure the proposed scheme can only be used as a last resort, is appropriately calculated and applies to all financial service industry participants”.