MenuThe Financial Advice Association Australia (FAAA) notes the passage of The Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill 2023 and associated bills (CSLR) through both houses, and continues to have some reservations about the effectiveness of the scheme.
“An effective CSLR will promote trust in financial advice among consumers – by ensuring that if retail consumers have lost money due to poor advice, there is a compensation mechanism available. However the legislation has not changed substantially from previous drafts, and many of the concerns we expressed previously remain,” says FAAA CEO Sarah Abood.
“A major source of consumer harm in our sector is MIS failure, and this isn’t covered in this legislation. We acknowledge that a review into the regulatory structure of MISs has been announced, and this is a positive step. However this could take some time, while consumers remain unprotected from failures in this area.
“It’s important to acknowledge that advisers will not be bearing the setup costs and those in the first year of operation. We must ensure that all previous cases are fully dealt with in the first year, to ensure that current advisers are not being asked to pay for failures caused by those no longer in our sector.
“That said we do have concerns that the running costs of the scheme after the first year may be onerous for advisers. There are estimates as high as $1250 per adviser if the sector cap of $20 million were to be reached, with an expected amount closer to $375 per adviser (if running costs are closer to the estimate of around $6 million a year).
“We really will need to keep any eye on those running costs and ensure they are reasonable.
“We appreciate that changes have been made to increase the disincentives for companies and their directors to resort to the scheme. An additional practical step would be to launch the previously-flagged review of the professional indemnity insurance market, as a properly functioning PI sector would help ensure the CSLR is firmly positioned as a last resort, if things go wrong.
“We will continue to work with the Government, advisers, consumers and other stakeholders to help ensure the scheme can operate effectively and promote consumers’ trust in financial advice,” Abood says.
