AFCA has stressed the need for CSLR obligations to apply across the financial services industry, including mortgage broking.
The Australian Financial Complaints Authority (AFCA) has emphasised the need for the compensation scheme of last resort obligations to apply to a broad range of financial services providers, including mortgage brokers and finance brokers.
In a submission to the government’s public consultation on the topic, AFCA said it strongly supports the “broad-coverage approach” outlined in the government’s discussion paper.
AFCA said it is vital the CSLR covers financial firms of all forms of regulated financial services, financial advice or financial products.
“If a consumer has been awarded compensation and this has not been paid by the firm due to insolvency, the type of financial service or product it concerns should not be a determining factor as to whether or not the consumer is compensated for their loss,” AFCA’s submission said.
“It would raise significant issues of fairness and cause confusion for consumers if certain types of financial services are excluded from the scheme.”
AFCA stated that while many unpaid determinations have arisen from the provision of financial advice that has caused financial loss, the evidence shows non-compliance with determinations are not limited to financial advice firms that have provided personal and general advice.
The types of firms who have unpaid determinations extends to include mortgage brokers, finance brokers, credit providers, managed investment scheme operators, securities dealers and derivatives dealers.
“In our view, all firms are responsible for restoring trust in financial services and ensuring that their EDR obligations are met,” the submission stated.
The government’s discussion paper, “Implementing Royal Commission Recommendation 7.1 – Establishing a Compensation Scheme of Last Resort”, was released by Treasury in December 2019, in response to commissioner Kenneth Hayne’s recommendation in the final banking royal commission report that a CSLR be established.
In its submission to the government’s public consultation on the discussion paper, AFCA also said the proposed CSLR should cover all unpaid determinations made by AFCA from 1 November 2018 onwards, to ensure there is no gap between the government’s unpaid determinations program (which covers AFCA’s previous scheme unpaid determinations) and AFCA determinations.
AFCA chief ombudsman and CEO David Locke said: “A compensation scheme of last resort is an important back-stop that ensures that people who have been the victims of misconduct and lost out through no fault of their own can be compensated when the financial firm is unable to pay.
“Without this measure, there is a significant gap that will cause considerable hardship to consumers who have done nothing wrong, who have suffered financial loss, taken appropriate action through AFCA, only for that outcome not to be honoured by the financial firm.
“Establishing a broad-based compensation scheme covering the financial services industry is an important part of restoring consumer trust and confidence in the financial services sector following the royal commission,” he said.
“This rebuilding of trust is in the interests of all financial services firms and all Australians.”
The government has agreed to establish a forward-looking CSLR that is industry-funded, operated by AFCA, extends beyond personal advice failures and has design features consistent with the recommendations of the Ramsay Review.
The discussion paper, open for public consultation until Friday (7 February) aims to further explore and seek views on the four aspects of the CSLR: coverage, beyond personal advice; funding arrangements; compensation to be paid; and managing scheme evolution.
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Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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