The Financial Advice Association Australia (FAAA) has expressed concerns about the long-term running costs of the Compensation Scheme of Last Resort (CSLR) once the government funding for its initial year expires.
Last week, Parliament approved the CSLR bill, and Financial Services Minister Stephen Jones announced that the Federal Government will cover the expenses of setting up the governing body and the initial levy period until the end of the 2023/24 financial year.
Starting from 2023/24, the last resort compensation scheme will be funded through industry levies, according to the Financial Advice Association Australia (FAAA) CEO Sarah Abood. She emphasized that advisers will not be responsible for bearing the setup costs or the costs during the scheme’s first year of operation.
FAAA CEO, Sarah Abood, stressed the need to prioritize the resolution of past cases within the first year to prevent current advisers from being held responsible for failures caused by former industry members.
FAAA CEO, Sarah Abood, expressed concerns about the potential excessive running costs of the scheme for advisers beyond the first year. She emphasized the importance of closely monitoring these costs and ensuring they remain reasonable.
The FAAA maintains reservations about the scheme’s effectiveness and expresses ongoing concern regarding the exclusion of managed investment schemes (MIS) from the program.
“The legislation fails to address a significant source of consumer harm in our sector, which is the failure of managed investment schemes,” Ms. Abood remarked.
“While we appreciate the announced review of the regulatory structure of managed investment schemes, it is important to note that consumers are currently left vulnerable to failures in this area, as this process could take considerable time,” Ms. Abood commented.
The Last Resort Compensation Scheme (LRCS) is a program that aims to provide compensation to consumers who have suffered financial loss due to the misconduct or negligence of financial advisers. The scheme serves as a safety net for consumers when other avenues for compensation are unavailable, such as when the adviser is insolvent or cannot be located.
Concerns have been raised by the Financial Advice Association Australia (FAAA) regarding the future running costs of the LRCS. The FAAA is worried about the financial burden that may be imposed on advisers once government funding for the scheme’s initial year ends.
While the government has committed to funding the establishment and initial levy period of the scheme, there are concerns about the sustainability and reasonableness of ongoing running costs.
The FAAA emphasizes the importance of ensuring that previous cases are fully addressed in the first year to prevent current advisers from bearing the cost of failures caused by those who are no longer in the sector.
Additionally, the FAAA expresses reservations about the scheme’s effectiveness, particularly with regards to the exclusion of managed investment schemes (MIS) from the program. They believe that MIS failures contribute significantly to consumer harm and advocate for the inclusion of such schemes in the legislation.
While a review of the regulatory structure of MISs has been announced, the FAAA highlights the need for timely action to protect consumers from potential failures in this area. The concerns raised by the FAAA underscore the importance of carefully managing the running costs and ensuring the comprehensive coverage and effectiveness of the Last Resort Compensation Scheme.
Source : insurancenews.com.au