The federal government has introduced the last pieces of legislation to implement recommendations made by the Hayne royal commission, including the establishment of a compensation scheme of last resort (CSLR).
The introduction of the legislation was announced by Treasurer Josh Frydenberg and Superannuation, Financial Services and the Digital Economy Minister Jane Hume and follows the recent introduction of the budget measures related to superannuation and the passing of the Better Advice Bill.
The creation of a CSLR matches recommendation 7.1 of the financial services royal commission, overseen by Kenneth Hayne, and will provide up to $150,000 in compensation for personal advice, credit intermediation, securities dealing and credit provision to eligible consumers who have received a relevant Australian Financial Complaints Authority (AFCA) determination for compensation that remains unpaid.
Senator Hume said the CSLR would support confidence in the dispute resolution framework by enabling the payment of compensation where required and the government would fund its initial costs.
“To allow the scheme to commence as soon as possible, the government will fund its establishment and contribute to scheme costs in the first year,” she said.
“This will allow the scheme to start paying claims from 1 July 2022. Going forward, the scheme will be fully industry funded through a levy on relevant financial service and credit licensees.”
The introduction of the CSLR has been opposed by a collective of industry bodies concerned that it would become a first response option, but Hume added: “To ensure that the CSLR truly operates as a scheme of last resort, the government will also consult on proposals to enhance the effectiveness of professional indemnity insurance in responding to compensation claims.”
Concerns have also been raised about the cost of the scheme to financial advisers, who are likely to pay around $300 a year to fund it, and the limited scope of the scheme, which does not cover all products and services available in the financial services sector.
The legislation will also establish the Financial Accountability Regime (FAR), which extends the Banking Executive Accountability Regime to all Australian Prudential Regulation Authority (APRA)-regulated entities and provides for joint administration between APRA and the Australian Securities and Investments Commission.
Hume said the FAR will ensure directors and senior executives will be held accountable for their decisions and conduct and it will apply across the banking, insurance and superannuation sectors.
