In 2019, the Federal Government committed to establishing a Compensation Scheme of Last Resort (CSLR), a key recommendation of the Banking Royal Commission. The CSLR was meant to provide a safety net to financial misconduct victims and ensure that determinations for compensation to consumers would be honoured, however, the CSLR that the Government has proposed does not provide the consumer protections that the industry so desperately needs.
In July 2021, the Government released the draft legislation for the CSLR. Crucially, the proposed legislation excludes victims of managed investment schemes, an area of the financial services industry that has seen many recent collapses that have caused financial losses for thousands of Australians. In total, the Government’s proposed legislation intends to only provide CSLR coverage for five financial services, leaving thousands of financial service customers exposed. The Government also proposed a compensation cap of $150,000 per claim, with ministerial discretion to lower claim amounts as the relevant Minister sees fit. This a far cry from AFCA’s $542,500 compensation cap that we, AFCA, and many others have argued for in our submissions.
The CSLR that the Government has proposed is not the CSLR that was recommended by the Banking Royal Commission. The CSLR that the Government has proposed does not provide the consumer protections that the industry so desperately needs.
Sterling First was a housing and investment scheme in WA that suffered a highly publicised collapsed in 2019. Sterling customers lodged AFCA complaints immediately, however as the company had gone into liquidation, AFCA advised that the complaints would be placed ‘on hold’ until the introduction of the CSLR. Now, the CSLR is nearly here, but the Sterling First customers have been specifically excluded from the scheme. Sterling First customers are people who need the protections the CSLR was designed to provide, but instead, the Government has written them out of the scheme. This is despite Assistant Treasurer Michael Sukkar MP acknowledging that the Government’s regulator, ASIC, was deficient in relation to Sterling First.
Consumer action group CHOICE has launched a campaign and petition calling on the Government to change the draft legislation of the CSLR and ensure the scheme provides the protections to consumers it was designed to.
We strongly encourage everybody to support CHOICE and sign the petition to ensure that the financial services industry in Australia has strong and effective consumer protections in place.
For more information about the Sterling First matter, please see CHOICE’s campaign: Sterling First collapse highlights need for compensation scheme | CHOICE
SR Group’s submission to the Government consultation process on the draft legislation for the CSLR can be found here.
Mali De Castro BBus (Fin)
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