Financial advice compensation scheme recommended

Today, the panel that recommended the establishment of AFCA in April 2017 has handed down a second report urging the government to establish a compensation scheme of last resort (CSLR) to address the problem of unpaid and unenforced EDR determinations.

The panel – made up of Melbourne Law School professor Ian Ramsay, former Choice CEO Alan Kirkland and Productivity Commissioner Julie Abramson – recommended that such a scheme be limited to the financial advice sector, claiming that “over 90 per cent of unpaid determinations relate to financial advice”.

“While unpaid determinations represent a very small proportion of total EDR determinations the impact on consumers and small businesses can be significant and can erode confidence in the dispute resolution processes and the financial system more broadly,” the report states.

“To fill what the panel regards as a gap in the dispute resolution framework, the panel has recommended that a limited and carefully targeted CSLR be introduced for future unpaid compensation in parts of the financial services sector where there is evidence of a significant problem of compensation not being paid.”

The panel also recommended that licensees be required to provide regulators and AFCA with more thorough details on professional indemnity insurance of authorised representatives.

The government will now consider the report but will defer its decision on whether to accept or reject the recommendations until after the conclusion of the royal commission into banking, superannuation and financial services.