CSLR ‘safety net’ good for trust in advice: Berry

Speaking on a Financial Advice Association Australia (FAAA) webinar about the implementation of the Compensation Scheme of Last Resort (CSLR), the scheme’s chief executive, David Berry, said listening to concerns from financial services industry representatives was an important step in setting up the CSLR.

This step, Berry said, was key to “make sure that we understood how to interpret the legislation in a way that was going to both meet what government’s expectation was and alert industry where there may be areas of challenge or conflict”.

“I think the other area is we haven’t chosen to go fast, because we want to make sure we do this right,” he said.

“The focus has been on quality, through the eligibility assessments and all of the infrastructure that we’ve built around it.”

The CSLR has also been working with Treasury, Berry said, to ensure that it is applying the legislation “as it was intended”.

“This is new legislation. We are working closely with Treasury to make sure that our understanding of the legislation matches theirs,” he said, adding that increasing trust in the financial system is “possibly the most important” responsibility.

“It’s a very delicate balance that we have. We are seeing the worst of scenarios, but we don’t want to highlight those as though ‘don’t speak to a financial adviser’, we’re trying to portray those in a way that where there is something that is substantiated as financial misconduct, there is a safety net.”

This, he said, can help make potential financial advice clients more comfortable that they will be looked after if they do suffer an instance of financial misconduct.

“We’re quite supportive, particularly of the financial advice sector,” Berry said.

“There are far more people that need advice than are getting it at the moment. What we’re trying to do is help them understand that when you’re making big decisions and you don’t know who to trust, there is a safety net that’s available to help so that they can take those steps to getting the advice that they need.”

The CSLR boss also promised transparency with the advice community, saying he has “all time in the world for any questions that people have”.

“I don’t have a lot of discretion when it comes to the legislation and how it’s applied, but what I do have is the ability to be transparent around what we’re doing and how we’re doing it,” Berry said.

“My commitment to the FAAA and all your members is that if you feel I’m not being transparent enough, then ask the question, and I’m happy to tell you what I can and can’t say at that point.”

Advice makes up 79% of current claims

Turning to some of the specific work of the CSLR, Berry explained that it currently has 102 actively managed claims and has so far paid a total of 37 claims. Among the current cases, the vast majority relate to financial advice.

“Of the 102 we’re managing at the moment, 79 per cent of them are in relation to financial advice,” he said.

“Securities dealing then makes up the next largest cohort, which is 15 per cent, credit intermediaries, which is your finance brokers and mortgage brokers, it was 5 per cent, and credit providers is 1 per cent.”

However, he also detailed that there have been 20 claims rejected for not meeting eligibility requirements.

“For the ones which we’ve deemed as ineligible, there’s been 10 of those where they’ve lodged a claim with us, but they haven’t yet gone through the AFCA process,” Berry said.

“So we just go straight back to them and say that until a determination has been made and the ombudsman has confirmed that there was financial misconduct, there’s nothing more that we can do.”

One of the ineligible claims related to a firm in administration that, through the CSLR’s investigation, was found to have paid the claim before entering administration. Another six were claims that were prior to November 2018, which are unable to be dealt with by the CSLR.

“Then we’ve had three out of scope where the determination was in relation to the disadvantage has been agreed, but not financial misconduct. So, we’re pretty firm on it’s got to be a direct financial misconduct link,” Berry said.