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Accounting bodies support the compensation scheme but worry about the cost and want better upfront protection for consumers.
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Investors vulnerable to financial misconduct ‘despite CSLR’
28 March 2023
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Too many investors will be left exposed to financial misconduct even if the Compensation Scheme of Last Resort (CSLR) legislation is approved by parliament, according to CPA Australia and CA ANZ.
CPA Australia spokeswoman Dr Jane Rennie said the association endorsed the legislation but remained concerned by the impact of financial misconduct on consumers.
“We support the CSLR in principle, however, it must truly be the last resort, we want to ensure consumers are appropriately protected from financial misconduct,” said Dr Rennie.
“Unfortunately, the proposed scheme will still leave too many investors exposed.”
“We want to see steps to stop poor behaviour from recurring in the first place. This would limit the number of investors who are affected by poor behaviour upfront and cut down on the costs of covering these payments.”
In an explanatory memorandum the government said the CSLR was intended to support confidence in the financial system’s dispute resolution framework.
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“The scheme provides for compensation to be paid to a consumer where a determination issued by AFCA remains unpaid and the determination relates to a financial product or service within the scope of the scheme,” said the memorandum.
“The Commonwealth will fund the establishment of the scheme and part of its initial operation. A levy will be imposed on parts of the financial services industry to fund the scheme’s ongoing operation.”
Superannuation and financial services leader at CA ANZ Tony Negline backed the plan but had concerns, particularly regarding its funding.
“We broadly support the idea that there does need to be a compensation scheme of last resort, the issue is whether or not it’s broad enough and I suppose the other issue is how you fund it,” said Mr Negline.
He said a CSLR levy would add to the burden of ASIC fees, which were due to increase significantly after two years of discounts.
“You’re going to have two increases as a result of this now, times are tough, and you could imagine that this could be the straw that breaks the back.”
Mr Negline said CA ANZ was concerned that the CSLR legislation failed to include managed investment schemes because that was “where the biggest issues about investments falling over, or any fraud, theft or whatever it might be are”.
Another issue centred around an apparent lack of facility to chase up unpaid AFCA determinations through director penalty notices.
“What that effectively means is that if I have a licensee, and I know I’m going under, I can fold the organisation and AFCA can say that’s terrible and the next thing you know there’s unpaid AFCA determinations, for whatever reason, but there’s no chasing of the people who are running that licence,” said Mr Negline.
Dr Rennie said while CSLR could be one part of the solution, there needs to be greater protections for consumers to prevent financial misconduct from occurring in the first place.
“CSLR is one part of the puzzle. Stronger oversight, ongoing monitoring and professional indemnity insurance must be considered at the same time,” she said.
“Without all these elements working together, the CSLR risks putting too much pressure on a small group of financial advisers.”
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