The Treasurer has stuck with his plan for a financial sector compensation scheme of last resort that is narrow in focus and will provide only limited relief to consumers.
The Government introduced a bill in Parliament yesterday, establishing the scheme.
It will provide compensation to consumers where they have an Australian Financial Complaints Authority determination in their favour and where the relevant financial institution has not paid the consumer in accordance with the determination.
Court and tribunal rulings will be outside its scope. This decision is contrary to the recommendation of the 2017 Ramsay Review, which was asked to make recommendations on the establishment of such a scheme and which was endorsed by the Hayne royal commission.
Compensation will be capped at A$150,000, compared with AFCA’s compensation limits of more than $2 million for some credit products and $271,000 for claims against insurance brokers.
A paper accompanying the draft bill, which was circulated in July, said: “The compensation cap balances the provision of compensation to claimants and the scheme sustainability for those financial firms that are not responsible for the misconduct giving rise to the compensation being claimed but are nonetheless being required to pay for it.”
Financial products and services within the scheme’s scope will include personal advice on financial products to retail clients; credit intermediation, securities dealing, credit provision and insurance product distribution.
Specific products and services are those that financial institutions with an Australian financial services licence or an Australian credit licence are authorised to provide and where they are required to be AFCA members.
Products and services provided by voluntary AFCA members will not be covered.
For a claim to be paid, AFCA must have been notified within 12 months that the company has not complied with a determination. In addition, the company must be unable to pay the compensation owed.
The operator of the scheme will not have discretion to consider the facts or merits of a dispute. The operator will report its compensation payments to ASIC, which must cancel the licence of the business that failed to comply with the AFCA determination.