Need to know
- The government's draft bill for a compensation scheme of last resort would leave many unprotected
- The proposed scheme is restricted to a limited number of products and services and excludes managed investment schemes
- CHOICE and a diverse coalition of 15 organisations is calling on the federal government to expand the scheme to cover more financial victims
When the federal government released a draft bill in July that would set up a system to compensate victims of financial misconduct, it fell short on a number of fronts.
The long-deferred Compensation Scheme of Last Resort (CSLR) is meant to cover people who've been awarded compensation but never received it because the schemes they invested in were no longer solvent.
But the government's proposed laws would leave many of these victims empty-handed.
The draft bill covers only a limited number of products and services and, crucially, excludes victims of managed investment schemes
The draft bill covers only a limited number of products and services and, crucially, excludes victims of managed investment schemes, an area where many collapses have happened and wiped out the life savings of thousands of Australians.
The government has also proposed that unpaid Australian Financial Complaints Authority (AFCA) determinations that are paid though the scheme be capped at $150,000. This is well below the government's original commitment to align the cap with AFCA's compensation cap of $542,500 for individuals.
Collective call for a better CSLR
Now a diverse coalition of 15 organisations is calling on the federal government to honour the spirit of this key recommendation from the banking royal commission and expand its proposed compensation scheme.
The coalition includes professional financial advice associations, financial counsellors, professional accounting associations, community legal centres – and consumer groups such as CHOICE.
It will leave too many victims of financial misconduct without access to the compensation they deserve
CHOICE CEO Alan Kirkland
"When the government announced its response to the banking royal commission, we welcomed the commitment to establish a compensation scheme," says CHOICE CEO Alan Kirkland.
"Now, some 32 months since that commitment, the scheme proposed by the government is incredibly disappointing. It will leave too many victims of financial misconduct without access to the compensation they deserve."
Those victims would include the many older Australians who recently lost their savings through the collapse of the Sterling First investment scheme, as well as First Nations communities tricked into paying for funeral expenses policies from the Aboriginal Community Benefit Fund (now trading as Youpla).
Sign the petition for stronger laws to protect Australians from financial crimes.
The proposed compensation scheme would cover unpaid AFCA determinations made after AFCA was established in November 2018.
'Faith in the system'
CEO of the Financial Planning Association of Australia, Dante De Gori, says consumers should be compensated for a failed financial service or product across the spectrum of financial services.
"They deserve the same protections and access to compensation, regardless of where they make their purchase," De Gori says. "A last resort compensation scheme must operate equally and fairly across the entire sector to ensure consumers have faith in the system."
A last resort compensation scheme must operate equally and fairly across the entire sector to ensure consumers have faith in the system
Dante De Gori, CEO of the Financial Planning Association of Australia
The Sterling First victims we met through our earlier investigation have certainly lost faith. And they're relying on the government to come around to doing the right thing.
'It has destroyed me'
Annette Taylor, 69, summed up the devastation of many: "To do this to pensioners, some in their 80s and 90s, it's just shocking, and the government has done absolutely stuff-all to help us," she says.
"It has destroyed me. I just want the money back and to get on with my life."
And as Alan Fardo (pictured), who heads up a group that has banded together to recover their Sterling First losses, told us in August, the Sterling First scheme had all the hallmarks of a legitimate investment.
"I had a degree of confidence because the money was going to Sterling income trust, not realising that the word trust doesn't have to be a proper trust," he says.
Alan Fardo: 21,707 signatures to our petition for a more inclusive compensation scheme – and counting.
Petition calling for stronger laws
More than 21,000 Australians have signed a petition to Treasurer Josh Frydenberg, calling on the federal government to pass strong laws that hold finance executives to account and compensate victims of financial crime.
We're pushing the passage of the compensation scheme with key amendments, including broadening the scope to cover managed investment scheme collapses like Sterling First and raising the compensation cap to $544,000.
We're also fighting for strong new laws to hold finance executives to account for misconduct that takes place under their watch.
Sign the petition for stronger laws to protect Australians from financial crimes.
We're on your side
For more than 60 years, we've been making a difference for Australian consumers. In that time, we've never taken ads or sponsorship.
Instead we're funded by members who value expert reviews and independent product testing.
With no self-interest behind our advice, you don't just buy smarter, you get the answers that you need.
You know without hesitation what's safe for you and your family.
And you'll never be alone when something goes wrong or a business treats you unfairly.
Learn more about CHOICE membership today
Stock images: Getty, unless otherwise stated.
