Need to know
- Compensation under the CSLR will be capped at $150,000 per case and claims can be lodged from April 2024
- There’s currently a backlog of over 2000 AFCA complaints that could result in victims receiving compensation under the scheme
- CHOICE CEO Alan Kirkland: “The compensation scheme has been a missing link in Australia’s financial system.”
In a major win for victims of financial misconduct, the Federal Parliament has passed legislation that will give thousands of Australians a fighting chance to recover their losses.
The Compensation Scheme of Last Resort (CSLR) will draw on funding from the financial industry to reimburse Australians who've seen their financial lives upended at the hands of wrongdoers in the sector.
The scheme will cover many people who've been awarded compensation by the Australian Financial Complaints Authority (AFCA) but never received it because the firm in question had gone bankrupt.
Compensation under the CSLR will be capped at $150,000 per case and claims can be lodged from April 2024.
AFCA backlog in the thousands
In April 2020, AFCA made the decision to stop processing complaints against schemes that had been wound up until a last resort compensation scheme was established.
As of July 2021, 1165 AFCA complaints were on hold because the firms in question were insolvent. The potential amount of compensation awarded in these earlier cases could easily exceed $30 million.
There are now over 2000 AFCA complaints waiting to be decided.
The result of a long fight
CHOICE ramped up its campaign for the establishment of a CLSR after it was recommended by the banking royal commission in February 2019 but not enacted.
"The compensation scheme has been a missing link in Australia's financial system and will ensure that many forgotten banking victims will receive the redress they deserve," says CHOICE CEO Alan Kirkland.
"Thousands of Australians, whose complaints have been paused at the Australian Financial Complaints Authority, will now be able to have their cases heard," he adds.
The scheme in its current design isn't perfect – it won't, for instance, cover victims of managed investment schemes such as Sterling First, which went bust in 2019, robbing about 100 people of a collective $18.5 million.
The successful implementation of the CSLR will further strengthen consumer trust and confidence in Australia's financial system
Minister for Financial Services Stephen Jones
Kirkland acknowledges there's room for improvement.
"Once in operation, the federal government should consider whether the scheme needs to be expanded to other industries, including managed investment schemes."
In a statement, Assistant Treasurer and Minister for Financial Services Stephen Jones said "the successful implementation of the CSLR will further strengthen consumer trust and confidence in Australia's financial system".
Stock images: Getty, unless otherwise stated.
