The Compensation Scheme of Last Resort is to be established, and the Federal Government has submitted draft legislation to Parliament (CSLR).


By facilitating the payment of compensation to eligible consumers who have received a determination for compensation from the Australian Financial Complaints Authority (AFCA) which remains unpaid, the establishment of the CSLR will support ongoing confidence in the financial system's dispute resolution framework. Financial planners would be responsible for paying the CSLR's costs.


In a statement, AFCA affirms its support for the development of the CSLR. According to AFCA, Australia needs a compensation program for those who have a legal right to compensation for financial wrongdoing but are unable to pursue a claim when a financial institution goes bankrupt.


Council for Financial Services


Separately, the Financial Services Council (FSC) supports the CSLR legislation that has been proposed. According to Mr. Blake Briggs, CEO of the Financial Services Commission, "The financial services industry recognizes that consumers who are adversely affected by financial advice failures frequently suffer significant losses that should be compensated, but at the same time this must be balanced with the fact that the companies funding the scheme take responsibility for the quality of their advice and do not contribute to unpaid claims.


"It is vital to set reasonable limitations on the extent to which respectable financial service providers are expected to finance the misbehavior of their rivals in order to prevent encouraging undue risk-taking by unethical enterprises.


"The government has gotten the fundamental components of the program right, including a cap on individual claims of A$150,000 ($100,800) and an emphasis on poor financial advice.


"Our shared objective should be a compensation scheme that is rarely necessary given that adequate capital levels and professional indemnity insurance requirements for financial advisers lead to minimal unpaid Australian Financial Complaints Authority decisions," the statement reads.


Recent advising failures seem to have greatly raised the backdated costs of the compensation program, supporting the FSC's belief that restrictions on the scheme's design are required since costs could easily spiral out of control if the scheme was not properly targeted.


The scheme operator must properly pursue subrogation rights, and these requirements apply to backdated claims just as they would when the scheme is in operation. The FSC advises AFCA to take action to ensure all claims are eligible and the sources of losses are appropriately ascribed.


The Financial Services Council (FSC) is a leading organization that establishes requirements and creates policy for more than 100 member organizations in one of Australia's main business sectors, the financial services. Its full members are licensed financial advisors, superannuation funds, life insurers, and retail and wholesale fund management companies from Australia.