The likelihood of the Government acceding to the introduction of a last resort compensation scheme for the financial services has increased as a result of the current review of Financial Services external dispute resolution (EDR) framework.
A strong majority of parties making submissions to the Treasury, including the major banks, have supported the implementation of a last resort compensation scheme to help deal with the uncompensated losses which occurred when financial planning firms or other businesses became insolvent.
The Financial Ombudsman Services (FOS) has been a strong advocate of the last resort regime because of the growing balance of uncompensated determinations, with the Australian Securities and Investments Commission (ASIC) being similarly supportive of such an arrangement.
Westpac has also supported such a scheme with its submission reflecting the views of most of the other banks and the Australian Banker’s Association (ABA).
It said that Westpac had noted that insolvency of members of FOS had resulted in a significant amount of money still owed to victims from awards issued.
“Westpac therefore supports the establishment of a Last Resort Compensation Scheme for certain uncompensated losses. We consider such a scheme will improve customer confidence in financial services, enhance the existing consumer protection framework and ensure clients have access to remediation and compensation,” it said.
However it said the design of such a scheme needed to be carefully considered to avoid any unintended consequences.
“For example, the objective should be to effectively cover fraudulent or materially poor behaviour, not be a substitute for lack of (or inadequate) professional indemnity insurance. We also expect that licensees will be required to be adequately capitalised, based on their relative risk,” the submission said.
