Australian Financial Complaints Authority Supports New Compensation Scheme Proposal

Australian Financial Complaints Authority supports the proposal for the new Australian compensation scheme. The government has issued a discussion paper to establish the new scheme. According to the AFCA, the new scheme will apply to all financial services in the country.

01 January, 2020 | AtoZ Markets – AFCA released a public discussion paper on establishing a Compensation Scheme of Last Resort. It reconfirms its strong support for creating an industry-funded scheme of last resort.

AFCA Backs Proposal for the New Australian Compensation Scheme

Australian Financial Complaints Authority says it strongly supports the creation of an industry-funded scheme of last resort. The AFCA and the schemes have long advocated for the establishment of a compensation scheme of last resort. The authority argues that it is essential that the new scheme be adequately funded and governed. And it covers all financial services.

The AFCA says it believes that establishing a compensation scheme of last resort plays an essential role in restoring confidence in the financial system. The authority will continue to work with government and other stakeholders on this issue.

The compensation scheme of last resort (CLSR) will ensure that consumers and small businesses receive compensation. They will receive compensation when a financial service provider is guilty of misconduct and unable to pay.

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CLSR Coverage Approaches

There are several possible approaches to the CLSR coverage. An “intermediate coverage approach” to CSLR coverage, for example, would include financial services that are not solely provided by prudential regulated financial firms, such as:

  • Distribution services (including the provision of financial advice and brokerage services).
  • Investment services (including services related to investing in securities, managed investment schemes and derivatives).
  • Credit provided to consumers and small businesses.

This approach would mean that the CSLR concerning eligible services would cover all companies engaged in the provision of these services. It would not matter whether they have prudently regulation or not.

Under an “extended coverage approach”, CSLR coverage would apply to all activities that require a financial firm to be a member of the AFCA. The consultation is open until February 7, 2020.

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