While the Dixon Advisory debacle is likely one of the underlying reasons for a government review of the Compensation Scheme of Last Resort (CSLR), the FAAA’s feedback to Treasury on the scheme is forward looking.
In preparing its submission, the FAAA has focused on what it sees as the underlying issues of the CSLR and what the organisation would like changed.
It states the law needs to change so the financial advice sector doesn’t take full responsibility for product failures. It also doesn’t not want those offering personal financial advice on the hook for failures in general or wholesale client advice.
The FAAA says the exposure of small business sectors to ‘special levies’ such as financial advice, needs to be modified to ensure the levy never exceeds the sector cap. It also calls for the cap to be reduced to from $20m to $10m.
The CSLR should operate as a genuine scheme of last resort…
It also wants the option of retrospective element of the scheme to be removed, adding the Government should pay for all claims received before the commencement of the CSLR scheme.
“The CSLR should operate as a genuine scheme of last resort, with payments on the basis of capital loss, without interest, and only after all potential recovery action has been concluded,” states the FAAA in its submission.
“An entity should be appointed to perform a role similar to the Fair Entitlements Guarantee Recovery Program that undertakes every possible effort to recover funds from responsible parties.”
It also wants to see changes to insolvency laws “…to enhance the prospect of recoveries and to better enable responsible parties to be prosecuted”.
The FAAA also suggests ASIC should review financial firms where CSLR payments are made to investigate misconduct and consider broader issues such as product failure and inappropriate business models.
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