Financial services compo scheme flagged

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Customers owed compensation for financial services ripoffs are expected to benefit from laws earmarked to come into force early next year.

The federal government on Friday released draft laws for comment stemming from the banking royal commission, which exposed misconduct and shoddy practices in the sector.

Treasurer Josh Frydenberg said the compensation scheme of last resort would enable payments to people who have received a determination for compensation from the Australian Financial Complaints Authority which remains unpaid.

The scheme would pay compensation consistent with the terms of the AFCA determination, including for any direct financial loss, indirect financial loss, non-financial loss, interest payments, and any legal or professional costs awarded by AFCA, up to a proposed $150,000 cap.

Any decision would not be reviewable by the Administrative Appeals Tribunal.

The scheme – operated by a public company – is proposed to be funded by a levy on the industry, including credit providers, credit intermediaries, financial advisers and securities dealers.

The Australian Securities and Investments Commission will have the power to suspend or cancel the financial service licence or credit licence in the case of the scheme compensating a client.

“This will ensure that licensees meet their obligations in relation to AFCA determinations and do not consider the CSLR as an opportunity to avoid meeting those obligations,” the government’s proposal paper said.

As well, the government plans to extend the Banking Executive Accountability Regime to a wider range of firms beyond banks.

Mr Frydenberg said extending it to all entities regulated by the Australian Prudential Regulation Authority recognised “decisions taken by directors and the most senior executives of financial institutions are significant for millions of Australians and the Australian economy”.

In a separate report also released on Friday, ASIC revealed financial product issuers had ended 96 per cent of grandfathered conflicted remuneration arrangements by the end of last year.

And $266.7 million had been rebated to consumers from July 1, 2019, to December 31 last year, with a further $24.4 million rebated to consumers during 2021.

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