A news report indicating that the Albanese Government is set to adopt the coalition’s model for a compensation scheme of last resort in the financial services industry has triggered disappointment and anger among victims groups and their advocates.
According to a report in The Australian on Wednesday, the government is set to introduce legislation for a compensation scheme to ensure victims of financial misconduct are at least partly compensated if their service provider becomes insolvent.
However, according to The Australian the Labor Government has back-tracked on a promise to widen the jurisdiction of the CSLR to cover victims of managed investment schemes, funeral expenses providers and debt management firms.
Following a Treasury review last year, the former Morrison government announced that the scheme would only provide last resort compensation to consumers in relation to credit, insurance, financial advice and securities dealing.
Financial services minister Stephen Jones promised before the May federal election that a Labor government would review the proposed jurisdiction of the CSLR with a view to widening coverage to include managed investment schemes and funeral insurance.
Moreover, several Labor senators who sat on a committee inquiring into the proposed CSLR last year, trumpeted in February that they wanted the former government to also raise the compensation caps above the proposed A$150,000 limit.
It appears that those promises have come to nothing, with the Labor Government poised to implement the last resort scheme modelled by its predecessor.
The news has horrified consumer advocates such as the Mali De Castro from the SR Group who have campaigned since 2016 to secure restitution for victims of financial misconduct.
“It’s an absolutely shocking backflip from Labor and entirely contradictory from their messaging during the proposition of the CSLR, during their election campaign, and what was explicitly told to Sterling First investors by Stephen Jones,” said De Castro.
“It is undeniable that some voters awaiting the CSLR almost certainly had their voting preferences influenced by Labor’s representations which now appear entirely misleading.”
Naomi Halpern, a victim of financial misconduct and a leading advocate for reform said the government’s decision would be devastating for thousands of Australians whose lives were destroyed by misleading and criminal advice.
“If the reports are correct it would be devastating because in the past Labor has said that the cap of $150,000 was totally inadequate,” she said.
“They also promised to make the scheme retrospective to assist people like myself who had our life savings wiped out.
“It speaks to the difference between what people say when they are in opposition compared to what they do when they get into power.”
Labor’s decision not to widen the scheme’s jurisdiction will likely disappoint the country’s peak consumer advocate, Choice, which campaigned vigorously in recent years for reforms to extend its coverage.
In a December 2021 submission to the senate inquiry, Choice said it was vital the scheme be designed to comprehensively protect all consumers of financial products.
“The scope of the scheme should be expanded to include all financial products and
services that fall under AFCA’s jurisdiction, including funeral expenses products and
managed investment schemes,” Choice told the committee in its submission.
“The purpose of the CSLR is to stop people from falling through the cracks, so we must not design a system with cracks from the outset.”
Choice also told the senate committee it wanted the compensation cap raised to above $500,000.
There are approximately 1300 victims of alleged financial misconduct whose claims for compensation before the Australian Financial Complaints Authority have been paused pending passage of legislation to establish the CSLR.