Assistant treasurer Stephen Jones
The parliamentary year finished on Friday with the passage of the Financial Sector Reform Bill but there was one significant omission from the omnibus bill – the Financial Services Compensation Scheme of Last Resort.
The government is now considering changes to the CSLR to allow it to deal with historical misconduct.
The bill that was introduced in September included the establishment of the Financial Accountability Regime, additional obligations for providers of small amount credit contracts and consumer leases under the National Consumer Credit Protection Act - and the establishment of the compensation scheme.
The compensation scheme was the most controversial of the three measures. It is designed to provide compensation to consumers where they have an Australian Financial Complaints Authority determination in their favour and where the relevant financial institution has not paid the consumer in accordance with the determination. Court and tribunal rulings will be outside its scope. Compensation will be capped at A$150,000.
In the view of its critics, its compensation cap is too low, court and tribunal rulings should be covered, managed investment schemes should be included and some historical misconduct should be covered.
The government has agreed to address one of these issues – historical misconduct - and removed the CSLR provisions from the bill.
A supplementary explanatory memorandum says: “The policy intention for this change is to enable the government to consult further on the implementation of the scheme without holding up the other measures of the bill.”
Minister for Financial Services Stephen Jones told Banking Day on Friday: "The government remains fully committed to implementing a Compensation Scheme of Last Resort. We are assessing the recent collapse of Dixon Advisory and the way to allocate costs of heritage AFCA cases.”
Dixon Advisory went into administration in January and more than 4600 clients are still waiting to discover how much of their $368 million of investments they will get back. In September, the Federal Court fined the company $7.2 million after it found that a number of its advisers had failed to act in clients’ best interests.
The Financial Accountability Regime also proved controversial. FAR extends the obligations first introduced in the Banking Executive Accountability Regime in 2018 to the superannuation and insurance industries and replaces BEAR for the banking industry.
It imposes obligations on directors and senior executives to conduct their business honestly and with care, skill and diligence. The aim is to improve the risk and governance cultures of financial institutions and to promote improved performance and stability of the financial system.
The obligations cover directors and senior and influential executives. Companies are to nominate executives to be responsible for areas of business operations. A deferred remuneration obligation is designed to ensure remuneration is reduced if accountability obligations are not met.
Critics called for the addition to civil penalties for accountable individuals who do not meet their obligations, but the government’s view was that the deferred remuneration measures in the bill will work to “effectively guide behaviour”.
The Greens pushed for the inclusion of civil penalties. While FAR has been legislated the civil penalty provisions have been added to another bill and might still become part of the FAR regime.