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Advisers, consumer bodies in united push for 'stronger' compensation scheme

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Financial Advisers and consumer advocates have joined forces in their push for a “stronger” compensation scheme of last resort, saying the planned model as set out in a Treasury consultation fails to cover every financial offering.

They say the proposed legislation for the scheme should be expanded to provide monetary redress for all products and services that fall under the jurisdiction of the Australian Financial Complaints Authority (AFCA).

Their calls came after the Treasury consultation closed in August. Submissions have not been made public by Treasury but many stakeholders such as the Financial Planning Association (FPA) and Association of Financial Advisers (AFA) have previously expressed reservations about the scheme’s proposed set-up.

The FPA and AFA are part of the 15-strong coalition of financial services peak bodies and consumer groups who last week mounted a united push urging the Federal Government to rethink its approach.

They say in a joint statement that the draft bill will exclude vast segments of the financial industry, including managed investment schemes and the funeral expenses industry, leaving many victims of financial misconduct without redress.

It will also mean that a number of large financial institutions including product providers are not required to contribute to the costs of compensation, they said.

“Consumers purchase financial services and products from a broad range of product providers, manufacturers and professionals,” FPA CEO Dante De Gori said.

“They deserve the same protections and access to compensation, regardless of where they make their purchase.

“A last resort compensation scheme must operate equally and fairly across the entire sector to ensure consumers have faith in the system.

“The Government must ensure that those product manufacturers who profit from consumers’ investments, also contribute to compensation.”

In August the National Insurance Brokers Association (NIBA) say it has “several concerns” with the scheme, including the failure to address the issue of “moral hazard”.

NIBA says the design of the scheme, as outlined in consultation papers from Treasury, provides an incentive for dishonest firms to use the program to underwrite poor governance practices or unethical conduct.

A spokesman for NIBA told insuranceNEWS.com.au that the peak body has nothing further to add about the scheme.

An Insurance Council of Australia spokesman says the industry body supports the decision not to include insurers within the primary scope of the scheme.

The spokesman told insuranceNEWS.com.au this is because insurers are prudentially regulated and monitored by the Australian Prudential Regulation Authority and have not contributed to accumulated unpaid determinations.