Consumer compensation scheme for financial services

Consumers should be compensated for wrongdoings.
 
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  • Updated:1 Nov 2008
 

01.Introduction

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The issue

Currently consumers who suffer losses because of wrongdoing by financial advisers and service providers aren’t guaranteed of seeing their claim compensated. If the financial planner, dealer group or fund manager is insolvent, claims that are upheld remain uncompensated and the investor gets nothing.

We think that consumers who have suffered loss because of wrongdoing by financial advisers and service providers should be entitled to compensation for losses even where the guilty party is unable to pay, for example due to insolvency.

We want the government to implement a compensation scheme to cover consumers’ losses in these circumstances. CHOICE believes that confidence is the key in the current environment and therefore a bold initiative like this, with both government and industry working together, is needed. It’s as close to a guarantee as can be provided, without distorting risk-based markets.

What we want

 CHOICE wants a new Consumer Compensation Scheme for Financial Services that:

  • Provides last resort compensation, in full or in part, up to $500,000.
  • Is available for bad advice (but not bad luck in the market).
  • Covers compensation for any breach of the financial services licensees’ legal obligations.
  • Is funded by a post-event levy across the industry.
  • Applies across the financial services market.

We think that a last-resort compensation fund for investments is the missing piece in the consumer protection landscape. Introducing it now is absolutely necessary to restore confidence in the investment sector.

What we’re doing

In October 2008, CHOICE released details of how such a compensation scheme would operate to boost confidence in market-linked investments such as cash management trusts and property trusts.

In CHOICE's submission in response to the government’s Green Paper on Financial Services and Consumer Credit Regulation we reiterated our call for improvements to compensation arrangements.

More information

CHOICE submission on draft regulation for compensation arrangements for financial service licensees January 2007.

The Financial Services Consumer Policy Centre has made extensive submissions to the Commonwealth government:

 
 

 

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