The Federal Government's proposed compensation scheme of last resort fails to deliver on its public commitments to victims of financial scandals, according to consumer group CHOICE.
"When the Government released its response to the banking royal commission, it gave victims of financial scandals hope that they would finally be compensated. For many victims, those hopes have now been dashed," says CHOICE CEO Alan Kirkland.
"The Government committed to a scheme that could pay over $540,000 in compensation, as recommended by the royal commission, covering a broad range of financial scandals."
"The proposals now released by the Government will disappoint victims by capping compensation at $150,000 and failing to cover compensation from financial scandals in areas like managed investment schemes and funeral insurance. This will see many people go uncompensated."
Full submissions and video case studies available for download here: https://sites.google.com/choice.com.au/compensationscheme
Speaking to CHOICE, victims of the collapsed Sterling First investment scam in WA have told the consumer advocate that they feel let down by the Government.
Annette Taylor, a 69 year old from Western Australia lost her entire nest egg of $220,000 and now lives on the age pension. She told CHOICE about her experience following the collapse of Sterling First:
"It's just shocking, and the government has done absolutely stuff-all to help us. It has destroyed me. I just want the money back and to get on with my life."
A submission to Treasury co-signed by 9 consumer groups also calls on the Government to ensure the scheme can pay compensation to people who have been ripped off by debt management firms and providers of funeral expense policies (such as the Aboriginal Community Benefit Fund, now trading as Youpla, which was heavily criticised before the Banking Royal Commission).
CHOICE also says the Government's proposals for a Financial Accountability Regime, released at the same time, will make it easy for financial scandals to happen in the future by letting finance executives who oversee scandals off the hook.
The Federal Government previously committed to:
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Commitment
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Reality
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A Compensation Scheme of Last Resort that:
- has compensation caps aligned with AFCA of $542,500 for consumers
- covers disputes beyond financial advice failures
- applies to all decisions made by AFCA, the courts and tribunals
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Proposed legislation that:
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caps compensation at $150k
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excludes significant parts of the finance sector, meaning victims of scams like Sterling First are not eligible.
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excludes decisions by the courts and tribunals
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A Financial Accountability Regime that:
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has fines of over $1 million to finance executives whose companies break the law under their watch;
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applies to executives across the entire finance sector;
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deters future financial misconduct and improves governance and executive oversight
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Proposed legislation that:
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has no fines for executives
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applies to a small proportion of finance firms;
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has weaker clawback bonus requirements than the existing BEAR regime;
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provides little to no deterrent for executives who oversee breaches of the law
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"Victims of financial scandals and banking misconduct deserve better," says CHOICE CEO Alan Kirkland.
"To present legislation that is watered down, ineffective and will exclude thousands of victims is a devastating blow. We know from past experience that times of economic crisis provide fertile ground for scams and misconduct. We need strong executive accountability and a compensation scheme for victims now, and we need both measures to be broad-based and effective. To carve out people who have lost money in situations like Sterling First or the Aboriginal Community Benefit Fund will have impacts on entire communities who need their money back."
CHOICE's full submissions to Treasury for both the compensation scheme of last resort and financial accountability regime are available here along with video footage of Sterling First victims: https://sites.google.com/choice.com.au/compensationscheme
CHOICE's policy experts are available to talk through the detail of our policy submissions. CHOICE CEO Alan Kirkland is also available for interview.
Media contact: Jim Hook, 0430 172 669, media@choice.com.au
Editor's notes:
- On 4 February 2019, the Banking Royal Commission released 76 final recommendations to reform the financial system.
- The Federal Government committed to introduce the Compensation Scheme of Last Resort and the Financial Accountability Regime into the House of Representatives by 30 December 2020.
- The Government delayed these reforms another six months until 30 June 2020 due to COVID-19.
- On 16 July 2021, the Australian Federal Government released its proposal for the Compensation Scheme of Last Resort.
