A CSLR would see the broader financial services industry pay compensation in cases where the company against which a complaint has been filed becomes insolvent. But the FPA believes that tightening standards on professional indemnity insurance (PI) is the answer, not a CSLR.
“In part, PI insurance is intended to cover liabilities from financial services complaints and ensure that licensees are able to pay compensation when a complaint is made against them,” the FPA wrote in a submission.
“In practice, failure to hold adequate and appropriate PI insurance is a major cause of licensees not paying compensation when it is due.”
While the 2012 St John review recommended addressing both the quantum and coverage of PI insurance, as well as ASIC taking a more proactive role in monitoring whether licensees are complying with PI insurance obligations, the government has not taken any action on these recommendations.
“A CSLR would transfer responsibility for paying compensation from the party subject to the complaint to the financial services sector as a whole,” the FPA wrote in its submission.
“This is a significant departure from the principle of individual responsibility and should only be taken as a genuine last resort for providing compensation to consumers. A CSLR should not replace proper action by the regulator to hold parties responsible for their own misconduct or poor performance.”
While the FPA believed the best way to ensure consumers are able to access compensation is to address the underlying causes of unpaid determinations, the body did recommend that a CSLR mirror AFCA’s compensation limits and that its funding reflect the risks of different financial services classes while establishing a “broad and robust” funding base.
“To promote equity, the division of funding between classes should have some relevance to the level of risk in each class and the potential exposure it brings to the CSLR,” the FPA wrote.
“This is particularly important for the managed investment scheme sector, where the consequences of a single failure could include substantial compensation payments to affected consumers.”
The creation of a CSLR was a recommendation from the royal commission, and AFCA holds that a “broad based CSLR that holistically covers the financial services industry” would be vital to restoring consumer trust and confidence in the financial services industry.
This shows a basic and perhaps fatal lack of understanding by the FPA of the fundamentals of business, society and even responsible behaviour.
There is no ‘blame’ shifting here – just an acceptance of collective responsibility in an industry that desperately seeks respect and acceptance for its peak body as in some way a self-regulator…and at the first opportunity, the FPA demonstrates that it couldn’t be trusted and should NOT be respected.
Let me explain to the dunderheads who seem not to get it:
Consider insurance as an example of collective responsibility for individual ‘events’ that may happen…we all pay a premium to cover the risks that usually only befall a few and the few are protected just as the many are protected.
If the FPA can’t follow that logic it would be the last body consiered capable of administering or even advising a fidelity fund – and so it becomes a redundant organisation. (In my view it’s been redundant for deaceds, but only now are many others agreeing with me – many more should follow my ‘lead’ of helping set up the FPA (more than 3 decades ago, as WA Chair and representative on the national board of the AIPA, which founded the FPA) and then refusing to join it when the first item of business (I kid you not!) was “How can we get sponsorship from the fundies for our first National Conference?”…
Is is no wonder that we are still treated as an industry – almost a ‘trade’ – rather than a profession? Our own behaviour has been pretty appalling in small numbers and then the peak body goes and acts like this??? Really??
Would this soften the PI premiums? Probably not!