In a statement issued alongside the Senate’s ‘scrutiny of financial advice’ hearings, the South Australian senator said he will introduce an exposure draft of legislation in May for a statutory compensation scheme designed to assist aggrieved former clients.
Mr Xenophon explained that the proposal will draw on similar schemes that are active in the UK and Europe but that he will also seek consultation from victims, consumer advocates and financial institutions.
He also outlined that the draft scheme will set out the criteria under which compensation will be paid, caps on compensation, and contributions to be paid both by the industry and government.
“Not only should industry contribute to such a scheme, but government should too because of systemic failures of our corporate and financial watchdogs,” Mr Xenophon said.
Labor Senator Sam Dastyari and Greens Senator Peter Whish-Wilson have both given in principle support to considering taking the proposal further.
At the Senate’s hearings in Canberra on Tuesday, both Mr Dastyari and Mr Xenophon questioned the heads of the major institutions on whether the industry needs a compensation scheme to help all victims of financial advice.
While ANZ Banking Group deputy chief executive Graham Hodges acknowledged that a scheme would play a key role in assisting victims, he did distance the banks from the idea of contributing to the scheme, stating they have “sufficient financial strength” to self-insure.
Macquarie Group chief executive Nick Moore said while Macquarie was against the idea initially, he would be open to discussions about such a scheme, adding that it would assist with the transition of financial advice to becoming a profession.
Meanwhile, the Consumer Action Law Centre welcomed the proposal, stating that too many individuals are not compensated for poor advice.
“For the community to have trust in our financial system, there must be a system to provide a remedy where there has been financial misconduct,” Consumer Action Law Centre spokesperson Gerard Brody said.
If this to be in place of PI cover – not an additional burden – then I’m all for it.
However, I don’t believe that will be the case and small, independent financial advisers will be forced to pay into a fund that will pay out victims of the vertically integrated product providers.
Aww c’mon banks…you can’t just say we self-insure so shouldn’t have to contribute. Most of the claims are related to product failure and non-aligned advisers have used your products, some of which have failed. Needs to be a fair levy across the board and if everyone contributes it should be miniscule.
Better make sure the industry funds & direct insurers pour in a heap for money to fund this!THAT is where the real issues are.
Smaller independent advisers will be made to pay levies to such a fund, larger institutions will be allowed to self insure, these being the larger institutions who have been the central problem due to their “vertical” distribution model. Why is the obvious problem not being tackled. Product providers should not be able to own and operate advice practices. Advisers must be independent.