The financial services industry has broadly welcomed the tabling of legislation for the planned compensation scheme of last resort (CSLR) in parliament last week.

However, there are concerns the proposed remediation program as outlined will not provide complete financial redress.

The Financial Planning Association (FPA) says the peak body is “concerned” that the scope of the scheme does not ensure that consumers are covered for the full range of matters considered by the Australian Financial Complaints Authority (AFCA) including managed investment schemes (MIS).

According to the FPA, most of the victims of the Sterling Group collapse would not be covered under the proposed scheme.

“While it was in Opposition, Labor suggested amendments which would at least include MISs in the CSLR, and it is disappointing that these changes have not been included in the Bill,” FPA CEO Sarah Abood said.

She says after nearly four years of operation, there is $3.7 million in unpaid AFCA determinations relating to financial advice due to insolvency and MIS operators have $6.4 million outstanding against them.

“This makes it clear that the CSLR must extend across AFCA’s remit to achieve its aims of ensuring that victims of financial misconduct can be compensated where the firm involved has become insolvent,” Ms Abood said.

She also says it is “critical” that the scheme is funded equitably and that its administration costs be closely monitored to ensure that cost recovery from industry primarily compensates consumers rather than covering bureaucracy and administration.

Treasury has commenced consultation on its CSLR exposure draft regulations after Financial Services Minister Stephen Jones introduced the scheme’s legislation in parliament last week.

The scheme – recommended by the Ramsay Review in 2017 and later backed by the Hayne royal commission – will provide compensation where an AFCA determination remains unpaid and the determination relates to a financial product or service within the scope of the scheme.

Mr Jones says the scheme will facilitate the payment of compensation of up to $150,000 to eligible consumers who have a determination relating to personal financial advice, credit intermediation, securities dealing and credit provision which remains unpaid.

“The Government will contribute towards the costs of the scheme in its first year of operation, which is proposed to commence from July 1 2023,” Mr Jones said.

“The scheme will be fully industry funded through a levy on relevant financial service and credit licensees in the subsequent years of the scheme’s operation.”

Financial Services Council CEO Blake Briggs says the Government has got the essential features of the scheme correct, including a $150,000 cap on individual claims and a focus on financial advice failures.

Consumer advocate Choice backs the scheme but is concerned that the compensation caps are too low.

“Both the Ramsay Review and the [Hayne] royal commission made it clear that the caps should be the same as those that apply before [AFCA],” Choice CEO Alan Kirkland said.

“That would allow up to $542,500 for most individual complaints, so the $150,000 cap in this Bill will fall far short for many victims.”

Choice also says the scheme’s remit should be expanded to include MIS.

Closing date for submissions to Treasury is October 7.

Click here for the consultation paper.