There is no merit in having a compensation scheme of last resort (CSLR) and a past redress forum unless corresponding action is taken to improve the regulatory and compensation framework, the Financial Planning Association (FPA) says.

“The FPA strongly opposes the introduction of a CSLR and a past redress forum,” it says in a submission to Treasury.

“Consumer protection and appropriate consumer compensation is the responsibility of all participants that have a role in causing, or an influence in allowing, consumer detriment.

“Until the regulatory and compensation framework is set to make each provider individually responsible and financially accountable to the end consumer for the provider’s legal and ethical obligations, the FPA is unable to support the introduction of a CSLR.”

If the scheme gets the green light, compensation should be limited to unpaid external dispute resolution (EDR) decisions, the submission says.

“This would reduce the cost of the scheme, especially to lower-risk providers, because it would exclude claims against providers that have ceased to be members of an EDR because they are already insolvent,” the FPA says.

“Although this exclusion would hurt some consumers, it would limit the scope for a CSLR to make consumers less careful in assessing the financial strength of providers.”

The Association of Financial Advisers supports efforts to improve the dispute resolution process but is concerned about the impact on access to quality advice.

“There is a very good chance… that the proposed improvements to dispute resolution will have an effect on competition through increased costs,” it says.

“In aggregate, these expected cost increases have the potential to reduce some consumers’ access to quality financial advice and could lead to some smaller licensees exiting the market due to increased professional indemnity costs. It is essential that overall regulatory reform… does not lead to a reduction in the availability or affordability of financial advice.”