Opposition to a financial services industry-funded compensation scheme for consumers is growing.

In a number of submissions to a Federal Government report on providing a compensation scheme for consumers, industry bodies such as the Financial Services Council (FSC), National Insurance Brokers Association (NIBA) and the Financial Planning Association (FPA) have opposed such a move.

Alternatively, the Financial Ombudsman Services (FOS) and lawyers Maurice Blackburn and Slater & Gordon support such a scheme as a “last resort” for compensation.

“It is intended to be both affordable to licensees and equitable, post-event funded and designed to mitigate moral hazard and provide incentives for improved risk management,” FOS said in its submission to the report.

Alternatively, the FSC argues current compensation schemes underpinned by professional indemnity (PI) insurance have worked well and eliminate the need of a last resort compensation scheme.

NIBA has argued such a scheme won’t be needed for insurance brokers because financial adviser clients only require compensation.

“The Government’s announcement that it will treat risk insurance advisers differently in relation to the banning of certain remuneration regarding risk insurance products supports this view,” NIBA said in its submission.

“The current state of the PI insurance market in relation to both industries indicates that the market is soft for insurance brokers but relatively hard for investment advisers.

“This is a good indicator of the expected risk associated with each industry.”

Needless to say the FPA takes a differing view.

“The proposal prefers an addition to the system that is intended to only apply to financial advice and fails to address the opportunity for application to the entire system of financial services more broadly,” the FPA says in its submission.

“Such an approach is only likely to exacerbate the problems in the future.”

The report’s recommendations have not yet been translated into legislation, with the Government only saying it is currently “reviewing the need for [and] benefits and costs of a compensation scheme”.

See also ANALYSIS