Financial Services Compensation Scheme Chairman Peter E Daly has again called for the scheme to be implemented in Australia to assist retail clients.

Speaking at the Australian Securities and Investment Commission’s Summer School last week, the former Financial Ombudsman Service (FOS) chairman and Insurance Council of Australia CEO said such a scheme would provide compensation of last resort for financial services clients.

“Too many consumers have been left uncompensated over the years because of problems with financial services companies,” he said.

“FOS decisions or court awards mean very little if the Australian financial services (AFS) licensee is out of business.”

Mr Daly says a compensation scheme should cover consumers who have lost money due to insolvency or the disappearance of the AFS licensee but would not cover investment performance.

“The scheme would have the right of recourse against defaulting AFS licensees and while the consumer would not receive 100%, they would at least receive a reasonable amount,” he said.

“Consumers could not rely on professional indemnity (PI) insurance to protect their needs as PI is essentially there to cover the licensee.

“It is not the fault of PI insurers because PI is not a compensation scheme and covers a commercial risk.”

Mr Daly believes it would cost as little as $1 million to start up such a scheme, with a couple of million dollars in annual running costs.

“Claims would be funded under a post-funding method and the scheme would have the right to borrow money,” he said. “I would estimate claims in the initial period would be about $12 million a year.”

Mr Daly says with a number of very public failures in recent years, such as Storm Financial, is it a good time for the financial services industry to be taking a proactive move.

“My consultation with industry leaders shows that everyone without exception cares about consumer protection,” he said. “Not a single association or industry leader said they did not care.

“Those who I spoke to were adamant they would like to think consumers have confidence in their financial products.”