Lawyer Richard St John’s report into compensation for consumers has rejected a last resort scheme as “inappropriate and possibly counter-productive”.

But he has called for licensees to provide the Australian Securities and Investments Commission (ASIC) with details of their professional indemnity insurance and its adequacy to cover their business’ operations.

He has also called for licensees to hold adequate capital and for ASIC to take a more proactive stance on monitoring licensees.

Another recommendation calls for some form of compensation protection for consumers where licensees cease to trade or are unlicensed.

“Given the limited regulatory measures to protect retail clients from the risk of licensee insolvency, it would be inappropriate to require more responsible and financially secure licensees to underwrite other licensees to meet claims against them,” Mr St John said in his report.

“There would also be an element of regulatory moral hazard should a last resort scheme be introduced without a greater effort first to put licensees in a position where they can meet compensation claims from retail clients.”

Financial Services Compensation Scheme Chairman Peter E Daly told insuranceNEWS.com.au he is disappointed with the report.

“It hasn’t told us anything we didn’t already know,” he said. “I would have thought the report would have been more open and the need for consumer protection to be strengthened.”

Mr Daly says he will make a submission to Financial Services Minister Bill Shorten after reading the report fully.

Financial Planning Association Chief Professional Officer Deen Sanders has welcomed the report’s recommendations, saying consumers deserve better access to compensation for poor advice and products.

“This is a thorough review,” he said. “Its conclusions are welcomed – including the need for careful redress of regulatory imbalances before considering any last resort compensation scheme as a solution for retail client compensation.”

Mr Shorten admitted in a statement that there is no easy solution to dealing with compensation of last resort.

“This government takes consumer protection very seriously and has established the Future of Financial Advice (reforms) as a key plank in our efforts to better protect consumers,” he said.

“As Mr St John’s report has shown, there is no silver bullet to solve this complex problem overnight.”

Mr Shorten says the Government will wait for industry responses to the report, which is due by July 6, as well as the result of the Parliamentary Joint Committee on Corporations and Financial Services’ inquiry into the Trio Capital collapse before making any further statement.

“We will consider Mr St John’s recommendations carefully, including issues such as how any last resort scheme would be funded given that the entities in question are not Australian Prudential Regulation Authority-regulated and therefore are not subject to normal industry levies,” he said.

“The Government anticipates finalising its formal response to Mr St John’s report in the next three months.”