1.1 A compensation scheme of last resort

The Terms of Reference require me to consider ‘the effectiveness of mechanisms for redress of consumers of financial services who suffer detriment as a result of misconduct by financial services entities’.[1] Accordingly, in the Interim Report, I asked whether existing dispute resolution mechanisms were satisfactory, and whether a mechanism should be established to provide compensation of last resort.[2]

In 2016–2017, a panel appointed by Government[3] reviewed external dispute resolution (EDR) and complaints arrangements in the financial system. The panel delivered a final report in April 2017.[4] In accordance with the panel’s recommendations, a new EDR body, the Australian Financial Complaints Authority (AFCA), was established to take the place of the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman, and the Superannuation Complaints Tribunal.[5] AFCA commenced operating in November 2018.[6]

AFCA should be permitted to set about its work. I make no recommendation for any change in its operations. Elsewhere in this Report, I have recommended that Australian financial services licence (AFSL) holders should be obliged to take reasonable steps to co-operate with AFCA in its resolution of particular disputes including, in particular, by making available to AFCA all relevant documents and records relating to the issues in dispute.

In February 2017, the Government had extended the terms of reference of the panel reviewing the EDR and complaints framework to require the panel to make recommendations on the establishment, merits and potential design of a compensation scheme of last resort (CSLR) and to consider the merits and issues involved in providing access to redress for past disputes.[7] In September 2017, the panel delivered a supplementary final report considering these issues.[8]

As the panel noted in its supplementary final report, the Corporations Act 2001 (Cth) (the Corporations Act) and the National Consumer Credit Protection Act 2009 (Cth) (the NCCP Act) oblige licensees to have in place arrangements for providing compensation where certain specified losses occur, and, as a result, consumers and small businesses have a reasonable expectation that they will receive compensation in these circumstances.[9] The panel said that there was ‘clear evidence’, however, that not all licensees were meeting their obligations, with the result that some consumers and small businesses were not receiving their EDR awards.[10] Failure to pay compensation was concentrated in the financial advice subsector.[11]

On 21 December 2017 the Government announced that it would defer its consideration of the recommendations made in the supplementary final report until after this Commission had concluded.[12]

In its supplementary final report, the panel made three recommendations for a CSLR:

  • A CSLR should be established, but should be limited and carefully targeted at the areas of the financial sector where there is clear evidence of recurrent problems with uncompensated losses.[13]
  • A CSLR should initially be restricted to financial advice failures where a financial adviser (the ‘relevant provider as defined in section 910A of the Corporations Act) has provided personal and/or general advice on ‘relevant financial products’ to a consumer or small business. A CSLR should be designed for the future and accordingly be scalable, which means it can be expanded over time to cover other types of financial and credit services, should evidence of significant problems of uncompensated losses emerge.[14]
  • A CSLR should have, among others, the following design features.[15]
  • It should apply prospectively (in the sense that it applies only in respect of decisions made after the scheme is established) and be restricted to consumers and small businesses.
  • To access the scheme, claimants should have a decision from AFCA, a court or a tribunal (where the circumstances of that claim would have been eligible for consideration by AFCA) which remains unpaid after reasonable steps have been taken.
  • Applicants will have 12 months to lodge their claim after having completed specified reasonable steps to obtain compensation.
  • Where an uncompensated loss arises from an unpaid EDR determination, AFCA should be required to provide certification that it has completed its processes to enforce the determination and that it does not consider that it will be paid, and then refer the claimant to a CSLR.
  • The CSLR should not independently reassess the merits of claims but must, before paying a claim, be satisfied that the award will not be paid by the financial firm.
  • A compensation cap, aligned to ACFA’s, should apply. The CSLR should set limits on the level and types of legal costs that are recoverable.
  • It should have the ability to stand in the shoes of a consumer or small business and pursue the financial firm for the compensation amount, where appropriate.
  • The CSLR should be funded by financial firms engaged in the types of financial services it covers (initially, specified types of financial advice). Financial firms should be required to contribute to it from its outset, via an appropriate mechanism developed by Government and industry. Financial firms providing the types of services covered should be required to be members and contribute to the funding of a CSLR as a condition of licensing.
  • Governance should be by an independent board with an independent chair and equal numbers of directors with industry and consumer backgrounds.
  • The Australian Securities and Investments Commission (ASIC) should have oversight of a CSLR, including a general directions power to allow it to compel a CSLR to meet its regulatory and legislative requirements.

I agree with the panel’s recommendations, including those it makes about design principles. The approach proposed by the panel should be followed.

I note that the panel made a fourth recommendation about professional indemnity insurance. It said that ‘[f]irms that rely on [professional indemnity] insurance to meet their licensing obligations should be required to provide additional data to ASIC, to improve ASIC’s ability to undertake market surveillance and targeted regulatory action’.[16] This recommendation was consistent with ASIC’s submission to the review panel.[17] Its efficacy will depend on what use ASIC makes of the data. I say no more about it.

In its supplementary final report, the panel said that, without accurate quantification of the size, scale and nature of the potential claims that would be made if there were access to redress for past disputes, it could not ‘assess the merits and issues in this area’.[18] Accordingly, the panel proposed various options for providing access to redress for past disputes and identified the three considerations that it said ‘are important in any mechanism’ designed to provide that access.[19] Those were that the mechanism be ‘simple and accessible’, that it ‘seek to minimise costs for all stakeholders’ and that it provide ‘adequate support for consumers and small businesses’.

As the panel recognised, there is a deal of uncertainty about what kinds of claim are to be considered when looking at whether there should be access to redress for past disputes. The panel concluded that there was ‘merit in considering’ providing access to redress to consumers and small businesses who had ‘a viable claim against a financial firm at the time of the dispute’ where one or more of four criteria were met: [20]

  • the firm was no longer operating;
  • the firm was not a member of an EDR body;
  • the monetary value of the claim exceeded the EDR body’s monetary limit and the consumer or small business ‘lacked the resources’ to access the courts or other means of resolution;
  • the consumer or small business was not in a position to pursue the dispute with the EDR body ‘due to exceptional circumstances’.

The panel proposed further consideration of the issues and there is evident merit in that being done.

I make only four points about redress for past disputes.

First, cases in which redress has been directed or ordered but not paid stand apart from all other cases of redress for past disputes. Where a claimant has not been paid the amount that an EDR body (or court) found should be paid, the central issue becomes whether Government or industry should now pay what was owing. As the panel said, a necessary first step would be to identify the scale of the problem before deciding how best to approach providing redress in those cases.

Second, the panel accepted, and I agree, that there would be no merit in allowing further access to redress in any case where the consumer or small business concerned has already resorted to dispute resolution by a court, tribunal or EDR body or has settled the dispute.

Third, limiting access to redress to those who ‘had a viable claim’ would be of little practical effect. The merit of the claim could rarely be determined without detailed examination of the facts and circumstances.

Fourth, if there is to be any access to redress for past disputes, there must be some time limit imposed.

Recommendation 7.1 – Compensation scheme of last resort

The three principal recommendations to establish a compensation scheme of last resort made by the panel appointed by government to review external dispute and complaints arrangements made in its supplementary final report should be carried into effect.


[1]Letters Patent, 14 December 2017, (e).

[2]FSRC, Interim Report, vol 1, 344.

[3]Professor Ian Ramsay (Chair), Ms Julie Abramson and Mr Alan Kirkland.

[4]Ramsay Review, Final Report.

[5]Ramsay Review, Final Report, 14, Recommendation 1.

[6]ACFA, ‘Ministerial Authorisation of the Australian Financial Complaints Authority’ (Media Release, 1 May 2018).

[7]Ramsay Review, Supplementary Final Report, 129 [1]–[3].

[8]Ramsay Review, Supplementary Final Report.

[9]Ramsay Review, Supplementary Final Report, 3 [17].

[10]Ramsay Review, Supplementary Final Report, 3 [18].

[11]Ramsay Review, Supplementary Final Report, 4 [23].

[12]The Hon Kelly O’Dwyer, ‘Release of the External Dispute Resolution Framework Supplementary Final Report’ (Media Release, 21 December 2017).

[13]Ramsay Review, Supplementary Final Report, 51, Recommendation 1.

[14]Ramsay Review, Supplementary Final Report, 67, Recommendation 2.

[15]Ramsay Review, Supplementary Final Report, 103–5, Recommendation 3.

[16]Ramsay Review, Supplementary Final Report, 113, Recommendation 4.

[17]Ramsay Review, Supplementary Final Report, 111 [5.13]–[5.14].

[18]Ramsay Review, Supplementary Final Report, 164 [8.5].

[19]Ramsay Review, Supplementary Final Report, 184, Observation 5.

[20]Ramsay Review, Supplementary Final Report, 131.

79 thoughts on “1.1 A compensation scheme of last resort”

  1. Pingback: deltasone cough
  2. Pingback: is ivermectin safe
  3. Pingback: ivermectin usa
  4. Pingback: generic tadalafil
  5. Pingback: buy generic cialis
  6. Pingback: sildenafil tablets
  7. Pingback: covid pill merck
  8. Pingback: tadalafil
  9. Pingback: win casino online
  10. Pingback: cialis prix
  11. Pingback: ivermectin gel
  12. Pingback: cost of stromectol
  13. Pingback: lasix medicine
  14. Pingback: lasix without a rx
  15. Pingback: ivermectin monash
  16. Pingback: ivermectin on line
  17. Pingback: ivermectine kory
  18. Pingback: stromectol tablete
  19. Pingback: stromectol usa
  20. Pingback: stromectol prices
  21. Pingback: ivermectin 50

Feedback