The Compensation Scheme of Last Resort (CSLR), established in response to the Ramsey Review and the Banking Royal Commission, has made its first payments, totalling over $360,000, to four claimants affected by financial services misconduct.
CSLR chief executive David Berry announced that three of the recipients were from suburban areas of Sydney (Sutherland Shire, Northern Beaches, and the Hills District), with the fourth from the western outskirts of Brisbane.
“While the financial services industry works toward the betterment of their clients, it’s unfortunate that there are a small few who take advantage of the trust bestowed on them. Ensuring some basic consumer protections works to lift trust in the financial services industry and the professions that support it,” he said. “This crucial safety net for victims of financial services misconduct is now in place, and those who have experienced financial loss through no fault of their own are being compensated.”
The first payouts included over $50,000 to a Queensland couple who were advised by a mortgage broker to take out an unsuitable loan.
A couple from southern Sydney received about $145,000 after inappropriate advice from their financial planner concerning a self-managed super fund.
Another couple from Sydney’s Hills District was awarded $150,000 after the Australian Financial Complaints Authority (AFCA) ruled that their superannuation advice was not tailored to their needs, with poorly explained risks and insufficient consideration of alternatives.
A man from Sydney’s Northern Beaches received just under $17,000 after taking out a large loan on the advice of his financial adviser to invest in a scheme with “guaranteed returns.”
The CSLR offers compensation of up to $150,000 to eligible consumers who have experienced misconduct by a financial firm that is unable to make recompense, typically due to insolvency.
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“This really is a compensation scheme of last resort – these first four claimants had
exhausted all other avenues and waited up to five years for a resolution,” Berry said. “The CSLR claims team has been moved by the joy expressed by the scheme’s first claimants, some of whom were in quite desperate financial straits.”
Eligibility for compensation requires a determination of financial misconduct by AFCA related to specific financial products and services.
“The scheme is an important part of Australia’s consumer protection framework and aims to alleviate the distress of consumers when other avenues for redress are unavailable,” Berry said. “In turn, its existence will support confidence in the financial services sector.”
Berry emphasised the importance of the financial industry’s contributions to the scheme through levies on various sub-sectors.
“Industry contributions ensure the scheme will both compensate eligible claimants but also encourage industry to back stronger standards, which enhances confidence and trust in the financial services sector,” he said. “It is important to note that the vast majority of people in the financial services industry act ethically and in the best interests of their clients.”
CSLR levies, calculated by the Australian Securities and Investments Commission in accordance with federal legislation, are collected from credit intermediaries, credit providers, licensees providing financial advice, and securities dealers.
Early this year, AFCA called for improving the insurance claims process in the country, noting that it had received 3,994 flood-related complaints from the beginning of the 2022 floods up until mid-February 2024.
