Changes to ACFA’s role including the Compensation Scheme of Last Resort
The recently established external dispute resolution body, the Australian Financial Complaints Authority (AFCA), will now:
- have a role in the public reporting of firm remediation activities; and
- administer a newly established industry-funded compensation scheme of last resort (CSLR) for future claims.
The CSLR will pay out compensation owed to consumers and small businesses that receive a court or tribunal decision in their favour or a determination from AFCA, but are unable to get the compensation owed by the financial firm (for example, because the firm has become insolvent).
The CSLR will:
- have a scope wider than financial advice failure, but its limits are presently unclear;
- be funded, as a licence condition, by financial firms engaged in the types of financial services covered;
- require that consumers and small businesses have a decision from AFCA, a court or tribunal that remains unpaid after “reasonable steps” have been taken to obtain payment (with those “reasonable steps” to be defined by the CSLR).
Increased responsibility for remediation on senior executives and AFSL holders
The BEAR will be extended to all APRA-regulated entities. All covered entities will be required to nominate one senior executive to be accountable for the design, delivery and maintenance of all products offered, and “any necessary remediation of customers in respect of any of those products.”
Where an AFSL holder identifies misconduct by one of its financial advisors in respect of financial advice given to a retail client, it will be required to make whatever inquiries reasonably necessary to determine the nature and full extent of an adviser’s misconduct and to “inform and remediate affected clients promptly.”
ASIC and remediation
- ASIC’s focus will likely shift away from a remediation-first policy and ASIC will take “as its starting point”, the question of whether a court should determine the consequences of a contravention;
- ASIC will be granted a directions power, which extends to ordering remediation.