Hume and Longo told: Don’t absolve the banks

The Federal Government is being challenged over why it is choosing to leave banks out of the funding formula for the compensation scheme of last resort (CSLR) in circumstances where their activity in the advice arena gave rise to many problems.

The Association of Independently Owned Financial Professionals (AIOFP) has written and open letter to the Minister for Financial Services, Senator Jane Hume and the chairman of the Australian Securities and Investments Commission (ASIC), Joe Longo challenging the scheme’s funding formula and their recent comments.

The letter, signed by AIOFP chief executive, Peter Johnston suggests that both Hume and Longo “are attempting to abrogate the past and future obligations of the Banks/Financial Institutions to protect Consumers from mismanagement of their own products”.

“Now is the time for industry leadership to finally separate the great blunder in financial services history – the merging of product and advice by the Banks,” the letter said. “They are diametrically opposed functions and need to be treated in that manner, how is the time to rebuff the political power of what the Banks want and act in the best interests of Consumers.”

The letter pointed to the fact that recent data released by the Australian Financial Complaints Authority (AFCA) showing 98.5% of all complaints from Consumers were against the banks.

“Why would you want them excluded from the Compensation Scheme of Last Resort (CSLR) and not being held accountable for their own product mismanagement?” the letter asked.

“Let’s make it very clear that Banks manufacture/manage financial products, consumers/advisers invest/advise on them and ASIC releases/registers the for market consumption,” it said. “Why are you trying to exclude every major player from culpability if their product fails? It does not make practical or commercial sense.”

The letter said that comments by Hume around the CSLR and allowing banks/institutions to escape scrutiny and accountability defied logic.

“Quite simply, they are the major reason why these products have failed and to exclude them is a travesty of justice for consumers,” it said.

“Regardless of whether ASIC likes the term or not, they are the ‘gate keepers’ who allow financial products onto the market for consumers and advisers to consider. Surely ASIC has a duty of care to ensure these products are fit for consumption by the public? If there is more rigour around the quality of these products I the first place, all the different laws ASIC want to dismantle would not have been needed in the first place.”