Jones faces push-back on his last chance CSLR play
At the same time as the Assistant Treasurer and Minister for Financial Services, Stephen Jones is actively working to push through the Government’s compensation scheme of last resort (CSLR) legislation he is running into strong opposition from lawyers, stockbrokers and financial advisers.
They have suggested the cost of the CSLR to advisers could be significantly mitigated if licensees were required to meet mandatory capital requirements.
Jones went public on Sunday claiming that if the CSLR is not passed during this week’s pre-Budget sitting of the Parliament then consumers will have to wait until 2024 to receive compensation.
He claimed that “right now there are around 2000 cases on hold with the Australian Financial Complaints Authority (AFCA) awaiting passage of the CSLR” and that in another 30 cases compensation has been awarded but can’t be paid until the legislation is passed.
However, submissions to a key Parliamentary Committee of inquiry into the effectiveness of the Australian Securities and Investments Commission (ASIC) have raised serious concerns about the CSLR, particularly reinforcing the manner in which good advice firms are being made to finance failings of bad apples.
The Stockbrokers and Investments Advisers Association (SIAA) made clear that the ASIC levy and how it is calculated is already unaffordable for financial advisers and is just one cost within an ever-increasing regulatory burden.
In fact, the Law Council of Australia is arguing that the CSLR “will not deter poor behaviour, because the persons responsible for the offending conduct will not bear the cost of compensation”.
In doing so, the Law Council has suggested that the Government and ASIC could more broadly use their existing regulatory resources to reduce the risk of compensation failure and deter poor behaviour by:
- Increasing minimum capital requires so that licensees are more likely to have sufficient resources at hand to meet compensation requirements and less likely to become insolvent; and
- Ensuring that sufficient insurances are in place.
Similarly, the Financial Services Council (FSC) warned that “there is potential for dispute resolution and compensation schemes to distort efficient market outcomes and regulatory action”.
“We note that the proposed compensation scheme of last resort (CSLR) is premised on the proposition that those who are well resourced and capitalised (and innocent of a particular wrongdoing) should fund the wrongdoings of those who have been poorly or inadequately financially resourced,” the FSC submission said.
“Similar to our comments regarding AFCA above, the FSC submits that the CSLR should not be seen as a general pool of funds available to compensate consumers for an unsuccessful financial investment that has simply gone wrong where the relevant financial business has acted within the law, nor a reason for ASIC to be any the less vigorous or active in its investigation and enforcement role.”
“Whatever the final parameters of a CSLR, the FSC submits that without greater ASIC oversight and enforcement of existing laws, the CSLR itself will do little to reduce the consumer risk of unpaid AFCA determinations and simply shifts the cost, via levies, to financial services companies that have done nothing wrong.”
When it comes to urgently needed regulatory fixes to problems preventing consumers from accessing affordable preventable advice, Jones is moving at a snails pace and conducting excuse fest seminars.
But when it comes to introducing yet another unfair regulatory cost burden on small advisers, that will just make the problem worse, Jones is pushing on with gusto. His cavalacade of “do nothing” excuses don’t apply when there’s an opportunity for more adviser persecution.
Disgusting legislation from Govt yet again killing only Advisers whilst Product Manufacturers with dodgy MIS walk away from their disasters at no cost, forcing Advisers to pay.
DISGUSTING, CORRUPT GOVT & ATTEMPTED LEGISLATION must not be approved.
Stephen Jones is a nice bloke. But he is junior player in a complex portfolio that puts him way down the pecking order of government business achievements. His lack of action on the Levy report commissioned by the former liberal government should be noted as his signature activity (or lack of it)
He is a light weight out of his depth, unable to make decisions or have influence with more senior members of the labour government. At least if he is kept at arms length by the party machine he can’t make any mistakes hopefully! Sigh.
He is a light weight out of his depth, unable to make decisions or have influence with more senior members of the labour government.
YOU ARE SO RIGHT!
Well, that outcome may have been different if we as advisers made Multi Million dollars donations to the Political parties then maybe it would be shared. Oh, the right’s the Coffers are empty from slashing of income, ramping of costs Industry Levy and Professional Indemnity. Lack of serious adjudication by AFCA to complaints. Did someone forget that it the small businesses (Financial Advisers) who are advising all this and we are becoming a rare species, but that’s OK because QAR will allow these Fund Managers and Superfunds to advise on their own products without liability? So, Problem solved.
CSLR is an industry problem not an Adviser problem.
FYI
AFSL’s already pay significant PI premiums with the min PI cover being $2.5m so that should be more than enough to cover payouts. By being asked now to maybe have X amount of capital is total BS. Easy to do if you happen to be a big firm but there are a lot of small sole director AFSL’s and making up some mandatory capital requirement will just put them out of business.
Investing in the live mkt has risks but govt, rent seekers and bodies like ASIC & AFCA essentially want retail investors to be guaranteed from such mkt risks. As I often say – if you want a guarantee go buy a toaster.
This industry is drowning in red tape. No wonder more people are dropping off the Adviser Register and going over to a general advice model. Personal Advice is just not worth it these days and that’s sad because the people who do need the advice just aren’t going to be able to get it or if they do it get – the personal advice will cost them a fortune.