Following inquiries late last year into the legislation – which aims to provide limited compensation where a determination issued by the Australian Financial Complaints Authority (AFCA) that relates to a financial product or service remains unpaid – a report released by the Senate economics references committee has recommended an expansion.
In the report, the committee noted that the government’s proposed model only covers certain financial products and services and that consumers who have invested outside of these provisions, such as managed investment schemes will not be covered by the current CSLR model.
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This would also exclude victims of the Sterling Group and Sterling Income Trust that eventually collapsed in 2019, leaving more than 100 customers facing possible eviction and heavy financial losses.
“It is for these reasons, that the committee is of the view that there is a strong case for the proposed CSLR to be expanded, particularly given the evidence of uncompensated losses that have occurred due to failed management investment schemes, such as the SIT,” the report read.
“Therefore, the committee recommends that the government amend the proposed bill establishing the CSLR to include managed investment schemes and ensure that the CSLR is genuinely broad-based and provides a clear avenue of redress for victims of such schemes.”
The recommendations come after financial services minister Jane Hume rejected calls to expand the CSLR, slamming the move as “irresponsible”.
“We have strong penalties for financial misconduct… but we’ll never stop you climbing the mountain,” Ms Hume said in November.
“We must allow people to make their own decisions. And their own mistakes.”
Alan Kirkland, chief executive of consumer group CHOICE, welcomed the report’s recommendations following its release.
“Sterling Group victims deserve compensation for the misconduct that has occurred but the Government’s proposed Compensation Scheme of Last Resort will exclude them,” he said.
“The compensation scheme must be expanded to include managed investment schemes or injustices like this will continue to occur.
“If we fail to learn the lessons of the collapse of Sterling Group, similar scandals will continue to occur, with many more people suffering financial loss as the result of misconduct. The government must act on the findings of the report to ensure these kinds of scandals don’t happen again.”
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