A compensation scheme of last resort to help victims of financial misconduct is being revisited as a way to help protect customers and repair the crisis of confidence plaguing the financial planning sector.
The fund, which would be bankrolled by financial services organisations, would assist customers who have suffered losses due to the collapse of a fund or an entity as a result of rogue advice.
The proposal was raised by Labor Senator Sam Dastyari and Independent Senator Nick Xenophon at a press conference ahead of a senate hearing on Tuesday afternoon that will grill some of the country's biggest financial institutions on scandals in their financial planning divisions.
Senator Dastyari said Labor's Future of Financial Advice legislation, moves to improve education and professionalism in the sector. Photo: Jesse Marlow
Senator Dastyari said Labor's Future of Financial Advice legislation, moves to improve education and professionalism in the sector, were all welcome but victims should not be ignored or forgotten.
"It doesn't mean we can ignore or forget the victims who have fallen through the cracks. They are the forgotten people," he said.
A national compensation scheme was first raised by the Financial Ombudsman Service (FOS) in 2009 as a safety net for victims of organisations that had gone belly up and therefore have no financial redress in the wake of the Storm Financial collapse.
The corporate regulator ASIC also more recently raised the scheme in a submission to the Senate Economics Committee inquiry into forestry managed investment schemes (MIS) and a submission to the Financial System Inquiry.
Senator Xenophon said a draft proposal for the scheme would be released in the next month that would look at the best of similar European systems and look closely at practical solutions.
"We have a legal system not a justice system and god help anyone who as to go to the courts and go up against the big banks. It will break you financially," he said.
Senator Xenophon said the FOS system has a cap of $150,000 which means if there is a claim of more then FOS is not available to the customer.
"We need a better system."
In the past eight years more than 170 financial products representing $38 billion of investor money have been frozen, failed or were fraudulent. Almost a third collapsed, including agribusinesses Timbercorp and Great Southern and the scandal-ridden Astarra funds, LM Capital funds, Opes Prime and Storm Financial.
In the case of Timbercorp, which collapsed in 2009, thousands of people were left financially ruined, some losing their homes. Victims of banned adviser Peter Holt could never get redress for being pushed into products such as Timbercorp as he declared himself bankrupt.
In the past few months many victims of Timbercorp have been served writs to repay a combined $394 million in loans owed to creditors that include ANZ Bank.
Timbercorp wasn't manufactured by one of the big financial institutions, but without the financial backing of ANZ and a few others, it would never have got off the ground.
Author: Adele Ferguson
Source: The Sydney Morning Herald
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