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Updated financial services compensation scheme proposal

1 June 2015, 11:00 AM

The Financial Ombudsman Service Australia today released an updated proposal to establish a financial services compensation scheme.

Chief Ombudsman, Shane Tregillis, said there appeared to be broad industry and community acceptance that this clear gap in the consumer protection framework needed to be addressed, giving consumers the confidence that if things go wrong, they will be compensated when a decision is made in their favour.

“In our view, it is in the interests of all financial system participants to find a solution to the problem of unpaid compensation, to enhance consumer trust in financial services,” Mr Tregillis said.

“There is currently a unique opportunity to address the longstanding issue of unpaid compensation in the context of any response by the Government to the Financial System Inquiry discussions around a new funding model for ASIC’s regulatory functions, and the current efforts to improve professionalism and standards in the financial advisory industry. We are willing to work with all stakeholders on how best to design, fund and implement a cost-effective financial services compensation scheme,” Mr Tregillis said.

The FOS proposal updates a 2009 report (prepared by consultants engaged by FOS) on the design of a compensation scheme. The proposal sets out the governance structure, scope, operations and legislative changes that would be required to support such a scheme. Also included is a brief overview of the work that has been undertaken to date on the potential funding mechanisms for a scheme.

“The implementation of a financial services compensation scheme involves a number of design decisions relating to governance, coverage, operational approach to determining claims, funding mechanisms and the extent of any transitional arrangements,” he said.

“The approach proposed by FOS is intended to minimise the costs involved in the establishment and operations of a compensation scheme and address any concerns about the potential for moral hazard,” he said.

“The release of the updated FOS proposal is designed to contribute to a consideration by all stakeholders in the financial sector of how, in the interests of enhancing consumer confidence and trust, a cost-effective financial services compensation scheme can be implemented in the financial sector,” Mr Tregillis said.

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