The introduction of a last resort compensation scheme at this point would be inappropriate without consideration being first given to strengthening existing compensation arrangements, a report to the government released today said.
In his report into compensation arrangements for consumers of financial services, Richard St John recommended the government turn its attention to bolstering Australia's existing compensation rules rather than introducing new layers of regulation.
The report, commissioned by the government in 2009, also found retail clients were generally able to recover compensation for losses attributable to misconduct by financial services licensees, except where the licensee lacked the resources to meet those claims.
"[The report] concludes that it would be inappropriate, at this point in time, to introduce a 'last resort' compensation scheme, without first strengthening the existing compensation arrangements," Financial Services and Superannuation Minister Bill Shorten said in a statement.
"[It] recommends strengthening the existing compensation arrangements, in particular the holding of adequate professional indemnity insurance cover, greater ASIC monitoring and capital adequacy requirements to ensure that licensees have the financial resources to meet compensation liabilities."
The report also said consideration should be given to the "merits" of product issuers being required to take greater responsibility for protecting consumers of their products.
It also recommended a more detailed and targeted review into the arrangements between product issuers and consumers.
"This government is committed to ensuring consumers have access both to strong regulatory protections and appropriate compensation arrangements," Shorten said.
"To this end, I welcome the insights provided by Mr St John, and look forward to the recommendations of the PJC (Parliamentary Joint Committee) and will be giving the recommendations full consideration to ensure the arrangements in Australia provide all necessary protections."
The government anticipates finalising its formal response to St John's report in the next three months.
It is seeking feedback on the recommendations in the report and will take into consideration any recommendations resulting from the PJC on Corporations and Financial Services inquiry into the collapse of Trio Capital before responding to St John's report.
The report was commissioned in response to the 2009 PJC on Corporations and Financial Services report and inquiry into financial products and services in Australia.
