Consumers will be awarded higher damages for bad financial advice and failed investment schemes under controversial plans to raise the cap on compensation from $100,000.
The Financial Industry Complaints Services (FICS) released a consultation paper on Friday calling for urgent input from the industry about a series of proposals to increase the monetary limit that the company operates under.
They include increasing the $100,000 limit to $280,000 to align with the limit of the Banking and Financial Services Ombudsman, which was recommended by a 2002 independent review.
Another alternative is to increase the limits by inflation using the CPI benchmark.
A further option is to increase the current life insurance limits of $250,000 by taking into account the value of the majority of policies now sold – which in some cases have reached the $1 million mark.
“It may be appropriate to introduce a two-tiered structure to the monetary limits. This would allow members to subscribe to limit that best suits their business capacity, FICS said.
FICS admitted the higher the limits, the greater the access to the scheme by consumers the higher the limits but the greater the potential liability faced by members.
“A dramatic increase in the amount would affect smaller members’ ability to meet a successful claim and increase the possibility that a single complaint could force a member out of business and leave the consumer without compensation,” FICS said.
FICS is one of seven ASIC-approved external dispute resolution schemes and has around 2600 members.
The Westpoint collapse of 2005 exposed flaws in the scheme.
Many retail investors found they were unable to claim money because the cap was too low and their planners had loopholes in their professional indemnity policies.
