Federal government moves to implement ‘compensation scheme of last resort’

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July 19 2021
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The government is now taking stakeholder feedback on two recommendations made by the financial services royal commission.

Federal government moves to implement ‘compensation scheme of last resort’

The Morrison government has begun the process of legislating several further recommendations made by the royal commission into the banking, superannuation and financial services sector.

Newly unveiled draft legislation will see the establishment of a compensation scheme of last resort and the implementation of a broader financial accountability regime for APRA-regulated entities.

All up, this legislation will encompass a total of seven recommendations made by the royal commission into the banking, superannuation and financial services sector.

The former measure will facilitate compensation for eligible customers who have been left unpaid even after receiving a determination from the Australian Financial Complaints Authority.

In a statement, the government claimed that the measure will “support ongoing confidence in the financial system’s dispute resolution framework”.

Meanwhile, the new financial accountability regime will extend the requirements and protections of the existing banking executive accountability regime to cover all APRA-regulated entities.

The new regime will be jointly administered by APRA and ASIC.

The federal government said that the new regime will impose “a strengthened responsibility and accountability framework within financial institutions” and recognises that the decisions taken by directors and the senior executives in financial institutions are “significant for millions of Australians and the Australian economy”.

The federal government has also said that it will be publicly releasing a formal report by ASIC into the ongoing transition away from grandfathered conflict remuneration in the financial services industry, following the passing of legislation requiring them to do so earlier this year.

As per the report, ASIC found that, as of 31 December 2020, financial product issuers had terminated 96 per cent of grandfathered conflict remuneration arrangements.

The regulator noted that approximately $266.7 million in rebates had been paid out to customers over the 18 months prior to the end of last year.

In addition, ASIC expects that another $24.4 million in rebates will find its way into the hands of consumers over the course of 2021.

“Overall, the findings of our investigation were very pleasing. Nearly all product issuers ended GCR arrangements before 1 January 2021,” the regulator said in the report.

The federal government said it remains committed to implementing the recommendations made by the financial services royal commission, “and in doing so ensuring Australians continue to have trust and confidence in a strong and effective financial system”.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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