AFCA’s ‘but for’ CSLR approach in question | Australian Markets

Removal of the Australian Financial Complaints Authority’s (AFCA’s) ‘but for’ approach to Compensation Scheme of Last Resort (CSLR) claims is being thrust to the highest of the post-election agenda irrespective of which get together finally wins workplace on Saturday.

While the Government has remained largely silent on the appropriateness of the ‘but for’ approach, the Federal Opposition has made clear that it should be altered and submissions to each a Senate Economics Committee review of the CSLR and people Treasury have equally backed a totally different approach.

The Federal Opposition’s criticism has been bolstered by the Shadow Minister for Financial Services, Luke Howarth who has used a letter to the Association of Independently Owned Financial Professionals (AIOFP) to declare excluding ‘but for’ compensation as a Coalition precedence.

Expressing deep concern on the price impacts of the CSLR on financial advisers, Howarth stated: “The CSLR has become a scheme which is guaranteeing investment performance rather than acting as a ‘last resort’. 80 per cent of CSLR claims are ‘but for’ compensation for the hypothetical gains. This is unacceptable and comes on top of the Albanese Government’s slow, botched implementation of the Quality of Advice Review reforms”.

Elsewhere in his letter Howarth stated that a Coalition Government’s place to begin for lowering prices to advisers could be:

• Reinstating the $10m annual subsector cap, which Labor doubled to $20m, to right away scale back the subsequent industry levy to a capped most of round $600, relatively than the 1000’s itcurrently is;
• Excluding ‘but for’ compensation for hypothetical capital features, which makes up round 80 per cent of CSLR complaints; and
• Not issuing any ‘special’ levies for this 12 months.

Howarth’s letter accords with the tenor of submissions filed with the Senate Economics Reference Committee Review of Wealth Management Companies which particularly offers with the failings of the CSLR, with each the Financial Services Council (FSC) and the Financial Advice Association of Australia (FAAA) singling out the ‘but for problem’.

The FSC listed as its Recommendation 2 “scoping the CSLR to compensate victims for capital losses but not for unrealised, hypothetical capital gains. This would require AFCA to determine actual losses rather than applying “but for” compensation rules”.

Similarly, the Stockbrokers and Investments Advisers Association (SIAA) stated it had “serious concerns about the way in which the ‘but for’ method has been used in the AFCA lead case for the Dixon Advisory matters”.

For its half, AFCA defined to the Senate Committee that In figuring out loss, AFCA doesn’t award capital loss however relatively applies the “but for” take a look at i.e. “But for” the failure of advice, what would the patron have invested in.

“This approach has been endorsed by the Courts in the case of Patterson Securities Ltd v FOS [2015] WASC 321. For example, if a consumer was incorrectly placed in a high growth asset allocation, and they were found to be incorrectly classified, AFCA will determine loss based on the returns they would have received had they been invested correctly.”