CSLR built on moral hazard says SIAA | Australian Markets

The Compensation Scheme of Final Resort (CSLR) “was built on the shaky foundations of moral hazard” and its shortcomings are apparent now the scheme is in operation, in line with the Stockbrokers and Funding Advisers Affiliation.

“The CSLR was never intended to underwrite investment risk or pay complainants hypothetical ‘but for’ gains they did not receive because of their investment decisions. Yet this is what is currently taking place with the CSLR essentially guaranteeing investment returns of complainants,” it stated.

The SIAA has used its submission to the Treasury Assessment of the CSLR to clarify that the scheme wants basic modifications and that the Authorities shouldn’t search to make use of the Treasury Assessment to easily “kick the can down the road”.

“The way in which fault is attributed under the law results in financial advice firms bearing the full costs of failed or poorly performing managed investment schemes where advice has been provided,” it stated.

“It is inequitable that a methodology used by AFCA in its determinations that results in a calculation of a large loss amount is not subject to independent review when it cannot be disputed by a counter party.”

“The payment of compensation to wholesale clients is not the intended objective of the CSLR. It was always intended for retail client who could not afford redress through the courts, not wholesale clients who have that financial capacity. The ability of AFCA to reclassify wholesale clients and accept their complaints has the potential to impact significantly on the sustainability of the CSLR and those financial firms subject to the CSLR levies when AFCA determinations brought by wholesale clients are unpaid and referred to the scheme,” the submission stated.

“The impact of both the CSLR and the ASIC Industry Funding Levy could force small advice licensees to close their doors. For larger licensees, it is likely to result in an increased cost of advice as they pass on the costs of these levies to their clients. This is in direct conflict with the policy of both the Labor and Coalition parties that seeks to make access to advice more affordable.”

“The scheme does not allow either advisers or firms to manage risk or budgets. It is inequitable and unsustainable,” the submission stated.

The SIAA submission has beneficial that an unbiased professional be appointed to review the methodology utilized by AFCA to find out compensation quantities for the Dixon Advisory complaints.

As nicely, it needs all AFCA personnel figuring out damages have recognised {qualifications} and expertise in and/or robust information of capital markets.

The SIAA additionally needs the Authorities to cowl the prices and claims of the primary 12 months of the scheme, as initially promised and for the scheme to be redesigned to take into consideration the truth that “currently PI insurance does not respond in any meaningful way to complaints involving the failure of financial advice firms”.