Last resort compo scheme, FAR legislation introduced

Legislation for the proposed compensation scheme of last resort (CSLR) and the Financial Accountability Regime (FAR) was introduced in the House of Representatives last week, bringing the commencement of the last tranche of Hayne royal commission-backed measures a step closer to fruition.

Financial Services Minister Stephen Jones introduced the bills last week.

He says the FAR bill will establish the scheme with substantially the same design specifications originally introduced by the previous Morrison government in October 2021 which lapsed with prorogation.

“In essence, the FAR extends the existing responsibility and accountability framework to the insurance and superannuation sectors, to ensure that heightened accountability obligations are in place across the wider financial industry,” Mr Jones said.

“The FAR ensures that, where these community expectations are not met, appropriate consequences will follow.”

The Australian Securities and Investments Commission and the Australian Prudential Regulation Authority will jointly administer FAR.

Mr Jones says the FAR bill introduced last week “now incorporates a small amendment… to articulate more clearly the scope of the minister’s exemption power and to provide for parliamentary oversight of the exercise of that power”.

The small amendment was suggested by Senator David Pocock.

However, the Albanese Government has decided not to adopt the Australian Greens’ recommendation to introduce civil penalties for breaches of accountability obligations into the FAR bill.

“The government’s bill already contains effective measures to address executive failures to comply, including disqualification, loss of deferred bonuses, and individual civil penalties for assisting in an entity’s contravention of its obligations,” Mr Jones said.

“That is to say, the bill already contains instances where individual civil penalties apply. These sanctions are on top of penalties for misconduct already in place in other financial services laws.”

On the CSLR, Mr Jones says the Commonwealth will fund the establishment of the scheme, which is intended to be operational from December this year if the bill is passed through both houses of parliament by March. The Commonwealth will also fund the scheme’s initial operation until June 30 2024.

A backlog of complaints that have been lodged with the Australian Financial Complaints Authority (AFCA) and that are expected to be eligible to claim will be funded through a one-off levy on Australia’s 10 largest banking and insurance groups.

“Since the original bill was introduced by the previous government, a material event occurred in the market that significantly increased the amount that would need to be paid out of that one-off levy,” Mr Jones said.

He says the CSLR is designed to provide compensation to consumers who have received a relevant determination in their favour by AFCA where that determination remains unpaid.

“Claimants may receive compensation of up to $150,000 where they have an unpaid AFCA determination in their favour for the following financial services or products: personal advice on relevant financial products to retail clients, credit intermediation, securities dealing and credit provision,” Mr Jones said.