In its submission, the FAAA emphasized that reforms to the Compensation Scheme of Last Resort (CSLR) should take precedence over changes to minimum PII settings. The association highlighted that recent financial collapses, such as those involving Dixon Advisory and United Global Capital, often stem from product failures or systemic business model issues, rather than inadequate PII coverage.
Sarah Abood, CEO of the FAAA, pointed out that enhancing the CSLR would have a more substantial impact on consumer confidence and the integrity of the financial system. She also advocated for extending compensation responsibilities beyond advice firms to include entities like managed investment schemes and research houses, especially when product failures contribute to consumer losses.
The FAAA's submission also called for changes to the Australian Financial Complaints Authority (AFCA) rules, particularly the removal of Rule C1.5, which currently limits complaints about the management of a scheme as a whole. Additionally, the association recommended that the government consider mandatory insurance requirements further up the financial services value chain to ensure coverage exists where risks are generated.
Furthermore, the FAAA highlighted a lack of public data on premiums, claims, and insurer profitability within the advice PII market, suggesting that policy reforms are being conducted without sufficient information. The association proposed that the Australian Prudential Regulation Authority (APRA) collect and publish detailed PII market data and that the Australian Securities and Investments Commission (ASIC) utilize existing financial reporting and complaints data to assess the adequacy of licensees' coverage.
In summary, the FAAA's position underscores the need for a balanced approach to PII reforms, prioritizing systemic solutions like CSLR enhancements over blanket increases in insurance limits, to avoid undue financial burdens on advisers and to address the root causes of consumer losses in the financial services sector.
