Stephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

The Treasury Laws Amendment (Financial Services Compensation Scheme of Last Resort) Bill 2023 is part of a package of bills to establish and fund a financial services compensation scheme of last resort. I'll hereafter refer to it as the CSLR.

The government remains committed to establishing a CSLR.

The background to the CSLR is well known. In 2019, the financial services royal commission recommended that a CSLR be established. In doing so, the royal commission endorsed the three principal recommendations of the 2017 supplementary final report of the Review of the Financial System's External Dispute Resolution and Complaints Framework. It was known commonly as the Ramsay review, and I'll refer to it hereafter as the Ramsay review. The Ramsay review noted the inadequacy of existing redress measures in ensuring that all consumers are compensated for losses, and recommended the establishment of an industry funded and forward-looking CSLR that targets the areas of the financial sector with the greatest evidence of need.

The CSLR is designed to provide compensation to consumers who have received a relevant determination in their favour by the Australian Financial Complaints Authority, commonly known as 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. The cap on claims helps maintain the ongoing financial sustainability of the scheme, whilst balancing the interests of consumers.

The operator of the CSLR will be a subsidiary of AFCA, limited by guarantee and operating on a not-for-profit basis. The operator must act in line with the primary legislation and regulations, with compliance ensured by ASIC. The operator will be managed by a board consisting of an independent chair appointed by the minister, a person who is a member of the board of AFCA, and an actuary who has at least five years of actuarial experience.

Passage of this legislation in March 2023 is essential to facilitate the CSLR being operational from December 2023. I want stress that point, Mr Speaker: passage of the legislation in March 2023 will facilitate the CSLR being operational from December 2023; any delay in the passage of this legislation will mean that the Compensation Scheme of Last Resort will not be operational and available to pay claims this year.

The CSLR is designed to act as a last resort mechanism. After the claimant has notified AFCA that their determination remains unpaid, AFCA will be required, where appropriate, to take steps to ensure that the relevant entity—that is, the entity against whom the award has been made—pays the compensation owed. The CSLR operator will also need to confirm that no other statutory scheme is available to pay all or part of the compensation owed, including any state or territory arrangements.

Measures have been added to reduce the incentive for financial firms to rely on the CSLR, and to facilitate better compliance with AFCA determinations. For example, ASIC must cancel an AFCA member's Australian financial service licence and/or Australian credit licence if the CSLR provides compensation as a result of that member's misconduct.

As set out earlier, legislation to establish a CSLR was previously introduced by this government on 8 September last year. That legislation proceeded to the Senate. In December 2022, the government identified the issue that I mentioned earlier in relation to the one-off levy, and so the CSLR legislation was not passed last year while further consultation was undertaken.

The CSLR bills package being introduced today reflect the same intent and are substantively the same as the legislation considered by parliament last year. Minor and targeted amendments to reflect the passage of time and further stakeholder feedback have been made.

The Legislative and Governance Forum for Corporations was notified of this bill, as required under the Corporations Agreement 2002.

Full details of the measure are contained in the explanatory memorandum.

Finally, I take this opportunity to respond, on behalf of the government, to the report of the Senate Economics Legislation Committee in relation to the CSLR bills. The committee recommended the passage of the bills that were before them, which contained substantively the same CSLR provisions as are being introduced today. Additional comments were also provided by coalition senators who recommended additional parliamentary scrutiny of AFCA and the CSLR operator, consideration of ASIC's enforcement capacity and capability and consideration of three other technical matters. In response, the government notes the work being undertaken in the other place to conduct an inquiry into ASIC's capacity and capability to respond to reports of alleged misconduct. The government also notes the appearance of AFCA at Senate estimates last year. The government acknowledges the coalition senators' recommendations and restates its commitment to ASIC as a key financial system regulator, AFCA as the external dispute resolution provider, and the establishment of the CSLR to support relevant consumers when compensation has not been paid.

Debate adjourned.