The Financial Ombudsman Service (FOS) has used its submission to the federal government’s compensation review to place its previously proposed compensation scheme back on the agenda.
FOS has reignited the debate for the formation of a Financial Services Compensation Scheme (FSCS), stating it would remove unnecessary levels of risk and create clarity for licensees.
“FOS is strongly of the view that the establishment of an FSCS would add a level of clarity, certainty and security for these new licensees and consumers and that it would be beneficial to introduce an FSCS either in advance of or simultaneously with other changes to the licensing regime,” FOS’s response to the government’s consultation paper on compensation arrangements for consumers of financial services said.
“If enacted it would provide consistency and efficiency of the delivery of compensation and improve the current patchwork of compensation arrangements. The proposed scheme will provide certainty for consumers and industry alike.”
FOS said the FSCS would improve consumer understanding and maintain or improve consumer trust and confidence in the financial services industry.
The proposed scheme is a reworked model to the one proposed by FOS in October 2009 in which FOS proposed to introduce a 1 per cent levy on all licensees.
“The revised proposal includes capping of benefits and levies, the quarantining of losses into contribution groups and the removal of government financial support,” the submission said.
“The scheme proposed by FOS is industry based and industry funded, provides adequate but limited compensation to consumers as a last resort. It is intended to be both affordable to licensees and equitable, is post-event funded and designed to mitigate moral hazard and provide incentives for improved risk management. It is not designed to cover investment losses.”
While FOS acknowledged the paper’s range of other measures, including improving professional standards, improving financial literacy of consumers, more proactive administration of licensing requirements by ASIC, disclosure of professional indemnity insurance arrangements, and more focus on the financial resources of licensees, it was of the view such measures might not be enough.
