The federal government will create a compensation scheme of last resort (CSLR) that will be established under the oversight of the Australian Financial Complaints Authority (AFCA), following a recommendation from the banking royal commission.
In its final report, the commission stated a compensation scheme, as recommended by a previous review of dispute resolution schemes chaired by Professor Ian Ramsay, should be established to deal with uncompensated losses where a financial services provider was no longer operating, was a member of a dispute resolution body or compensation exceeded the dispute resolution body’s monetary limits.
At the time of the handing down of the report of that review in December 2017, the government stated it would defer its consideration of the recommendations to establish a scheme until after the commission had concluded its work, but now agreed to establish an industry-funded CSLR.
“The CSLR will operate as a last resort mechanism to pay out compensation owed to consumers and small businesses that receive a court or tribunal decision in their favour or a determination from AFCA, but are unable to get the compensation owed by the financial firm — for example, because the firm has become insolvent,” the government said.
The government also agreed to fund the payment of legacy unpaid determinations from the Financial Ombudsman Service and Credit and Investments Ombudsman, and will require AFCA to consider disputes dating back to 1 January 2008, which is the period considered by the commission.