Intending to address recommendation 7.1, the new legislation creates the compensation scheme of last resort (CSLR). It also takes aim at six recommendations (3.9, 4.12, 6.6, 6.7 and 6.8) around establishing the Financial Accountability Regime (FAR).
Implementing a framework of accountability and responsibility within financial institutions, FAR extends the Banking Executive Accountability Regime to all APRA-regulated entities. This will be jointly administered by APRA and ASIC.
The CSLR, meanwhile, aims to establish confidence in the financial system’s dispute resolution framework. Its primary function is to facilitate compensation to consumers when the Australian Financial Complaints Authority (AFCA) has ruled in their favour, but payments to the claimant remain outstanding.
The draft legislation caps the compensation that can be paid through the CSLR at $150,000, and proposes that the maximum compensation for each AFCA determination is $150,000.
Responses to the CSLR and FAR drafts will be accepted through 13 August 2021.
The government also released ASIC’s report into the industry’s transition away from grandfathered conflicted remuneration on Friday.
The royal commission reported that grandfathering creates a “risk of misaligned incentives, which can lead to inappropriate advice”.
As such, the government repealed these provisions effective 1 January 2021, and required banks to rebate these amounts to consumers.
ASIC’s investigation found that 96 per cent of grandfathered conflicted remuneration arrangements had been terminated by 31 December 2020, with approximately $266.7 million returned to consumers over the period 1 July 2019 to 31 December 2020.
The rebates continue to roll out in 2021, with $24.4 million expected to be returned to consumers this year.
