In 2017, consumers and small businesses that had gone to the Financial Services Ombudsman and won determinations were owed $14 million by companies that had not paid up. The banking royal commission found that the financial advice sector was the worst part of the finance industry at failing to pay compensation.
The government has since implemented a scheme to compensate those consumers but paused work on a forward-facing scheme, which was recommended by the Ramsey Review of dispute resolution in the financial system in 2017, while the royal commission was in progress.
The new scheme is to be funded by a levy on financial services firms and operated by the Australian Financial Complaints Authority (AFCA), which resolves disputes between customers and firms in the sector and replaced the financial services ombudsman last year.
Only customers who have won a decision from AFCA, a court or tribunal would be able to access compensation under the new scheme but key details are up for debate.
Court decision could initially be excluded from the scheme. The paper also sets out different options for which firms would have to pay the levy, the amount they should be charged and how much the compensation scheme should be required to pay customers in different situations.
Modelling cited by the paper notes the need to have enough money available to compensate customers if the industry is hit by a recession or “large firm failure” could mean companies have to pay large levies.
An AFCA spokeswoman welcomed the announcement.
“AFCA and its predecessor schemes have long advocated for a compensation scheme of last resort,” the spokeswoman said. “It is vital that this scheme is appropriately funded and governed and has coverage across all financial services.”
The government plans to have the compensation scheme running by December next year.