Australian Financial Complaints Authority, AFCA, has reacted to the proposal to establish an Australian compensation Scheme. This is coming several days after the Australian government released a discussion paper to set up the new Scheme. According to AFCA, the new scheme will be applicable across all financial services in the country.

The dispute resolution commission released a statement on the proposal, stating that it is throwing its full weight on the establishment of such scheme. The compensation scheme would serve as a last resort for those who feel aggrieved and deprived of financial compensation over monetary issues. According to AFCA, the new Scheme should have adequate funding and support from the government to make sure it takes off on a strong footing.

New Scheme would restore trust in the financial system

AFCA reiterated that the industry-funded scheme would play a very important role in the re-establishment of confidence and trust in the wide financial landscape. It says that the financial system in the country needs to offer a fair playing field for all stakeholders involved.

According to AFCA, it will improve the level of confidence the stakeholders have in the system. AFCA has promised to offer its support to the scheme in whatever capacity it could involve itself. The dispute resolution body insists that it will continue to engage stakeholders and the government on the scheme.

Proposed approaches to the Scheme

Discussion for potential approaches regarding the compensation package for the scheme is still ongoing.

The broad-coverage will cover all financial activities that will require the service provider to hold an AFCA membership. According to the proposal, this approach shall be similar to the same approach used for the financial services compensation scheme in the United Kingdom.

For the mid-coverage CSLR scheme, the compensation will include credit provided to small businesses and consumers, investment services, and distribution services. The investment services will include investments relating to derivatives, managed investment schemes, as well as investment in securities. The distribution services will include the provision of brokerage and financial services. The mid-coverage approach shall cover all companies that provide these financial services, no matter whether there are prudentially regulated or not. All of them would be lumped together as providing similar services in the compensation scheme.

The Proposal would make other necessary adjustments will for the Scheme before February 7, 2010.

Compensation scheme a measure to protect consumers

The scheme was necessary to offer protection to small businesses and consumers against financial loss. It will offer a certain compensation package to consumers when a financial provider engages in sharp practices or was not able to pay. It will be in the form of a relief package to help the consumers regain their investments from the failed service provider.

This is coming after the government and regulatory authorities have seen the need to protect small businesses and consumers from the unscrupulous activities of some service providers. With the new Scheme of last resort in place, victims would have the confidence they can recoup their investment even after the financial service provider fails in their service delivery.