Long-standing victims of crimes and professional misconduct in the financial services industry are hoping that 2022 will be the year that federal lawmakers finally deliver their decade-long battle for justice.
Although the global pandemic has stymied the torrents of outrage that flowed from the hearings of the Hayne Royal Commission in 2018, consumer advocates are now vowing to make the plight of thousands of uncompensated victims an issue during the looming federal election campaign.
The focus of their lobbying is likely to centre on the Morrison government’s recently proposed Compensation Scheme of Last Resort (CSLR), which is meant to give victims of failed financial services providers a right to lodge claims for losses incurred from errant or fraudulent conduct.
There are four big problems with the government’s scheme.
The first is that it caps compensation at only $150,000 – well below the $540,000 ceiling that the government promised at the 2019 election.
The second issue is that some types of financial services and products are excluded from the CSLR altogether, most notably managed investment schemes and funeral insurance.
The third problem is that the government has decided not to allow financial services victims whose cases were highlighted during the royal commission from making claims on the scheme.
Consumers will only be able to make a claim if their service provider collapsed after November 1, 2018.
Finally, the scheme will only provide compensation for decisions of the Australian Financial Complaints Authority when the financial institution does not cough up compensation.
Court and tribunal rulings are out of scope, which is contrary to the recommendation of the 2017 Ramsay Review that was endorsed by Commissioner Hayne.
Australia’s peak consumer advocate, Choice, which is agitating for the government to widen the scheme’s jurisdiction, says the proposed CSLR is flawed in its current form.
“We welcome the government’s commitment to a compensation scheme, but there are some fundamental flaws in what it has proposed,” Choice CEO Alan Kirkland said.
“It will exclude whole swathes of financial products that cause harm, like managed investment schemes, and compensation will be capped at the unfairly low level of $150,000.’’
Mr Kirkland is adamant that consumers who lost money as far back as 2008 – the cut-off year for evidence considered by the royal commission – should be afforded ways to access the CSLR.
The government’s decision to block past victims from the scheme has induced heartache and disillusionment among the industry’s human casualties.
Hayne’s forgotten victims
People such as Brisbane retiree Lesley Kraemer are among the stand-out cases that illustrate how Australia’s regulatory framework seems to have been hardwired by lawmakers never to correct errant and unjust decisions.
Ms Kraemer and her partner lost more than $1 million to companies controlled by notorious Queensland financial adviser Ben Jayaweera, who is serving a 12-year sentence for ripping almost $6 million from clients between 2013 and 2015.
Following a three-week trial in 2019 in the Brisbane District Court, Judge Deborah Richards said Jayaweera’s offending was “a calculated and callous scheme of dishonesty”.
A few years before Jayaweera was sent to jail, AFCA’s antecedent – the Financial Ombudsman Scheme – rejected an application from Ms Kraemer seeking to show she had never signed an authority for the fraudster to move her superannuation money in and out of cash management accounts held at the Bendigo Bank.
In the 2017 decision, FOS found that it was “likely” that Ms Kraemer had given Jayaweera the banking authority.
That was two years before the Brisbane court exposed him as a dishonest and callous adviser.
Since then, AFCA has refused on procedural grounds to re-hear Ms Kraemer’s claim about the signed authority, or amend the FOS determination, despite the emergence of fresh evidence about Jayaweera’s conduct that was gathered by the Australian Securities and Investments Commission and used in the court case brought against him.
The refusal of AFCA to review FOS’s decision has profound implications for Ms Kraemer, who might be eligible to access the CSLR if she can get it overturned.
But her path to compensation is blocked by a government and a complaints-handling authority glued to enforcing procedural rules rather than correcting errors in the interests of damaged claimants.
“Despite Jayaweera being sentenced to 12 years on 17 October 2019, AFCA are unable to reopen my case,” Ms Kraemer said.
“It is mere acceptance of criminal misconduct and blatant theft – how can this be what the Australian government says is a ‘fair go’?”
Thousands of other Australians who were destroyed by financial advisers are equally baffled by the deliberate efforts of lawmakers to curtail their options for compensation.
Naomi Halpern, a former client of companies associated with controversial Melbourne adviser, Peter Holt, will have no recourse to the CSLR despite having played a key public role over many years to advance the case for such a scheme.
“The reason we had a royal commission was because people like Naomi Halpern and the other victims of the HNAB scandals lost their retirement savings through financial misconduct,” Mr Kirkland said.
“It would be cruelly ironic if they were to be excluded from the compensation scheme that was a key recommendation of the royal commission.
“Providing compensation to older claims is complex, but the reality is that people lost money due to the regulatory failures of successive governments, so I’d argue the government has a moral obligation to right those wrongs.”
Although Senate committees continue to investigate whether the government’s CSLR proposal is fit for purpose, the big question that consumer groups want answered is whether Anthony Albanese’s Labor Opposition is about to renew or water down long-standing policies aimed at addressing the plight of financial services’ victims.
At the 2019 election, Labor promised to increase AFCA’s compensation caps and allow aggrieved consumers to appeal against its decisions.
Labor also promised to open a path to compensation claims for poor financial advice dating back to January 2008.
The next few months might tell us whether Labor’s policy-shy candidate for prime minister wants to even the ledger for past victims or leave them to rot.
This article first appeared in Banking Day. Read the original here.