Insurance Law Delay Leaves Investors At Risk

The Age

Monday June 26, 2006

NEALE PRIOR, PERTH

FIVE years after its key financial reforms passed through Federal Parliament, the Howard Government has again delayed laws aimed at providing insurance cover for consumers caught in Westpoint-like collapses.

The Australian Securities and Investments Commission, which is trying to salvage investors' savings from the $600 million Westpoint collapse, revealed yesterday that the introduction of minimum insurance standards will be delayed for at least another six months amid a protracted consultation process run by Treasury bureaucrats.

Parliament passed the laws aimed at creating insurance standards in August 2001 as part of the Financial Services Reform Act. The changes mostly took effect in March 2004, heightening disclosure and compliance requirements for financial planners and stockbrokers.

But the insurance provisions could not be introduced because the Federal Treasury had still not finalised regulations that would outline the minimum requirements. As a result, the laws were delayed until March last year, when they were again delayed to July 1.

ASIC said in a statement yesterday it would be leaving the so-called transitional arrangements in place until December 31.

This means ASIC will keep in place old arrangements that effectively only require financial planning firms to lodge a $20,000 bond with the corporate regulator.

When asked why the minimum insurance requirements had been delayed again, a spokesman yesterday read from a statement: "ASIC is continuing the transitional arrangements for six months to maintain current minimum compensation requirements while the Government considers its position on a final compensation regime."

He referred all questions to the Federal Government.

Neither Treasurer Peter Costello nor his parliamentary secretary, Peter Dutton, who was in the US, were available for comment.

The delays in implementing the minimum insurance standards have developed into a nightmare for investors ensnared in the Westpoint collapse amid uncertainty about the quality of insurance held by financial planners who put clients' savings and superannuation into high-risk mezzanine schemes.

Litigation funder IMF (Australia) had been examining potential negligence actions against dozens of financial planning firms, but in March claimed that many of the planners' insurance policies would be insufficient to cover potential pay outs.

Westpoint raised more than $300 million from 4000 people for its mezzanine schemes, including $260 million from 2002. The schemes hold second and third mortgages, putting them behind first-ranking financial institutions owed more than $300 million.

The Australian Consumers Association slammed the insurance delays, saying the Government should have accelerated the process after the Westpoint debacle in light of revelations about big commissions paid to financial advisers.

ACA policy officer Nick Coates said: "A light touch disclosure regime, combined with little or no compensation arrangements for consumers, means little or no consumer protection." -- WEST AUSTRALIAN

KEY POINTS

? Laws that will provide insurance for Westpoint-style investors are delayed.

? Existing system only requires financial planners to lodge a $20,000 bond with ASIC

© 2006 The Age

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