Defrauded investors may get compo

Investors who are defrauded, fall prey to thieves or are victims of bad advice may in future be able to apply for compensation for financial losses. The Federal Government put forward these proposals on Friday and is canvassing opinion as to how to improve confidence in financial services following the run of corporate scandals in the US.

An options paper released by Treasury states that investors often assume that they are protected by financial services laws to a greater degree than they actually are, and thus there's a case for introducing compensation measures.
The Treasury paper says that consumers often have difficulty in assessing financial products, more so than for other goods and services, and also don't have enough information. The potential for crisis has grown as consumers are increasingly investing in financial products such as managed investments, shares and life insurance policies.

However, the Treasury proposals don't cover superannuation or the family home – the two biggest forms of investment – even if loss arises from mismanagement. In those cases, consumers have to resort to superannuation laws or other means. Not covered also are loss of life insurance cover if the provider collapses, and losses on the sales of investments in managed funds, or due to market fluctuations.

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