More Legislative Changes - Proposed New Financial Claims Scheme

The Government has announced that it will implement a statutory protection scheme for depositors and policyholders where a bank or insurer goes bust.  This proposal originated in the HIH Royal Commission Report.

The Scheme will operate under APRA and will permit the Government (with APRA acting as the delivery agency) to pay to depositors at banks, building societies and credit unions for deposits lost when the bank, society or credit union goes into liquidation.  Similarly the government will pay policy claims on certain types of general insurance policies where the general insurer goes into liquidation.

While the government will initially fund the deposits and claims, the rights of the depositors and policyholders in the liquidation will be transferred to the government.  Any amount due to the Government but which cannot be recovered in the liquidation process will be paid by an industry levy on the other deposit taking institutions or general insurers.

The Scheme will not apply to superannuation or investment products and there will be caps on the amount which can be paid on lost deposits and only certain kinds of policies will be covered and only if one of the policyholders is an individual, small business or not for profit organisation.   Presumably high risk high value policies such as professional indemnity, directors and officers, fidelity and product recall will not be eligible.

Self managed superannuation funds may benefit under the Scheme in their capacities as depositors with banks, etc and as owners of property policies.  This will become clearer once the legislation is released.