Proposed compensation scheme enhances consumer protection

Decision to exclude Managed Investment Schemes 'a concern'

The Federal Government’s compensation scheme of last resort (CSLR) provides an important, new layer of consumer protection, says SMSF Association CEO John Maroney.

“The Association has consistently supported measures seeking to improve consumer protections and welcomes the proposed scheme.”

The CSLR provides a level of compensation for victims of unpaid Australian Financial Complaints Authority (AFCA) determinations.

“However, the decision to exclude Managed Investment Schemes (MIS) from the CSLR is a concern. Historically, these failed schemes have had an enormous financial impact on those consumers caught up in them, including self-managed super funds (SMSFs).

“The financial devastation they can cause to unwitting consumers was well documented in a Senate Inquiry in late 2021 that examined the Sterling Income Trust collapse. Most of the victims were elderly Australians yet under this proposed compensation scheme they will be excluded.

“In the same way it will exclude consumers from First Nations communities who lost thousands of dollars invested in funeral insurance policies after the collapse of the Aboriginal Community Benefit Fund.”

“Further back, the collapse of Trio Capital in 2009 saw a Parliamentary Joint Committee Inquiry held to examine it as well as other related matters. With all the issues the common thread was a lack of consumer protections that were highlighted by our Association and other organisations.

“In the case of Trio Capital, a responsible entity for 28 MIS, SMSF members lost considerable amounts of money due to the fraudulent activities of the scheme operator.”

“Exposure to fraud resulted in significant losses for direct investors and superannuation funds. The superannuation funds involved included both large APRA funds and SMSFs. In total, 415 direct investors and 285 SMSFs had no access to compensation.”

Maroney says the Financial Services Royal Commission made a wide-ranging compensation scheme one of its key recommendations.
“But the compensation scheme outlined in these four pieces of legislation does not incorporate the spirit or intent of the Royal Commission’s recommendation, and, as such, is failing the ordinary Australians who fall victim to failed MIS.

“We urge the Government to revisit the legislation with the aim to expand its scope so that MIS victims are included.”