At its Technical Conference in Sydney this week, the Self Managed Super Fund Professionals’ Association (SPAA) has encouraged debate on the issue of financial loss due to fraud or theft saying its impact is not limited to superannuation but all Australian investors. The association also believes broader reforms are required around insurance and compensation measures for the financial advice industry.
Responding to the Parliamentary Joint Committee inquiry into the collapse of Trio Capital, SPAA believes a similar last resort compensation scheme which applies to APRA regulated funds on fraud and theft should be made available to all investors irrespective of the financial service or financial product provided.
“This is not just about SMSFs, its also about making sure all investors who are doing the right thing have a genuine option of compensation in situations where they suffer a financial loss as a result of fraud or theft,” said Andrea Slattery, CEO of SPAA.
“Under the current regime some investors are compensated while others are not and we don’t believe that’s right. We acknowledge that many SMSF investors have made a consensus decision to make their own investment decisions but that should not mean they are left to fend for themselves if they lose money due to the criminal acts committed by someone else,” Ms Slattery said.
SPAA believes it is important that product providers are part of a statutory last resort compensation scheme for the financial services sector.
“We understand the focus on financial advisors and advice but unless product providers, which would include managed investment scheme operators, are also part of the last resort compensation scheme, many investors will still not have access to compensation in the event of fraud or theft. This was highlighted in the recent Trio case,” Ms Slattery said.
SPAA envisages that under such a scheme, a levy would be imposed on different industry sectors and different product providers with the amount of the levy dependent on past events. There should be no levy imposed directly on any individual investors.
While there is obvious merit in including financial advisers in a last resort compensation scheme, SPAA believes any decision should be deferred until after the FOFA reforms have been finalised and a considered assessment of the likely scope of such a scheme can be made.
In the meantime, SPAA believes ASIC should be doing more in terms of reviewing and monitoring insurance policies held by Australian Financial Services licensees. This should involve a periodic and more systematic approach by ASIC to check and assess the insurance policies held by licensees.
To assist ASIC’s review of insurance policies, SPAA proposes a standard policy which should drive scale among insurers and ultimately provide better cover for clients. Standardisation would encourage insurers to develop policies covering the same industry sectors and address the significant weakness and gaps of professional indemnity insurance.
Currently, clients who make professional negligence claims after a licensee ceases to trade will have difficulty in receiving compensation, of any kind, where the licensee has wound up its business, has disappeared or is insolvent.
“Standardising insurance policies would help to plug the significant gaps where clients find it difficult to receive compensation in cases of professional negligence. While separate to theft and fraud, it will bolster compensation measures, especially as the long tail and infrequent nature of claims makes problems harder to deal with,” Ms Slattery said.