Consumer advocacy group CHOICE and the Association of Independently Owned Financial Professionals (AIOFP) are urging the Federal Government to expand the compensation scheme of last resort (CSLR) to include managed investment scheme (MIS) collapses.
In its submission to the Senate’s Sterling Group collapse inquiry, CHOICE called on the Government to broaden the “narrow” scope of the CSLR, stating the Sterling Group collapse had caused homelessness and severe financial hardships for retirees and pensioners across the country.
“A broad-based, industry-funded CSLR that includes managed investment schemes will allow most Sterling Group victims to access compensation,” it said in its submission.
“The government must act so that the Sterling victims and victims of similar financial misconduct in the future have access to compensation.”
The CSLR would aim to support confidence in the financial system following the Royal Commission by facilitating compensation for those made eligible by the Australian Financial Complaints Authority (AFCA) who were yet to be paid.
In response to the submission, AIOFP’s executive director, Peter Johnston, penned an open letter to all federal politicians calling for the Government to add investment managers to the CSLR.
Johnston said he believed the minster for financial services, superannuation and the digital economy, Senator Jane Hume, wished to defy the Royal Commission’s recommendations to preclude investment managers and their managed investment scheme products from the compensation scheme and to not backdate it.
“[Hume’s] suggestion of attacking adviser [professional indemnity] insurance is a flawed, uncertain, expensive and unwieldy approach which does not address the fundamental problem of product failure and this cost will be passed back to consumers anyway,” said Johnston.
Attached to the letter was AIOFP’s list of failed products managed by fund managers since 2006 – a list totalling over $40 billion in failed or frozen financial products.
Great Southern Agribusiness, Storm Financial, AXA topped the list, cumulatively totalling over $9.5 billion.
CHOICE also called on the Federal Government to empower the Australian Securities and Investments Commission (ASIC) to be more proactive by using its full suite of regulatory tools, including issuing timely public warning notices as soon as early reports of misconduct emerge.
However, ASIC’s submission to the inquiry said its product intervention powers would not necessarily have provided a faster solution.
“ASIC notes that the issue of any product intervention order would have been dependent on not only establishing the risk of significant consumer detriment but also in ASIC having obtained sufficient evidence of this detriment and the need to intervene,” it said.
CHOICE was expected to appear at the first day of the Senate Economics Committee hearing into the collapse of the Sterling Group today.