Comprehensive Response to Combating Superannuation Investment Fraud
Today the Minister for Financial Services and Superannuation released the Government’s response to the report by the Parliamentary Joint Committee on Corporations and Financial Services on the collapse of Trio Capital (the Trio Report) as well as the report by Mr Richard St. John on Compensation arrangements for consumers of financial services.
While both reports indicate no systemic issues in the regulation of the superannuation industry, they do recommend a range of improvements to governance arrangements to assist investors in understanding and managing risks.
The Government accepts the vast majority of the reports’ recommendations including legislative changes to strengthen the professional indemnity insurance requirements of providers of financial services that deal with retail consumers, changes to improve the communication of risks to investors and to ensure the adequacy of regulatory processes and consultation papers by Treasury on powers to support ASIC in its enforcement role and to improve the governance arrangements of managed investment schemes.
“The Gillard Government takes seriously the issues of misconduct by financial services providers. This response, together with far-reaching reforms such as the Future of Financial Advice and Stronger Super, will improve trust and confidence and enhance investor protection,” said the Minister.
The implementation of the Government’s response will be coordinated by a Superannuation Regulators Working Group, comprised of representatives from Treasury, APRA, ASIC and the ATO. The Working Group will provide a forum for superannuation regulators to ensure the effective implementation of the Government’s response and to facilitate ongoing communication between regulators. The Working Group will consult with the superannuation industry to implement the Government response, including considering other initiatives to strengthen the regulatory framework.
As a result of the Trio report, the Government has also referred the issue of investment fraud, including in the superannuation industry, to the Heads of Commonwealth Operational Law Enforcement Agencies (HOCOLEA) for on-going consideration. The membership of HOCOLEA includes the Australian Federal Police, the Australian Crime Commission and the Attorney General’s Department.
An industry-funded last resort scheme to compensate consumers impacted by a financial collapse was not recommended by Mr St. John, who noted that at this stage such a scheme would be inappropriate and possibly counterproductive. The Government accepts this recommendation but is mindful of the human cost borne by a small number of people who may not receive their full entitlements in cases where a licensee becomes insolvent.
The Government will leave open for future consideration the need for such a last resort scheme, which will take account of any residual levels of under-compensation after improvements in the industry’s conducts standards have been implemented. Industry is adjusting to significant reforms that strengthen consumer protection and will not be asked to contribute to compensation shortfalls at this stage. To assist in any future reconsideration, arrangements will be made to improve data collected on consumer losses from licensee misconduct.
“In the meantime, the Government encourages professional bodies to themselves consider possible solutions to the issue of under-compensation, such as the implementation of their own scheme which further protects retail clients in the event of a member’s insolvency,” said the Minister.
An independent assessment of the regulatory framework relating to Trio Capital can be found on www.treasury.gov.au