Indemnity plan slammed
The federal government has left open the door for an industry-wide "last resort" compensation scheme for losses racked up by super funds including the self-managed sector.
The government also said it would consult on possible changes to boost the professional indemnity insurance requirements of financial services providers.
It would do this to "improve the capacity of a licensee to pay compensation when required at levels assessed to be adequate for their business", and to "provide a more rigorous regulatory platform for considering a last resort scheme".
But the association said such requirements "would not solve the problem, but simply increase costs and further restrict financial advisers in servicing consumers due to increased costs and red tape".
The moves are part of a response to a parliamentary committee investigation into the 2009 collapse of Trio Capital and a review of compensation for superannuation investors by Richard St John.
Frequently Asked Questions about this Article…
The government has signalled it may consider an industry-wide "last resort" compensation scheme for losses suffered by super funds (including self-managed super funds) and will consult on possible changes to boost professional indemnity insurance requirements for financial services providers.
A "last resort" scheme, as described by the government, would be an industry-wide compensation safety net to cover losses suffered by super funds — including self-managed super funds — when other avenues of redress are exhausted.
Boosting professional indemnity insurance would mean higher or stricter insurance requirements for financial services licensees so they have greater capacity to pay compensation when required, and to create a more rigorous regulatory platform for considering a last-resort compensation scheme.
The FPA argues that simply increasing indemnity insurance requirements "would not solve the problem" and would mainly increase costs, add red tape, and further restrict financial advisers in servicing consumers because of the extra expense and regulatory burden.
Everyday investors could be affected indirectly: superannuation fund members (including SMSF owners) could see greater protection, while financial advisers and licensees could face higher costs and regulatory requirements that may affect how advice is delivered.
The government’s moves form part of its response to a parliamentary committee investigation into the 2009 collapse of Trio Capital, alongside a review of compensation for superannuation investors led by Richard St John.
The article reports conflicting views: the government says higher indemnity could improve a licensee’s capacity to pay compensation, while the FPA warns it "would not solve the problem" and could simply raise costs and red tape. So it’s not presented as a guaranteed solution.
Investors should monitor the government’s consultation outcomes and any policy announcements stemming from the review of compensation arrangements and the response to the Trio Capital inquiry, as these will determine whether a last-resort scheme or tougher indemnity rules are introduced.
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