Advisers urge Govt to target MIS schemes to cover fraud

Financial advisers want Managed Investment Schemes (MISs) to pay their share of funding the Compensation Scheme of Last Resort (CSLR) to cover instance of fraud and misconduct, rather than market failure, according to Association of Financial Advisers (AFA) general manager, Policy and Professionalism, Phil Anderson.

There existed a clear difference between the consequences of fraud and those of simple market downturns or product failures.

Commenting on the Government’s continued resistance to including MISs in the new compensation scheme, Anderson said that adviser bodies had never suggested that the CSLR should be there to cover losses generated by market downturns or legitimate product failures.

“The point seems to be being missed in this,” he said. “We are saying that MISs should be contributing to the CSLR to cover instances of fraud or other misconduct.”

However, evidence being provided to the Senate Economics Inquiry into the collapse of the Sterling Investment Trust suggests that investors in MIS products which are the subject of allegations of fraud or other misconduct may be waiting a long time before they are likely to be compensated.

The regulator acknowledged that while it received three reports of misconduct in 2015-16 relating to Sterling Group it was not until last month that ASIC actually moved to refer the question of alleged misconduct to the Commonwealth Director of Public Prosecutions (CDPP).

“On 15 October 2021, ASIC referred the matter to the CDPP about the alleged misconduct of a number of persons related to the Sterling Group,” the regulator told the committee. “ASIC is assisting the CDPP by providing such further information as the CDPP requires to assess the relevant conduct and determine whether criminal charges ought to be laid in relation to the matter.”

While Treasury on Friday told the Senate Committee that the Government had not moved to amend the legislation around the compensation scheme of last resort, the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, defended the Government’s position at a conference on Monday claiming investors had to take responsibility for their decisions.

“…let me make clear what the compensation scheme of last resort is not. The compensation scheme of last resort is not an insurance scheme designed to pay compensation to any consumer who has lost money in an investment. It is only intended to cover unpaid compensation awarded because of misconduct relating to a targeted range of financial products and services,” Hume said.

“The CSLR will also not cover managed investment schemes or other high risk financial products,” she said.