FAAA wants AFCA rule change on super and MISs

Mike Taylor

Managing Editor and Publisher

26 May 2026

Superannuation funds and managed investment schemes should be brought fully within the purview of the Australian Financial Complaints Authority (AFCA) and MISs should be included as primary sub-sector of the Compensation Scheme of Last Resort, according to the Financial Advice Association Australia (FAAA).

The FAAA has suggested the measures as being additional to those proposed by a Treasury consultation paper, calling from the removal of AFCA Rule C1.5 to enable clients to make complaints against super funds and MIS and allowing complaints against the management of a fund or scheme as a whole.

The FAAA also wants AFCA and the courts enabled to apportion client loss to other parties, “even where there has been a breach of the core financial advice laws”.

It has also urged the development of “an early warning system” to better detect misconduct in the early stages noting that “in the case of Shield and First Guardian, “ information existed in the financial services industry that there were unusual patterns of behaviour that should have been investigated earlier”.

It said this information sat with the super funds and with the advice licensees and “it is essential that we look at how information is collected, shared and analysed to enable timely intervention”.

The FAAA has come up with  five key recommendations:

• Vigorous pursuit of wrong doers. We recommend that the Government fund an entity aligned to the CSLR that vigorously pursues all parties who have contributed to the failure of a financial firm that has resulted in unpaid AFCA determinations.
• Compensate on the basis of capital loss only. We recommend that the Government legislate to limit CSLR payments to capital loss, without the application of any alternative benchmark.
• Limit CSLR exposure for small businesses. We strongly argue that the financial advice profession should pay no more than the base levy of $20m, on the grounds that our sector is composed of predominantly small businesses and do not have the capacity to fund larger levies.
• Modify the waterfall approach and limit the financial advice exposure to $20m. The waterfall approach that applies the first $40m of CSLR levies to financial advisers is unfair and unaffordable for our small business sector. This needs to be modified to better share the cost of the scheme and to sensibly limit the exposure of innocent financial advice businesses.
• Fundamental changes to better capture MISs. MISs have been a huge contributor to client losses that result in CSLR payments, yet they are protected from the CSLR and have made little contribution to funding via special levies to date. This needs to be addressed.
• Enable the recovery of losses from corporate groups. We recommend that the Government introduce changes to allow for recovery from related entities, particularly where assets have been transferred for less than market value or where they have gained benefits from the misconduct.

Elsewhere in its submission, the FAA supported enabling the CSLR to deduct payments form compensation as well as allowing the CSLR to hold expanded subrogation rights and aligned with other stakeholders in backing the dumping of AFCA’s ‘but for’ compensation approach in favour of capital restoration.