An expedient band-aid will not fix CSLR funding

From the Editor

It is now 16 years since the collapse of Storm Financial – an event which triggered far-reaching changes to Australia’s financial planning regulatory regime.

A decade and half later, it seems likely that the collapse of Dixon Advisory taken together with that of the Shield Master Trust and First Guardian Master Trust has the capacity to generate equally significant change to Australia’s managed investment sector.

There is a common thread linking Storm Financial and the fate of Dixon Advisory, Shield and First Guardian – in each case the Australian Securities and Investments Commission (ASIC) was tipped off early by financial advisers.

For context, ASIC receives scores of tip-offs a week from financial advisers and others and does not have the resources to follow up in each and every instance, but it did undertake to the House of Representatives Standing Committee on Economics that it would try to do better.

And the new Assistant Treasurer and Minister for Financial Services, Daniel Mulino will not need briefing on the issue because he was chairman of the committee and signed off on its final report.

The synopsis of that final report states: “Dr Mulino said that although the Committee acknowledged the challenges ASIC faces in triaging thousands of complaints and tip-offs annually, the Committee expects ASIC to continue its efforts to better communicate with the many Australians who reach out for help”.

The Financial Advice Association of Australia (FAAA) in 2023 used a submission to the Senate Economics Committee to lament that ASIC did not have a history of being proactive in dealing with financial adviser tip-offs and arguing the benefits of a advisers having a “priority hotline” to the regulator.

The desired priority hotline was not set up, but the regulator indicated its intention to be more attentive to tip-offs from advisers and other industry participants.

For his part, the chair of ASIC, Joe Longo late last month told an industry forum that Australia’s managed investment scheme regime is “very permissive”.

“The bar is so low to register one, it basically serves no barrier to entry at all. It doesn’t matter if the underlying asset is alpacas or meme coins – if the fund has a valid trust deed and disclosure document, ASIC has to register it,” Longo said.

“And then, so much of our work becomes about picking up the pieces afterwards when things go wrong, rather than preventing the harm,” the ASIC chair said.

So as Mulino comes to terms with the reports flowing from Treasury’s post-implementation review of the Compensation Scheme of Last Resort (CSLR) and the subsequent consultation around how to fund the levy cost over-run generated by Dixon complaints, he might care to reflect that it requires more than an expedient band-aid fix.

With complaints with respect to Shield and First Guardian already manifesting for the Australian Financial Complaints Authority (AFCA) the 2025 CSLR sub-sector cost over-run is likely to be repeated for at least three more years.

The reality for Mulino and the Government is that if they are genuine about making the CSLR regime viable, then they need to tighten the regime around managed investment schemes and then ensure those schemes pay their fair share towards funding the CSLR.

The situation has moved beyond bandaid solutions.