Trio spectre haunts Govt over failure to include MISs in CSLR

Mike Taylor

Managing Editor/Publisher, Financial Newswire

15 September 2022

The spectre of the Trio Capital collapse and its impact on Self-Managed Superannuation Funds investors has been raised as a key reason why the Government should ensure Managed Investment Schemes (MISs) are covered by the Compensation Scheme of Last Resort (CSLR).

The SMSF Association has urged the Government to rethink its approach to the CSLR, citing the Trio Capital collapse and associated fraud and the number of director investors who had been hurt and not eligible for compensation.

SMSF Association chief executive, John Maroney said the Government’s decision not to ensure coverage of MISs was concerning because, historically, failed schemes had had enormous financial impacts on consumers, including SMSFs.

“The financial devastation they can cause to unwitting consumers was well documented in a Senate Inquiry in late 2021 that examined the Sterling Income Trust collapse. Most of the victims were elderly Australians yet under this proposed compensation scheme they will be excluded,” he said in a statement.

“In the same way it will exclude consumers from First Nations communities who lost thousands of dollars invested in funeral insurance policies after the collapse of the Aboriginal Community Benefit Fund.”

“Further back, the collapse of Trio Capital in 2009 saw a Parliamentary Joint Committee Inquiry held to examine it as well as other related matters. With all the issues the common thread was a lack of consumer protections that were highlighted by our Association and other organisations.

“In the case of Trio Capital, a responsible entity for 28 MIS, SMSF members lost considerable amounts of money due to the fraudulent activities of the scheme operator.”

“Exposure to fraud resulted in significant losses for direct investors and superannuation funds. The superannuation funds involved included both large APRA funds and SMSFs. In total, 415 direct investors and 285 SMSFs had no access to compensation.”

Maroney said the Financial Services Royal Commission made a wide-ranging compensation scheme one of its key recommendations.

“But the compensation scheme outlined in these four pieces of legislation does not incorporate the spirit or intent of the Royal Commission’s recommendation, and, as such, is failing the ordinary Australians who fall victim to failed MIS.

“We urge the Government to revisit the legislation with the aim to expand its scope so that MIS victims are included.”