The Financial System Inquiry (the Murray Inquiry) has begun to release the submissions received, so far several have made recommendations in support of a SMSF Compensation Scheme.
Westpac Bank, in its submission, supports consideration of a legislative SMSF compensation scheme – provided it was confined to fraud and theft. Westpac is concerned that there are ‘questions about the degree to which SMSF members are aware of the risks to which they are exposed’ and that future losses by SMSFs may result in calls for government compensation and increased demand for the Age Pension:
“The introduction of an SMSF compensation mechanism would also alleviate public pressures for a wider compensation mechanism applying to all financial products and services, in doing so avoiding the introduction of greater moral hazard into the financial system.”
The Superannuation Professionals Association of Australia (SPAA) also supports a compensation scheme for SMSFs, though one not funded through a levy on SMSFs, but by a levy on the ‘industry sector
which was the cause of the financial failure’. SPAA notes that ‘SMSF members are mostly retail investors who are less able to absorb capital losses when compared with larger funds of the kind regulated by APRA.’. SPAA further claims that the collapses of Trio, Storm, Opes Prime and Westpoint show the ‘weaknesses of relying on external dispute resolution schemes and mandatory professional indemnity insurance for consumers’.
SPAA also recommends strengthening professional indemnity insurance, to mitigate the weaknesses found after the Trio collapse:
“In SPAA’s view, if a last resort compensation scheme was in place prior to the Trio Capital collapse, it would have provided appropriate compensation to SMSF investors and other similar investors who under the current regime received little or no compensation.”
The submissions to the Financial System Inquiry can be found on the inquiry’s’ website.
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