Impose compensation requirements on MISs say | Australian Markets

The main accounting teams are calling for higher use of superannuation laws to alleviate stress on the Compensation Scheme of Last Resort (CSLR) the place members of Australian Prudential Regulation Authority funds endure loss as a result of of fraud or theft.

The accounting teams have additionally known as for tighter regulation of Managed Investment Schemes together with imposing mechanisms for them to cowl compensation funds and for each the Government and the Australian Securities and Investments Commission to pay their approach.

The accounting teams have pointed to Part 24 of the Superannuation Industry (Supervision) Act which holds that a trustee of an APRA-regulated fund can apply to the Minister for financial help if the fund incurs a loss as a result of of fraudulent conduct or theft.

“This option should always be considered where the losses are incurred by an APRA regulated fund,” the submission from CPA Australia, Chartered Accounts ANZ and the Institute of Public Accountants (IPA) stated.

“We do not believe this option is always being utilised to fund compensation payments, prior to them reaching the CSLR. This section should always be investigated wherever possible.”

The accounting teams additionally known as for a review of Professional Indemnity insurance coverage describing it as “a must” to make sure “coverage is more robust and comprehensive including the requirement for run-off cover where the insured is no longer licensed, insolvent or been place in liquidation or administration”.

“It is also important that ASIC take an active part in monitoring licensee compliance with PI insurance requirements, particularly in targeting licensees who are at most risk, for example new licensees,” the submission stated.

“If the review of the PI insurance market identifies deficiencies in that market which cannot be solved by government intervention or ASIC is unable to actively monitor AFSL PI insurance requirements then the government may have to consider capital adequacy requirements for AFSL holders,” it stated.

“Such an outcome, we believe is unacceptable. Setting capital adequacy requirements may lead to AFSL holders, and financial advisers in general, ceasing to operate.”

The submission stated the Government ought to take part in funding the CSLR notably the place sub-sector caps are exceeded.

The Joint Accounting Groups stated they have been additionally recommending change to the Australian Financial Complaints Authority’s (AFCA’s) “counterfactual (‘but for’ approach to the calculation of the compensation of clients that may result in higher compensation payments, because of compensation being awarded on hypothetical unrealised gains in the absence of actual capital losses”.