Documents published this week have revealed that the Labor government ignored a crucial recommendation made by its own senators when it proceeded to legislate the Compensation Scheme of Last Resort (CSLR) in 2023.
Namely, the government has only just published its response, provided in May this year, to a recommendation made by its own senators back in 2022 regarding the need to expand the scope of the CSLR to include managed investment schemes.
The recommendation was made when Labor was in the opposition, just months before it assumed government, by senators Anthony Chisholm and Jess Walsh.
The recommendation reads: “Labor senators recommend that the Australian government expand the scope of the Compensation Scheme of Last Resort to include managed investment schemes.”
In its response, the Labor government said: “The government notes this recommendation. However, given the passage of time since this report was tabled, a substantive government response is no longer appropriate.”
The CSLR legislation was originally introduced into Parliament by the Morrison government in October 2021.
Labor broadly supported the bill, but at the time said it was “concerned by the narrow focus of the proposed compensation scheme and the decision by the government to exclude managed investment schemes from coverage”.
However, Parliament was dissolved in April 2022 and the bill had not passed. The Labor government then introduced its own package of bills which included the CSLR in September 2022.
In a Senate committee report on the September 2022 version of the bill, Liberal senators Andrew Bragg and Dean Smith drew attention to Labor’s apparent change of mind regarding the scheme’s scope.
“When the committee reported on those bills in February 2022, Labor recommended that the Compensation Scheme of Last Resort (CSLR) be extended to cover managed investment schemes (MIS’s),” the Liberal senators said.
“In these bills put forward by the Labor government, neither the $150,000 cap nor the scope of this scheme have been altered.”
Indeed, in the report, Labor did not mention managed investment schemes once.
The bill was delayed again following operational concerns around the one-off levy that would be imposed on Australia’s 10 largest banking and insurance groups to cover the pre-CSLR backlog of complaints.
Speaking in Parliament during the March 2023 introduction of the third CSLR bill, which would eventually pass later that year, Financial Services Minister Stephen Jones identified that a “material event occurred in the market that significantly increased the amount that would need to be paid out” by the one-off levy.
Essentially, the Dixon Advisory collapse and subsequent cost explosion played a role in the government’s decision to pause the bill and make amendments.
At the time, Jones did not provide insight into why managed investment schemes were once again excluded.
However, a Treasury Q&A document released recently under the Freedom of Information (FOI) Act, which relates to the version of the CSLR bill that was legislated, attributes the exclusion of managed investment schemes to their level of risk.
“Although the government acknowledges evidence of unpaid Australian Financial Complaints Authority (AFCA) determinations relating to managed investment schemes, it considers that these financial products are unsuitable for inclusion at this time,” the document reads.
“The scope of the CSLR reflects financial products that have undergone significant regulatory reform which have reduced the risk of misconduct and failure. Managed investment schemes can involve high-risk investments.”
The government originally announced a review of the regulatory framework for managed investment schemes in the October 2022–23 budget, with a consultation paper released in August 2023.
While the Treasury website still lists a report on the MIS review as being due in “early 2024”, the wholesale investor test portion proved contentious and was spun into its own parliamentary joint committee inquiry that has delayed Treasury’s findings.
Gaslighting liars. Corrupt theives this Government
If it’s accurately reported that Jones said “…have undergone significant regulatory reform which have reduced the risk of misconduct and failure.” Then I wonder what he thinks we’ve been through over the past 5 years.
Corrupt Canberra
Dodgy Dixon’s
ALL MUST BE FULLY EXPOSED and Real Advisers MUST REFUSE TO PAY.
The government has done nothing to make financial advice more affordable for Australian Consumers and CSLR is another example of the Big End of Town getting a free pass to slug consumers with the cost of their failures.
There must be a blanket ban on financial advisers selling any product that is not at arm’s length and if Labor was genuine about protection consumers they would learn from past mistakes and prevent any future Dixon events from happening again.
Financial Advisers must be independent to any investment they recommend – no ties, no kickbacks, no conflict of interest, just good quality financial advice that consumers can trust.
We are talking about one dealer group. There are many others with associated advisors who are doing the right thing and provide independent advice.
Sounds like you flog your own mda or whitelabelled sma with % based fees. Independent because you flog your own product not someone else’s? Lol
“Sounds like you flog your own mda or whitelabelled sma with % based fees. Independent because you flog your own product not someone else’s?” Is it Industry Super?
The very same Labor Govt that wants to green light the most backward, conflicted, vertically owned, single product only sales, paid for via Hidden Commissions, sold via BackPacker Uneducated & Unqualified call centre jockey‘s.
ALL FOR THE ALPs best buddies Industry Super.
And you think they will stop vertical sales. Huh huh huh huh huh huh huh huh huh huh huh huh not a hope I’m hell.
This is the reality we face as advisers, therefore we need to unite, & not squabble over qualifications and the pros and cons of various Adviser Representative Organisations, who have shown to be inept. [Compared to the Mortgage Brokers (remember their ads within a week of the government’s decision to ban direct fees from the banks!), Accountants, Legal & Medical professional Bodies.
We need to ‘follow the money’, money flows from the ISA funds to their powerful Union mates and after their cut, onto their political mates and mouthpieces for the ISA funds which is our current government. Therefore, it necessarily follows, that there is a overwhelming incentive to crush the very existence of the roll of the financial adviser. Looking at those clueless LNP politicians, and insurance companies who navigated and legislated us to where we are, is no real solution or saviour for our future.
If we unite with a single objective of survival, we will at best survive as a niche profession, serving those people in society that can think for themselves with an understanding and appreciation of what we do and the results we achieve, in good times and bad.
This issue has probably been revived after the &1.2 billion loss that Australian super recently made.