A SMSF compensation warning that ASIC is proposing to make compulsory is oversimplified and ignores the complex nature of compensation, says the SMSF Professionals’ Association of Australia (SPAA).
In a consultation paper released in September, ASIC proposed all Australian financial services licensees giving SMSF advice must warn clients that compensation arrangements under Part 23 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) – in the event of fraud or theft – do not apply to SMSFs.
But SPAA made a submission to ASIC saying the proposed requirements may not achieve goals or be appropriate in the circumstances.
“ASIC’s recommendation that advisers must provide a warning that SMSFs are not entitled to Part 23 compensation under the SIS Act is too simplistic,” said SPAA chief executive Andrea Slattery.
“This approach ignores the complex nature of compensation for funds affected by fraud or theft. APRA-regulated funds are not guaranteed compensation under the SIS Act for fraud or theft and the fact that SMSFs do have other avenues for seeking compensation for theft or fraud has been ignored.”
In its submission, SPAA told ASIC about the uncertain nature of Part 23 compensation for APRA-regulated funds.
The proposal spreads the common misconception that APRA-regulated funds will automatically receive compensation if the fund is a victim of fraud or theft, said Slattery.
“Instead, we believe any warning that SMSFs are not entitled to Part 23 compensation should be made in the broader context of advisers discussing all compensation arrangements available to SMSFs."
SPAA supported the other SMSF risk disclosures suggested by ASIC, but warned these risks often depended on the individual circumstances of the SMSF and their members.
Comments on the consultation paper have now closed, and by February a new class order and regulatory guide will be released.
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