Minister for Financial Services and Superannuation Bill Shorten has responded to the PJC report on the collapse of Trio Capital, with a focus on strengthening the professional indemnity insurance requirements for planners.
The response to the Trio Report and the report by Richard St. John titled Compensation arrangements for consumers of financial services accepted most of the recommendations put forward by the Committee and St. John. The Government said it would consult on changes to require licensees to report annually to ASIC on the adequacy of the PII cover. ASIC would also get legislative force on aspects such as the scope of cover, policy exclusions and coverage of representatives.
The Government said strengthening PII and capital requirements would improve the capacity of a licensee to pay compensation and provide a more rigorous regulatory platform for considering a last resort scheme in the future. The Committee called for a more pro-active approach from ASIC in monitoring licensee compliance with PII cover.
The report recommended funding from ASIC into investigations of figures such as Jack Flader, and criminal investigations into the key figures responsible for defrauding investors. The Government said investigating criminal offences was a matter for the Australian Federal Police and that it was not appropriate to discuss the content of that information or the likely outcome of any assessment.
Shadow Minister for Financial Services and Superannuation Mathias Cormann and MP Paul Fletcher slammed the response, calling it “slow and undercooked”. They said Shorten used “consult” five times and that he was “kicking the can further down the road to take this whole issue beyond the next election, even though actual decisions now would give certainty to investors.”
One of the Committee’s recommendations called for assistance for those who invested in the Professional Pensions Pooled Superannuation Trust (PPPST) and were encouraged to move their funds to the ARP Growth Fund. The Government responded that SMSFs were excluded from compensation as they were not regulated by APRA and that this exclusion applied regardless of whether they invested in the PPPST.
Cormann said Shorten misconstrued the recommendation, which was addressing whether the removal of money from the PST to the ARP Growth Fund involved fraud or theft. “The Committee recommended this issue be considered following advice from APRA officials to the committee that pooled superannuation trusts are regulated by APRA.”
Victims of Financial Fraud spokesman Paul Matters has also lashed out at the response to the recommendation, saying that initial draft recommendations that all victims be compensated was changed.
The Government said it will consult on giving ASIC more powers when an AFSL holder changes ownership. “Currently, ASIC’s powers to cancel an AFSL are limited. This can allow industry entry to a person who would have failed the ‘good fame and character’ licensing test if they had sought the licence directly.”
The Government said that while the industry was adjusting to other reforms such as FoFA, it would not be asked to contribute to compensation shortfalls at this stage.
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