Managed Investment Schemes could yet be included in the Compensation Scheme of Last Resort after the bill in its current form lapsed with the government’s calling of a May election.
The bill had been waiting before Parliament but with the election called last Sunday there are no remaining sitting days to debate the bill.
QMV Legal managing partner Jonathan Steffanoni tells Professional Planner the CSLR is a legislative priority for both parties and it’s likely the legislation will be put forward quickly regardless of who wins the election.
“There’s a policy question as to the extent of which there is any changes to the bill. It opens the question if there is any desire to change the substance of the bill.”
In the final report on the CSLR released in February, Labor’s dissent to the bill included a recommendation for MISs to be included as part of the scheme.
“Labor supports this bill, however Labor is concerned by the narrow focus of the proposed compensation scheme and the decision by the government to exclude MISs from coverage,” the report stated.
The recommendation has been backed by 15 industry and consumer groups, including the Association of Financial Advisers.
“We have been supportive of a broaden inclusion and allocation of costs,” AFA chief executive Phil Anderson says. “A scheme that focused solely on financial advice didn’t seem equitable or an appropriate outcome.
“One of the other issues we’ll face is that the scheme was meant to start on 1 July and that’s no longer possible.”
A long time coming
The establishment of the CSLR was originally recommended as part of the Ramsay Report in 2017 with the Hayne royal commission supporting that recommendation.
Speaking in front of the Senate Economics Committee last Wednesday, Treasury financial services reform division head James Kelly said the way Ramsay designed the scheme was only to cover financial advice.
However, he noted it was designed in a way that could extend to other services or products.
“The royal commission didn’t go into detail on how wide or narrow the scheme should be and the discussion paper in 2019 set out three models.”
This included a broad model that covered all credit and Australian financial services licences, a narrow model that only covered AFSLs, and a third model that “sat between the two” which Kelly said the bill ultimately resembled.
Labor senator and committee member Jess Walsh queried why the bill was unable to be passed, with her questioning showing the divide between both parties over who should contribute for the levy.
“This is about supporting victims of failed investment schemes. Why is it the government didn’t pass this and set up this scheme for those victims,” she asked.
Financial services minister Jane Hume was quick to correct Walsh on the intention of the bill, noting it is about unaccountable advisers rather than failed investment schemes.
“It’s actually about helping victims of bad financial advice which has then gone through an AFCA determination and AFCA then found out the adviser had closed up shop and flown off to Mallorca,” Hume said. “It’s not just bad investments it covers.”
Hume noted Labor’s opposition to the exclusion of MISs in the final report contributed to the passage of the bill not taking priority in the government’s legislative agenda with limited seating days before the election was due to be called.
“It would have been amendments that would have considerably changed the nature of a compensation scheme of last resort. Because of that decision there was further work that needed to be done.”
“Labor’s position on this bill has been unclear for some time,” she continued. “You did say you would support the bill, but you didn’t say it would go through unamended.”
