In a submission to Treasury’s consultation package responding to the collapse of Shield and First Guardian, the JAWG which includes the SMSF Association, Chartered Accountants Australia and New Zealand (CA ANZ), CPA Australia, Financial Advice Association of Australia (FAAA), Financial Services Council (FSC), and the Institute of Public Accountants (IPA) called on the Government to prioritise progress on those reforms that have broad industry support.
“We note the significant consumer harm and loss of confidence these events have caused across the financial services sector. While the associations represented by the JAWG have taken different individual positions on certain proposals contained in the package, JAWG wishes to draw Treasury’s attention to the policy proposals that have consensus across our organisations,” it said.
“The JAWG also wishes to draw Treasury’s attention to proposals which have consensus opposition. The JAWG considers that these proposals are not targeted and proportionate to addressing consumer harm, and are outweighed by the unnecessary regulatory burden, additional regulatory complexity, and the significant negative impact on Australians’ access to financial advice.”
It added that effective oversight and enforcement by ASIC and APRA remain critical to ensuring existing legal obligations and consumer protections operate as intended.
One of the major reform options should focus on supporting the ongoing sustainability of the CSLR.
“In particular, the JAWG strongly supports limiting CSLR compensation to capital losses only. It is not consistent with the concept of a scheme of last resort to compensate consumers for hypothetical investment returns, particularly where those amounts are ultimately funded by levy-paying entities that had no involvement in the underlying misconduct,” the submission said.
It continued that it also supports a number of other reforms contained in the consultation paper, including:
- enabling the CSLR to deduct relevant offsets from compensation payments, including amounts recovered through external dispute resolution processes, insolvency proceedings, insurance arrangements and other sources of redress;
- expanding the CSLR’s subrogation and recovery rights to improve the prospects of funds being returned to the scheme, helping to reduce the burden ultimately borne by levy-paying entities; and
- Treasury further exploring mechanisms to improve the recovery of unpaid AFCA determinations within corporate groups and related entities. Given the complexity of these issues and the potential interaction with existing corporate and insolvency law frameworks, the JAWG considers that further consultation and targeted policy development is warranted before any reforms are progressed.
“Given its role in setting, maintaining and enforcing the regulatory framework, the JAWG also believes the Government should share some responsibility for funding the foreseeable CSLR special levies,” it added.
The JAWG also strongly opposed the proposal to prohibit advice fee deductions for switching-related advice.
“Assessing whether a member’s existing superannuation arrangement remains appropriate, having regard to their objectives, financial circumstances and needs is a fundamental component of comprehensive personal financial advice and good consumer outcomes,” it said.
“Measures that effectively discourage advisers from providing switching-related advice risk undermining access to financial advice and limiting consumers’ ability to receive professional guidance on one of their most significant financial assets.”
Furthermore, it said it is concerned about potential negative impacts to member choice and competition under this proposal, both of which are important principles underpinning good consumer outcomes within our system.
“The proposal would have the effect of reducing access to advice, especially for members who have the least ability to pay for it from non-superannuation savings. There is therefore a risk that members become ‘stuck’ in underperforming funds with poor service or they act on unregulated ‘advice’ to switch to a different fund,” the submission said.
Additionally, the JAWG noted its joint opposition to removing or restricting the existing exemption from the hawking prohibition where personal advice is provided.
“Removing or restricting the exemption would introduce friction and legal uncertainty into legitimate advice conversations, potentially discouraging advisers from raising related issues that are relevant to a client’s financial wellbeing,” it continued.
“It will also increase compliance costs without addressing the root causes of the misconduct observed in Shield and First Guardian.”
