CSLR levy must be directed towards bad actors: Burgess

In improving the sustainability of the Compensation Scheme of Last Resort (CSLR), SMSF Association (SMSFA) chief executive Peter Burgess says reform is needed for greater accountability around the distribution and production of managed investment schemes (MISs), instead of forcing a levy towards self-managed super fund investors.

Burgess attended a roundtable hosted by minister for financial services Daniel Mulino last Friday, discussing the ongoing sustainability of the CSLR.

Burgess stressed the need for reform to be directed at the source of harm remains critical as issues are not member choice, SMSFs or switching itself.

"They are misconduct, conflicted incentives, poor product governance, weak supervision, and failures to enforce existing obligations," he said.

In response to Treasury's proposal on how the CSLR applies for SMSFs, the association "strongly" rejects the denial of SMSF investors' access to the scheme or predicate that access on payment of a levy.

"This is fundamentally inconsistent with the purpose of the CSLR as a last-resort consumer safeguard," Burgess argued.

"It also ignores the fact that SMSF investors are eligible because they are a retail client who has paid for financial advice from a licensed financial adviser to invest in a regulated retail financial product, and as a result have fallen victim to poor advice and/or product failure."

Burgess also said the government should share CSLR funding responsibility, a suggestion echoed by the Council of Australian Life Insurers.

"It is unreasonable to expect that the cost should fall solely on compliant participants or targeted groups of consumers where systemic gaps, delayed intervention or insufficient enforcement have contributed to large-scale losses occur," he said.

Additionally, he believes the MIS sector needs to be added as a subsector for the CSLR to fund the primary levy, reflecting its role in large-scale consumer losses.

"There is no justification or reasoning to segment the subsector by risk, as this is inconsistent with how it is applied to current leviable subsectors," Burgess said.

"It is not credible or fair to consider levying SMSF investors while continuing to exclude this sector whose product failures have materially contributed to current CSLR funding pressures."

Ultimately, Burgess said the government must reform the policies to better protect consumers and strengthen accountability across the distribution and product chain.