The Compensation Scheme of Last Resort (CSLR) has flagged the structures used by an SMSF creates difficulties in making compensation payments where the fund is no longer operating and called for changes as to how it directs these sums.
The scheme made the call in its submission to Treasury’s Post Implementation Review of the CSLR, which it released earlier this week, noting, since compensation can only be made to a person entitled to be paid under an Australian Financial Complaints Authority (AFCA), determination problems arose when that included deregistered corporate SMSF trustees or funds wound-up by individual trustees.
“The CSLR lacks the discretion under the legislation to deviate from the terms of the AFCA determination. Under the Corporations Act, any money owed to a deregistered company in its capacity as trustee for a trust or superannuation fund vests with ASIC [Australian Securities and Investments Commission],” the submission noted.
“Consequently, the scheme is obligated to transfer compensation payments to ASIC’s Unclaimed Monies team. The ultimate beneficiaries of the SMSF are then required to request these funds from ASIC.
“This process is notably cumbersome and lengthy for claimants, many of whom have already endured several years seeking resolution from the financial firm, followed by AFCA, and now CSLR. The additional step of engaging with ASIC’s Unclaimed Monies team further prolongs their wait for compensation.”
The CSLR added there were similar difficulties for SMSFs with individual trustees that have been wound-up prior to a compensation payment.
“Given the passage of time between the time the AFCA determination was issued and the time a claim is made with the CSLR, it often results in claimants not being in possession of relevant documentation (for example, trust deeds, SMSF tax returns and other documents) and results in the scheme experiencing challenges and delays identifying beneficiaries and ultimately making compensation payments,” the submission said.
As such, it supported the need for a different process to allow claimants to access their compensation.
“It is recommended that consideration be given to potential adjustments and procedural improvements to expedite the resolution of claims and provide the scheme with sufficient discretion to, in appropriate circumstances, deviate from the terms of the AFCA determination, particularly concerning the direction of compensation payments,” it concluded.
