Treasury – Review of the Compensation Scheme of Last Resort
On 31 January 2025, Treasury announced the commencement of a review of the Compensation Scheme of Last Resort (CSLR). The terms of reference clarify that the CSLR was established to offer victims of financial services misconduct access to redress and compensation within the scheme's scope, once all other options have been exhausted. Consequently, Treasury will now conduct a post-implementation review of the scheme to ensure it is meeting its intended objectives.
In a related media release, the Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, stated that new data indicates the industry will need to provide $78 million to compensate victims in 2025–26. The media release notes that ensuring the CSLR is sustainably funded will be an important part of the review.
Further information can be found here: Media release and Terms of reference
Treasury - Paper on the use of genetic testing in life insurance
On 12 February 2025 Treasury opened a consultation that looks to implement a ban on the use of adverse predictive genetic test results in life insurance underwriting.
The consultation seeks feedback on the proposed design of the ban to ensure that the measure is implemented with clarity, certainty, and without ambiguity.
The consultation period closes on 12 March 2025.
Further information can be found here: Ban on the use of adverse genetic testing results in life insurance
Parliament report – Wholesale investor and wholesale client tests
In February 2025, the Parliamentary Joint Committee on Corporations and Financial Services released a report following its inquiry into the wholesale investor and client tests, which began on 20 March 2024. In relation to managed investment schemes (MIS), the wholesale client and investor tests use wealth and product-value thresholds to determine whether a client or investor is able to participate in registered (retail) MIS, which are subject to a range of prescribed consumer protections, or unregistered (wholesale) MIS, which are not subject to the same protections.
The committee's 73-page report includes two key recommendations:
Recommendation 1: That the government consider establishing a mechanism for periodic review of the operation of the wholesale investor and client tests; and that any such mechanism include mandatory requirements for engagement and consultation with Australia's investment industry.
Recommendation 2: That, subject to a period of stakeholder consultation, the government amend the Corporations Act 2001(Cth) to remove the subjective elements of the sophisticated investor test and introduce objective criteria relating to the knowledge and experience of the investor.
Further information can be found here: Wholesale investor and wholesale client tests report
On the topic of the wholesale investor test, it is worth noting a determination from the Australian Financial Complaints Authority (AFCA) involving the trustee of an SMSF (the complainant) who engaged in an MDA service for margin FX trading on behalf of an SMSF.
AFCA concluded that the service was 'related to' an interest in a superannuation product (the SMSF), and the client was classified as a retail client. This decision was made even though the director of the SMSFs corporate trustee personally qualified as wholesale investor and was accessing a service labelled as wholesale. The decision means that the SMSF would need to meet the $10 million net asset test to be classified as a wholesale investor.
The Australian Securities and Investments Commission (ASIC) have previously stated they that they will not take action where the person providing the advice determines the trustee is a wholesale client using the general tests in section 761G of the Corporations Act 2001 (Cth) (eg, the trustee has net assets of at least $2.5 million or the value of the investment is at least $500,000). ASIC note that their position doesn’t affect any private rights of action available to the recipient of the advice.
Further information can be found here: Determination for Case 12-00-923475
Parliament report – Improving consumer experiences, choice, and outcomes in Australia's retirement system
On 27 November 2023, the Senate referred an inquiry into improving consumer experiences, choice, and outcomes in Australia’s retirement system to the Senate Economics References Committee. The final report is due by 30 June 2025.
In February 2025 the committee released its third interim report. The report included the following seven recommendations:
Recommendation 1: A requirement be introduced for superannuation trustee boards to have a majority of independent directors, and an independent Chair.
Recommendation 2: The committee recommends that director competency rules be introduced, which would mandate, at a minimum, relevant experience requirements that would apply to the chair of a superannuation trustee board.
Recommendation 3: The committee recommends that superannuation funds be required to maintain and make public a skills matrix for the purposes of conducting the Fit and Proper process for the appointment of directors.
Recommendation 4: The committee recommends that the Australian Prudential Regulation Authority (APRA) be empowered with an adjudicable pathway to remove a trustee where an assessment is made that a material conflict of interest exists.
Recommendation 5: The committee recommends the government introduce new mandatory reporting requirements on the Australian Prudential Regulation Authority (APRA) to report on Best Financial Interest Duty (BFID) decisions of super funds, to align with existing APRA standards.
Recommendation 6: The committee recommends that the government introduce legislation which would require all superannuation funds to maintain adequate funding, raised by the shareholders separate from members' assets, to meet the various costs to which they may be liable, including fines for trustee misconduct and compensation payments resulting from misadministration. This funding should not be provided for, directly or indirectly, by members' funds and must come from the shareholders.
Recommendation 7: The committee recommends that the government work in an expedient fashion to develop mandatory insurance service standards for superannuation funds. These standards should be developed in consultation with consumer advocates, regulators and industry stakeholders.
Further information can be found here: Improving consumer experiences, choice, and outcomes in Australia’s retirement system
