Fraud and theft in SMSF not guaranteed compensation

The SMSF Professionals’ Association of Australia (SPAA) has warned that theft and fraud need to be better looked at when it comes to disclosure of SMSF risks within a submission to ASIC on Consultation Paper CP216.

SPAA CEO Andrea Slattery said that while they welcome the goal of improving the standard of advice given to those looking to become an SMSF trustee, there are a number of risks that need to be further outlined.

“This includes disclosures on the risks associated with SMSFs; however, the requirements in the ASIC paper may not achieve those goals or be appropriate in the circumstances,” said Slatterly.

“ASIC’s recommendation that advisers must provide a warning that SMSFs are not entitled to Part 23 compensation under the SIS Act is too simplistic,” she said.

She noted that the approach ignored the difficult nature of compensation for funds affected by fraud or thefty.

“This approach ignores the complex nature of compensation for funds affected by fraud or theft. APRA-regulated funds are not guaranteed compensation under the SIS Act for fraud or theft and the fact that SMSFs do have other avenues for seeking compensation for theft or fraud has been ignored.”

Within SPAA’s submission to ASIC, they referred to the common misconception that APRA-regulated funds will receive compensation in the event that the fund is a victim of fraud or theft.

“Instead, we believe any warning that SMSFs are not entitled to Part 23 compensation should be made in the broader context of advisers discussing all compensation arrangements available to SMSFs,” she said.

SPAA did support other risk disclosures suggested by ASIC, however noted that risks regularly depend upon individual circumstances of the SMSF.

This article first appeared on Property Observer.

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