The Self Managed Super Fund Professionals' Association (SPAA) has called for a compensation solution for the $420 billion SMSF sector, similar to that of large super funds, to cover instances of fraud.

"In our submission to the recent Cooper Review, SPAA said there should be a compensation mechanism for self managed super funds which is similar to that of APRA regulated super funds, where members have lost money due to fraud," said Sharyn Long, Chairman of SPAA.

"We recognise and accept that SMSF members are also trustees, which means they have responsibility and control over their super fund investments in a way that large super fund members do not. However, this does not mean SMSF members should be forced to turn to a potentially protracted and expensivecourt process to seek redress in cases of fraud, where they have lost money through no fault of their own," Ms Long said.

"Our submission to Cooper also stated that, as the members of a SMSF are also trustees, the existing industry-funded financial assistance available to APRA regulated super funds under the Superannuation Industry Supervision Act (SIS), may require amendment or additional conditions in order to be available to SMSFs," Ms Long said.

Currently Australian Prudential Regulation Authority (APRA) regulated super funds pay a levy to fund financial assistance in cases of fraud.

If SMSFs are going to participate in such a scheme, SPAA's submission stated that SMSFs would need to participate in an appropriate portion of the funding.

"However, a compensation mechanism for SMSFs, which would likely involve a levy on all SMSFs, would need to be designed intelligently so that SMSF trustees/members who choose to invest directly and not in products that could be subject to fraudulent activities, are not unfairly burdened by the levy," Ms Long said.

"The issue of compensation in cases of fraud for SMSFs in current being considered as part of the Future of Financial Advice Reforms (FoFA) and we look forward to contributing to that process," Ms Long said.

www.spaa.asn.au

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