Financial Advice Association Australia has called for “vigorous pursuit of wrongdoers” in a submission on ways to reform the compensation scheme of last resort.

The association’s other recommendations include capping the advice sector’s scheme levy contribution at $20 million and changes to hold managed investment schemes accountable for client losses.

“MISs have been a huge contributor to client losses that result in CSLR payments, yet they are protected from the CSLR and have made little contribution to funding via special levies to date,” the submission to a Treasury consultation says. “This needs to be addressed.”

The association says it supports the scheme’s core objective – providing an avenue for claimants who have received a determination from the Australian Financial Complaints Authority that remains unpaid due to a financial services business going into liquidation.

But the scheme’s first few years have differed from what was promised or seemed likely when it was proposed, according to the association.

A Treasury consultation in 2021 suggested a cost of less than $7 million a year for the financial advice sector, but that has not been the case.

“What we have seen through the emergence of a series of unexpected large firm failures is a scale of loss that is deeply concerning,” the submission says.

A “complete lack of fairness and a level playing field” must be addressed, as managed investment schemes and superannuation funds are not covered by the program.

Such sectors “should be able to be pursued by impacted clients who have suffered a loss … Those responsible for misconduct should be pursued to the fullest extent of the law, to ensure that the CSLR does not remain an option for wrongdoers to walk away from the collapse of a business with no consequences.

“We recommend that the government fund an entity aligned to the CSLR that vigorously pursues all parties who have contributed to the failure of a financial firm that has resulted in unpaid AFCA determinations.”