Throsby MP Stephen Jones.
Throsby MP Stephen Jones has called for the federal government to develop a compensation scheme of last resort to protect self-managed superannuation investors against future fraud losses.
The collapse of Trio Capital was the largest superannuation fraud in Australian history, with around $176 million of superannuation funds lost and unlikely to be recovered.
Some 6090 Australians invested in Trio and into managed investment schemes.
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Of those, 285 investors - many from the Illawarra - put their money in Trio through self-managed superannuation funds.
"Over the course of the last two years the Member for Cunningham and I have been meeting with and corresponding with the many men and women who have lost some or all of their life savings as a result of this corporate fraud," Mr Jones told Parliament.
"That is 285 personal stories of severe financial shock and the ensuing personal devastation that flows from this," he said.
"Under our existing system, some investors in Trio, those in APRA [Australian Prudential Regulation Authority] regulated funds, could get compensation while those in SMSFs [self-managed superannuation funds] got nothing.
"It is a pretty tough message for these investors to accept."
Mr Jones said the "personal devastation" that results from these "significant financial losses" showed self-managed investors need a last resort compensation scheme.
"It is clear that the SMSF investors in Trio relied heavily on the advice of their financial advisers.
"They also had confidence in Australia's system of financial regulation.
"However strong a regulatory system we have, the challenges of dealing with deliberate and complicated, indeed sophisticated, fraud are substantial."
Mr Jones urged the government to work with regulators to come up with "greater fraud detection and prevention measures".
He said some who have lost money in Trio believe taxpayers should "now chip in to compensate them for the failure of their investment".
"This is a difficult proposition unless it can be proved that the loss was the direct result of government fraud or negligence, and I have as yet seen no evidence of this," Mr Jones said.
"Any determination of a claim such as this should be made by an independent body with access to all the relevant evidence.
"Another question is, should investors in a scheme that is well managed and financially prudent bear the cost of compensation for failed investment schemes that were not?"
Mr Jones said the United Kingdom had a scheme worth examining.
"The UK scheme applies where claims for compensation through professional indemnity insurance, or minimal capital requirements for financial services licences, are inadequate," he said.
"Payments of compensation are capped and calculated in accordance with a formula, such as 70 per cent of the first $50,000 lost, plus 70 per cent of the next $80,000 and 50 per cent for the next $80,000, or something along similar lines."
"For Australian investors to maintain their confidence in our financial system and for investors to be better protected against fraud and maladministration, it is time to look in more detail at these matters."