The Australian Financial Complaints Authority (AFCA) has released a new explainer for consumers affected by the collapse of the Shield and First Guardian Master Funds, setting out how AFCA, the Australian Securities and Investments Commission (ASIC), and the Compensation Scheme of Last Resort (CSLR) each operate within the complaints and compensation framework. For insurance professionals, the clarification outlines where professional indemnity exposure may arise, when unpaid determinations may flow into CSLR levies, and how AFCA and ASIC processes intersect.
AFCA lead ombudsman for investments and advice, Shail Singh, outlined AFCA’s function in a video update. AFCA considers complaints between consumers and financial firms, examines the circumstances of each case, and decides whether the firm has complied with its obligations. Consumers who have experienced losses connected with the Shield and First Guardian Master Funds may lodge a complaint with AFCA if they believe that an AFCA member firm, such as an advice practice or product issuer, contributed to their loss. AFCA then assesses the complaint and, where it finds in favour of the consumer, issues a determination that can require the firm to pay compensation.
If the firm is solvent, it must pay the compensation within the timeframe set out in the determination, generally 30 days. If the firm is insolvent, or has not paid after AFCA has issued an “appropriate steps notice,” the outstanding determination may form the basis of a claim to the CSLR. For most investors affected by the Shield and First Guardian collapse, AFCA has indicated that any potential CSLR payment depends on first completing the AFCA complaints process and obtaining a determination in their favour.
The CSLR is a separate body that operates at the end of the redress process. It can pay up to $150,000 in compensation to eligible consumers who have a favourable AFCA determination but cannot be paid because the relevant firm is insolvent and unable to meet the award. The CSLR does not investigate misconduct, supervise licensees, or decide liability. Its role is limited to paying capped compensation in defined circumstances once AFCA has finalised its process. For insurance and advice firms, this sequence underscores the interaction between AFCA membership, complaint handling, and professional indemnity cover before any matter reaches the CSLR. In the context of Shield and First Guardian, affected consumers must lodge and complete an AFCA complaint, receive an AFCA determination awarding compensation, and, if the firm is in liquidation or otherwise unable to pay, submit a claim to the CSLR under the scheme’s rules.
AFCA’s communication also restates ASIC’s distinct role. ASIC is the corporate, markets, and financial services regulator responsible for enforcing the Corporations Act and related legislation. It can investigate suspected misconduct, take regulatory or enforcement action, and issue guidance, but it does not determine individual compensation outcomes or resolve disputes. ASIC is currently investigating the conduct of responsible entities and financial advisers involved with the Shield and First Guardian funds. It has also funded Super Consumers Australia to develop the Take Your Super Back website, which provides information to affected fund members on available options, including how to lodge complaints with AFCA. Together, AFCA’s explainer and ASIC’s actions set out how consumers and industry participants can navigate complaints and potential compensation, and clarify at which stage each body becomes involved.
Against this backdrop, the Insurance Council of Australia (ICA) has called for structural reform of the CSLR in a submission to Treasury, responding to consultation on the use of professional indemnity insurance to meet compensation claims. The ICA notes that professional indemnity policies are generally designed to respond to negligence and related civil liability, and typically exclude fraud, criminal conduct, and systemic failures. It says these excluded categories account for a significant share of claims entering the CSLR, raising questions about relying on professional indemnity cover as a primary response to such losses. In its submission, the council identifies three main areas for reform: increased regulatory oversight of managed investment schemes, which it views as the main source of CSLR claims; limiting CSLR payments to actual capital losses and introducing means testing; and reviewing minimum coverage limits, which it says have remained largely unchanged since 2008, to align them with current conditions.
ICA chief executive Andrew Hall said the council is seeking changes to support the scheme over time. “We want to see a CSLR that works for consumers over the long term. That means tackling the underlying causes of claims rather than shifting costs around the system. Professional indemnity insurance is fundamentally the wrong instrument for the problem at hand. Better regulation of high-risk financial products, a more targeted scheme, and stronger enforcement of existing professional indemnity requirements are the reforms that will make a real difference,” Hall said. The ICA has indicated it will continue to engage with the federal government and Treasury on the design and implementation of any CSLR changes.
In related regulatory activity, AFCA has pointed to ASIC’s Information Sheet 295 (INFO 295), which sets out a new approach to regulating employee entitlement schemes from April 1, 2026, and brings scheme operators into the Australian financial services licensing and AFCA membership framework. Under ASIC’s updated settings, operators of employee entitlement schemes that wish to rely on transitional relief must apply for an Australian financial services licence by Sept. 1, 2026, and, as part of that process, become AFCA members. Existing relief from licensing and managed investment provisions under ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150 will expire on April 1, 2026.
From that date, transitional relief will continue subject to conduct, governance, and disclosure conditions. These include holding scheme assets on trust and separately from other property, having internal dispute resolution arrangements, and publishing key scheme information on the operator’s website, such as how contributions and income are used, member rights, significant risks, fees, and complaint processes. Operators must notify ASIC within 14 days of first relying on the new relief and, if they do not apply for a licence by Sept. 1, 2026, or have an application refused or withdrawn, they will be required to cease operating the scheme. For insurance professionals, the developments around the Shield and First Guardian collapse, CSLR design, and the regulation of employee entitlement schemes indicate an evolving framework linking AFCA, ASIC, and the CSLR, with implications for product structures, advice processes, professional indemnity arrangements, and dispute resolution strategies.
