Investing can sometimes feel like walking a tightrope, especially in a volatile economic climate. But for Australians holding ASX-listed shares or building up their super, government-backed protections can bring an added sense of security to the process.

Through systems like CHESS and regulatory bodies like APRA, the Australian government has established several safeguards to help secure investor interests. In this article, we’ll dig into these mechanisms, explore why they’re in place, and look at instances when government intervention has actively helped protect Australian investors.

How CHESS-sponsored shares help protect your investments

In Australia, the majority of listed securities are held through the Clearing House Electronic Subregister System (CHESS). CHESS might not be a term investors think about often, but it’s essential to the structure and security of the Australian stock market . So, what exactly is CHESS, and why is it crucial to your investment security?

CHESS and the investor advantage

CHESS-sponsored shares offer a unique layer of protection because they’re held directly in an investor’s name within the ASX’s central registry. This direct ownership model includes several critical features that help safeguard investments:

• Clear ownership : By holding shares directly under CHESS, investors retain legal ownership of their shares rather than holding them through third parties. This means that even if an intermediary (like a broker) faces financial issues, the shares are securely recorded under the investor’s name. You can learn more about share ownership in our guide to CHESS-Sponsored vs Custodial vs Micro-investing .
• Reliable clearing and settlement : CHESS ensures that ASX trades clear and settle efficiently, using a system where payments and share transfers happen simultaneously. This limits risks like payment defaults, making trades more secure for all involved.
• Robust record-keeping : As CHESS logs all shareholder transactions, investors can be confident that their ownership records are accurate.

If you invest with Pearler, your direct shares are CHESS-sponsored, meaning you retain full ownership of them. Find out more about how your shares are safe with Pearler .

The government keeps a watchful eye on CHESS

The government, through ASIC and the RBA , oversees CHESS as part of broader efforts to safeguard the stability and transparency of the stock market. ASIC’s role involves ensuring companies adhere to sound governance and compliance standards, while the RBA’s role includes overseeing CHESS from a systemic risk perspective.

Protecting superannuation and your retirement savings

Superannuation is one of the pillars of Australia’s retirement strategy. By mandating that employers make contributions to employee super accounts, the system aims to ensure Australians have resources for retirement. Because of its long-term importance, the government has implemented stringent protections around superannuation funds.

APRA’s role in making superannuation secure

The Australian Prudential Regulation Authority (APRA) regulates the superannuation industry, enforcing standards designed to help super funds remain stable , transparent, and resilient:

• Rigorous oversight : APRA sets high standards for superannuation funds, ensuring they follow sound financial practices and uphold risk management frameworks.
• Stress testing for resilience : Super funds must pass regular stress tests to ensure they can handle economic shocks without endangering members’ savings.
• Trustee responsibilities : Trustees, who manage superannuation funds, are legally required to act in the best interests of their members. APRA holds trustees accountable for ensuring that member funds are invested wisely and responsibly.

How superannuation is kept safe

Although there isn’t an explicit government guarantee on super balances, APRA’s oversight significantly lowers the risk of financial mismanagement. Additionally, with the Superannuation Guarantee requiring compulsory contributions from employers, super savings are regularly built up over an individual’s working life, with the goal of providing a strong foundation for future financial security.

Why the government steps in to protect ASX shares and superannuation

The government’s investment protections aren’t just for show – they serve several important goals that impact the entire economy, from individual investors to large institutions:

• Market stability and investor confidence : Protections for ASX shares and superannuation foster confidence among investors, encouraging participation in the market and strengthening the economy.
• Retirement security : The superannuation system reduces dependence on government pensions, ensuring more Australians can independently support or subsidise their retirement. In turn, this lessens the long-term burden on government finances.
• Economic growth : By making investments more secure, the government encourages capital to flow into the economy, fuelling growth, innovation, and economic expansion.

Real cases of government action to protect investors

Beyond regulations, there are times when the government steps in to protect superannuation members and shareholders, especially during times of economic distress or market irregularities. Here are a few notable cases:

How ASIC enforces market rules

As highlighted earlier, ASIC plays a vital role in upholding transparency and accountability among publicly listed companies by investigating and penalising misconduct.

In 2021, for instance, ASIC took action against a major financial services firm for charging fees without providing services, leading to significant penalties and compensation for affected clients.

This intervention highlighted ASIC’s commitment to protecting shareholders and ensuring companies operate fairly, reinforcing trust in the integrity of the market and showing that breaches of investor trust will face consequences.

Responding to the Global Financial Crisis

During the 2008 Global Financial Crisis, the Australian government introduced the Government Guarantee Scheme for Large Deposits and Wholesale Funding to stabilise financial institutions.

Though super funds weren’t directly guaranteed, the measure created broader financial stability, which indirectly protected superannuation members from potential large-scale sell-offs or fund insolvencies. This rapid response helped prevent a panic that could have otherwise damaged both individual and institutional investments.

Financial adviser reforms after the Royal Commission

Following the 2018-2019 Royal Commission into Misconduct in the Banking, Superannuation, and Financial Services Industry , sweeping reforms were introduced to address improper practices that had harmed investors.

By enforcing stronger regulations on mortgage brokers and financial advisers, the government helped ensure that Australians receive sound advice that prioritises their financial wellbeing.

No investment is entirely risk-free, even with government protections

While government protections for ASX-listed shares and superannuation offer important layers of security, it’s essential to recognise that these safeguards don’t eliminate all risks. Market volatility, economic downturns , and specific investment choices can still impact your returns, regardless of the regulations in place.

Market fluctuations and economic factors

Investments, particularly those in the stock market, are subject to the natural cycles of economic growth, downturns, and unexpected global events . Government measures like CHESS and APRA’s oversight certainly add stability and transparency. However, they can’t shield investments from broader economic trends, such as inflationary pressures or global financial crises.

Company performance and specific investment choices

Government protections can’t guarantee the success of individual companies listed on the ASX or specific investments within a superannuation portfolio. If a company underperforms or faces financial difficulty, shareholders may still experience losses.

Similarly, superannuation fund returns depend on the fund’s investment decisions, meaning that individual portfolio risks remain.

Understanding the limits of protection

These limitations underscore the importance of conducting thorough research and maintaining a diversified investment portfolio . While government protections help reduce certain risks, they are not a substitute for informed investment decisions.

Recognising both the advantages and limits of these protections can help you balance your strategies and set realistic expectations in an ever-evolving market.

The bottom line on government protections for investors

The Federal Government’s protective measures for ASX-listed shares and superannuation provide a strong foundation of security, allowing Australians to invest with greater peace of mind. From CHESS’s transparent framework to APRA’s regulatory oversight, these protections add stability to an otherwise unpredictable investment landscape. However, they can't negate the inherent risks which accompany investing.

As always, if you need individualised advice on your investments or superannuation, reach out to a licensed financial adviser.

Happy investing!