Regulatory Pressure on Investment Governance Following Fund Collapses
Regulatory Pressure on Investment Governance Following Fund Collapses
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The Australian government has directed the Australian Securities and Investments Commission (ASIC) to reassess current financial resource stipulations for managed investment scheme (MIS) operators.
Concurrently, the Australian Prudential Regulation Authority (APRA) has advised platform trustees to enhance governance standards.
These actions stem from the collapse of the Shield and First Guardian master funds, which led to significant investor losses.
Minister for Financial Services Daniel Mulino emphasized the need for a robust investment and superannuation system to ensure Australians can retire with dignity. He highlighted the severe impact on investors and expressed concern over millions in lost superannuation savings. ASIC chair Joe Longo noted that the rules governing MISs require a fresh examination to prevent future incidents.
APRA's review discovered that some trustees are excessively reliant on external ratings agencies, lacking in systems to identify investment product risks. The regulator urged trustees to bolster due diligence processes, reduce dependency on external ratings, and conduct both internal and external evaluations of investment products concerning performance and liquidity.
This scrutiny arose after a Professional Planner investigation revealed that FE fundinfo did not adjust its ratings for the First Guardian Master Fund even after court action froze its assets. As regulatory expectations tighten, legal obligations concerning product due diligence might face challenges. ASIC has forewarned that legal reforms could be required, pending the outcome of ongoing legal cases.
Although several platforms refrained from hosting the affected funds due to diligence concerns, issues regarding conflict of interest in onboarding processes have been noted. APRA advises platforms to implement thorough policies to manage conflicts, especially in cases where investment products within the same corporate group are involved.
The Financial Services Council (FSC) has committed to developing guidance for platforms, advocating for heightened operational standards to protect investors and enhance trust in the superannuation system. The FSC stressed the necessity for the government to address gaps highlighted by the recent fund collapses.
Approximately $1.2 billion of retirement savings for 11,000 investors are endangered due to the Shield and First Guardian issues. Last week, Macquarie agreed to compensate affected members of its Superannuation Plan, illustrating the ongoing impact of these failures. APRA will continue to engage with platform trustees to assess compliance with prudential standards and address any breaches effectively.
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