The Australian Prudential Regulation Authority (APRA) has defended its inability to prevent the collapse of Trio Capital, arguing that the investment group’s trustees failed to act in members’ interests.
However, APRA deputy chairman Ross Jones conceded in a speech to a Senate Estimates Committee earlier this week that the collapse of Trio had diminished confidence in Australian regulators.
An 11-month investigation by a Parliamentary Joint Committee (PJC) on Corporations and Financial Services into the collapse of Trio Capital, which concluded earlier this month, proportioned blame to a number of sectors including regulators.
At the time, the coalition said the PJC inquiry had exposed a failure of key checks and balances in the Australian regulatory system with regulators missing some key signals, failing to identify the fraud or act rapidly enough to shut it down and protect investors.
“The PJC report expresses strong concern at the apparent lack of follow-up by regulators such as ASIC and APRA and other criminal investigatory authorities such as the Australian Federal Police to recover outstanding moneys or to bring those who committed crimes to justice,” it said in a statement.
Jones refuted a number of these allegations on behalf of APRA, claiming that in the past decade there has been just one fraud, of around $55 million, in the APRA-regulated sector.
In the case of Trio Capital, he was quick to emphasise that “the fraud did not occur in an APRA-regulated entity, but in an offshore hedge fund, beyond the reach of Australia’s regulators”.
Trio Capital was an APRA licenced superannuation fund trustee. It was also the responsible entity for a range of ASIC-regulated managed-investment schemes, including Astarra Strategic Fund (ASF), in which most of the identified losses occurred. The ASF was a hedge fund of funds with investments overseas.
Regulatory recommendations
Commenting on the PJC’s findings and recommendations, Jones said the inquiry had made two specific recommendations relating to APRA.
“The first is that APRA cooperate with other agencies to pursue criminal investigations and, where possible, criminal sanctions against key figures responsible for defrauding Trio investors,” he said.
“APRA will of course cooperate in every way it can, however APRA’s powers are limited to areas within its mandate.”
Under the Superannuation Industry (Supervision) Act 1993, APRA can pursue the imposition of civil or criminal penalties and make disqualification orders for persons responsible for breaches of the SIS Act.
“The parties responsible for compliance with the SIS Act were the trustee (Trio Capital, now in liquidation), its directors (the subjects of a series of enforceable undertakings and continuing investigation by APRA) and the investment managers (variously in liquidation and, in the case of Mr Shawn Richards, subject to ASIC’s criminal processes),” said Jones.
“Other individuals named in the Trio Report are not within APRA’s prudential remit as their conduct related to products not regulated by APRA.”
The second recommendation was that APRA conduct an internal assessment of the adequacy and timeliness of checks to monitor superannuation-vehicle ownership.
“This process has begun,” said Jones. “We have conducted a review of our supervision after the collapse of Trio and will further investigate.
“The PJC also commented that APRA must review ‘trigger points’ in events leading to Trio’s collapse.
“APRA will follow up the recommendation, including some specific advice on fraud identification from other agencies. We will also consider if there is a need for additional legislation.”
He further pointed out that, to date, APRA’s prudential supervision has not been based on the premise that fund owners, trustees and employees are engaged in fraudulent activity.
“In its supervision of superannuation, APRA acts as a third line of defence after trustees and auditors. As a first line of defence, the organisation’s management has ownership, responsibility and accountability for assessing, controlling and mitigating risks.
“In APRA’s view the trustees of Trio failed to act in members’ interests.”
Yet another poor excuse from apra. They were all away on the day they were supposed to be working on that fund – Actually they were on a union strike whinging about their entitlement for more sick leave…The boys and girls at apra deserve more sick leave – they suffer from a disease called the entitlement complex illness. – what a joke – what a poor excuse for a regulator.
I agree with Mr Johnston. 5 years of “checks” and balances with APRA audits to give consumers and planners confidence only to turn around and say it was out of their hands. Trio had an investment committee. These committees are set up to ensure that investments are sound investments yet it appears this so called investment committee didn’t know the proverbial from clay. The cost of not reimbursing these investors will ultimately be three times the cost in the future. Pay the money, save the well being of a number of innocent people and save yourself millions in future health bills, welfare payments and FACE….or do you just believe you won’t be in power soon so why create further debt that goes against the Labor Party and then leaves the Libs to clean up another Labor mess.
If APRA are claiming they are not responsible for detecting the fraud because it was executed off shore and nothing to do with the APRA regulated environment, why then did they compensate the APRA regulated investors and and not the SMSF investors? Surely you can’t be ‘half pregnant’? Investors did not loose their money because they were in a non APRA regulated SMSF, they lost it because the gate keepers were negligent and are now all trying to ‘pass the buck’. Just right a cheque Minister Shorten.