Diversa Trustees will be restricted from onboarding “high-risk” investments after the prudential regulator added licence conditions, but the trustee responsible for onboarding First Guardian to its platforms argues the requirements have come as the regulator drew the wrong conclusions from a review into platform standards.
The Australian Prudential Regulation Authority announced it imposed additional licence conditions on Diversa to address prudential concerns relating to its investment governance frameworks and practices, including oversight of platform investment options made available to members.
Diversa was the trustee for Praemium Super, AusPrac Super and Your Choice Super which collectively held around $300 million of retirement savings in First Guardian and is being sued by ASIC for failing in its role as gatekeeper.
Diversa will be required to refrain from onboarding new high-risk investment options to its platform without first following an enhanced due diligence process, with oversight by an independent expert, and an attestation that the onboarding of the investment option is in members’ best financial interests.
The additional licence conditions follow APRA’s review of platform governance last October due to the fallout of the Shield and First Guardian collapse which found some trustees were over-reliant on external ratings agencies for due diligence and that there was a lack of protocols to flag potential product risks.
A spokesperson for Diversa said the organisation did not believe the additional licence conditions were justified, but it was committed to working with APRA to demonstrate its “robust investment governance” to end the additional requirements.
“Diversa does not accept the conclusions that APRA has drawn from the platform thematic review in respect of Diversa’s business, including APRA’s conclusions about Diversa’s investment onboarding processes, investment option monitoring and reporting, and management of conflicts of interest,” a spokesperson from Diversa said in a statement.
“For these reasons, Diversa does not consider that the imposition of the additional licence conditions is necessary or warranted in the circumstances.”
Diversa will also be required to appoint an independent expert to undertake a review of the various platforms’ investment menus and governance framework.
The organisation will then be required to develop and implement a plan to address the gaps identified in the review, and then undertake a further review of its investment menus against the “enhanced investment governance requirements” to determine the ongoing suitability of certain investment options.
APRA deputy chair Margaret Cole said trustees play an important role in curating the investment options made available to members and their decisions should be underpinned by robust governance.
“APRA has made clear our expectations around effective investment governance frameworks and practices, including in relation to onboarding and monitoring of investment options, to ensure they are in members’ best financial interests,” Cole said in a media release.
Overall, Diversa acts as trustee for 10 registrable superannuation entities and has approximately 291,000 member accounts and over $15 billion in funds under management.
Both Equity Trustees and Diversa have been sued by ASIC and both will fight the regulator in court over allegations it failed its duties as a gatekeeper by onboarding Shield or First Guardian.
APRA announced the additional license conditions on Equity Trustees on the same day the settlement between Netwealth and ASIC was revealed which would see Shield investors on the Netwealth platform remediated to their original financial position being rolled over into the fund.
A spokesperson for EQT told Professional Planner at the time that the firm is “committed to active engagement and co-operation with the regulators” and that it had “already been undertaking an uplift in investment governance, and has established plans to do more, which it considers aligns with APRA’s new requirements”.
The Netwealth deal followed a similar agreement made between the regulator and Macquarie in September.
ASIC has also taken legal action against SQM Research and licensees InterPrac Financial Planning and MWL Financial Services.
Shield director Paul Chiodo, First Guardian directors David Anderson and Simon Selimaj, and financial adviser Ferras Merhi are among the major parties either under investigation by ASIC or are currently facing court.
Merhi is one of the advisers ASIC believes was a central figure to the advised distribution of the Shield and First Guardian funds, allegedly responsible for signing over 6000 Statements of Advice within a three-year period.
He is also accused of taking money from the funds to help market them and receiving inflated loans to help purchase his businesses.
The directors of the Shield and First Guardian funds have been accused of misappropriating investor money for high-risk investments, pet projects and personal expenses.
The Australian Financial Complaints Authority has published lead decisions finding that clients of the Shield and First Guardian funds were victims of poor advice.
