Budget funding for MIS oversight no ‘silver bullet’: ASIC

ASIC deputy chair Sarah Court believes the fresh funding received in the budget for managed investment scheme (MIS) oversight won’t be a “silver bullet” to protect investors and that the regulator needs more powers to deal with MIS registration.  

With just days left in her tenure as deputy chair before she takes the top job at the regulator, Court tells Professional Planner that while ASIC welcomes the extra funding, it still has concerns that more reform and resources will be needed for it to conduct proper oversight of the sector.

“I have to be honest, it’s not going to be a silver bullet at all,” Court says of the $17.8 million funding allocated in this month’s federal budget to ASIC for MIS oversight.

“It will be a step up and the government is consulting on a range of additional reforms in relation to the whole MIS area, but we do need to come back to that.”

Part of the funding will be used to lift ASIC’s digital capability to access and analyse MIS data more effectively, including improved data sharing with APRA, to help provide more targeted oversight approaches.

Court says that Australia’s MIS approval regime is too permissive, a view shared by current chair Joe Longo, and that ASIC isn’t resourced enough to review all the schemes that require registration.

“It’s a big policy question for government as to whether ASIC or any other regulator for that matter should be looking much more closely or vetting or giving MISs a tick of approval,” Court says.

“We don’t do that and that would be a fundamental policy change that could have a whole range of consequences for people that are very keen to use these to grow wealth in a normal way.”

Having secured $421 million for investors by settling with Netwealth and Macquarie to remediate Shield and First Guardian investors on those platforms, Court says the criticism of the regulator’s approach to Dixon Advisory – securing a $7 million penalty – didn’t influence the regulator’s decision to pursue remediation.

The confluence of the Dixon Advisory collapse and launch of the Compensation Scheme of Last Resort meant the advice profession was required to underwrite investors’ losses.

“I don’t think the Dixon experience fed into this,” Court said.

“What we were really concerned about here was the sheer scale of these losses was something that we hadn’t seen before and while unfortunately we see investors with money in managed investment schemes that lose money frequently.

“We took the view that as the regulator here the number one thing that we should be doing is freezing monies, which we did a lot of, so we froze a lot of money in the Shield Master Fund that will make its way back to investors to alleviate the distress.”

While ASIC has been aggressive in taking action against all trustees involved in holding the Shield and First Guardian funds, Court says ASIC’s view was that InterPrac was still significantly responsible for the advice given.

“We were very concerned about the proposed sale of InterPrac and very concerned about what [that meant] for any of the liabilities that sat with InterPrac for those losses,” Court says, referring to the appointment of a receiver on the controversial sale of the licensee by its ASX-listed parent company Sequoia Financial Group.

“We took further action in relation to that proposed sale because of our concerns about… phoenixing [and] InterPrac’s liabilities being impacted and there being some impact on investors.”

Court said that while the Equity Trustees proceedings announced on Thursday brought to a conclusion “an enormous suite” of work ASIC has been doing to hold all the trustees to account, there is still range of continuing investigations against individuals involved.

“I’ll be a bit circumspect on that for obvious reasons, but our work is ongoing,” Court says.

“We’re up to 14 or 15 different federal court proceedings, we’ve got some 25 different defendants already before the courts. We are continuing… our work in relation to those remaining entities and individuals that we have not yet finalised our action.”