Lonsec targets governance gaps exposed by Shield, First Guardian

Lonsec has launched the Investment Governance Solution to help investment governance and research teams improve oversight and respond to emerging risks.

Announced on Thursday morning, the IGS collates ratings changes, performance and fee monitoring, and other signals to help respond earlier to emerging risks and create clearer audit trails.

Designed for advice licensees, platforms, trustees, investment committees, and governance teams, the system aims to create a centralised service.

Lonsec chief executive Lorraine Robinson tells Professional Planner the move to active monitoring rather than a “set and forget” approach is the way the industry is moving forward.

“ASIC’s been pretty clear that you can’t just rely on an external rating and then your work is done,” Robinson says.

“You’ve got to be able to demonstrate that, yes, you’ve got a rating – that’s one step in the process, but are you monitoring the performance of any ongoing issues? You have to be able to demonstrate that’s what you’re doing.”

Robinson will be appearing at the Professional Planner Licensee Summit next week to discuss the future of investment governance in a post-Shield and First Guardian world.

The launch comes in the aftermath of the $1 billion managed investment scheme collapse which has brought increased scrutiny to industry research governance processes.

While several fund managers, lead generators, advisers and licensees are alleged by ASIC to have conflicted relationships that led to the rolling over of clients into the funds, the regulator has also acted against researcher and trustees involved for allegedly failing in their roles as gatekeepers.

To date, none of ASIC’s allegations have indicated there was a conflicted relationship from SQM Research or the four trustees involved, but the regulator has taken action over allegations of due diligence failures.

Netwealth and Macquarie have paid a combined $421 million to remediate investors, while Equity Trustees and Diversa Trustees are fighting allegations of wrongdoing in court.

The regulator commenced civil penalty proceedings against Diversa Trustees in the Federal Court last December, alleging that it failed to enforce holding limits on First Guardian, as well as not conducting adequate due diligence of the fund or having sufficient ongoing monitoring of it.

Equity Trustees has faced similar proceedings for alleged due diligence failures for both Shield announced last year and First Guardian last month.

SQM Research is also fighting allegations of poor due diligence conducted in its research reports of Shield.

All licensees involved in distributing the funds have been cancelled by ASIC, except for InterPrac Financial Planning which is also in court.

ASIC has also received criticism for the lack of supervision of MISs, with $17.8 million allocated in the Federal Budget to strengthen oversight.