Shield, First Guardian and CSLR funding morally inseparable

ANALYSIS

There are, as yet, no firm indications that the collapse of the Shield and First Guardian funds will lead to changes to the funding of the Compensation Scheme of Last Resort (CSLR) but the Government is now looking at the regulatory settings around Managed Investment Schemes.

The announcement by the Assistant Treasurer and Minister for Financial Services, Daniel Mulino, that he has asked the Australian Securities and Investments Commission (ASIC) to consider the appropriateness of the current MIS financial resource requirements must be seen in the context of the current review of the CSLR settings.

The Government’s intentions with respect to responding to the Shield and First Guardian collapses were clearly signalled yesterday when Mulino raised the issue of the regulatory settings around MISs while, at the same time, endorsing the Australian Prudential Regulation Authority’s (APRA’s) crack-down on superannuation platform governance.

Indeed, Mulino specifically noted that “it’s disappointing that these two products made it on to investment platforms” while APRA itself made the key point that the platforms cannot “outsource responsibility”.

Given that Labor members of a Parliamentary Committee originally strongly recommended the inclusion of MISs in the CSLR funding formula and the minister is currently considering how to fund a blow-out in the CSLR sub-sector cap there is a clear imperative to broaden the levy catchment.

Mulino said he has written to both APRA and the Australian Securities and Investments Commission (ASIC) to “identify any steps that can be taken to prevent a similar event (to the Shield and First Guardian collapses) happening again”.

However, the minister will already know from APRA’s announcement yesterday and the recent appearance of ASIC before the Parliamentary Joint Committee on Corporations and Financial Services that changes are needed to the regulatory obligations imposed not just on MISs, but the entire investment eco-system including the superannuation platforms and, indeed, auditors.

Mulino took the time yesterday to acknowledge the “parallel body of work being undertaken by the Financial Services Council (FSC)” but it can hardly be lost on the minister that it was the FSC which argued that managed investments scheme sector should not be included in the CSLR funding regime.

Yesterday, FSC chief executive, Blake Briggs, said the organisation is working with its members to develop clear industry guidance that supports trustees in meeting their investment governance obligations when operating a superannuation platform.

“This is likely to include practical examples of red flags for trustees to consider when determining whether to add a product to their menu and best practice guidance on ongoing monitoring of investment options.

“The FSC notes the Australian Prudential Regulation Authority (APRA) letter to platform trustees released today and will consider how APRA’s directions should be incorporated into our industry guidance.

“The FSC is also operating a successful cross-industry superannuation scams forum that shares information and risk assessments about potential scam activity in the superannuation and investment sector to identify and stop potentially unlawful conduct,” he said.