Could AI have spotted Shield, First Guardian?
The appropriate use of artificial intelligence (AI) to pull and cross-reference data from multiple sources could have helped detect the problems with the Shield and First Guardian funds earlier, according to superannuation data and technology firm, Novigi.
The firm has told clients that the Shield and First Guardian collapses illustrated the existence of gaps in the controls and safeguards within the superannuation systems.
Novigi’s general manager, Investment Technology, Kevin Fernandez said trustees and platform providers typically rely on static disclosures, manual document reviews and ratings from research houses when assessing the suitability of investment options.
“An improved approach would see them automating the ingestion and analysis of data -using AI where appropriate – to pull and cross-reference data from multiple sources, including research houses, ASIC registers, credit reporting, deeds and ownership data and related-party disclosures,” Fernandez wrote.
“This would increase the likelihood of revealing related-party risks and conflicts of interest early on.
“Use of AI and machine learning could potentially uncover patterns linked with fraud and misconduct that humans would be otherwise unlikely to detect. And crucially, this kind of due diligence of assessment could be adapted from a once-off exercise to a system of dynamic monitoring, with scores recalculated periodically or as new information becomes available,” he wrote.
Fernandez noted that Shield and First Guardian both exhibited rapid inflows from new members linked to a small number of advisers and licensees.
“Similarly, many investors with holdings in Shield and First Guardian invested a large proportion of their account balance in the schemes. Monitoring and analysis of transactions and holdings could have raised the alarm sooner, prompting closer investigation by trustees and platform providers,” he wrote.
“Trustees and platform providers currently have all the data required to do this kind of analysis; the challenge lies in aggregating data from multiple systems. Integrating registry, platform and advice licensee data would enable the implementation of dashboards and alerts to flag unusual activity that may be indicative of scams or fraud.”
Fernandez wrote that failures like Shield and First Guardian harm confidence in the entire superannuation system.
“As with cyber security and financial crime, we think information sharing here would be a net benefit for all industry participants.
“Interestingly, in the case of Shield and First Guardian, platform provider HUB24 declined to host either scheme after they failed to pass due diligence. HUB24 has also publicly expressed concerns about the potential for an overzealous correction from regulators. It is not difficult to see how HUB24 sharing their assessment of Shield and First Guardian with other industry participants could have been in the best interest of members, as well as HUB24 and other trustees and platform providers.
“Trustees and platform providers should work towards frameworks that enable the secure exchange of structured information on investment products, adviser activity, and risk indicators.
“These would ideally be supported by the adoption of consistent data standards and methods of integration. Ultimately, the sharing of information between organisations could be automated, with built-in privacy and data security protections.”
What a stupid question. Blind freddy could have spotted Shield and First Guardian.
Just like many other scandals of the past, this one was spotted by advisers and reported to ASIC long before any action was taken.
Could AI have forced ASIC to do their job properly? I very much doubt it. What is needed there is a massive restructure, personnel clearout, and cultural change.
Yep agree, the failures here were greed and useless ASIC.
Not that hard.
Even if AI was as good as proposed, ASIC did Nothing.
How can a MIS with billions $$$ be allowed to have Related Party responsible entities ????
ASIC & ATO won’t let a SMSF with $1.7 mill on average, have financial accounts & audit done by same local accountants. Yet they will allow Related Party REs / Auditors for MIS of billions $$$$ for thousands of unrelated investors.
As for Interprac / Sequoia, greed turned them blind. Now they make all AFSLs pay.
You know what would have stopped the Shield & first guardian fiasco? ASIC actually doing their job and acting on early tip-offs from advisers and the FAAA. Why are ASIC getting out of this without scrutiny?
On another note, it can’t be that hard to see abnormal fund inflows into new investment options all coming from one/two licensees, to raise a red-flag and initiate an investigation.