Macquarie compensation creates super platform pressure

The degree to which Macquarie Investment Management’s decision to recompense investors in the Shield funds has placed pressure on other superannuation platform operators has been exemplified by the Financial Advice Association of Australia.

In the immediate aftermath of the Australian Securities and Investments Commission (ASIC) announcing the enforceable undertaking entered into by Macquarie, the FAAA’s general manager of Policy, Advocacy, Phil Anderson expressed the hope that other superannuation platforms would take similar action.

His views have dove-tailed with the campaign being pursued by the Managing Director of Sequoia Financial Group, Garry Crole, who has been advocating for the superannuation platforms to activate the so-called Operational Risk Financial Requirement (ORFR) mechanisms which sat at the heart of the 2011 Trio Capital remediation.

However, the remediation promised by Macquarie is more generous and immediate than the ORFR because it will cover all investments, not just those undertaken via funds under the jurisdiction of the Australian Prudential Regulation Authority (APRA).

As well, Crole and Sequoia have an exposure to the Shield collapse via Sequoia’s ownership of financial advice licensee, Interprac, which provided authorisation to financial advice practice, Venture Egg, which remains part of ASIC’s ongoing investigation into the Shield and First Guardian fund collapses.

Crole, as managing director of Interprac commended Macquarie and the regulatory system stating that “APRA’s framework of prudential measures for superannuation members has proven its value, ensuring there are mechanisms in place to protect members in moments of financial loss or product failure”.

“While it remains to be clarified whether this remediation will be funded through the Operational Risk Financial Requirement (ORFR) or Macquarie’s own reserves, the outcome is unequivocally a positive and commendable result for affected members,” he said.

“We hope this market leading decision by Macquarie to place members first is followed by the other trustees and funds that oversaw Shield and First Guardian approvals on the APRA regulated superannuation funds they oversee,” Crole said.

What is true is that if other superannuation platforms activated the ORFR regime then, taken together with Macquarie’s actions, significant pressure would be removed from the workload of the Australian Financial Complaints Authority (AFCA) and the Compensation Scheme of Last Resort (CSLR).

The FAAA’s Anderson said the advice association welcomed Macquarie’s action stating: “This is a very good outcome for these clients who have been so badly impacted by the collapse of this MIS [Managed Investment Scheme]”.

“Hopefully, this will provide relief for them in what has been a very difficult and challenging experience.’

“We also recognise the efforts of ASIC to negotiate this outcome and appreciate that it will place pressure on the other super funds to take similar action,” Anderson said.

While Macquarie has entered into an enforceable undertaking, ASIC is continuing to pursue Equity Trustees in the Federal Court and has told a Parliamentary Committee that it is treating the action against EQT as a test case.

ASIC understands that, since February 2022, funds totalling more than $480 million have been invested in Shield by at least 5,800 consumers, who accessed Shield primarily through superannuation platforms, the trustees for which were Macquarie Investment Management Limited and Equity Trustees.

ASIC is investigating the circumstances surrounding Shield. ASIC is investigating Keystone Asset Management Ltd (in liquidation) (the responsible entity for Shield), its directors and officers, the role of the superannuation trustees, certain financial advisers who recommended investors invest in Shield, the lead generators, and the research house which rated Shield.