Major platform implications from EQT test case

ANALYSIS

The eyes of Australia’s investment platform sector will be on Equity Trustees when, eventually, it appears in the Federal Court on charges originated by the Australian Securities and Investments Commission (ASIC) related to the collapse of the Shield and First Guardian funds.

The sector wide attention will be because ASIC is treating the action against Equity Trustees as a test case and the outcome will go to the heart of how the platforms on-board investments and the level of internal due-diligence they need to apply.

This much has been made clear by ASIC chair, Joe Longo and by the regulator’s deputy chair, Sarah Court, in giving evidence to the Parliamentary Joint Committee into Corporations and Financial Services after having earlier provided members of that committee with a confidential background briefing.

What Court said is that the action against Equity Trustees Superannuation Limited relates to alleged failures in due diligence in relation to the onboarding of the Shield Master Fund with ASIC regarding it as a test case of existing law and the regulator’s existing powers.

She said ASIC believes Equity Trustees as a trustee had a fiduciary obligation to do due diligence on funds such as Shield and First Guardian before making them available on its platform.

“We think the law is there now, and we’re certainly testing that,” she said.

Court was supported by ASIC commissioner, Simone Constant who referenced the direction of ASIC Report 779 which described trustees as being the “gatekeepers of the options made available in any product they offer”.

“They set the criteria for inclusion on the investment menu and can restrict access or remove options from the menu if they are not meeting investment objectives,” the Report 779 reference said.

“What this calls out, and what we can continue to call out, is that trustees have a responsibility to review those products they offer on their platforms,” Constant said.

She said there exists a requirement for trustees not to just look at fees when deciding whether to have something on a platform but about whether they meet investment objectives.

Constant also pointed to trustee oversight of advice deductions and their ability to monitor whether particular advisers were moving funds to a particular place and whether there is a correlation