Much-vaunted DDO regime no help on Shield, First Guardian
The Design and Distribution Obligations (DDO) regime was flagged by the Government as a “game changer” but has failed to be effective in preventing recent failures such as Shield and First Guardian.
That is the assessment of the major accounting groups (CPA Australia, CA-ANZ and the Institute of Public Accountants) which have used a joint submission to argue that the DDO regime confers powers on the Australian Securities and Investments Commission (ASIC) which it has not used in the case of Managed Investment Schemes (MISs).
The Joint Accounting Groups acknowledged comments by ASIC chair, Joe Longo that “the bar is so low to register an MIS, it basically serves no barrier to entry at all”.
In their joint submission to the current review of the MIS regime, the accounting groups said it should be acknowledged that ASIC “has powers under the DDO provisions of the Corporations Act to make interim or final stop orders to prevent the issue, sale or distribution of a financial product and or limiting ongoing distribution where there is no Target Market Determination (TMD) or a defective or inappropriate TMD”.
“The introduction of DDO has been described as a ‘game changer’, however to date has not been effective in preventing the recent failures we have seen amongst MISs,” they said.
The joint submission said that downstream of registration, ASIC has limited ability to intervene proactive once a scheme is registered.
It pointed to a submission made by CPA Australia with respect to the collapse of the Sterling Income Trust in which the accounting body questioned whether the current framework appropriately protects consumers where ASIC’s role is confined to assessing legal form rather than commercial viability”.
“Strengthening compliance plans and audits should therefore be paired with upstream gatekeeping or earlier intervention mechanisms to prevent investor harm before it occurs,” the submission said.
“While improved compliance plans and audits are important, they will be most effective when paired with regulatory setting that support early intervention and proactive oversight, rather than reliance on enforcement after investor harm has occurred,” it said.
The Joint Accounting Groups submission also backs strengthening ASIC’s visibility of high risk switching patterns, including the adoption of a mandatory alerts regime.
It said reportable patterns of conduct should include spikes in rollovers associated with specific financial adviser/AFS licensee identifiers, unusual clusters of financial advice fee deductions or repeated switching concentrated among vulnerable cohorts.
TMDs are an additional layer of regulation that drives up cost and complexity.
In a recent AFCA case study webinar conducted by FAAA, the AFCA person said one of Shield or First Guardian (I forget which) had statements in their PDS saying it was a high risk product and should not be used as a majority holding for investors. AFCA used this PDS statement as part of the rationale for finding against the adviser in the case. So if this stuff is in the PDS anyway, and regulators are relying on it, why do we need the extra layer of TMDs?
Is it possible that advisers and consumers alike have become so overwhelmed with layer upon layer upon layer upon layer of catch all disclosure, they are reflexively filtering it out like ads on a website or sporting field, and are missing some elements that are important?
The underlying principle outlined by the accounting groups is one of ASIC failing to act when there was consumer harm and breaches of multiple existing regulations. ASIC had more than enough regulations to stop the obvious crooks. They didn’t need TMDs.
Yep layer upon layer upon layer upon layer of useless box ticking compliance.
That’s ASIC answer to everything for over 25 years for Advisers.
And what does ASIC do with all this box ticking ? NOTHING.
ASIC double the cost of Advice with mad red tape useless compliance.
Then ASIC ignore any warnings and turn up after the train wrecks to then point fingers and more regulation at Advisers.
ASIC, Canberra bureaucrats and pollies collectively bury the investigation into Dixon’s MIS fiasco to protect their own useless corrupt butts.
Of course nothing is learnt and no one in Canberra is held accountable.
Canberra do their usual 25 yr old trick and dump blame on advisers and their newest scam of Advisers paying CSLR for ALL the chains failures.
How are MIS left unregulated ?
How are MIS left out of CSLR ?