Shield/First Guardian – ASIC ultimately wins

ANALYSIS

Just as the Australian Securities and Investments Commission (ASIC) provided the foundational information pursued by the Banking Royal Commission so, too, it has provided the roadmap being followed by the Minister for Financial Services, Daniel Mulino, in addressing the Shield and First Guardian collapses.

And, as Mulino made clear last week, the Shield and First Guardian issues are now significant factors in how the Government approaches fixing the funding mechanism for the Compensation Scheme of Last Resort (CSLR).

But the fixes will not be quick – the Government knows that it is paying the price for previous expedient, band-aid approaches.

The good news for financial advisers is that the Government is now acknowledging that the CSLR must be a real ‘last resort’ scheme and the better news is that Mulino is signalling that the special levy to fund the financial advice sub-sector cap over-run will be spread across all sectors of the financial services industry.

As well, and in line with ASIC’s evidence to the Parliamentary Joint Committee on Corporations and Financial Services, the minister has clearly noted that financial services regulators in other jurisdictions have data collection powers which allow them to more interrogate the holdings of managed funds and managed investment schemes (MIS).

As ASIC pointed out, regulators in the US, the UK, the European Union and New Zealand are “all empowered to collect data on managed funds for use by the regulator, industry and consumers”.

“We have recommended introducing a legislative framework for the recurrent collection of data on managed investment schemes, including unregistered schemes. Our recent work on public and private markets has also identified the scarcity of recurrent data on managed investment schemes as a risk.”

At the FAAA Conference in Perth last week, Mulino reflected the ASIC messaging when he said the Government needed to figure out ways to use technology to provide greater protection.

“I think there are ways, for example, where we can share information better between parts of the sector and regulators and catch actions faster. I think these are things that we should be looking at. There are some ways in which we can use technology, in my opinion, which are low cost and straightforward. And these are things I think that we should be exploring as first steps,” he said.

Mulino said he has written to APRA around ways in which platforms can be regulated in a way which achieves more prevention through stronger onboarding and due diligence arrangements.

“They also just completed a thematic review. I’ve also written to ASIC around capital standards for MISs. But there are also obviously a range of other ideas around MISs. In the public realm, including issues that the chair of ASIC has raised. But there are a number of issues around MISs that have been in the public realm for some time.”

Mulino said he believed information flows are critical.

“I think that no matter where we go on those other fronts, for me there, there are some low‑hanging fruit options where we could share some information about flows of people across platforms, into MISs. For example, in real time, without necessarily going into all the detail of what’s in every single MIS. I think there are ways we could explore better information flows that would materially help on the prevention front.”