But SPAA Director, Education and Professional Standards, Graeme Colley, says: “The proof of this pudding will be in the eating.
 
“What SPAA is waiting to see is how these recommendations from the Parliamentary Joint Committee on Corporations and Financial Services into Trio and Richard St John’s report into compensation arrangements for consumer are implemented.”
 
He adds that it’s SPAA’s opinion that there are some aspects of the two reports’ recommendations that should go further than their original proposals, such as a last resort compensation scheme.
 
On Friday, the Minister for Financial Services and Superannuation, Bill Shorten, responded to the two reports by saying the Government accepted “the vast majority of their recommendations”.
 
The Government’s response will be coordinated by the Superannuation Regulators Working Group, comprising Treasury, the Australian Taxation Office, APRA and ASIC.
 
Colley says SPAA is disappointed by the Government’s decision on the last resort compensation scheme for the financial services sector by accepting St John’s advice that such a scheme would be “inappropriate and possibly counter-productive”.
 
“SPAA will continue to advocate for such a scheme where clients have suffered financial losses because of the misconduct or insolvency of an AFS licensee, and that the compensation should be funded by a levy imposed on that sector of the industry where the misconduct occurred.”

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Enforcement
ASIC has taken enforcement action on Trio against a range of gatekeepers. This includes directors of Trio, its investment manager, various financial planners who recommended Trio and Trio’s auditor.

As a result of ASIC’s continuing Trio investigations more than 10 individuals have either:

• been jailed. Trio investment manager Shawn Richard has been jailed for 3 years and nine months with a minimum of 2½ years to serve
• been banned by ASIC from providing financial services
• ben prevented from managing corporations
• been prevented from acting as a registered auditor
• agreed to remove themselves from the financial services industry.

These individuals have either been jailed, banned by ASIC from providing financial services, disqualified from managing corporations or have agreed to remove themselves from participating in the financial services industry for a combined total of more than 50 years.

ASIC inquiries into Trio are continuing.

ARP Growth Fund
ASIC is investigating the conduct of persons relating to the failure of the ARP Growth Fund, a fund associated with Trio.  ASIC’s investigations indicate the reasons for ARP Growth Fund’s losses appear different from those of the Astarra Strategic Fund, another Trio fund.

To date, the documents in ASIC’s possession show the ARP Growth Fund failed following substantial investment in an offshore fund that had exposure to collateralised, leveraged credit default swap agreements. The investments failed during the global financial crisis.
Financial planners
ASIC has conducted a specific and detailed investigation into the advice by financial planners to investors in Trio Capital using a risk-based approach. We have taken regulatory action against a number of financial planners where there have been breaches of the law. Some of these actions are ongoing.
Trio liquidator
ASIC is providing funding under the Assetless Administration Fund to the Trio liquidator to enable investigation of the Trio collapse.

Forward plan
In 2010, ASIC also set out a forward plan to improve the conduct of gatekeepers in this area. ASIC has:

• increased the financial requirements that apply to managed investment schemes
• conducted regulatory reviews of the custodian industry. We will soon issue a report that highlights the need for clear disclosure about the role of custodians
• reviewed compliance plan arrangements for managed investment schemes.

ASIC is also strengthening the regulatory requirements applying to hedge funds and research houses.

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Senior finance industry solicitor Peter Townsend welcomed the full report of the PJC on its Trio inquiry. However, he does not believe that regulators or Government fully understand the potential for another fraudulent MIS offering in the future. 

“There has been no real change to rules making early detection and pre-emptive enforcement easier against flawed schemes or fraudulent management. Awareness and action after the fact are swifter than earlier times but I can’t see evidence that early enforcement is materially tighter or more effective. 

“Ripoll’s reviews of Storm and advice processes etc has built better investor protection around making class actions easier to mount AFTER the event has happened. This is laudable but truly having legislation that would stop it happening again by malicious advisers is not yet a reality. 

“It is worth remembering that Storm clients had full documentation outlining all the risks associated with growth assets/gearing but this did not protect them. Advisers were involved in recommending Storm services but there was no protection for their clients from regulators. 

“Please don’t think that ‘Fee for Service’ will automatically end the rorts offered by some commission-based schemes of the past. Unreasonably large fees for the service provided are still possible,” said Peter Townsend, Principal, Townsends Business & Corporate Lawyers.

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