InterPrac lawsuit a ‘warning shot’ for other licensees

As the sole large licensee caught up in the Shield and First Guardian debacle, it is easy to look at the fallout as solely an InterPrac issue, however Assured Support managing director Sean Graham said the regulator’s stance should be a “warning shot” to every other advice licensee.

In its filing to the Federal Court last month, the Australian Securities and Investments Commission (ASIC) alleged that “thousands of Australians were exposed to poor financial advice and significant risks” from the Shield Master Fund and First Guardian Master Fund through “critical oversight and compliance failures” by InterPrac.

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“ASIC has commenced civil penalty proceedings in the Federal Court against InterPrac for allegedly failing to ensure its former authorised representatives Venture Egg (a corporate partnership), and Rhys Reilly Pty Ltd (together, Representatives), complied with the best interests obligations and for failing to have adequate risk management systems,” ASIC said.

“Together, these Representatives advised around 6,843 clients to invest around $677 million of their superannuation into Shield and First Guardian. Both funds have now collapsed, leaving people’s superannuation at risk.”

Graham noted that the massive size of the client base and the volume of funds involved “illustrate why ASIC views the alleged failures not as isolated issues, but as systemic supervisory failures resulting in widespread client harm that warrant significant court-based intervention”.

The claims against InterPrac include that the firm failed to identify behavioural patterns, unusual product flows and adviser-driven risks, which ASIC argued a modern licensee should detect early.

“These proceedings will continue well into 2026, but the direction of travel is already clear: ASIC expects licensees and responsible managers to be organised, data-enabled and able to demonstrate that their supervision works in practice, not just on paper,” Graham said.

“We think that ASIC’s 2025 Federal Court proceeding against Interprac may be one of the most consequential licensee‑supervision cases since Lanterne and RI Advice. But unlike those cases, where failures centred on governance or cyber security, the Interprac matter goes to the core operational DNA of a licensee: its ability to detect patterns of misconduct, product concentration and systemic advice failures before they cause client detriment.”

According to Graham, this focus from the regulator will be far from isolated to InterPrac, and the alleged failures at the licensee expose the limitations of “siloed, analogue, unscalable supervision approaches”.

“ASIC has repeatedly emphasised in recent speeches that effective oversight now depends on licensees using systems and data to identify emerging risks early and to demonstrate that their supervision is active, not symbolic,” he said.

Importantly, the increasing regulator oversight should be pushing licensees to ensure they are using regtech-enabled supervision systems to stay on top of their obligations.

“Manual supervision, sparse file reviews and spreadsheet-based oversight can’t meet that standard in modern advice businesses,” Graham noted.

Failure to supervise advisers

Much of ASIC’s case against InterPrac is that the licensee failed in its obligations to supervise its advisers, with the regulator focusing on the high volumes of clients that Venture Egg and Reilly Financial directed into Shield and First Guardian.

“Together, these representatives accounted for approximately $677 million in client funds directed into Shield and First Guardian, raising clear questions about product concentration, adviser conduct and the adequacy of Interprac’s oversight of these entities,” Graham said.

“In addition, ASIC alleges that advisers routinely recommended 100 per cent allocations to products with no track record, limited transparency, and red flags that should have triggered heightened monitoring.”

Beyond issues such as the use of third-party lead generators and negative-consent practices, ASIC has also alleged that InterPrac lacked a robust approval process for adding products to its APL, didn’t enforce holds on adding clients to the funds, and failed to review product appropriateness for clients.

“These are failures of system capability, not simply staff behaviour,” Graham said.

“Interprac’s systems may have existed on paper, but ASIC argues they didn’t work in practice.”

He added: “Even if individual advisers were the immediate cause of harm, ASIC alleges the licensee should have detected the patterns and intervened. Failure to act became failure to supervise – and ultimately a failure to meet core financial services obligations.”

According to Graham, the case also points to the fundamental problems with a manual approach to compliance, as manual systems are unable to detect patterns.

“Product clustering, unusual inflows, repeated narratives, and systemic advice issues only emerge when data is aggregated and analysed continuously,” he said.

Additionally, they can’t scale or provide an early warning of the issues, and by the time a problem shows up in a file review, “the harm has usually occurred”.

“The Interprac case signals that ASIC expects licensees to move beyond sample-based reviews to whole-of-licensee surveillance; detect patterns of product flows and adviser behaviour; identify issues early, before harm crystallises; demonstrate that systems and controls are operationally effective, not symbolic; provide evidence that Responsible Managers satisfy RG 105 (organisational competence) and RG 104 (general obligations) expectations,” Graham said.

“ASIC expects effective, data-enabled oversight proportionate to the business’ nature, scale and complexity, consistent with s912A and RG 104 and 105; it is an expectation of effective, data-enabled oversight proportional to the nature, scale and complexity of the licensee’s business.

“Manual audits, CRM exports and human-led reviews can’t achieve this. Instead, Licensees now need technology with analytical power, integrated workflows and real-time visibility.”