Industry veteran calls for royal commission on regulators and trustees

Johnston argued that the long-standing focus on financial advisers as scapegoats has allowed other stakeholders – including ASIC, APRA, trustees, custodians, auditors, research houses, and institutions – to evade responsibility.

“For the last 30 years MIS has protected ASIC from litigation with their ongoing flawed conduct but it has thrown taxpayers ‘under the bus’ with consumer protection,” Johnston said.

He said the problem is systemic.

“ASIC/APRA, trustees, custodians, auditors, research houses and institutions have evaded accountability with their role when financial products fail, they have cleverly, unfairly and most times collectively spun the blame onto financial advisers whilst slithering away for legal cover,” he said.

“This ongoing injustice has allowed mediocrity to develop where the structure and habits of these stakeholders have not changed – why would they when they have continually avoided culpability with their conduct?”

Johnston referenced historical precedent, noting that the 2011–12 Senate inquiry into the 2009 “TRIO fraud” found multiple stakeholders collectively responsible.

“Today precisely the same stakeholders are emerging as the culprits in the Shield/First Guardian fiasco,” he said.

The email coincides with heightened regulatory action against some parties involved.

ASIC has recently targeted Equity Trustees and is expected to take action against Macquarie and Netwealth in the near future, raising questions over who will hold the regulator itself accountable.

“How can the supreme regulator take no responsibility for allowing flawed products onto the market in the first place and then take no responsibility for the conduct of stakeholders who are meant to be protecting consumers? What does ASIC actually do besides for being reactive to problems and attack low-hanging fruit?” Johnston asked.

Johnston also criticised the levy charged to advisers, which he said effectively charges advisers to investigate failures for which ASIC is ultimately responsible.

“To make matters worse, they then charge the advice profession a levy to investigate product failures that they are ultimately responsible for,” he said.

Johnston concluded the email with a call for a royal commission into ASIC and the managed investment scheme process, arguing that systemic reform is needed to protect consumers and restore trust in Australia’s financial services industry.

“It is time to drain the Canberra bureaucratic swamp with a royal commission to protect consumers.”

Johnston’s email comes in the wake of CEO Garry Crole’s Operational Risk Financial Requirement (ORFR) initiative, which the AIOFP head said has shifted the spotlight firmly onto the role of all stakeholders in product manufacturing and distribution – not just financial advisers.

Namely, Crole – who is also a non-executive director at the AIOFP – confirmed that Sequoia is pursuing remediation for clients affected by the Shield and First Guardian collapses by seeking access to APRA-mandated ORFR reserves.

“Use of the ORFR to remediate member losses would reinforce trust in Australia’s wealth management and superannuation industries,” Crole said.

“While it is essential that those who misled trustees, research houses and licensees are called to account, the Australian superannuation system has evolved to safeguard members and those safeguards must be fully utilised.”

One of the licensees potentially facing regulatory action is InterPrac – a wholly owned subsidiary of Sequoia – which previously authorised Ferras Merhi and Venture Egg until severing ties at the end of May, as well as Reilly Financial and Miller Wealth Group, which allegedly advised clients to invest in one or both funds.

Despite this, Crole has stressed that InterPrac has taken “decisive action on some breaches of three practices that we had within the network” and is actively supporting affected clients.