APRA turns up the heat on super trustees over Shield and First Guardian

Super fund platforms remain in the firing line over the Shield and First Guardian failures, with the Australian Prudential Regulation Authority (APRA) calling for trustees to “accelerate and escalate efforts to safeguard members’ investments”.

Last month, Macquarie admitted to a range of failings related to its inclusion of the Shield Master Fund and agreed to cover 100 per cent of its members’ investment in the fund, to the tune of around $321 million.

However, this is just a drop in the bucket for the $397 billion currently held in superannuation platforms, which equates to 13.1 per cent of APRA-regulated superannuation fund assets.

“The fact that First Guardian and Shield managed investment schemes were made available to members by some platform trustees has exposed members to the risk of significant loss and uncertainty,” APRA deputy chair Margaret Cole said.

“While APRA notes variation in practices across platform trustees, APRA calls on all platform trustees to address any weaknesses and accelerate efforts to lift standards.”

She added that the regulator would escalate supervision intensity to ensure that appropriate steps were being taken by trustees.

“We will not hesitate to take robust regulatory action as necessary,” Cole said.

In its letter to platform trustees, the regulator said some have “significantly more work to do than others”, however it also laid out its broader expectations for the entire industry.

First, platform trustees need to improve their onboarding practices, which APRA noted includes trustee investment governance frameworks and policies, their manner of reliance on external research and ratings, and identification and management of potential and actual conflicts of interest.

“Platform trustees should improve their monitoring of investment options, including in relation to trustee investment governance frameworks and policies, triggers, reporting and oversight,” APRA said.

It added: “Platform trustees should improve oversight where outcomes for members are not being delivered, with clearly defined processes to ensure timely and effective remedial action.”

In a statement, Financial Services Minister Daniel Mulino said it was “disappointing” that Shield and First Guardian even made it onto the super fund platforms.

“I welcome the Australian Prudential Regulation Authority and the Financial Services Council (FSC) acting to improve the governance and accountability of these entities,” Minister Mulino said.

“The release of the outcomes of APRA’s thematic review of superannuation platforms today is a welcomed development. The government expects trustees to carefully consider APRA’s findings and swiftly respond.”

FSC working on best practice principles

As the minister noted in his statement, the FSC is also working with super platform trustees to promote best practice investment governance and increase consumer protections in the superannuation platforms.

According to chief executive Blake Briggs, the super industry is “committed to playing a central role in ensuring consumers are better protected and to respond to the magnitude of the consumer harm that has been caused by the recent failures”.

“The FSC supports the Assistant Treasurer’s considered but concrete steps to respond to the complex issues highlighted by the failures of Shield and First Guardian Master Fund,” Briggs said.

He added: “The FSC is working closely with our members to develop clear industry guidance that supports trustees in meeting their investment governance obligations when operating a superannuation platform.

“This is likely to include practical examples of red flags for trustees to consider when determining whether to add a product to their menu and best practice guidance on ongoing monitoring of investment options.”

Briggs also noted that the FSC would work to incorporate the issues outlined in APRA’s letter into its industry guidance; however added that there needs to be further consideration given to the “potential issues across the value chain” that the Shield and First Guardian collapses have highlighted.

“These failures also raised questions about related issues, including the inappropriate use of lead generation services, gaps in the capital and insurance requirements for advice businesses, the absence of a risk-based approach to managed investment scheme (MIS) registration and MIS resourcing requirements, and potentially inconsistent practices by research houses and ratings agencies,” the FSC said.

“The minister has flagged that the government is examining what other actions may be required. The FSC will continue to support the government and regulators as they examine each part of the value chain to ensure the broader legislative and regulatory response is proportionate, does not unduly impose additional regulation on well-run financial services companies, and is targeted to the issues identified.”

In his statement, Minister Mulino stressed that the government is “committed to ensuring that investor interests are protected as far as possible”.

“The collapse of certain managed investment schemes has led to investors losing millions of dollars in superannuation savings in the Shield and First Guardian funds. I have met with some of those investors and expressed my deep concern at what has occurred and the impact on them,” he said.

“As a first step, I’ve written to the regulators to identify any steps that can be taken to prevent a similar event happening in the future. I have specifically asked the Australian Securities and Investments Commission (ASIC) to consider whether current financial resource requirements for MIS operators are appropriate.”

Last month, shadow minister for financial services Pat Conaghan accused the government of deliberately burying its own report into managed investment schemes, warning that earlier action could have averted the losses from the collapse of the Shield and First Guardian master funds.

Speaking in September, Conaghan pressed the Treasurer to “release the review, put the facts on the table and address this issue directly for Australians”.

Originally announced as part of the 2022 federal budget, Treasury was tasked with reviewing the MIS regulatory framework in March 2023.

According to then financial services minister Stephen Jones, the review was intended to assess whether the regulatory framework was fit for purpose, identify gaps, and consider enhancements to better protect investors from undue financial risk.

“Put simply, the rules around managed investment schemes haven’t been looked at in over 20 years. And over that period, we’ve seen a number of very high-profile collapses,” Jones said at the time.

In his statement on Tuesday, Minister Mulino said the government is considering “what other action needs be undertaken to ensure our regulatory system remains fit for purpose and that ASIC has the appropriate powers to better protect consumers”.