The Australian Prudential Regulation Authority's (APRA) monitoring of Trio Capital (Trio) has been called into question after a parliamentary joint committee was told the prudential regulator only began investigating the fund manager after being approached by ASIC in late 2009.
APRA general manager of actuarial, market and insurance risk services Greg Brunner and APRA general manager of enforcement Louis Serret revealed the details after being pressed on APRA's prudential process over Trio at last week's Parliamentary Joint Committee (PJC) on Corporations and Financial Services' inquiry into the failings of Trio and related parties.
When asked to detail the investigations APRA undertook in regards to Trio, Brunner said the prudential regulator had undertaken a series of risk reviews between 2004 and 2009.
Brunner said Trio's level of risk, in the eyes of the prudential regulation, increased over the years because of its "unlisted assets and the fact there was off shore assets".
Member for Bradfield and PJC member Paul Fletcher questioned Brunner and Serret over the risk category APRA had listed Trio.
When asked what risk level APRA had Trio listed, Brunner said: "It was raised to our oversight category, which there are still several higher categories.
Before Brunner could finish his response, Fletcher interjected: "Regulatory intervention began I think in 2009, is that correct? Did [the intervention] occur as a result of APRA's risk [modelling]?
To which Brunner replied: "I understand it was a result of a joint action between ASIC and APRA. Some information came to ASIC."
Serret added further comment.
"Around September 2009, it [Trio] came to the attention of both APRA and ASIC," he said.
"APRA had been having trouble in terms of getting evaluations and ASIC approached us in terms of information they had in relation to the [Astarra Strategic Fund (AFS)] and then we went back to the trustee together and started to look into those concerns which revolved around the evaluations of the fund.
"ASIC put a stop order which was the next step and at the same time we commenced an investigation."
In response to Serret's comments, Fletcher asked: "So this occurred in late 2009?"
"Correct," Serret said.
Fletcher then asked: "After your June 2009 prudential review?"
To which Serret replied: "Correct".
Fletcher pressed further, asking: "It did not occur as a result of your June 2009 review?"
Serret then said he believed there was an "outstanding request with the board in relation to the evaluations of the units of the ASF - which our frontline people were continuing to try and get resolution to."
He said the situation then "came to a head" when ASIC approached APRA about information in relation to the fund.
In response to this, Fletcher asked if a complaint had not been made to ASIC, and ASIC had not approached APRA, would the prudential regulator still have taken actions against Trio?
"I believe that ASIC had already flagged Trio as an institution through a program it had undertaken during the GFC [global financial crisis]. but I don't want to speak on behalf of ASIC," Serret said.
"The outcome would be, I would have expected they would have gone in and had a very close look at Trio and they would have still approached us had we not taken action."
After considering Serret's response, Fletcher then said: "If I understand the evidence correctly, none of APRA's prudential reviews from 2004 through to 2009 led to APRA taking any enforcement action against Trio or [Trio directors]."
Brunner then replied: "I think that's correct".
Last week's PJC public hearing into Trio was the committee's seventh and final.
The PJC will now use evidence collected during the hearings and submission from industry stakeholders and investors to formalise its final report to the government. The report is due next month.
Trio Capital collapsed in late 2009, resulting in the loss of more than $100 million in investor funds.
