Two of Australia's peak regulators have been blamed for missing "key events" in the fraudulent activities of Trio Capital (Trio), resulting in the loss of $176 million in superannuation monies, a parliamentary report found.
ASIC and the Australian Prudential Regulation Authority (APRA) feature prominently in the Parliamentary Joint Committee on Corporations (PJC) and Financial Services' final report into the collapse of the fund manager.
In the 204-page report, authored by PJC chair and member of parliament Deborah O'Neill, it was found that ASIC and APRA "must take their share of the blame" for the slow response to the Trio fraud.
"APRA conducted five prudential reviews between 2004 and 2009. It took no enforcement action as a consequence of any of these reviews," the report, which was released to government yesterday, said.
"The committee also has concerns at the length of time it took for ASIC to detect the fraudulent activity."
O'Neill said the committee was particularly concerned with the lacking communication between ASIC and APRA during late 2008 to midway through 2009.
"It seems that APRA had not communicated to ASIC its requests for Trio to provide information," she said.
"As a result, when ASIC commenced its active surveillance of hedge funds in June 2009, it did not seem aware that Trio was not providing the prudential regulator with basic facts about the existence of assets and their value. This information should have been communicated."
"The committee also believes that the regulators missed key events that laid the platform for the Trio fraud."
Trio's collapse raises "distinct" and "troubling" issues - moreso than those raised by the corporate collapses of financial advisory group, Storm Financial, and property group, Westpoint - O'Neill said.
In the committee's view there has not been "a proper investigation" into whether the funds in the Trio-related ARP Growth Fund are recoverable.
"It is clearly an area that warrants further investigation," O'Neill said.
As part of the report the PJC made 14 recommendations to government, with one calling on ASIC to provide additional funding to Trio's administrator, PPB Advisory (PPB), to fund further investigations.
The exact figure ASIC has been asked to provide to PPB was not disclosed, however the report quoted the cost of further investigation to be around $180,000.
"This is not an unreasonable cost given the imperative of making all possible efforts to recover the funds of Australian investors who have been defrauded," it said.
Another recommendation called on ASIC to use guidance material to warn self-managed superannuation fund (SMSF) trustees they are not covered under the compensation scheme in the event of theft and fraud.
The PJC also proposed that ASIC conduct a "specific and detailed" investigation of the advice planners and accounts provided to SMSF investors in Trio.
O'Neill said the committee believes further efforts need to be made to investigate avenues to protect investors in the case of theft and fraud by a managed-investment scheme.
In line with this, the PJC has called on the government to assist investors who invested in the Professional Pensions Pooled Superannuation Trust.
In a detailed recommendation, the committee also called on the government to examine the options to improve the "oversight and operation of compliance plans and compliance committees".
The PJC said the examination should focus on a number of elements - among them, the need for more detail to be included in compliance plans; qualitative standards by which compliance plan auditors must conduct their audits; and legislative requirements as to experience, competence or qualifications for compliance committee members.
It should also include an approval process for compliance plan auditors so that ASIC has the powers to remove or impose conditions on such approval; and governance arrangements should be clearly stated in relation to the proceedings of the compliance committee.
The PJC also proposes the government release a consultation paper to investigate the best mechanism for a responsible entity of a registered managed-investment scheme to disclose its scheme assets at the asset level.
Trio collapsed in 2009, with roughly $176 million in Australians' superannuation funds lost or missing from two fraudulent managed-investment schemes: $123 million from the Astarra Strategic Fund, and $52 million from the ARP Growth Fund.
The full PJC report can be found here.
