The Parliamentary Joint Committee on Corporations and Financial Services has released its report into the collapse of Trio Capital. The Committee said the collapse was the “largest superannuation fraud in Australian history” and noted the $176m in superannuation funds that are missing or lost from two alleged fraudulent management investment schemes for which Trio Capital was the responsible entity.
The Committee expressed its deep concerns and said the Trio collapse raises “distinct, and in some ways more troubling, issues than those raised by the collapse of Storm Financial and Westpoint”. It noted that nearly 6,900 investors invested in Trio and lost their money despite the legislation in place under the SIS Act – 5,400 of the investors who invested in Trio through APRA-regulated super funds received compensation totalling nearly $55m. It noted that 285 investors were in SMSFs and were not eligible for compensation.
However, the Committee said it did “not support the introduction of a compensation scheme that places a levy on SMSF investors as it would expose all SMSF investors to the bad decisions and lack of appropriate caution and prudence of other SMSF investors”. It noted the recently released St John report into compensation arrangements for consumers of financial services which also recommended against establishing such a scheme. (The Government had earlier indicated that it will take into consideration any recommendations by the Committee before responding to the St John report.) Despite this, the Committee considered that there was merit in establishing an “opt in” insurance scheme for SMSFs to protect against potential losses by reason of fraud or theft.
The Committee revealed various details of the “Trio fraud” saying “it appears to have been designed to take advantage of vulnerabilities in the superannuation system”. It said a “key element of the scheme was to move the funds of Australian investors overseas”, which it added “made it much harder for Australian auditors and others to verify the existence of the funds; for Australian liquidators to recover any remaining funds; and for Australian authorities to investigate and to pursue those who have carried out criminal conduct”. The Committee noted that there is “no current investigation relating to Trio by the Australian Federal Police (AFP) or the Australian Crime Commission”.
The Committee was critical that “key checks and balances in the Australian financial and superannuation system did not work to identify the existence of fraudulent conduct and to shut it down rapidly”. A key issue expressed by the Committee was its concerns regarding the responsiveness of the regulators – ASIC and APRA. According to the Committee, the regulators “must take their share of the blame for the slow response to the Trio fraud”. It strongly suggested that the various agencies renew their focus on seeking outstanding monies and to bring to justice all those who had been criminally involved in the scheme. Among other things, the Committee recommended that the AFP consider the options to create an organisational focus on the matters pertaining to superannuation fraud.
The Committee was not able to clearly discern why certain financial planners recommended to their clients to invest in Trio; however, it did point to the possible influence of the high commissions paid by Trio.
The Committee recommended that ASIC investigate financial planners’ advice to SMSF investors in Trio Capital. The Committee noted the imminent commencement of the Future of Financial Advice (FoFA) reforms and, in particular, the best interests’ requirements and conflicted remuneration provisions; however, it said the provisions would not protect against a circumstance where a financial planner “turns bad”. The Committee said, in these circumstances, what is required is more effective enforcement of existing laws.
