Regulatory Crackdown Looms Over Managed Investment Schemes After $1.1 Billion Losses
The federal government is planning a significant regulatory crackdown on managed investment schemes (MIS) following the high-profile collapses of Shield Master Fund and First Guardian. These two funds collapsed in 2024 and 2025, leading to a staggering 12,000 Australians losing $1.1 billion in retirement savings.
Incoming ASIC chair Sarah Court characterized the situation as "industrial-scale misconduct."
"Industrial-scale misconduct" is how incoming ASIC chair Sarah Court described the situation.
Investor Impact and Recovery Efforts
Investors in First Guardian face dire prospects for recovery. Liquidators have reported that only $1.6 million of the $446 million invested has been recovered to date.
The corporate watchdog has initiated lawsuits against companies responsible for overseeing the fund, seeking to recover lost funds for investors.
Regulatory Gaps Identified
The collapses have starkly highlighted significant regulatory gaps within Australia's expansive $4.3 trillion superannuation sector and the broader financial services industry. Both Shield and First Guardian operated as managed investment schemes, a fund type that originated in the late 1990s.
Concerns have emerged regarding schemes growing through cold-calling practices, which reportedly transferred investors from regulated super funds into these more loosely regulated products. Investor funds were allegedly directed into enterprises operated by parties related to the scheme managers, raising serious conflict-of-interest questions.
Assistant Treasurer Daniel Mulino emphasized that changes are imperative to prevent future occurrences and to address the erosion of confidence caused by these high-profile collapses.
Government Proposals
Proposals detailed in a Treasury consultation paper, which closes on February 27, aim to address these systemic issues. Key initiatives include:
- Requiring superannuation funds to report suspicious switching patterns to ASIC.
- Banning MIS managers from conducting deals with their own companies using investor money.
- Strengthening compliance rules and risk management requirements for MIS operators.
- Implementing stricter auditing standards to enhance oversight.
- Mandating that the majority of directors overseeing an MIS be independent.
- Considering requirements for operators to hold more capital for emergencies.
As part of these reforms, ASIC may also receive enhanced powers to demand information.
ASIC's Position and Historical Context
Sarah Court, slated to become ASIC chair, has defended the regulator's actions, asserting that ASIC acted quickly once solvency issues were identified within the funds.
The current consultation builds upon a lengthy history of industry reform proposals, dating back to 2001. This long-standing effort follows numerous reviews and parliamentary inquiries into investment scheme collapses over two decades.