FOFA alone won’t stop another Trio Capital
With the Parliamentary Joint Committee (PJC) on Corporations and Financial Services having last week handed down its final report on the collapse of Trio Capital, it is worth reflecting that the Government's Future of Financial Advice (FOFA) legislation cannot be guaranteed to prevent such future events.
Quite simply, the FOFA bills cannot and will not prevent a recurrence of either the collapse of Storm Financial or the collapse of Trio/Astarra.
Why? Because governments have never succeeded in legislating to prevent the sort of willful criminality which gave rise to the losses incurred by investors hurt by Trio/Astarra – and the simple fact remains that the Storm Financial collapse was more attributable to systemic flaws than any overt regulatory breaches.
However, it is entirely arguable that the financial services regulators – the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) – ought to have been more alert to the problems associated with both Storm Financial and Trio Capital.
Indeed, if objective observers were to examine evidence given to both the PJC and other Senate forums regarding both Storm Financial and Trio Capital, a theme would emerge with respect to the regulators acknowledging a degree of awareness of impending problems, but choosing to not to act beyond what they saw as their normal brief.
The FOFA legislation has granted the regulators more extensive powers, but there is nothing in the new laws to suggest either ASIC or APRA will necessarily act any differently when presented with evidence of the kind they saw in the case of both Trio and Storm.
Indeed, some have argued that it was open to both ASIC and APRA to interpret the pre-existing regulatory environment in a fashion which would have allowed them to act sooner and prevent the substantial investor losses which occurred.
But nor should the financial planning industry itself be allowed to sidestep accepting at least some responsibility for what occurred with respect to Storm and Trio.
Financial services is an industry made up of people with peculiarly acute antennae. Some senior figures were well aware of the problems within both Trio Capital and Storm Financial, and must ask themselves what they could/should have done.
The degree to which those in the financial services industry should act on such intelligence will increasingly become an issue as organisations seek to establish a profession and impose sanctions when codes of conduct are breached.
While nothing in the FOFA legislation will prevent a repeat of either Storm or Trio, a combination of industry and regulator vigilance would go a long way towards identifying problems before they actually occur.
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