While the corporate regulator has an oversight role and some may conclude that it should be able to prevent things like the Sterling collapse, it is a policy failure issue rather than regulatory failure, according to Tony D’Aloisio.
The former Australian Securities and Investments Commission (ASIC) chair and current Perpetual chair, said during a parliamentary hearing about the Sterling Income Trust that the problems that arose from the collapse was an issue of the policy that allowed markets to operate freely with minimum intervention.
“The problem with registered managed investment schemes and ASIC being the same with its oversight role, it leads to a conclusion that ASIC should be able to prevent these things. I think the committee should examine that issue very carefully,” he said.
“It's a serious policy issue that we have, and we had it in 2010. And more of it's going to occur, as interest rates are low and retail investors are searching for income for their retirement, and having money in term deposits is not an option.
“So, they're going to look at these products. This is, you know, a real issue. And I'm grateful that you're looking at it.”
D’Aloisio said the ASIC legislation worked in allowing free markets to come in with products offered to groups like mums and dads but there were protection options.
“You can ban certain products because they’re to risky and involve the family home and you just ban them. But that’s very hard for a regulator and government policy to do that in the free markets theory we’ve been operating in,” he said.
“Then there’s allowing it with really strong regulatory oversight. The problem with strong regulatory oversight is that it tends to come in after something goes wrong. It is very difficult for regulators to look at all the products that are in the market and try to anticipate where they could go wrong. They don't have the resources and the policies are not set up there, so that that doesn't work.”
D’Aloisio suggested what could be done was to improve the advice given to people prior to making the investment.
“You put the pressure on getting that advice and I've called it ‘risk discovery advice’. I think that puts you in a much, much better position as a retiree but it does not eliminate it [the risk] completely,” he said.
“A lot of those retirees, I think if they'd been advised about the risks of a long-term investment in Sterling was to meet their rent over a considerable number of years, it's unlikely with proper advice that they would have invested in it.”