Key points
- Australian investors rely on the expertise and integrity of everyone in the investment chain to secure their financial future.
- ASIC’s primary concern is minimising the risk of harm for Australian investors and consumers.
- To ensure better outcomes for investors, ASIC has prioritised tackling poor practices in private credit and holding those responsible for Shield and First Guardian to account.
Good afternoon.
I'd like to acknowledge the Traditional Owners of the land on which we meet today, the Dharug and Gundungurra people and pay my respects to Elders past and present.
I extend that respect to Aboriginal and Torres Strait Islander people here today.
Thank you to Conexus for the invitation to speak today.
It’s great to be back at the Researcher Forum and to have the opportunity to update you on ASIC’s priorities.
A few weeks ago, I spoke to a room of financial literacy educators about the importance of equipping Australians with the knowledge they need to confidently navigate the financial system.
I made the point that when it comes to financial decisions, people can sometimes be vulnerable to exploitation, because for many of the decisions they make, they have less financial knowledge or experience than the person or firm on the other side of the transaction.
And when it comes to investment decisions, that knowledge imbalance is even greater, with bigger consequences if something goes wrong.
Even the most sophisticated investors are reliant on the expertise – and the integrity - of others when making major investment decisions.
Financial advisers, fund managers, research houses – all of you here today – all play a role, either directly or indirectly, in influencing how investors choose to invest their money.
And so, it’s important, as the theme of today’s forum suggests, that we have ‘world-class investment governance and research’.
It’s what Australian investors want and deserve, and it’s what ASIC expects.
In pursuing this expectation, our primary concern is to minimise the risk of harm to consumers and investors.
You’ll see this reflected across our regulatory and enforcement priorities.
There are two enforcement priorities I want to talk about today, both of which relate directly to the work many of you do.
The first is holding those responsible for the Shield and First Guardian collapses to account.
And the second – to crack down on poor practice in private credit.
Pursuing accountability for Shield and First Guardian
Let me start with Shield and First Guardian – partly because those matters combined represent one of our biggest priorities at the moment – and partly because they have implications for everybody working in the advice and investment ecosystem.
If you wonder why this is relevant to you, the numbers should make it clear.
With more than 11,000 investors impacted and close to $1 billion of retirement savings put at risk, this is the most egregious example of consumer harm that I have seen in my time at ASIC.
And the people affected are Australians who were trying to do the right thing to boost their retirement savings and were instead lured into switching their super into high-risk investments.
These weren’t people rolling the dice in some get-rich-quick gamble. These were people making considered decisions which they believed to be in their financial interests.
People like Gary, in his early 60s and looking forward to retirement[1].
Gary was aware that his existing super fund wasn’t performing as well as it had been.
He was contacted by a comparison site, which put him on to financial advisers who set him up with a self-managed super fund and invested all his funds into First Guardian.
He stands to lose almost $700,000.
Or Juan[2], a 41-year old at risk of losing his entire super, after being convinced to roll all his savings into First Guardian.
These are shocking stories, and there are thousands like them.
Each of them involving financial losses with a very human cost.
And there is a long chain of participants involved.
- Lead generators, including data brokers and telemarketers
- Financial advisers, and financial advice firms
- Superannuation trustees, like Macquarie, Equity Trustees, Diversa and Netwealth
- Research houses
- Auditors
- And of course, the fund operators themselves.
We believe all hold some degree of culpability.
ASIC’s first priority in both the Shield and First Guardian matters has been to preserve assets so that they can be recovered for investors while our investigations are continuing.
We’ve:
- issued stop orders to prevent ongoing harm
- obtained asset-freezing orders
- sought the appointment of receivers and liquidators
- obtained travel restraints
- cancelled financial services licenses; and
- banned financial advisers.
We’ve instituted proceedings against Macquarie, Equity Trustees, Interprac Financial Planning, and SQM Research.
In a significant win for some investors, Macquarie has committed to repaying investors 100% of the net cash they invested in Shield through Macquarie’s wrap platform.
Importantly for those in the room today, our action against SQM Research is the first we have taken against a research house.
It is our view that SQM Research prepared reports containing misleading representations and its processes fell short of expected standards when it published “Favourable” ratings for Shield.
More generally, it is our view that research houses should serve as gatekeepers against poor quality investments or unsuitable products.
They need to do all things necessary to ensure that they go about their work efficiently, honestly and fairly. And they need to avoid issuing ratings or commentary that can’t be justified by evidence.
In addition to the proceedings I have already mentioned, we are also seeking leave to commence proceedings against MWL Financial Services, a former MWL director and Imperial Capital Group – a lead generator – for allegedly operating a scheme resulting in hundreds of clients investing superannuation into Shield.
At this point in time, we have 10 separate Federal Court proceedings against 18 defendants, and there is more to come.
As I mentioned, holding those responsible for the collapse of the Shield and First Guardian Master Funds to account is one of our enforcement priorities - and our investigations are ongoing.
While this has some time to play out, there are lessons to be learned now.
As I mentioned at the outset, Australian investors are reliant on the chain of financial experts behind their investments - financial advisers, research houses, investment platforms, superannuation trustees, advice licensees.
When every part of that chain fulfils its role – with its multiple layers of knowledge, expertise, duties and obligations – the system works as it should.
Investors can be confident that they will be offered products that are safe, and appropriate for them and their financial goals.
But when there are failures in that chain – far too often it is investors who pay the price.
The failures involved in Shield and First Guardian have highlighted some potential regulatory gaps.
These include:
- the regulation of lead generators, whose activities may not be adequately captured by the anti-hawking provisions
- the super switching process
- the obligations of super trustees who provide platform products; and
- the regulation of managed investment schemes, which ASIC has previously identified as a priority for reform.
We welcome the Government’s commitment to exploring sensible reforms that can better protect consumers in the future, and we are committed to working with the Government to identify what would be most effective, based on what we have uncovered through our investigations.
Improving practices in private credit
I’d now like to turn to private credit.
ASIC recognises that private credit – done well – plays an important role in Australia’s financial system.
It’s an important source of funding for sectors that are under-served by the traditional banking sector, and it provides diversification and choice for borrowers and investors alike.
According to one estimate, private credit in Australia is now valued at more than $200 billion[3].
While this amount is not systemically important, the same source estimates that private credit has grown 500 per cent[4] over the past 10 years. And with increasing investment in private credit via superannuation, that growth seems likely to continue.
That’s why it’s important that we are alert to the potential risks.
Here in Australia, we have a higher concentration of private credit lending to the property sector, including loans to higher risk development and construction.
Over time, this could amplify the system-wide vulnerability related to residential property identified by APRA in last month’s system-wide stress test.
Private credit at current volumes is untested in a stress scenario and we are already seeing a wide variance in practices across the sector.
A lack of transparency across the sector is a particular concern.
Australia lags behind our international peers in terms of the data that we as a regulator have access to.
We have neither the breadth, depth, or frequency of data needed to monitor and supervise retail and wholesale funds confidently.
Countries like Singapore, Canada, and the UK with similar regulatory frameworks have greater access to more reliable and recurrent data on private markets.
Given that our domestic private credit growth outstrips that seen in many of these countries, we would like to see this data gap addressed to enable ASIC to more confidently supervise funds.
Earlier this year, we undertook a surveillance of 28 retail and wholesale private credit funds to assess how fund managers are managing the risks that underpin investor confidence and market operation.
We released the findings of that surveillance a few weeks ago in Report 820.
We observed some better practices, but we also identified areas that fell short of expectations, including practices that are potentially in breach of the law.
Areas for improvement include governance and transparency; fees and interest rates; valuation methodologies; liquidity; and credit management.
Today, I’ll focus on three areas that will be relevant to many in the room because they are key to how researchers understand and evaluate private credit funds:
- The use of terminology
- Fee and interest disclosure; and
- Valuations
Terminology
I’ll start with the use of terminology.
In our review, we found market-wide inconsistencies in terminology that make it difficult for investors to compare the nature and risks of private credit funds.
Fund operators and investment managers defined and applied terms such as ‘default’ and ‘investment grade’ differently.
Such inconsistent use of terms makes it difficult for investors to meaningfully compare loan default or arrears levels across funds.
There were also variabilities in how funds described their underlying assets.
Some funds primarily categorised their assets using terms that describe the ranking or seniority of the security – for example ‘first mortgage’ and ‘mezzanine’.
Other funds categorised their assets with reference to direct lending, securitised loans or the use of funding – for example ‘commercial real estate development’.
Concerningly, we found that asset descriptions sometimes failed to include clear information that would help investors understand the risks of the assets held by a fund.
For example, a failure to disclose that loans will fund higher-risk real estate construction and development. Or that the fund primarily invests in unsecured loans.
Again, this inconsistency makes it difficult for investors and advisers to accurately compare funds and make informed choices about what products they are investing in and the risks associated with them.
The adoption of consistent industry terminology – or at least a clear explanation of key terms – would be an important step towards greater transparency for investors.
Fee and interest disclosure
Transparency was also an issue when it came to fee and interest disclosure.
Of the 28 funds we reviewed, only four published information about the interest rates or range of interest rates charged to borrowers.
If these rates are accurately disclosed, investors are better able to judge the riskiness of the investment.
Conversely, where borrowers pay fees on top of interest that are not disclosed, this masks a clear signal about the level of risk involved in the lending.
Only two retail funds quantified the interest earned from their assets and borrower fees and disclosed the retained amounts as part of their wider management fee in the product disclosure statement.
Only one wholesale fund passed on to investors the full economic benefits of interest earned from its assets and income earned from borrower fees.
To enable investors to better assess the true cost of investing in a fund, fund managers and trustees should disclose ALL revenue they earn in connection with their funds.
Clear and accurate disclosure enables investors to understand what they are paying for, directly and indirectly, and to better judge whether they are being appropriately compensated for the associated risk.
Valuations
The final area that I wanted to touch on is valuations.
Investors rely on fair valuations to assess performance and make informed investment decisions.
Private assets in particular are subject to heightened valuation risks, due to infrequent trading and limited price discovery.
Many of the private credit funds we reviewed were open-ended funds, with regular monthly or quarterly redemption periods.
For open-ended funds in times of stress, failure to adjust valuations in a timely manner could allow some fund members to exit at a higher price, at the expense of the remaining investors.
Some of the poorer valuation practices we observed involved infrequent valuations, incomplete or absent valuation policies, insufficient independence and inconsistent approaches to valuing collateral.
Where valuations are not accurate, reliable, timely or comparable, this raises serious questions about the ability of investors – and indeed researchers – to assess the performance of a fund.
To guide fund managers in uplifting their practices, our report outlines ten guiding principles for private credit ‘done well’.
The principles provide guidance on the three areas that I’ve mentioned - terminology, fee disclosure and valuations - as well as other areas like design and distribution, organisational capability, liquidity and governance.
Each of these principles is grounded in the law. And we will be monitoring how well private credit funds adhere to them.
I mentioned earlier that poor private credit practices are an enforcement priority for ASIC in 2026.
We have already issued stop orders on several target market determinations and one PDS due to poor disclosure and distribution.
And in instances of more egregious conduct, we have commenced enforcement investigations.
We have also announced the second phase of our private credit surveillance.
On the retail side, this surveillance will look at disclosures of fees and margins, and the distribution practices of private credit funds to retail investors, with a specific focus on the adviser channel.
We want to understand how retail private credit funds are distributed and, when distributed through advisers, test the quality of their advice.
On the wholesale side, there are plans to look at fees, margin structures and conflicts of interest in the management of wholesale private credit funds, with a particular focus on real estate lending.
Through this ongoing program of work, which will hopefully be complemented by industry efforts to lift standards, we hope that private credit will increasingly be done well in Australia, with benefits to individual investors and the broader economy.
Conclusion
I mentioned at the start that ASIC is focussed on minimising harm to consumers and investors. That’s a responsibility we all share.
Whatever role you play in the investment ecosystem, you can help to ensure that consumers who engage in investing, within or outside superannuation, are presented with products that are safe, appropriate, and aligned with their best interests.
When that occurs, it not only means better outcomes for individuals, it is also fundamental to building and maintaining trust in the system.
Thank you for the opportunity to speak to you today. I’m now happy to take some questions.
[1] First Guardian, Shield superannuation disasters expose deep flaws in Australia's $4.3 trillion retirement system - ABC News
[2] First Guardian collapse leaves thousands at risk of losing super as ASIC freezes director assets - ABC News
[3] REP 814 Private credit in Australia
[4] REP 823 Advancing Australia’s evolving capital markets: Discussion paper response report | ASIC
