Government Tightens Investment Scheme Regulations Following Major Fund Collapses
The Australian government is tightening regulations surrounding managed investment schemes. This action follows the significant failures of two major funds, Shield Master Fund and First Guardian, which resulted in substantial losses for investors.
Recent Fund Collapses and Their Impact
In 2024 and 2025, the First Guardian and Shield Master Fund collapsed. Approximately 12,000 Australians invested around $1.1 billion of their retirement savings into these funds. Now, many investors find themselves facing slim chances of recovering their lost funds.
Liquidators reported that only $1.6 million of the $446 million invested in First Guardian has been recovered. As a result, the corporate regulator, ASIC, plans to pursue legal action against the companies involved in managing these funds.
Flaws in Australia’s Superannuation System
The failure of these funds has revealed serious vulnerabilities within Australia’s $4.3 trillion superannuation sector. Concerns have arisen regarding inadequate regulation in certain areas of the financial services industry.
- Both funds, Shield and First Guardian, were classified as managed investment schemes, a fund type established in the late 1990s.
- Investors were often cold-called by marketers who then connected them with financial planners, leading to switches from regulated super funds.
- Investor money was reportedly funneled to entities linked to the fund managers.
Government Response and Regulatory Changes
Assistant Treasurer Daniel Mulino emphasized the need for change to protect investors. He stated that collapses like these undermine public confidence and hinder participation in honest, well-regulated investment products.
The government is considering various proposals to enhance the oversight of managed investment schemes:
- Superannuation funds may be mandated to report unusual switching patterns to ASIC.
- Investment scheme managers could face bans on transactions with related parties using investor funds.
- Increased compliance rules and risk management standards are under review.
- Auditing practices may be scrutinized more strictly.
- It may be required that most directors of investment scheme companies be independent.
Future Consultations and Proposals
The consultation period for these proposals will close on February 27. Stakeholder input is sought to bolster governance and oversight of managed investment schemes. There are also plans to establish stricter regulations regarding lead generation and enhance the frameworks governing superannuation switching.
Furthermore, the government aims to ensure the sustainability of the Compensation Scheme of Last Resort, which is crucial for investors seeking to recover losses.
ASIC, now under incoming chair Sarah Court, may receive expanded powers to improve regulatory oversight. Court has previously defended the regulator against criticism for its response to the funds’ issues.
Ongoing discussions regarding managed investment schemes are part of a long history of regulatory recommendations aimed at reforming the industry. Notably, changes have been proposed since the early 2000s, with various inquiries highlighting the need for improvements.
