Parliamentary Joint Committee on Corporations and Financial Services – Submission by One Investment Group

21 June 2013,
Ms Deborah O’Neill MP
Chair to Parliamentary Joint Committee on Corporations and Financial Services

SUBMISSION BY ONE INVESTMENT GROUP

The purpose of this submission is for One Investment Group to comment on the expectation gaps identified in the Parliamentary Joint Committee on Corporations and Financial Services (PJC) report into the collapse of Trio Capital tabled on 16 May 2012 (the Report).  One Investment Group appreciates the invitation to provide this submission and to appear at the PJC Roundtable.

The Report identified what it described as 7 core expectation gaps in relation to the gatekeepers in Australia’s financial services system (Financial Planners/Advisors, Custodians, Research Houses, Auditors and Trustees/Responsible Entities):

i.         Differences in protection afforded to APRA regulated Superannuation Funds and SMSFs;
ii.        Research undertaken by Financial Planners/Advisors;
iii.       Knowledge as to how AFSLs are issued;
iv.      Verification undertaken by financial and compliance plan Auditors;
v.        Safeguarding by Custodians;
vi.      Verification by Research Houses; and
vii.     Disclosure levels for registered managed investment schemes.

Whilst One Investment Group comprises various entities that provide custody, trustee, registry, fund accounting and unit pricing services, we have been asked to comment specifically in relation to our capacity as an independent Responsible Entity, our role as a gatekeeper in the system and our interactions with other gatekeepers.  Given this brief and the limitations on the length of our response, we have decided to focus our submission on those expectation gaps described in paragraphs iii.iv. and v.  above.

Responsible Entities as Gatekeepers – An Independent Responsible Entity’s View

The precursor to the concept of a Responsible Entity was the separate roles and responsibilities of the Manager and the Trustee pursuant to the prescribed interest scheme framework.  A key component for the reform of the prescribed interest scheme was to ensure that each scheme would have a single, clearly identifiable entityresponsible to investors for operating the scheme, that is, the Responsible Entity.

The role of a Responsible Entity today, distinct from other gatekeepers, such as Custodians and Auditors, is to bear the ultimate accountability to investors for a registered scheme.  That is, whilst the Responsible Entity is not prohibited from appointing an agent, the legislation states that the Responsible Entity is taken to have done (or failed to do) anything that the appointed agent has done (or failed to do), even where the agent acted fraudulently or outside the scope of their authority or engagement.  In this regard, we consider the Responsible Entity to be the critical gatekeeper for registered schemes.

We believe that the risk in respect of expectation gaps in relation to the gatekeepers is amplified where the Responsible Entity and Manager of a scheme are related body corporates (i.e. an internal Responsible Entity).  It is noted that such risks are unlikely to be eliminated even with the appointment of an internal Responsible Entity with non-executive independent directors.  In light of such risk, it is our belief that the better and more prudent practice is to engage an independent or external Responsible Entity as opposed to an internal Responsible Entity.  An independent Responsible Entity minimises conflicts of interest and reduces the likelihood of the Responsible Entity acting in a detrimental manner to investors.

Further, an independent Responsible Entity that specialises in providing Responsible Entity services to a range of clients is likely to possess a higher degree of expertise and specialised resources to assist in the operation of a scheme in addition to providing better and truly independent oversight.  Given the economies of scale an independent responsible entity can enjoy, there is no reason an external responsible entity should burden a scheme with additional costs when compared to an internal responsible entity.  Whilst we are not proposing that an independent responsible entity be mandatory, perhaps an “if not, why not” approach similar to the ASX Listing Rules relating to Corporate Governance Principles could be considered.

Knowledge as to how AFSLs are issued

Investors misunderstand who an AFSL can be issued to and why certain individuals are able to operate under an AFSL.

ASIC stated in the Report that their ability to restrict the entry of a participant into the financial services industry is limited due to the low threshold for obtaining an AFSL whilst ASIC’s ability to cancel an AFSL is similarly restricted due to the threshold being set relatively high.

In this respect, we note the following:

  • Section 913B of the Corporations Act 2001 (the Act) extends broad powers to ASIC in relation to the granting of an AFSL and in fact prohibits ASIC from granting an AFSL unless it has no reason to believe that the applicant is likely to contravene obligations under section 912A (the section which imposes key duties and obligations on the licensed entity including the requirements to maintain representatives with appropriate competency levels and to ensure their compliance with the financial services laws);
  • Subsection 913B(3) of the Act states ASIC must be satisfied that there is no reason to believe that any of the responsible officers of an applicant are not of good fame or character; and
    • Subsection 914A(1) of the Act empowers ASIC to vary or revoke conditions of a licence at any time.

In our opinion, these powers appear to contradict ASIC’s statements in relation to issuing and restricting AFSLs and the limitations of the licensing regime focusing on the licensed entity rather than the directors, employees or other representatives.

Accordingly, the expectation of investors in relation to the issuance of an AFSL is justified.  That is, the expectation that undesirable individuals or entities are restricted by ASIC from being involved in the financial services sector is a reasonable and appropriate one.  In this regard, it would appear that ASIC’s interpretation of the Act and specifically the exercise of its powers for issuing and restricting licences falls short of investors’ expectations and arguably the intention of the financial services laws.

Auditors

The regulators and investors have expressed frustration at financial and compliance plan Auditors, particularly their inability to verify information.

It is undeniable that both compliance and financial Auditors enhance confidence in financial reporting and provide a level of comfort to investors in relation to the position and performance of a scheme.

However, expectations that Auditors are guaranteed to detect fraud and/or provide absolute assurance of financial statements is unrealistic and any attempt to ensure as such would be highly costly if at all possible.

Accordingly, in our view, it is ultimately the directors of the Responsible Entity whom are responsible for the accuracy of financial statements and the proper operation of the scheme.  Furthermore, it is the role of the Responsible Entity to appoint Auditors with sufficient competency.  In this regard, the presence of an external Responsible Entity is more likely to lead to the appointment of Auditor with both competency and integrity.

In light of the above, the expectations of regulators and investors are unreasonable but probably to be expected in the circumstances.  We believe the role of the Auditor is to provide an opinion as to whether the financial statements present a true and fair view and, in fairness to auditors, an expectation that this will guarantee the absence of fraud or error is probably unreasonable.

Custodians

The public’s expectation in relation to the role of Custodians is to protect and secure the underlying investments of a scheme.

It is our view that the role of a Custodian is to primarily hold assets on behalf of a Responsible Entity and to act on the proper instructions of the Responsible Entity in relation to those assets. Whilst a Custodian may be expected to question suspicious transactions in relation to the assets in a scheme, their role is limited to notifying the Responsible Entity and/or ASIC.

We believe that the expectation of the role of the Custodian in valuing assets is unjustified and note that the obligation to ensure the accuracy of asset values rests with the Responsible Entity.

Further, we believe that merely changing the title of a ‘Custodian’ to ‘manager’s paying agent’ firstly fails to accurately define the role of the Custodian and may consequently result in the weakening of and ambiguity associated with the functions of the Custodian.

As we note in our submission above, the Responsible Entity bears the ultimate responsibility for the scheme and is responsible for the Custodian, who we note is just another contractual agent.  Thus whilst we agree that the Custodian should have obligations to report suspicious transactions, the Responsible Entity is unable to assume that its role in relation to this is fully discharged.  Once again, this highlights potential issues which may arise where a Responsible Entity is not independent, including their ability to select any Custodian and the requirement for a Custodian to act on the Responsible Entity’s instruction.

Accordingly, the expectations of the public are unreasonable.  That is, the primary role of the Custodian is that of holding legal title in and dealing with the assets with the obligation to report suspicious transactions secondary to its primary role.  Ultimately it is the Responsible Entity’s role to ensure the protection and security of a scheme’s investments.

Yours Sincerely,

Justin Epstein
Executive Director,
One Investment Group

John O’Leary

Director, Corporate Trust

John has over 19 years’ experience in the financial services industry working for a number of both domestic and global organisations. 

Prior to joining OIG, John worked for UBS, State Street, RBC, NAB Asset Servicing and MLC and has extensive experience in investment operations, custody and administration. 

John has a Bachelor of Arts Degree in Accounting and Finance from Athlone Institute of Technology and a post graduate Higher Diploma from Maynooth University. 

Emma Brown

Director, Finance & Taxation

Emma has over 17 years’ experience in accounting and taxation working largely in chartered accounting firms servicing clients from various industries including professional services and real estate. Throughout this time Emma has partnered with various business leaders in delivering quality professional advice and commercial insight. 

Emma has a Bachelor of Commerce from University of Newcastle, is a member of Chartered Accountants ANZ and is a registered tax agent. 

Garry El Hassan

Head of Registry Services

Garry comes to OIG with close to 20 years experience in the Financial Services Industry. Garry’s wide ranging financial services experience encapsulates operational functions within Registry, listed and unlisted asset management, Regulatory Reporting, Systems and Platform Management, AML/CTF Management, Remediation and Complaints  Management, and Deceased Estates Management.  

As systems owner across multiple organisations, Garry has been instrumental in the implementation and development of Registry and Advice systems from inception to maturity. With a history of developing high performing teams and elevating organisational capacity and efficiency, Garry has built a brand in the industry around seeing opportunities for development and transforming them into functional deliverables that have significant uplift for organisations and the clients. 

Notable positions Garry has held include various management roles at Macquarie Wrap Adviser Services, CommSec CBA, State Super Financial Services, First State Super and Aware Super. Garry has a Bachelor’s of Economics/ Managerial Economics from Western Sydney University. 

Monique Sheehan

Director, Client Services

Monique is a highly experienced financial services executive with an extensive background spanning over 25 years. She has held key leadership positions in both domestic and global organisations with experience including investment operations, capital markets, platform operations, custody, fund accounting, and middle office. 

Monique brings her wealth of expertise and professionalism to One Investment Group gained from her diverse roles across Macquarie Bank Ltd, State Street Australia Ltd, Australian Unity, Link Group and OneVue. 

Lisa Wilson

Head of Fund Services

With over 25 years of experience in the Custody and Fund Services industry, Lisa has managed all client operational functions including Fund Accounting, Financial Reporting, Tax, Private Equity, Middle Office, Platform and Unit Registry.  

While initially beginning her career in Fund Accounting, Financial Reporting and Tax, she soon began to build a brand as someone who could take teams through a change journey and has done so on various business transformations including IFRS and TOFA implementations, off-shoring of processes, platform migrations, on-boarding large clients, establishment of new functions and a business closure. Lisa has since been specialising in evolving operating models and leading people through change to build high performing teams. 

With her career spanning across Australia, UK, USA and Luxembourg, Lisa brings a wealth of experience in global and local organisations. Lisa is a CPA and has a Bachelor of Commerce from the University of Western Sydney. 

Tom Hure

Chief Financial Officer

Tom has over 25 years’ experience as a financial executive having led teams at listed, unlisted, joint venture, divisional, national, and government levels. Tom’s industry experience includes financial services, transport, real estate, leasing, funds management, and structured finance.

Prior to joining OIG in January 2022, Tom was Chief Financial Officer of Indigenous Business Australia, an Australian Government entity with an asset base of nearly $2 billion across housing loan, business loan and investment portfolios. Tom has also held senior finance roles at the likes of Transdev Australasia, CIMIC Group, Mirvac, ING Real Estate and Allco Finance Group.

Tom holds a Bachelor of Commerce (Accounting) from the University of Western Sydney, a Master of Commerce (Professional Accounting) from Macquarie University and is a member of Chartered Accountants Australia and New Zealand.

Steve Beland

Head of Sales

Steve has 16 years’ experience in accounting and taxation gained in funds management, corporate and professional services. Prior to joining Unity Fund Services in October 2010, he has held Tax manager roles at both Brookfield Multiplex Ltd and Everest Financial Group Ltd.

Prior to this, Steve worked for Ernst & Young providing general tax advice to corporate clients as well as being involved in a numerous tax due diligence assignments for private equity transactions. He also worked for Horwath as a Supervisor specialising in the provision of taxation and business services to high-net-worth individuals and SME businesses including a secondment to the Chicago (USA) office.

Steve is a Chartered Accountant, Registered Tax Agent and Chartered Tax Adviser of the Tax Institute of Australia. Steve holds a Bachelor of Commerce (Accounting) and Master of Taxation from the University of Sydney.

Michael Sutherland

Head of Corporate Trustee Services

Michael has over 25 years’ experience in the financial services industry including 12 years’ experience in providing trustee, custody and administration services to the debt capital markets and funds management industry.  

In this time Michael spent 7 years at Perpetual Limited where he was a senior lawyer in Perpetual’s legal teams. Michael has also spent a number of years in other business and legal roles including working in large, medium and boutique fund managers, retail banks, investment banks, structured credit providers and hedge funds, such as ANZ, ABN AMRO, AMP, Everest and Absolute Capital.  

Michael also has experience acting as an executive director of Responsible Entities, ASX listed companies (executive director and company secretary) and acting as a member of investment, product, risk, audit and compliance committees. 

Michael holds a Bachelor of Laws from University of Technology Sydney and a Bachelor of Arts from Macquarie University. He is a member of the Australian Securitisation Forum, the Property Funds Association, the Banking and Financial Services Law Association and holds a current practicing certificate from the NSW Law Society. 

Sarah Wiesener

Head of Legal, Risk and Compliance

Sarah is a lawyer with over 20 years’ experience in the financial services arena across a range of roles, structures and asset classes.

She is a Chartered Company Secretary and has acted as Company Secretary to a number of listed property funds.

Sarah has been head of compliance for a number of listed property funds. She has been a member of investment committees and provided support to audit, risk, and compliance committees as well as remuneration and nomination committees.

Sarah has experience in structuring complex capital markets transactions in domestic and overseas jurisdictions (primarily debt, securitisation and collaterised debt structures) and has worked closely with management on a number of fund management products for wholesale and retail investors.

Sarah holds a Bachelor of Laws from Bristol University (Honours) and holds a current NSW practising certificate.

Frank Tearle

Founder & Chief Executive Officer

Frank co-founded One Investment Group in 2009, and since December 2018 has acted as its chief executive officer. 

Before founding One Investment Group, Frank spent 6 years working at a structured finance and funds management business.  He held a variety roles including  General Counsel, a fund manager of two funds and interim head of the Hong Kong office. 

Prior to this corporate experience, Frank was a practicing lawyer with more than 10 years’ experience working in major law firms in Australia and the United Kingdom, specialising in mergers and acquisitions, capital markets, funds management and corporate governance. 

Frank has been a non-executive director of several companies, including the corporate manager of a Singapore listed property trust and an APRA regulated insurance company. 

Frank has a Masters in International Business Law from the University of Technology, Sydney and a Bachelor of Law (with Honours) from the University of Leicester.