ACR collapse not ASIC's fault, says ASA

THE Australian Securities and Investments Commission cannot be blamed for the collapse of Australian Capital Reserve, according to the Australian Shareholders' Association.

ASA’s chief executive Stuart Wilson said whilst the recent spate of collapses of companies offering unlisted, unrated interest-bearing securities has resulted in a typical, yet futile, finger-pointing exercise.

He said there are protests ASIC has failed some 18,000 Australians in the failure of ACR, along with the demise of Westpoint and Fincorp.

However, Wilson said contrary to such claims, it seems that ASIC was quite active in its oversight of these three companies.

“Reports of their involvement in obtaining information on the state of affairs at Fincorp was beyond what could have been expected of a regulator.

“ASIC has been voicing its concern about the risks of these ventures for some time now, but these warnings have not reached the people who are most susceptible,” he added.

Wilson said incoming ASIC chairman Tony D’Aloisio is talking about making improvements, in areas of disclosure, oversight, surveillance and education.

“Clearly, any education initiative must be more than a knee-jerk reaction to these collapses, and go further than the awareness campaign commenced recently by the Financial Literacy Foundation…The average person who invests in these schemes is likely to have been seduced by the advertised interest rate and would have either not read the additional disclosures or not translated them into glaring warning signals.

“If ASIC wants to reach these more unsophisticated investors, they will need to get their message out through the same channels – by advertising in the same places as the spruikers. It may be expensive, but there are few alternatives,” he said.

Wilson said the idea that ASIC should ban individuals from investing in certain financial instruments would punish all those people who intelligently apply a disciplined investment process.

“Some investments that carry a higher risk have their place in some people’s diversified portfolios, and many retail investors understand the risk/return trade-off…ASIC should also resist calls to rate the riskiness of investments. They are a regulator, not a ratings agency. However, insisting that all retail offerings have an risk rating from an independent agency may be worth exploring, and may stop some of the more questionable offers reaching the market.

“To some extent, each failed company seems to have fallen victim to the softening of the property market, although it is arguable that they were also trading whilst insolvent. From a market integrity perspective, ASIC needs to criminally prosecute those behind the schemes for any illegal actions, and also take a close look at those who provided property valuations, expert reports and audits. In addition, the investors who relied on such information should initiate a class action to pursue compensation,” Wilson concluded.

Australian Property Journal