'Easy peasy, done': Senate rips Equity Trustees' checklist governance

A Senate committee tore into Equity Trustees' governance at a hearing today, with one senator calling its approach to onboarding Shield and First Guardian a "checklist model", a characterisation the trustee rejected.

The committee revealed Equity Trustees' internal response to increasing members holding limit in a high-growth fund from 50% to 95% was three words: "Easy peasy, done."

Senator Paul Scarr questioned Equity Trustees: "How does that possibly discharge your obligations as a superannuation trustee to increase the limit of members investment into a high-growth fund from 50% to 95% and the only analysis we can see is 'thanks easy peasy'."

Equity Trustees managing director Michael O'Brien (Photo: Michael O'Brien at the Senate hearing today) responded by noting it as an "unfortunate turn of phrase" but added the trustee has a well-developed investment governance framework, and it was followed on the specific occasion.

ASIC currently has two proceeding against Equity Trustee alleging failures in care, skill and diligence concerning the decision to allow members to invest in the First Guardian Master Fund and Shield Master Fund.

Both collapses have led close to $143 million in losses to members in funds under Equity Trustees' trusteeship.

Equity Trustees continues to defend its position noting it was responsible entities, advisers and third-party research houses responsible for the failure, and has denied paying back members on the losses.

Macquarie and Netwealth on the other hand have paid members losses incurred due to the failures.

Equity Trustees recently decided to exit from the trusteeship business. It noted a "shifting regulatory environment, higher operating costs and the evolving risk profile" as reasons to exit the business.

However, O'Brien confirmed while Equity Trustees is divesting from the trustee business, it will continue to be liable for any claims brought against it.

"It is exiting the business because it believes its capital can be better utilised in its other businesses and not in superannuation, because of the growth prospects for the business and the risk that is entailed in that business primarily," O'Brien said.

Equity Trustees will retain its super trustee subsidiary, Equity Trustees Superannuation Limited (ETSL), and remain on the hook for any claims brought against it.

Senator Deborah O'Neill also questioned Equity Trustees' "checklist model of onboarding", calling out Equity Trustees to outsource governance responsibility to other entities while reaping "easy money".

"The two managed investment schemes are issued by the responsible entities. We rely on the information that they provide. They're licensed entities regulated by ASIC. We relied on that information," O'Brien responded.

"We were an investor and a beneficiary in those schemes. We were obviously misled, and that money was not invested according to the product disclosure statements. Our process isn't a checklist process."

Replay of the hearing can be found here.