Former ASIC Commissioner Danielle Press says the trustees of superannuation platforms have a fiduciary responsibility to investors when selecting the investment products the platform hosts, but investor losses might not be covered by super funds’ operational risk financial requirement (ORFR) reserves.

Press is the independent chair of a body established by listed wealth manager Sequoia Financial Group to guide the company’s board and senior management on internal governance improvements. This follows allegations by ASIC that clients of Sequoia subsidiary InterPrac Financial Planning were inappropriately invested in Shield and First Guardian master funds, which has been alleged by ASIC.

The collapse of the funds has become one of the corporate watchdog’s highest priorities with $1.2 billion of retirement savings belonging to 11,000 investors at risk.

ASIC has alleged that lead generation services were used to get customers to rollover their superannuation via a financial adviser into higher risk funds which had conflicts of interests and miss-used member funds.

The regulator has already taken Equity Trustees to court for its due diligence role. The group was the trustee for NQ Super and DASH’s Super Simplifier.

Earlier this month Sequoia said it planned to tap the ORFR reserves of the trustees of platforms that hosted the failed Shield and First Guardian managed investment schemes.

Sequoia announced on 4 September it was “in the process of issuing ORFR activation requests to superannuation trustees which placed the Shield and First Guardian investment suites on their platforms”.

“We request that the superannuation trustees immediately declare an ORFR event has occurred and access their ORFR reserves to remediate every client that has been exposed to these investments. This would benefit every member that has been impacted by investment losses,” Sequoia chief executive Gary Crole said in a statement.

Press, who is also independent chair of the Insignia Financial subsidiary Insignia Trustees, tells Investment Magazine it might not be an effective way to remediate investors. She says she has “spoken to Gary about where I think the liability would lie, and he’s obviously been very public about it being an ORFR problem for the platforms”.

“I’m not sure it’s an ORFR solution, but I think it… is a platform problem,” Press says.

Press says Insignia CEO Scott Hartley has been “very strong on this as well: there is a fiduciary obligation for those platforms to have these things on their superannuation menu”.

“If this occurred in a super fund, in a master trust or an industry fund, then without a doubt the fund would have to pay the compensation to members,” Press says.

“So why is it different on a platform? Why is the law different? It’s not; I don’t think it is. I think that the law is the same, regardless of what mechanism you’re delivering superannuation through.”

Sequoia said there were grounds for ORFR activation when either operational risk failures permit unauthorised actions with insufficient platform safeguards; or when due diligence failures allow unsuitable or fraudulent investments onto platforms.

Press says it may be possible to mount a legal argument that the Shield and First Guardian collapses should be covered by ORFR reserves, “but the ORFR is funded by members – that’s how they build an ORFR”.

“Should members pay for this mistake? I don’t know. Or should the corporate actually pay for it?  I’d hazard a guess that the corporate should. But again, that’s a moral view, maybe more than a legal one.”

Press says she believes compensation is due to Shield and First Guardian investors. In a hypothetical scenario of either of the MISs being on a superannuation platform offered by Insignia – which they were not – “I think we would have to say there was compensation due”.

“Whether it’s the ORFR, and therefore the trustee that’s paying, or whether it’s Insignia Financial that was paying, I don’t know the answer to that question,” Press says.

“I think that would turn on the circumstances.

“But do I think ultimately the platforms are responsible for this? Yes I do, actually. I think legally they are. My view is that this is superannuation, it doesn’t matter what form it’s in, and therefore I think there is an obligation.

“Now, that’s obviously what ASIC are testing with the Equity Trustees case, and I think it will be really interesting to see where it lands.”