ASIC has acted to address concerns about the operations of Aurora Funds Management Limited (Aurora), the responsible entity of several ASX-listed managed investment schemes including the Aurora Property Buy-Write Income Trust (AUP).

ASIC has imposed conditions on Aurora’s financial services licence. This follows ASIC undertaking enquiries into the misappropriation of $1 million of investor funds from the AUP in February 2017 by Aurora’s former CFO, Ms Betty Poon.

At ASIC’s intervention, Aurora repaid the $1 million to the AUP and compensated it for lost earnings on those funds prior to any recovery.

ASIC remains concerned that the misappropriation, and Aurora’s failure to detect it for several months, occurred because of deficiencies in Aurora’s corporate governance and risk management frameworks. Ms Poon held several senior and conflicting roles that facilitated the occurrence and cover-up of her fraud.

As a result, ASIC has imposed licence conditions that require Aurora to engage an ASIC-approved independent expert to assess and report on the adequacy of its resources, corporate governance and risk management practices. Aurora has agreed to the conditions and must engage an independent expert by 30 June 2018.

The independent expert's review will consider, among other things, Aurora’s:

• risk management systems;
• internal governance and communication systems;
• processes and procedures for handling scheme property;
• financial, technological and human resources considering the size, nature and complexity of Aurora’s business; and
• processes and procedures to ensure its representatives have the necessary qualifications, skills and on-going education.

The independent expert will report to ASIC and Aurora and provide interim recommendations for any steps that Aurora should take to ensure that its procedures are adequate by 1 October 2018. Aurora is required to inform ASIC of any recommendations that it will not implement and explain why it will not do so. The independent expert will then provide a final report to ASIC and Aurora by 29 March 2019.

ASIC Commissioner Peter Kell said, ’The additional conditions imposed on Aurora’s licence reflect ASIC's priority of protecting investor money and ensuring that responsible entities have appropriate corporate governance and risk management standards in place to keep fund assets separate and secure.’

Background

In February 2017, the CFO of Aurora, Ms Betty Poon, misappropriated $1 million from the AUP by misdirecting money from a bank account held in the name of Aurora as responsible entity for the AUP into her own account.

Aurora did not detect Ms Poon's fraud for approximately nine months, when the misappropriated funds were required by the AUP to complete a takeover of another listed registered scheme. On 27 November 2017, Aurora verbally notified ASIC of the fraud. Aurora also lodged a breach report on 29 November 2017. Ms Poon was terminated from Aurora and referred to Victoria Police.

ASIC is focused on ensuring that AFS licensees maintain appropriate risk management and governance frameworks. ASIC recently released ASIC Regulatory Guide 259: Risk management systems of responsible entities.

Editor's note:

Following the imposition of licence conditions on Aurora's financial services licence, ASIC has approved the engagement of Compliance & Risk Services Pty Ltd as independent expert to assess and report on the adequacy of Aurora's resources, corporate governance and risk management practices.

Editor's note 2:

The independent expert appointed from previous ASIC action has provided an interim report, which includes recommendations necessary to improve Aurora's resourcing, corporate governance and risk management processes.

Aurora has agreed to implement the main recommendations from this interim report. The expert will provide a final report, including Aurora’s implementation of the recommendations, by 29 March 2019.

Editor's note 3:

ASIC received the final report from the independent expert on 29 March 2019 and is reviewing the findings. 

Editor's note 4:

ASIC has finalised its surveillance of Aurora in relation to this matter.