By Michael Smith From Financial Review

The collapse of fund manager van Eyk and its Cayman Islands investments have come back to haunt Macquarie Group at the worst possible time.

Macquarie has admitted it breached company law and did not exercise sufficient care four years ago when a van Eyk entity it was responsible for invested $30 million on behalf of clients into a Cayman Islands-based fund.

The admission comes as part of a legal settlement between Macquarie and the Australian Securities and Investments Commission (ASIC). The matter is now heading to court to determine the penalties Macquarie will have to pay. The fine will not make much of a dent in Macquarie’s coffers but ASIC’s public announcement around the court proceeding means the reputation of a big bank is in the headlights once again.

The timing is convenient for politicians determined to shine the spotlight on the nation’s “toxic” banking culture two weeks out from an election. Macquarie has already returned all the lost funds to investors and has been working closely with ASIC on the matter, but the incident will be seized on by Labor as another reason to pursue a royal commission on the banking sector.

ASIC has already launched proceedings against Westpac, ANZ and National Australia Bank in recent months over alleged manipulation of the bank bill swap rate. The events that led up to those proceedings also took place years ago. Sources dismiss suggestions this flood of legal action is being timed for political purposes.

However, it will add fuel to the fire of outrage around the duty of the nation’s financial institutions to protect their clients and customers. Medibank Private joined the list of damned companies last week when the Australian Competition and Consumer Commission (ACCC) took legal action against the insurer over alleged misleading conduct.

Legal proceedings commence

ASIC said on Thursday it had begun proceedings in the NSW Supreme Court against Macquarie Investment Management over the collapsed van Eyk funds management group.

Van Eyk went into administration in September 2014 after Macquarie froze four of its 13 Blueprint investment funds and went on to terminate the rest. Macquarie was the entity responsible for the funds.

The proceedings involve investments of $30 million made by the Blueprint fund into a Caymans Island-based fund called Artefact. ASIC says Macquarie failed to comply with its duties as a responsible entity by not adequately addressing the risks at the time and allowing members to redeem or withdraw units from the fund.

Unlike the bank bill swap rate cases, Macquarie is not challenging ASIC’s actions. The two organisations have been working together on a settlement and the court proceedings are designed to work out how much Macquarie will have to pay in penalties. It could be argued that the settlement is an example of why Australia does not need a banking royal commission because the investors have been compensated and the issue resolved under the existing system.

Macquarie says it acted as soon as it was aware there was a problem and the $30 million in question had been returned to investors. But it admits it failed to adequately assess the risks. Macquarie Investment Management was already under ASIC’s blowtorch last year when it refunded $5.5 million to about 2300 clients because of system errors between 2001 and 2014.

“The Corporations Act places important obligations on responsible entities which protect the interests of investors,” ASIC commissioner Greg Tanzer said. “Those obligations require responsible entities to have a supervisory and monitoring role in relation to funds, even where external investment managers have been appointed. ASIC will take action against responsible entities when they fail to meet their obligations.”

IMAGE: Macquarie Group is the latest financial services group to fall under ASIC’s scrutiny. Grant Turner

For more on this story go to: http://www.afr.com/brand/chanticleer/bank-behaviour-back-in-the-spotlight-as-asic-takes-on-macquarie-20160623-gpq00b#ixzz4CPiZGLzr