In the absence of recklessness, negligence, or complicity, it’s hard to assign blame for inappropriate advice to anyone beyond the advisers and licensees who provided the advice. However, recent events surrounding the Shield Master Fund collapse and the conduct of Gatekeepers have put product research and APL governance squarely back on the regulatory agenda.

ASIC has recently commenced proceedings against Interprac Financial Planning Pty Ltd (Interprac), an advice licensee, Equity Trustees Superannuation Limited (Equity Trustees) and Diversa Trustee Limited (Diversa), both superannuation trustees, and SQM Research Pty Ltd (SQM), a research house, over their alleged roles in placing Shield on platforms and into client portfolios.

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What ASIC is alleging about SQM (and why it matters)

In its 13 November 2025 media release, ASIC alleges that SQM’s Shield reports contained misleading representations about the fund, including the way the portfolio was constructed and allocated, and that SQM’s systems and processes fell short of the standards ASIC expects of research providers under RG 79. ASIC is seeking civil penalties and related orders. SQM has publicly stated it will defend the proceedings.

This is not a marginal dispute about rating style. It is ASIC’s first civil‑penalty strike on a research provider operating under an AFSL, and it is being run explicitly as a test case for what “reasonable research” and “gatekeeper diligence” mean in complex, multi-asset products. As we have previously observed, ASIC is not rewriting the rulebook here; it is applying familiar licensee obligation principles (efficient, honest and fair conduct; adequate processes; conflict management) to a new gatekeeper in the advice ecosystem.

The breadth of the alleged failures is intimidating, but ASIC’s particular focus on SQM deserves specific consideration. One industry commentary captured the practical “damage pathway” perfectly:

“And let’s not forget the root cause: SQM Research’s reports misrepresented the composition of the Shield Master Fund from day one. Their favourable rating and incorrect asset-allocation reporting gave the whole structure legitimacy and directly shaped investor expectations. That misinformation has flowed all the way through to outcomes like this.”

Whether or not every allegation in the litigation chain is ultimately confirmed, and however liability is ultimately apportioned, the lesson for licensees has been made resoundingly clear – outsourcing research does not outsource responsibility.

We previously explained that an Approved Product List (APL) is a governance tool used by licensees to control advice risk and demonstrate compliance. They are not mandated by either legislation or regulatory policy, but they are a common mechanism licensees use to demonstrate their compliance with their statutory obligations (ss 912A, 961L and 961Q).

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Why is the Licensee responsible for independent research recommendations?

Fundamentally, each Licensee functions as the legal and commercial gatekeeper for what its representatives are permitted to recommend. So the buck stops with the Licensee. Even where research is outsourced, the decision to rely on that research, to approve (or refuse) a product, and to set the conditions of its use on the APL remains the Licensee’s responsibility. In ASIC’s view, that responsibility is inseparable from the Licensee’s core duties: you cannot meet your obligations to clients, supervise advice risk, or manage conflicts by pointing to an external rating if the underlying research proves wrong.

Section 912A(1) of the Corporations Act sets the baseline obligations for every AFS licensee, mandating that it must:

• provide financial services efficiently, honestly and fairly;
• have adequate arrangements to manage conflicts of interest;
• take reasonable steps to ensure representatives comply with the law;
• maintain adequate resources, competence, training and supervision; and
• have adequate risk management systems.

ASIC Regulatory Guides (RGs) explain how ASIC approaches licensee obligations in practice. RG 104 is ASIC’s core guide to general AFS licensee obligations, outlining how ASIC assesses these obligations in practice. Measures, processes and procedures form the core of the governance framework, but it’s not enough to say you have a process; ASIC looks for evidence that the process is fit for purpose, consistently applied, reviewed, and resourced.

Product selection and APL construction sit inside s912A because they directly affect:

• the quality of advice representatives can reasonably deliver,
• the conflicts the business model may create, and
• the investment risks to which clients are exposed.

So if a product is mis-rated, misunderstood, or mis-sold by a licensee’s representatives, either systemically or as an exception, regulators (ASIC, APRA, AFCA, or OAIC) will ask, “What did the licensee do to prevent this?”

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Why are Licensees responsible for the products their representatives recommend?

Because authorised representatives act as the Licensee’s agents: when they provide advice or deal in products, they are doing so on the Licensee’s behalf, under the authority of the Licence and within the systems the Licensee sets. In law and in practice, that principal–agent relationship means the financial service, including the products recommended through it, is attributed to the Licensee. RG 36 is ASIC’s guide to what counts as financial product advice and dealing. It makes clear that when representatives recommend or arrange products, those acts are the Licensee’s financial services. The discussion below explains how RG 36 draws that boundary and why APL governance sits squarely inside it.

Supplementing RG104 is ASIC Regulatory Guide 36, “Licensing: financial product advice and dealing”. It explores, inter alia, when conduct crosses the line into advice or dealing, and when licensee obligations are engaged.

Against that background, RG 36 clarifies what counts as providing financial product advice or dealing, and therefore when licensee obligations attach.

In APL terms, RG 36 matters because it confirms that:

• advice by authorised representatives is *a *financial service provided by the Licensee, and
• product access, switching pathways, and platform availability are part of the advice/dealing ecosystem that the Licensee controls.

If a Licensee’s APL (and platform preferences) steer advisers toward specific products, those arrangements can themselves be financial product advice because advice includes recommendations or conduct intended (or reasonably regarded as intended) to influence decisions about a product or class of products (RG 36.4).

In addition, arrangements that create product access pathways may also amount to arranging/dealing (RG 36.7–RG 36.8).

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What does RG79 suggest ‘good research’ looks like?

RG 79 is ASIC’s regulatory guide for research report providers. It outlines what ASIC expects “proper” product research to involve. In plain terms, RG 79 says good research is evidence-based, methodologically sound, transparent about its assumptions and limits, and produced under robust conflict-of-interest and quality-control settings.

Let’s, for a moment, consider ASIC’s expectations of industry participants. In RG 79, ASIC describes how research should be produced and distributed, what a reasonable research methodology looks like, and how conflicts must be avoided, controlled and disclosed.

Essentially, RG 79 sets ASIC’s expectations for research report providers: methodological rigour, transparent assumptions, meaningful due diligence, and the effective management of conflicts.

The SQM proceeding puts those expectations under a live spotlight. ASIC is effectively asking the Court to decide whether a favourable rating for a multi-asset structure can be defensible without genuine look-through verification of what lies beneath it, and whether failures in that verification process amount to a breach of the RG 79 standard. This is why industry commentators are describing the matter as a deliberate “test case” for the research sector and a potential reset of what good research needs to look like in private credit and multi-asset products. These are pressing and perennial issues for Research providers operating in a competitive, commercial environment and require regular recalibration.

Although it might not appear directly relevant for advice licensees using third-party research, RG 79 is a benchmarking tool. A competent Licensee would respond to these clear statements of regulatory expectations by demonstrating that their product selection processes are supported by research that is:

1. Accurate and not misleading (including about structure, holdings, and liquidity);
2. Based on reasonable investigation and reliable data sources;
3. Clear about limitations and uncertainties;
4. Independently produced and conflict-managed; and
5. Kept current, with triggers for review when facts change.

The anonymous Shield/SQM critique quoted above attributes these advice failures to structural validation failures, that is, research that appears thorough but misstates or misrepresents fundamental aspects of the product.

Given that retail consumers rarely engage professional advisers to execute on their own conclusions from independent research, licensees need to acknowledge their critical role in the advice process by thoroughly testing product research before approving the product for use by their representatives. Licensees are not expected to be highly proficient research houses, but they must assess products, platforms and strategies at the “ground truth” level to ensure that they can answer:

• What is the product?
• What does it actually hold?
• How does money move through it?
• Where are the weak points for liquidity, valuation, leverage, related parties, or complexity?

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Does RG274 treat the APL as a control or a menu?

RG 274 is ASIC’s guide to the Design and Distribution Obligations (DDO) regime in Pt 7.8A of the Corporations Act, which explains how product issuers and distributors (including advice licensees as distributors) should design products for appropriate target markets, set distribution conditions, monitor outcomes, and review products over time.

In substance, RG 274 treats the APL as a distribution and risk‑control mechanism, not a neutral menu. It expects distributors to use tools like APLs to actively steer products to the right target market, impose conditions where needed, and stop distribution when outcomes indicate misalignment.

Even where a licensee is not the product issuer, RG 274 makes clear that distributors must have reasonable controls to ensure products reach the right target market and not others.

The APL is one of an advice licensee’s most important DDO controls. The APL, and the methodology that underpins its construction, should consider and encompass the:

• Target Market Determinations (TMDs) for each product;
• distribution conditions (including any platform or adviser limits);
• monitoring triggers (complaints, switches, performance or liquidity events); and
• escalation paths for review or removal.

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What does an effective APL process involve?

It is a truth, universally acknowledged, that a theoretical knowledge of regulatory compliance seldom underpins effective compliance arrangements. There’s no substitute for relevant expertise, but those advice licensees confident enough to strike their own path (Vale!) need to appreciate that research failures don’t long remain technical errors but inevitably, and inexorably, evolve into advice failures, governance failures and client detriment. When analysis is flawed, licensee approval processes are too trusting or too thin, the consequences can be significant and long-lasting. Since prevention is better than cure, the solution is not more paperwork but a disciplined APL process built on a handful of clear, defensible checkpoints.

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1. Define selection standards

The reality is that a Licensee’s selection standards inevitably reflect its history, values, culture, business model and value proposition. Their job is to set clear, consistent and repeatable rules for what can enter (and remain on) the APL, and to ensure those decisions prioritise client interests, sit on a defensible best‑interests footing, and demonstrate that the Licensee acts, consistent with s912A, “efficiently, honestly and fairly”. The APL may serve as a risk management and governance tool, but it’s also the most reliable indicator of structural conflicts and misaligned duties. So take care.

Please appreciate that the APL, a curated list of the financial products approved for use by representatives, is principally a risk-management device; it is not intended to prevent a Representative from acting in their clients’ best interests or from recommending the products and strategies most suited to a client’s objectives. Where a Representative considers a non-APL product is required, they should be able to do so after obtaining written approval in accordance with the Licensee’s exceptions process.

In practice, good standards often combine quantitative tests (risk/return evidence such as benchmark‑relative performance, downside volatility, value added, and risk taken for excess return) with qualitative judgement (harder‑to‑measure factors like issuer corporate strength, investment philosophy and process, risk management culture, team capability and stability, administration/client service, and systems/technology for liquidity and switching). At a high level, a Licensee’s Standards define the minimum standards a product must meet to be considered for inclusion on the APL. Regardless of whether the Licensee adopts an automatic or deliberate product approval process, the Licensee’s standards should explicitly address:

• minimum evidentiary thresholds for inclusion;
• acceptable structure types (listed/unlisted, MIS, wholesale-only, unregulated assets);
• minimum acceptable performance data;
• Product classification statuses (and consequences)
• Review frequency; 
• red-flag features requiring escalation.

Curation processes vary. A Licensee with an automatic product approval process treats all products that meet its criteria as part of the APL unless, or until, they are excluded. A deliberate product approval process does not allow products to be added unless, or until, the Licensee explicitly approves their addition to the APL.

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2. Independent due diligence, even when using third-party research

The law, and ASIC, expect Licensees to exercise independent due diligence considering all relevant external quantitative and qualitative data, including ratings, portfolio disclosures, legal documents and market intelligence, before making a decision about the product’s place (if any) in the APL. Regardless of the opinion of the third-party researcher engaged by the Licensee, the classification decision remains entirely at the Licensee’s discretion. The Licensee’s determination is binding, even where it differs from, or is contradicted by, the conclusions of any external research provider.

Licensees must exercise heightened scepticism when relying on product issuer financial information for APL decisions. ASIC’s Report 799 highlights repeated deficiencies in issuer financial reports, including incorrect revenue recognition, inadequate impairment testing, asset misclassification, and insufficient audit evidence across key accounting areas, resulting in $1.886 billion in adjustments to previously released financial information. These findings demonstrate that financial metrics commonly relied upon in product due diligence, such as returns, unit pricing inputs, deferred tax assets, loan book quality, development cost capitalisation and other valuation assumptions, may not always be supported by robust accounting or auditing practices.

Accordingly, licensees must treat issuer‑provided financial metrics as potentially unreliable unless validated, integrating independent checks, challenger analysis and documented scrutiny into APL assessment processes to meet their obligations under s 912A and s 961B of the Corporations Act. A Licensee considering adding a new product to its APL should, for example:

• verify holdings, counterparties, liquidity, leverage, and valuation methods;
• insist on look-through transparency;
• challenge favourable ratings where data does not support them.

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3. Conflicts check before approval

Before any product is approved, the licensee must stand back and ask a simple question: Who benefits if this goes on the APL? This step is about finding and managing conflicts early, not after advisers have started using the product, so that approval decisions remain, client-first, defensible, and consistent with your s912A duties and conflict management obligations. The exercise should be a practical and evidence-based consideration of whether, and to what extent, commercial, related‑party or distribution incentives may have distorted research conclusions or may distort adviser behaviour. The Licensee should consider:

• related-party links, platform incentives, shelf-space deals, volume rebates, lead-gen channels;
• document conflict controls and why approval is still “efficient, honest and fair.”

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4. DDO/TMD alignment test

At the approval stage, the Licensee should explicitly consider how the product will sit within, and be used through, the APL as a distribution control. That means checking suitability against the product’s TMD and setting practical guidelines and conditions for its use by Representatives. While DDO obligations are moderated where advice is personal (because suitability is assessed client‑by‑client), Licensees should not treat that as a licence to relax. Representative professionalism is not a substitute for vigilant APL-level distribution governance. The Licensee should 

• confirm that the product is only APL-eligible for cohorts whose objectives, risk tolerance, timeframe, and liquidity needs fit the TMD;
• define any extra licensee-imposed distribution conditions.

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5. Representative guidance and training

Even the strongest APL is only as good as the way it is used. This step turns product approval into an adviser-ready practice by spelling out the product’s role, its boundaries, and the conditions under which exceptions can be granted. The aim is to support consistent, appropriate advice across the business, reduce the risk of “APL drift” over time, and ensure representatives understand the TMD settings and red flags for each approved product. For this step, the Licensee should

• explain why products are approved;
• explain where they are not appropriate;
• outline how (and on what evidence) any exceptions can be approved; and
• train on TMD conditions and practical red flags.

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6. Ongoing monitoring and removal triggers

Approval is not permanent. Products change, markets move, and new information emerges, so the licensee’s duty is to keep testing whether the original approval rationale still holds. This step establishes the live monitoring disciplines and clear “get‑off‑the‑APL” triggers that protect clients and advisers alike, and demonstrate the Licensee is taking reasonable steps to supervise advice risk throughout the product’s lifecycle. The Standards should include:

• hard triggers: suspension, valuation opacity, adverse media, ASIC queries, liquidity gates, material change in holdings;
• soft triggers: persistent underperformance vs role, growing concentration risk, escalating complaints.

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What minimum questions should be asked before approving new products for the APL?

Before a new product goes onto the APL, an effective process requires the Licensee to pressure-test the product’s true structure, liquidity, governance, and target-market fit, not just accept a favourable rating or a headline asset-allocation story. The minimum questions are designed to force that “ground‑truth” check: they probe whether the Licensee has verified what lies beneath the product, understood how it behaves under stress, identified any conflicted exposures, and confirmed that distribution to clients would be consistent with best interests and DDO expectations. Using Shield as the test case, for any product proposed to be added to its APL, a responsible licensee should ask:

• Structural look-through: Did we verify the actual asset mix, or rely on a rating summary?
• Liquidity realism: Did we model how large volumes could exit under stress?
• Related-party exposure: Were key counterparties, property projects, or offshore vehicles properly examined?
• Research challenge: If research claimed one portfolio mix, did we validate it independently?
• DDO controls: Was the product’s TMD genuinely aligned with the client cohorts being switched in?
• Monitoring triggers: Did we respond quickly to early warning signs?

Assuming ASIC’s allegations are legitimate, even one extra layer of ground-truth verification may have prevented the consumer detriment and “legitimacy cascade” that the industry is currently experiencing.

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Key takeaways for licensees

1. APL governance is a licensee obligation derived from s912A.
2. Third-party research can inform, but never replace, your duty of care.
3. RG 79 is your quality yardstick for external research providers.
4. DDO (RG 274) turns the APL into a distribution control framework.
5. ASIC will expect proof of process, not just process-talk (RG 104).
6. APL scope and use must support, not hinder, good advice outcomes.

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Are the SQM/Shield proceedings targeting outlier conduct?

No, ASIC is not treating Shield/SQM as a quirky edge case. The proceedings are being advanced on the basis that the alleged failures are the kind of governance and diligence gaps that can arise anywhere a licensee or research house relies on unverified assumptions or conflicted processes. In short, across the trade press and regulator commentary alike, the SQM/Shield proceedings are already being treated as an ecosystem-wide warning shot, a signal that every gatekeeper in the advice chain will be expected to lift diligence and governance, not just the entities named in court.

Although we believe that Shield is ultimately an advice conduct failure, it’s an uncomfortable reminder that if research errors enter a distribution ecosystem, they don’t manifest as technical failures. They facilitate advice failures, platform failures, and ultimately, consumer detriment and decreased consumer confidence.

And that is why, for licensees, product selection and APL construction are not back‑office hygiene or a box to tick after the real work is done. They are frontline consumer protection controls, the practical expression of your s912A duties, your DDO distribution settings, and your supervision of advice risk. If the APL is built on weak research or untested assumptions, every SoA written off it inherits that weakness. Done properly, APL governance is where confidence is earned: by proving you know what you’re approving, why it belongs, who it suits, and the moment it no longer does.

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How do I know my APL processes are adequate?

You know your APL processes are adequate when you can point to repeatable checkpoints, like the ones set out above, and show, with evidence, that they are actually being used: clear selection standards, independent look-through diligence, documented conflict controls, TMD-aligned distribution settings, adviser guidance that curbs drift, and monitoring triggers that lead to real action. If you can’t confidently demonstrate that end-to-end lifecycle in your own files, assume ASIC (or AFCA) won’t be persuaded either.

If that feels uncomfortably close to home, act early. Assured Support works with licensees to stress‑test APL frameworks, audit reliance on external research, uplift DDO distribution controls, and build defensible monitoring and removal triggers that are practical for advisers and credible to regulators.

If you’d like a confidential, no‑obligation health check of your current approach, get in touch with the Assured Support team. We’ll help you pin down what’s working, what’s exposed, and what needs strengthening, before the market or the regulator does.

A note on Gatekeepers

According to the Australian Securities and Investments Commission’s submission to the Parliamentary Joint Committee on Corporations and Financial Services (via its 2013 report Statutory Oversight of ASIC: The role of gatekeepers in Australia’s financial services system), the term “gatekeeper” refers to specific individuals or entities entrusted with performing key oversight and control functions.

It’s a functional concept and a policy term that ASIC uses descriptively to refer to those whose roles and functions place them in a position to protect investors and the integrity of the financial system. It includes, but is not limited to:

• financial advisers
• auditors
• compliance providers
• research houses
• custodians
• actuaries
• credit rating agencies
• responsible entities and trustees
• independent experts

While some might consider the term vague and unhelpful, because the gatekeeper concept is based on responsibility, influence, and trust, it’s intentionally flexible. That flexibility is its strength; a formal definition would be too rigid and might exclude emerging roles or evolving industry practices.

If you enjoyed this article, you might also like:

• AFSL Fundamentals: Approved Product Lists
• Head to Head: Research, ratings and your APL
• Adviser Q&A: Product Replacement

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Frequently Asked Questions