On 6 March 2014, the Corporations and Markets Advisory Committee (“CAMAC”) released a discussion paper on managed investment schemes (“MIS”). The discussion paper follows an earlier report on MISs by CAMAC in 2012.
The current discussion paper deals primarily with the establishment and ongoing operation of schemes and raises a broad range of governance, disclosure and regulatory issues. Some of the key recommendations in the discussion paper are directed at aligning the regulatory regime with that of companies, simplifying disclosure requirements and reducing the associated administrative burdens on MISs.
CAMAC stated such moves would streamline “regulatory requirements by subsuming the compliance requirements for schemes into the broader risk management framework that encompasses those schemes”.
The paper also raises the possibility of broadening the Australian Securities and Investments Commission’s (“ASIC”) powers to allow it to reduce regulatory requirements in relevant cases.
CAMAC deputy director Vincent Jewell said the regulatory differences had the potential to create unnecessary complexity and compliance burdens in MIS operators, and that reforms could reduce both uncertainty and administrative and legal compliance costs. Such reforms have the potential to reduce uncertainty in the market and otherwise minimise undue administrative and legal compliance costs.
CAMAC convenor Joanne Rees said the review of MIS was the most detailed since the legislation around MIS schemes was introduced in 1998, with written submissions on any aspect of the paper to be submitted by 6 June 2014.
The proposed reforms include:
- Scheme registration: it is proposed that managed investment schemes are registered following the same process as companies. The requirement for the documents such as the constitution to comply with the Corporations Act would remain, but the two-week vetting process by ASIC would be removed;
- Registration of wholesale funds: CAMAC believes that there is no reason why wholesale managed investment schemes should be subject to the regulatory provisions of the Corporations Act;
- Product disclosure statements: CAMAC raises the question as to why prospectuses (including a due diligence requirement) should not be required for the issue of interests in managed investment schemes. This may result in a return-to managed investment scheme interests being offered to retail investors under a prospectus, as they were before the Financial Services Reform Act 2001;
- Risk focus: an increased focus on the management of actual risks and less attention to the mechanical compliance checking for a managed investment scheme;
- Abolishing Responsible Entity powers: to amend managed investment scheme’s constitutions without a meeting of unit holders;
- Extending takeover laws: to large unlisted managed investment schemes; and
- Definitions: Various changes to definitions have been proposed.
The proposals for a MIS to be a separate legal entity and the introduction of a voluntary administration regime which were proposed in a 2012 CAMAC paper to address difficulties in administration of insolvency are still on the table, and the idea of statutory limitation of MIS investors’ liability is again revived.
One Investment Group will provide further detail once we have had time to properly review the discussion paper.