In the October 2022 federal budget, the government allocated $2.7 million for the Treasury to support reviews of the Reserve Bank and the regulatory framework for managed investment schemes (MIS). Earlier this month, the government announced that it would launch a consultation into the regulatory framework of MIS, and we will explore this further below.
Purpose of the Review
The proclaimed purpose of the review is to examine whether the regulatory framework is still appropriate, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors.
Some significant focus points of the review will be whether:
- the wholesale investor thresholds are appropriate
- certain MIS could be sold to retail investors
- the government, compliance, and risk management frameworks that apply to reasonable entities are suitable, and
- there are appropriate interactions between federal and state laws regulating MIS involved in property assets
Treasury will also consider liquidity requirements for MIS, whether an insolvency regime is required, and whether investor rights are appropriate of those investing in MIS.
There are several factors that have led to the announcement of a review:
- the regulatory framework for MIS was introduced more than 20 years ago
- there have been several significant scheme failures since the framework was introduced, including:
- Sterling Income Trust (June 2019)
- Trio Capital (June 2009)
- Timbercorp (April 2009)
- the wholesale investor test and thresholds were set in 1991 and haven’t been reviewed since 2011.
The Review is Welcome
Mr. Blake Briggs, chief executive of the Financial Services Council (FSC) has welcomed the review as an opportunity for the sector to demonstrate some of the positives it has:
“The MIS review is an opportunity to demonstrate the sector is consumer focused and well regulated, while also identifying opportunities to eliminate fringe operators that damage the reputation of the broader industry and pose risks to consumers” Blake Briggs (FSC Media Statement, 9 March 2023)
Treasury is expected to release a public consultation paper later this year and consult with the industry before reporting their findings to the government in early 2024.
For More Information
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