ASIC has called on responsible entities (RE) of managed investment schemes (MIS) to consider adopting a formal internal dispute resolution procedure to handle complaints made by retail and wholesale clients.
The corporate regulator made the proposal as part of Consultation Paper 188 Managed Investments: Constitutions – Updates to RG 134 (CP 188), released earlier this week, on updating the guidance relating to the content requirements of MISs.
Under part of the proposal, ASIC called for REs to have “constitutional provisions”, when dealing with complaints by retail clients, that were consistent with existing approved ASIC internal dispute resolution procedures.
It said the RE might devise its own complaints handing procedures for wholesale clients.
“Given that a [RE] is an AFS (Australian financial services) licensee, we consider that it will be more efficient for the [RE] if we align our expectations for the method for dealing with complaints under the constitution with the AFS licensee internal dispute resolution requirements outlined in RG 165.74,” the paper said.
“This will prevent the [RE] from potentially having two distinct complaints handling procedures in place for retail clients.”
While ASIC understood REs might already have informal arrangements in place to resolve disputes with wholesale clients, it believed a more formal procedure was needed.
“We acknowledge that responsible entities and wholesale clients may have in place informal arrangements to resolve disputes and/or agreements that provide assistance in resolving disputes,” the paper said.
“However, we believe this may not be sufficient for [an RE] to meet its obligations to ensure that the constitution makes adequate provision for dealing with complaints in relation to a [MIS].”
It said it might be appropriate for different requirements to apply for wholesale clients that might have the “knowledge, resources and bargaining power to have complaints effectively resolved, and may escalate issues through arbitration and courts”, and so as such ASIC said the RE should be able to devise, and include, it on complaints procedures.
“An alternative option is to require the constitution to contain provisions dealing with complaints for wholesale clients that require the same procedures to apply to wholesale clients as retail clients, with any necessary amendments to address the difference between retail and wholesale clients,” the paper said.
As well as a dispute resolution procedure for REs, the paper also offered proposals around areas of MIS implementation; consideration to acquire an interest in the scheme; powers of the RE of the scheme; winding up the scheme; the payment of fees to a responsible entity and its rights of indemnity from scheme property.
The paper also provided proposals for change around the area of withdrawal rights of members of the scheme; the use of extrinsic material to the constitution; and legal enforceability of the constitution.
ASIC commissioner Greg Tanzer said the proposed updates factored in “significant developments” in the MIS industry since the guide was last updated in 2000.
Regulatory Guide 134 was released in 1998, a time when the MIS regime was still in its infancy, Tanzer said.
“One of our three strategic priorities is to ensure efficient registration and licensing,” he said.
“These proposals also improve transparency and ensure that responsible entities and their advisers have sufficient certainty about what we will look for in reviewing a constitution when deciding whether to register a managed investment scheme.”
ASIC is seeking feedback on its proposals from REs, their advisers, industry associations, financial consumer and investor advocacy groups, and any other interested parties.
Deadline for submissions is 13 November, with the regulator expected to release updated regulatory guides by March 2013.
