Following an announcement in March that the government would review the regulatory framework for managed investment schemes to ensure it remains fit for purpose, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors, Treasury released a consultation paper on Friday afternoon.
The paper seeks feedback on a number of issues, including whether:
- the wholesale client thresholds remain appropriate;
- the governance and compliance frameworks promote the effective operation of schemes;
- the regulation of schemes with real property is appropriate; and
- the rights of investors are adequately protected.
“The Albanese government is continuing to strengthen regulatory settings in the financial services sector.”
According to the consultation paper, the total value of all assets held in managed investment schemes in Australia is approximately $2.7 trillion, which is just over half of Australia’s broader $4.4 trillion managed funds.
“The maturation of Australia’s superannuation system has contributed substantially to the sector’s growth with over 55 per cent of superannuation assets invested in managed funds (excluding self-managed superannuation funds),” the paper said.
“The total value of assets held by registered schemes is about $1.8 trillion and there were 420 responsible entities operating a total of 3,656 registered schemes at the end of June 2022.
“It is estimated retail clients make up about 5 per cent of overall direct investment in managed funds, noting retail investors also invest indirectly through intermediary structures or have indirect exposure through their superannuation fund. Institutional or private wholesale investors, such as superannuation funds, also invest a substantial amount through registered schemes.”
The paper added that the underlying regulatory framework for managed investment schemes has remained largely unchanged since its introduction.
“However, as regulated entities in the broader financial services sector, scheme operators have experienced significant reform in recent years. This can cause increased compliance burden and associated costs,” the paper said.
“Well designed regulation is important for boosting productivity and enhancing protections for consumers. Conversely, poorly targeted or unnecessarily complex regulation can impose additional costs on entities and investors.
“This consultation paper has considered several areas with potential gaps in the regulatory framework for managed investment schemes that may detract from investor outcomes. However, there are opportunities to modernise and streamline the framework to ease compliance burdens without compromising the intent of any regulation or protections.
“There may also be areas where the regulatory framework for managed investment schemes could be improved through closer alignment with the CCIV [corporate collective investment vehicle] regime.”
This echoes the sentiments of Mr Jones when he announced the review in March.
“The regulatory framework for MIS was introduced more than 20 years ago, since that point, we’ve seen a number of significant scheme failures, including the Sterling Income Trust, Trio Capital, and Timbercorp,” he said at the time.
Consultation is now open and submissions close on 29 September 2023, with Treasury expected to deliver its findings to government by early 2024.