Should You Register A Managed Investment Scheme?

A managed investment scheme (MIS) is a popular investment arrangement where a group of investors pool their money together to produce a financial benefit. This type of scheme is typically structured as a trust-based investment, with investors holding units in the trust. While an MIS can be either registered or unregistered, it is important to note that specific requirements and exemptions apply in each case. For instance, an MIS must be registered if it has more than 20 members or is promoted by someone in the business of promoting such schemes. On the other hand, an MIS may be exempt from registration if it has 20 or fewer members or does not require the issuance of a product disclosure statement (PDS). Regardless of registration status, all MISs must be operated by a manager with an Australian Financial Services Licence (AFS Licence).

When to register a managed investment scheme

A managed investment scheme (MIS) must be registered if it meets certain criteria. In Australia, a managed investment scheme must be registered with the Australian Securities and Investments Commission (ASIC) if the scheme has 20 or more members. Additionally, if the scheme is promoted by someone in the business of promoting managed investment schemes, it must be registered. Furthermore, ASIC has the authority to require the registration of a scheme even if the above conditions are not met.

Some managed investment schemes are exempt from registration. For example, if all the interests in the scheme are issued to wholesale clients only, the scheme may not need to be registered. Another exemption is if the scheme has no more than 20 members (No More than 20 Members Exemption). This exemption is critical as interests in unregistered schemes under this category are not considered financial products and are therefore not regulated by the Corporations Act.

It is important to note that even if a scheme is unregistered, it must still be operated by a manager with an Australian Financial Services Licence (AFS Licence) authorising them to run the scheme. Registered schemes, on the other hand, have additional compliance and governance responsibilities. For example, a Responsible Entity must be appointed, and this entity must meet certain requirements, such as being an Australian public company with a minimum net tangible asset value.

Registration requirements

A managed investment scheme (MIS) can be either registered or unregistered. However, all MIS must be operated by a manager with an Australian Financial Services (AFS) Licence authorising them to run the scheme.

An MIS must be registered with the Australian Securities and Investments Commission (ASIC) if:

• The scheme has 20 or more members.
• The scheme is promoted by a person in the business of promoting managed investment schemes.
• ASIC has otherwise determined that the scheme must be registered.

Registered schemes have additional compliance and governance responsibilities. Where a scheme is required to be registered, the following must be addressed:

• A Responsible Entity must be appointed (versus a trustee for an unregistered managed investment scheme).
• The Responsible Entity must be an Australian public company holding an AFS Licence authorising it to act as a Responsible Entity.
• The Responsible Entity must have minimum net tangible assets of $50,000 or 0.5% of the value of the scheme’s gross assets, up to $5 million assuming a custodian is appointed; otherwise, $10 million is required.
• Custodians must be appointed in some cases.
• A Constitution, similar to a trust deed, that meets the Corporations Act requirements must be executed and lodged with ASIC.
• A Compliance Plan must be created and lodged with ASIC, outlining the measures the Responsible Entity will undertake to ensure compliance with the constitution and the Corporations Act.
• A Compliance Committee must be created if the board of directors of the Responsible Entity does not consist of at least half external directors.

To apply to register an MIS, the Responsible Entity will need to submit an application: see Form 5100 Application for registration of a managed investment scheme. The application must also include:

• A copy of the scheme’s constitution.
• A copy of the scheme’s compliance plan (as defined by section 601HA of the Corporations Act and signed in accordance with section 601HC).
• Form 5103 Directors' statement relating to the application—a statement signed by the directors of the proposed Responsible Entity, confirming that the scheme's constitution and compliance plan comply with the relevant sections of the Corporations Act.

Compliance and governance responsibilities

When registering a managed investment scheme, the proposed responsible entity must meet certain criteria. This includes being a registered Australian public company and holding an Australian Financial Services (AFS) licence. The scheme itself must also meet specific criteria, such as having more than 20 members or being promoted by someone in the business of promoting managed investment schemes.

Once registered, the scheme must address additional compliance and governance matters. These include appointing a Responsible Entity, which must be an Australian public company with an AFS licence and minimum net tangible assets of $50,000 or 0.5% of the scheme's gross assets, up to $5 million with a custodian or $10 million without. A Constitution and Compliance Plan must be created and lodged with the Australian Securities and Investments Commission (ASIC), and a Compliance Committee may need to be established if the Responsible Entity's board of directors does not consist of at least half external directors.

The Responsible Entity has a number of ongoing duties and obligations, including acting honestly, exercising a reasonable degree of care and diligence, acting in the best interests of the members, treating members fairly and equally, and ensuring compliance with the scheme's Constitution and Compliance Plan. The Responsible Entity must also ensure that scheme property is clearly identified, held separately from other property, and valued at regular intervals. Additionally, they must report any breaches of the law that have or are likely to have a materially adverse effect on the interests of members.

Officers and employees of the Responsible Entity also have duties, including acting honestly, exercising a reasonable degree of care and diligence, acting in the best interests of members, and not making improper use of their position or information.

The Responsible Entity is subject to surveillance by ASIC, which may check from time to time whether the entity is complying with the scheme's Constitution and Compliance Plan. The Responsible Entity and its officers must take all reasonable steps to assist ASIC in these checks.

The role of a Responsible Entity

A Responsible Entity is a uniquely Australian concept, designed to replace the manager/trustee in managed investment schemes. It was introduced by the Managed Investments Act 1998, which made significant amendments to the prescribed interest provisions contained in the Australian Corporations Act.

The Responsible Entity has a dual role, acting as both trustee and manager of an investment scheme. This single entity holds scheme property on trust for scheme members and has the power to appoint an agent to act on its behalf in relation to the scheme.

The Responsible Entity must be an Australian public company, with certain levels of net tangible assets depending on the value of the scheme's assets. The minimum net tangible assets required are $50,000 or 0.5% of the value of the scheme's gross assets, up to $5 million if a custodian is appointed, or $10 million if no custodian is appointed.

When acting on behalf of an investment scheme, the Responsible Entity must:

• Exercise a reasonable degree of care and diligence
• Act in the best interest of members of the investment scheme
• Treat all investment scheme members equally

A Responsible Entity can be either "internal" or "external". An "internal" Responsible Entity is owned by the same group as the fund manager, while an "external" Responsible Entity is run separately to the fund manager. In the case of an external Responsible Entity, a management agreement is typically entered into with the fund manager.

To register a managed investment scheme, the proposed Responsible Entity must be a registered Australian public company and hold an Australian Financial Services (AFS) licence. This licence authorises the Responsible Entity to operate the scheme and provide any other relevant financial services in relation to the scheme and its underlying assets.

A managed investment scheme must be registered with the Australian Securities and Investments Commission (ASIC) if it has more than 20 members, is promoted by a person in the business of promoting such schemes, or ASIC has determined that it must be registered.

Registered schemes have additional compliance and governance responsibilities, including the appointment of a Responsible Entity, the establishment of a constitution, and the creation and monitoring of a compliance plan.

How to apply to register a scheme

To apply to register a managed investment scheme, the responsible entity will need to submit an application using Form 5100. This form is used for the "Application for registration of a managed investment scheme".

You will be asked to select the kind of scheme you are registering. The types of schemes identified for licensing purposes include:

• Financial asset schemes
• Direct real property schemes
• Stable property trusts or syndicates
• Listed property trusts
• Service strata schemes
• Primary production schemes
• Time-sharing schemes

If the scheme does not fit within the above categories, a tailored AFS licence authorisation to operate the scheme may be needed.

Your application must also include:

• A copy of the scheme's constitution
• A copy of the scheme's compliance plan (as defined by the relevant section of the Corporations Act and signed in accordance with the relevant section)
• Form 5103 Directors' statement relating to the application for registration of a managed investment scheme – a statement signed by the directors of the proposed responsible entity, confirming that the scheme's constitution and compliance plan comply with the relevant sections of the Corporations Act
• Annexure that cross-references the contents of the constitution required by the relevant sections of the Corporations Act to the equivalent provisions in the scheme's constitution
• If necessary, agent's authorities appointing another person to sign the compliance plan

Digital signatures will be accepted on Form 5100 when the form is lodged through the AFS licensee portal or the registered agent portal. Digital signatures will also be accepted on the scheme constitution that is executed in accordance with the relevant section of the Corporations Act. All other forms and documents lodged should be a copy of the document that was physically signed.

When to Register a Scheme

A managed investment scheme must be registered if it has more than 20 members or is promoted by a person who is in the business of promoting managed investment schemes. Some managed investment schemes may be exempt from registration – for example, where all of the interests in the scheme are issued to wholesale clients only. Unregistered managed investment schemes are referred to as unregistered schemes.

Frequently asked questions