Understanding Asic's Managed Investment Schemes

A managed investment scheme, also known as a 'scheme' or 'pooled investment', is a type of financial product that involves multiple investors contributing money to a common enterprise, with the expectation of financial returns. The key features of a managed investment scheme are: investors contribute money or assets, the contributions are pooled together and invested, and the investors do not have day-to-day control over the scheme's operations. These schemes are regulated by the Corporations Act and the Australian Securities and Investments Commission Act 2001, with ASIC being responsible for administering and enforcing these laws. Managed investment schemes cover a wide range of arrangements and underlying assets, including cash management trusts, equity schemes, agricultural schemes, and more.

Registration requirements

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

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 authorising them to operate the scheme and provide any other relevant financial services in relation to the scheme and its underlying assets.

To apply to register a managed investment scheme, the responsible entity will need to submit an application, selecting the kind of scheme they are registering from the following categories:

• 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 required.

The application must also include:

• A copy of the scheme's constitution
• A copy of the scheme's compliance plan
• 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
• If necessary, agent's authorities appointing another person to sign the compliance plan

Compliance and governance

Compliance:

To ensure compliance, a managed investment scheme must appoint a "responsible entity", often referred to as a "fund manager". This entity must be a registered Australian public company with an Australian Financial Services (AFS) licence, authorising them to operate the scheme and provide relevant financial services. The responsible entity must comply with the Corporations Act 2001, acting honestly, exercising due diligence, and prioritising the interests of the scheme's members.

The scheme itself must be registered with ASIC if it has more than 20 members or is promoted by someone in the business of promoting such schemes. Registered schemes have additional compliance requirements, including the appointment of a Responsible Entity, the creation of a Compliance Plan, and the formation of a Compliance Committee if the board of directors lacks external representation.

The Responsible Entity must also ensure that the scheme's constitution and compliance plan meet the requirements of the Corporations Act. They must lodge annual financial statements and an auditor's report with ASIC, as well as comply with disclosure obligations, such as providing a Product Disclosure Statement (PDS).

Governance:

The governance of a managed investment scheme is primarily the responsibility of the Responsible Entity. They are tasked with operating the scheme and ensuring compliance with the Corporations Act and the Australian Securities and Investments Commission Act 2001 (ASIC Act).

ASIC, as the regulator, plays a crucial role in governance by undertaking proactive and reactive supervision and surveillance of operators' conduct and disclosure obligations. They also have the power to take enforcement action in cases of non-compliance, which may include administrative, civil, or criminal action.

ASIC's role in governance extends to assessing AFS licence applications, providing guidance to the industry, and granting relief from provisions of the Corporations Act when necessary.

Investor protection

The Managed Investments Act (Cth) was introduced in July 1998, replacing the old "prescribed interests" regime. The Act's most significant change was the replacement of the roles of trustee and manager with a single role. It also introduced new measures to ensure adequate investor protection, including:

• The licensing and surveillance of scheme operators by a regulator.
• The scheme operator's liability to investors.
• Registration requirements for certain schemes.
• The separation of scheme assets from those of the scheme operator.

To register a managed investment scheme, the proposed responsible entity must be a registered Australian public company with a minimum of three directors and hold an Australian Financial Services (AFS) licence. The entity must also have minimum net tangible assets of $50,000 or 0.5% of the value of the scheme's gross assets, up to $5 million if a custodian is appointed; otherwise, $10 million is required.

Registered schemes have additional compliance and governance responsibilities. A Responsible Entity must be appointed, and a Constitution, similar to a trust deed, must be executed and lodged with ASIC. A Compliance Plan must also be created and lodged with ASIC, outlining the measures the Responsible Entity will undertake to ensure compliance with the constitution and the Corporations Act.

ASIC's role in relation to regulating managed investment schemes includes undertaking proactive and reactive supervision and surveillance activities into operators' conduct and disclosure obligations, taking enforcement action in response to non-compliance, and assessing AFS licence applications.

ASIC also provides guidance to the industry and policy advice to the Australian Government and grants relief from provisions of the Corporations Act where necessary and appropriate.

Roles and responsibilities

The Australian Securities and Investments Commission (ASIC) is the regulator responsible for administering the Corporations Act and the Australian Securities and Investments Commission Act 2001 (ASIC Act). These Acts outline the conduct and disclosure obligations of financial service providers, including the operators of managed investment schemes.

ASIC's role in regulating managed investment schemes includes:

• Proactive and reactive supervision and surveillance of operators' conduct and disclosure obligations.
• Enforcement action in response to non-compliance with the laws administered by ASIC.
• Assessing Australian financial service (AFS) licence applications from entities seeking to operate registered and unregistered managed investment schemes.
• Assessing applications for the registration of managed investment schemes.
• Exercising administrative powers related to AFS licences and disclosure.
• Providing guidance to the industry and policy advice to the Australian Government.
• Offering relief from provisions of the Corporations Act when necessary and appropriate.

To register a managed investment scheme, the proposed responsible entity must be a registered Australian public company and hold an AFS licence. The entity must also comply with their AFS licensee and responsible entity obligations, acting honestly, efficiently, and fairly. They must also have adequate financial, human, and technological resources and maintain the competence to provide financial services.

Registered schemes have additional compliance and governance responsibilities compared to unregistered schemes. A Responsible Entity must be appointed, and this entity must meet specific requirements, including holding an AFS Licence and having minimum net tangible assets of $50,000 or 0.5% of the scheme's gross assets, up to $5 million if a custodian is appointed, or $10 million if not. The Responsible Entity must also appoint an auditor for the scheme's compliance plan and lodge the audit report with ASIC.

ASIC's role

• Proactive and reactive supervision and surveillance of operators' conduct and disclosure obligations.
• Enforcement action in response to non-compliance with the laws administered by ASIC.
• Assessing Australian financial service (AFS) licence applications from entities seeking to operate registered and unregistered managed investment schemes.
• Assessing applications for the registration of managed investment schemes.
• Exercising administrative powers in relation to AFS licences and disclosure.
• Providing guidance to the industry and policy advice to the Australian Government.
• Providing relief from provisions of the Corporations Act when necessary and appropriate.

ASIC also proposes updates to Regulatory Guide 51 Applications for relief and Regulatory Guide 108 No-action letters, seeking industry feedback on proposed changes.

In addition, ASIC has the power to conduct inquiries and take enforcement action if a responsible entity is not complying with its obligations. This may include administrative, civil, or criminal action.

Frequently asked questions