A responsible entity is a uniquely Australian concept designed to replace the manager/trustee in managed investment schemes. Managed investment schemes, also known as 'schemes' or 'pooled investments', are a type of financial product where multiple investors contribute money that is pooled together for investment to produce a financial benefit. A responsible entity, or RE, is a public company that holds an Australian Financial Services Licence, authorising it to operate a managed investment scheme. The RE acts as both a trustee and manager, holding the scheme's property on trust for investors and having the power to appoint agents for authorised tasks. The RE's duties include exercising a reasonable degree of care and diligence, acting in the best interests of members, and treating all members equally.
Characteristics | Values |
---|---|
Definition | A responsible entity is a single entity that replaces the manager and trustee in a managed investment scheme. |
Creation | The Managed Investments Act 1998, which amended the Australian Corporations Act, created the concept. |
Purpose | The responsible entity holds scheme property on trust for scheme members and has the power to appoint agents for tasks related to the scheme. |
Requirements | The Responsible Entity must be an Australian public company with a certain level of net tangible assets depending on the scheme's asset value. |
Licensing | The Responsible Entity must hold an Australian Financial Services Licence (AFS Licence) to operate the scheme and provide relevant financial services. |
Duties | Exercise reasonable care and diligence, act in the best interest of scheme members, and treat all members equally. |
Ownership | The Responsible Entity can be "internal", owned by the same group as the fund manager, or "external", run separately from the fund manager. |
Registration | A managed investment scheme with over 20 members or promoted by a person in the business of promoting such schemes must be registered with the Australian Securities and Investments Commission (ASIC). |
What You'll Learn
The role of a responsible entity
A responsible entity is a uniquely Australian concept, created by the Managed Investments Act 1998, which made significant amendments to the Corporations Act. A responsible entity is a single entity that replaces the two-tiered trustee/management company regime.
The duties of a responsible entity are outlined in the Corporations Act 2001 and the managed investment scheme's constitution. These duties include:
- Exercising a reasonable degree of care and diligence, acting in the best interests of members, and treating all members with interests in the same class equally and members in different classes fairly.
- Ensuring the scheme has a constitution and compliance plan that meets regulatory and legal requirements.
- Ensuring all scheme property is held separately from RE Property and any other scheme property.
- Reporting any breaches of the Corporations Act to ASIC.
A responsible entity's services and responsibilities can also include issuing project product disclosure statements, complying with financial reporting and auditing obligations, reporting to investors, dealing with investor enquiries, and managing the investment project or appointing a scheme operational 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.
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Requirements for the responsible entity
The responsible entity is a uniquely Australian concept, designed to replace the manager/trustee in managed investment schemes. It is a single entity that holds scheme property on trust for scheme members. To register a managed investment scheme, the proposed responsible entity must fulfil certain requirements:
- The entity must be a registered Australian public company with a minimum of three directors and certain levels of net tangible assets, depending on the value of the scheme's assets.
- The entity must hold an Australian Financial Services (AFS) Licence, authorising it to operate the scheme and provide other relevant financial services.
- The entity must have 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; otherwise, $10 million is required.
- The entity must ensure the scheme has a constitution and compliance plan that meet regulatory and legal requirements.
- The entity must exercise a reasonable degree of care and diligence, acting in the best interests of the members and treating all members equally.
- The entity must report any breach of the Corporations Act, relating to their scheme, to the Australian Securities and Investments Commission (ASIC).
- The entity must keep scheme property separate from its own property and that of any other scheme.
- The entity must comply with annual financial reporting and auditing obligations and fulfil reporting obligations to investors.
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The benefits of engaging a responsible entity
A responsible entity (RE) is a role unique to Australia, designed to replace the manager/trustee in managed investment schemes. An RE is required for all registered managed investment schemes in Australia. The RE operates as both a trustee and manager, holding scheme property on trust for investors.
Engaging an independent RE, such as The Huntley Group, provides several benefits to promoters or investment managers. Here are some advantages of hiring an RE:
- Conflict-free decision-making: An independent RE does not promote or market the projects they manage, assuring investors that decisions are made solely in their best interests. This impartiality is essential for maintaining trust and confidence in the investment scheme.
- Compliance expertise: The complex compliance regime imposed by ASIC can be challenging for promoters to navigate. An RE relieves this burden by providing expertise in developing and operating schemes that comply with regulatory and legal requirements. This includes ensuring the scheme has a constitution and compliance plan that meets these standards.
- Operational continuity: In most cases, an independent RE will appoint the promoters or originators of the projects to undertake the operational management role. This arrangement maintains the promoters' direct interest in the project, ensuring continuity and a strong ongoing commitment to its success.
- Specialised skills and resources: An RE brings specialised skills and resources to the table. They are responsible for issuing project product disclosure statements, complying with financial reporting and auditing obligations, and managing investor reporting and enquiries. This frees up promoters to focus on their core competencies.
- Separation of duties: The RE structure separates the roles of trustee and manager, which was previously a two-tiered system. This simplifies the decision-making process and creates a single point of contact for investors, enhancing efficiency and clarity in the investment scheme's operations.
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Differences between registered and unregistered managed investment schemes
A responsible entity is a uniquely Australian role designed to replace the manager/trustee in managed investment schemes. Introduced by the Managed Investments Act 1998, it holds scheme property on trust for scheme members and has the power to appoint an agent to act on its behalf. A responsible entity must be an Australian public company with a certain level of net tangible assets, depending on the scheme's asset value. It must also hold an Australian Financial Services Licence (AFSL).
Now, moving on to the differences between registered and unregistered managed investment schemes:
Registered Managed Investment Schemes:
- Responsible Entity: Must be a public company with at least three directors and hold an AFSL.
- Investors: Include both retail and wholesale investors.
- Documentation: Requires a Product Disclosure Statement and a Constitution, similar to a trust deed, that meets the Corporations Act requirements and must be lodged with ASIC.
- Compliance: Must comply with additional requirements, including annual audited accounts, annual reporting to investors, and periodic statements to investors.
- Financial Requirements: Must meet solvency and cash needs requirements, plus a minimum net tangible asset requirement.
- Governance: Requires an external board of directors or a compliance committee of at least three members, with a majority being external.
Unregistered Managed Investment Schemes:
- Trustee: Can be a public company or a proprietary limited company.
- Investors: Typically wholesale investors only, with certain exceptions.
- Documentation: Requires an Information Memorandum and a Constitution or trust deed, but no compliance plan or lodgement of documents with ASIC.
- Compliance: No requirement to lodge accounts with ASIC, and fund accounts do not need to be audited. Investor reporting is determined by the fund manager.
- Financial Requirements: Must meet base-level financial requirements, such as solvency and cash needs.
- Governance: No requirement for an external board of directors or a compliance committee.
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How to register a managed investment scheme
A managed investment scheme is a scheme that enables a group of investors to contribute money that is pooled for investment to produce a financial benefit. To register a managed investment scheme, the following steps must be taken:
When to Register a Scheme
A managed investment scheme must be registered if it meets certain criteria, such as having more than 20 members or being promoted by someone 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.
Applying to Register a Scheme
To apply, the responsible entity will need to submit an application, Form 5100 Application for Registration of a Managed Investment Scheme. The application must include the kind of scheme being registered, such as financial asset schemes, direct real property schemes, or time-sharing schemes.
Requirements for the Responsible Entity
The responsible entity must be a registered Australian public company and hold an Australian Financial Services (AFS) licence. The entity must also have a certain level of net tangible assets depending on the value of the scheme's assets.
Documents to be Included with the Application
- A copy of the scheme's constitution, which must meet the requirements set out by the Corporations Act.
- A copy of the scheme's compliance plan, as defined by the relevant section of the Corporations Act.
- Form 5103 Directors' statement, 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 to the equivalent provisions in the scheme's constitution.
- If necessary, agents' authorities appointing another person to sign the compliance plan.
Lodging Your Application
Current AFS licensees can lodge the application and accompanying documents online through the AFS licensee portal or the registered agent portal. New AFS licence applicants can lodge their applications through the registered agent portal or by email.
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Frequently asked questions
A responsible entity (RE) is a peculiarly Australian invention, operating as both a trustee and manager. It holds scheme property on trust for investors and has the power to appoint agents for tasks relevant to the scheme. An RE is required for all registered managed investment schemes in Australia.
The duties of an RE are set out in the Corporations Act 2001 and the managed investment scheme's constitution. An RE must exercise a reasonable degree of care and diligence, act in the best interests of scheme members, and treat all members with interests in the same class equally.
An internal RE is owned by the same group as the fund manager, while an external RE is run separately to the fund manager. When an external RE is appointed, it typically enters into a management agreement with the fund manager.
To become an RE, an entity must be a registered Australian public company, with certain levels of net tangible assets depending on the value of the scheme's assets. The entity must also hold an Australian Financial Services Licence, authorising it to operate the scheme and provide relevant financial services.
Engaging an independent RE ensures that the entity acts in the best interest of investors, as they do not promote or market the projects they manage. Additionally, they relieve promoters from managing the complex compliance regime imposed by ASIC.