Today’s announcement of a review into managed investment schemes signals a potentially significant overhaul of the laws governing Australia’s main investment vehicle. In arguably the broadest review since that undertaken by the former Corporations and Markets Advisory Committee in 2012, the Assistant Treasurer announced that the Federal Government will undertake a review of “the regulatory framework for managed investment schemes”, with Treasury to release a public consultation paper by mid-year. The Assistant Treasurer foreshadowed that the findings of the review will be presented to Government in early 2024. The announcement can be found here.
On the back of recent initiatives in superannuation, this review is further evidence of the commitment of the Government to applying its new broom across the invested funds landscape. A number of the measures, such as those around responsible entity governance and risk management arrangements, will build on measures taken by the Australian Securities and Investments Commission in recent years.
The Assistant Treasurer’s announcement gives us clear pointers on the focus of the review. Front and centre is whether there are adequate investor protections in place in the current Chapter 5C regime, and “what enhancements can be made to reduce undue financial risk for investors”.
Under that umbrella, the focus will be on:
- whether the thresholds that determine whether an investor is a retail or wholesale client remain appropriate;
- whether certain investments should be able to be marketed and sold to retail investors;
- the various roles and obligations of responsible entities and whether the governance, compliance and risk management frameworks are appropriate; and
- interactions between Commonwealth and State laws when regulating real estate investments (including what looks like a deep dive into the reasons behind the collapse of the Sterling Income Trust).
And if that isn’t already enough to chew through, Treasury will also consider:
- whether ‘investor rights’ for people who invest in managed investment schemes are appropriate;
- liquidity requirements; and
- whether an insolvency regime is required for managed investment schemes.
To help keep expectations of the review in check, the Assistant Treasurer flagged topics that are not on the table:
- whether managed investment schemes should be brought within the scope of the Compensation Scheme of Last Resort;
- litigation funding schemes;
- time-sharing schemes;
- issues relating to the tax treatment of managed investment schemes and investors;
- any changes to the corporate collective investment vehicle regime; and
- the rights and obligations of custodians.
The Government’s review could potentially lead to the biggest shake-up that Chapter 5C has had, perhaps since its inception back in 1998. It is an ambitious agenda. Through the course of the next twelve months we have the opportunity to shape the debate, influencing this Government’s agenda and vision for encouraging consumer confidence across the funds landscape.