The Australian Government has provided further details of the previously announced review of the managed investment schemes (MIS) regulatory framework (Review). The Review was announced in the 2022-23 Federal budget, and with $2.7 million committed, is intended to test the effectiveness of the current framework.
From the latest announcement it appears that the Review will likely recommend the tightening the Australian MIS regulatory framework that was introduced 25 years ago.
The Review will focus on whether the framework is fit for purpose, identify potential gaps, and consider possible enhancements to reduce undue financial risk for investors, including scrutiny on:
- the appropriateness of the current retail or wholesale definitions for investors;
- whether certain MIS investments should be able to be marketed and sold to retail investors;
- responsible entities and whether their respective governance, compliance and risk management frameworks are appropriate; and
- interactions between Commonwealth and State laws regarding real estate investments by MIS (including issues arising in relation to the failure of the Sterling Income Trust).
In its media release, the Government also identified whether “investor rights” for people who invest in MIS are appropriate, liquidity requirements, and a possible MIS insolvency regime for managed investment schemes as relevant considerations.
In its release, the Government also said that the Compensation Scheme of Last Resort, litigation funding schemes, MIS tax treatment, corporate collective investment vehicle regime changes and custodian rights and obligations as out of scope.
The Financial Services Council in a statement welcomed the Review, emphasising its hope for the identification of “opportunities to eliminate fringe operators that damage the reputation of the broader industry and pose risks to consumers.”
A consultation paper is expected to be released by the Australian Treasury by mid-year, with industry consultation to occur before Treasury reports its findings in early 2024.
Given the topics that the Review will consider, industry participants should stay tuned for further updates, including Treasury’s consultation paper when that is released.