Our Hot Tip in this edition of Financial Services Thinking explains what fund managers need to know about the government's managed investment scheme review.
We also share all the latest news from ASIC and AUSTRAC.
ASIC pursues Active Super for alleged greenwashing
ASIC has launched civil penalty proceedings in the Federal Court against Active Super alleging misleading conduct and misrepresentations to the market. Active Super is accused of falsely portraying itself as an ethical and responsible superannuation fund about excluding investments with potential environmental and societal risks
ASIC alleges Active Super exposed its members to investments it claimed to have restricted or eliminated, including holdings related to gambling, tobacco, Russian entities, oil tar sands, and coal mining. ASIC Deputy Chair stressed the importance of substantiating such claims with evidence and ensuring promised exclusions are guaranteed
ASIC is seeking remedies, including declarations, penalties, adverse publicity orders, and an injunction against Active Super. This development follows similar actions by ASIC against Mercer Super and Vanguard Investments Australia, underscoring the regulatory focus on preventing greenwashing in financial markets
ASIC extends transitional relief for foreign financial services providers
ASIC is extending the transitional relief for foreign financial services providers (FFSPs) from the requirement to hold an AFSL when providing financial services to Australian wholesale clients to 31 March 2025. Also, ASIC is giving licensing relief to some FFSPs that provide funds management financial services to certain categories of Australian professional investors
Reach out to our Funds Management lawyers to learn more.
ASIC warns of further action against misconduct in the market
ASIC has warned market participants that strong, targeted enforcement action will continue in the coming months as part of its focus on protecting consumers from harm and upholding market integrity
ASIC recently published a report overviewing its work and key matters for the period between 1 April and 30 June 2023. ASIC noted over $109.1 million in civil penalties were imposed for the half year to 30 June 2023, and a number of significant outcomes aimed at maintaining market integrity were achieved, including the cancellation of the AFS licence used by Binance Australia Derivatives, insider trading charges, and the sentencing of an individual for market manipulation.
ASIC also warned market participants that strong, targeted enforcement action will continue in the coming months as part of its focus on protecting consumers from harm and upholding market integrity.
ASIC proposes to extend DDO instrument
ASIC is proposing to extend the ASIC Corporations (Design and Distribution Obligations Interim Measures) 2021/784 instrument by five years. This instrument enforces measures introduced by Treasury, including exempting distributors from reporting nil complaints to product issuers during a reporting period. The extension aims to provide industry stability amidst potential legal reforms
ASIC suggests only minor changes, including prolonging the expiration date until 5 October 2028 and eliminating an exemption for cashless welfare arrangements
Submissions closed on 25 August 2023.
Short term credit and continuing credit contracts
ASIC recently unveiled Consultation Paper 371 Product intervention orders: Short term credit facilities and continuing credit contracts (CP 371) seeking input on the extension of its existing product intervention orders. These orders, in effect since 15 July 2022, aim to enhance consumer safeguards by prohibiting short-term credit and continuing credit contracts that involve unreasonably high fees imposed on retail clients, surpassing the stipulated cost caps set by the National Credit Code
If the extensions are not enacted, these orders will lapse on 15 January 2024. ASIC says these orders have effectively curtailed the risk of significant harm to retail clients arising from the combination of these financial products with high-cost services. This consultation builds upon prior actions by ASIC in response to concerns around these types of credit contracts, signaling a continued commitment to consumer protection and financial market integrity.
New transactions available in Regulatory Portal
On 1 August, the following new transactions were added to the ASIC Regulatory Portal-
- apply for ASIC consent to resign as an auditor of a public company (Legacy Form 342)
- apply for early destruction of books (Legacy Form 574)
- submit notification to rely on ASIC Corporations (Business Introduction Services) Instrument 2022/805, and
- notify ASIC or apply to ASIC about company auditor appointments.
Get in touch with our Funds Management team for assistance.
AUSTRAC consults on draft AML/CTF Rules
On 7 August, AUSTRAC released for consultation draft Anti-Money Laundering and Counter-Terrorism Financing Rules (AML/CTF Rules) and Explanatory Statements amending Chapter 10 of the AML/CTF Rules. The draft AML/CTF Rules repeal Part 10.4 of the AML/CTF Rules which sets out the special circumstances that justify carrying out the applicable customer identification procedure after commencement of the provision of online gambling services. This is with effect from 29 September 2023. Consultation closed on 4 September.
What fund managers need to know about the MIS review
Treasury's highly anticipated public consultation paper on the review of the managed investment scheme (MIS) regulatory framework has created significant industry debate
The review examines whether the regulatory framework is fit-for-purpose, identifies potential gaps, and considers what enhancements can be made to reduce undue financial risk for investors
While Treasury's contemplation of reform could well herald a new MIS regime, wholesale fund managers should pay specific attention to the potential revision of the retail and wholesale client tests
To understand what fund managers need to know now, read our latest article Major overhaul on the horizon for managed investment schemes by partner Elliott Stumm and lawyer Matt Hinde
McMahon Clarke is making a submission and responses to Treasury's consultation paper can be submitted up until 29 September 2023. The findings of the review will ultimately be presented to Government in early 2024.