ASIC has turned its attention to responsible entities (REs) operating managed investment schemes in the unlisted property sector highlighting a number of potential compliance concerns. The review has so far resulted in the suspension of an AFS license due to substantial non-compliance and ASIC is working with other REs to ensure necessary changes are made to meet their compliance obligations.
In a release issued 17 July 2012, ASIC Commissioner, Greg Tanzer, said that the popularity of unlisted property schemes amongst retail investors combined with current economic conditions and issues of illiquidity make them a cause for concern for the Commission.
While the release was targeted at the unlisted property scheme industry, Tanzer encouraged all REs and AFS license holders to consider the issues highlighted and take the opportunity to ensure compliance with all legal obligations.
ASIC highlighted five main areas of non-compliance:
- non-compliance with key AFSL conditions including net tangible assets (NTA), base level financial requirements, professional indemnity insurance, external dispute resolution scheme membership and key persons;
- inappropriate compliance arrangements for the nature, scale and complexity of the REs business and insufficient resources to undertake the compliance function;
- poor risk management systems/plans;
- insufficient measures to control and monitor the release of information to investors; and
- inadequate controls to manage related party transactions.
We recommend all REs and AFS license holders read ASIC's additional guidance for further details of these areas of concern, click here to be taken to the document.
In our experience, clients that undertake properly considered reviews (at least annual) of their compliance plans and risk management systems are less likely to fall foul of the Corporations Act and ASIC policy.
Ideally, compliance managers should consider updating compliance plans and risk management systems (and not only processes and procedures relevant to the change) when changes are made to legislation and ASIC policy.
Significant changes to the NTA and cash flow requirements that apply to responsible entities (contained in ASIC RG 166) and disclosure benchmarks (updated ASIC RG46) will apply from 1 November 2012. A summary of the changes can be found in our updates of 9 November 2011 and 8 May 2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.