ASIC encourages platforms to review compliance with class orders
The Australian Securities and Investments Commission (ASIC) is encouraging platforms to review ongoing compliance with ASIC class orders and to ensure they are ready for the changes under new class orders coming into full effect for established operators on 1 July 2014.
ASIC has recently been working with Industry Fund Services Pty Ltd (IFS) to resolve a breach of Class Order [CO 02/296] Investor directed portfolio-like services provided through a registered managed investment scheme, where IFS were incorrectly investing client funds into an unregistered management investment scheme.
Responsible entities operating under [CO 02/296] are generally restricted from investing in unregistered managed investment schemes on behalf of members.
IFS recently changed their investment options after a review of their industry fund portfolio service found they were in breach of [CO 02/296].
IFS had been investing in unregistered schemes on behalf of members since May 2012. IFS identified the breach in November 2013 and raised it with ASIC. ASIC has since been working with IFS to resolve this matter in the interests of investors.
ASIC Commissioner Greg Tanzer said, ‘It is important that licensees identify where a technical breach of the law can result in the potential loss of key protection measures for investors.
‘IFS acted promptly and in a way that protected members’ interests throughout the process, and this highlights our approach to working with entities who report potential breaches to ASIC.’
ASIC considers the aspect of the class order breached by IFS is a key protection for investors. Investors should not lose any protection because they acquire interests in a managed investment scheme indirectly through a platform.
IFS moved client funds to compliant investments in February 2014. IFS has informed affected members about the change to their investment. No loss for members has been identified.
ASIC acknowledges the cooperative approach taken by IFS in this matter.
Background
ASIC Class Order [CO 02/296] exempts platforms provided through a managed investment scheme from certain disclosure requirements under the Corporations Act 2001 (Corporations Act), subject to a number of conditions to maintain investor protection. [CO 02/296] restricts a responsible entity from acquiring interests in an unregistered managed investment scheme on behalf of members in circumstances where the member would not have been able to acquire the interest if they applied directly.
The relief granted under [CO 02/296] is conditional on compliance with the requirements in the class order. As a result of its non-compliance with [CO 02/296], IFS fell outside the exemption in the class order. In those circumstances, IFS needed to fully comply with the disclosure requirements in the Corporations Act.
From 1 July 2014, [CO 02/296] will be replaced with new Class Order [CO 13/762] Investor directed portfolio services provided through a registered managed investment scheme. The new class order inserts new provisions in the Corporations Act. Where an entity breaches the [CO 13/762], they will still be subject to the relief in the class order but it will result in a breach of the financial services laws with which Australian financial services licensees must comply.
The new class order [CO 13/762] implements a number of new requirements for platform operators to address emerging risks in the industry. From 1 July 2014, platforms must meet the new requirements, including having appropriate corporate structures and compliance arrangements, additional policies (e.g. voting policies and policies when consumers do not opt-in to continuing to receive advice) and ensuring investors have access to a product issuer’s internal dispute resolution system when they have concerns about investments made through platforms and product issuers agree to do so.
Source: ASIC
