MIA opponents dig in for next round

Paul Lahiff is a man with rollback on his mind, and it has nothing to do with the GST.

Two years ago, the managing director of Permanent Trustees was forced to watch 50 per cent of the revenue from his 114-year-old company disappear over night, through no fault of his own.

The Federal Government had just introduced the Managed Investment Act (MIA), largely removing the need for corporate trustees in Australian funds management and effectively neutering a line of business that had been Permanent’s bread and butter for over a century.

To its credit, the company has spent the last two years widening the scope of its business, acquiring a string of accounting firms in western Sydney and morphing itself from a traditional trustee company into a broader financial services provider.

But that is another story. For now, there is something far more serious at stake: no less than the entirety of savings under the guise of the MIA in Australia’s managed investment sector.

“With the Managed Investments Act, there is a disaster waiting to happen, it just depends on when and the size of it,” Lahiff says.

That is the less than subtle message Lahiff wants to send the government as it steps back to consider the first official report into the MIA since the introduction of the controversial legislation.

The report, tabled in parliament just before Christmas after a review of the Act by high profile investment banker and prominent republican Malcolm Turnbull, has been billed as a litmus test of the effectiveness of the single responsible entity regulatory arrangements put in place by the MIA.

The report recognised the need to strengthen some areas of compliance in managed funds under the MIA and recommended enhanced powers for the corporate watchdog, the Australian Securities and Investments Commission (ASIC), particularly to ensure greater transparency around compliance arrangements.

However, the report does not categorically conclude whether compliance overall in the managed fund industry has been strengthened or weakened with the advent of the MIA. Nor does it confirm any cost savings for the industry as a result of the legislation, a much anticipated benefit of the new regime when it was first introduced.

That is not good enough, according to the Trustee Corporations Association of Australia (TCA), where Lahiff is chairman.

The association has expressed disappointment that the Turnbull report has not gone far enough and is warning of large scale collapses — in the order of HIH — in the financial services sector if some of the provisions of the MIA are not rolled back to improve investor protection.

By roll back, the TCA is essentially referring to a scaling back of the MIA to a position where the monitoring of regulatory compliance in the managed investment industry is moved further away from managed investment providers themselves and towards independent third parties.

This includes requiring all managed investment schemes to appoint an independent custodian and to replace so-called external members of compliance committees, who are currently appointed by the schemes themselves, with a genuinely independent corporate compliance entity licensed by ASIC.

The TCA is likely to face stiff opposition to such recommendations from other industry groups, like the Investment and Financial Services Association (IFSA), who have strongly supported the MIA.

But the TCA’s proposals do seem to be receiving a level of support from those working in the compliance field itself, particularly if preliminary results from a separate review of the MIA, currently being undertaken by professor Ian Ramsay of Melbourne University’s centre for corporate law and securities regulation, are any indication.

The review, conducted largely through one-on-one interviews with compliance officers, has identified a degree of concern about the quality of those sitting on compliance committees, especially given that the committees were established under the MIA as an independent check on managed fund providers.

“There has been some issues raised about the skills of those on compliance committees concerning whether, given the rapid transition to the MIA, they have the requisite skills. Generally, there appears to be support out there for proposals that look at the overall skill levels of compliance committees,” Ramsay says.

Although there has been no indication yet of the government’s position on the MIA since the release of the Turnbull report, Lahiff is not holding his breath that his and the TCA’s recommendations will be picked up in any reform of the legislation, not least because they appear to go against the philosophy of the MIA’s single responsible entity regime.

But that is unlikely to deter Lahiff and other heads of trustee companies in Australia.

“Pragmatically, it would be highly unlikely that the MIA would be removed from the statute books altogether, so we will continue to look at how it can be improved,” Lahiff says.