Tougher regulations for managed investment scheme providers
Responsible entities (REs) providing managed investment schemes (MISs) will have to meet tougher capital requirements from 1 November 2012.
The updated Regulatory Guide 166 Licensing: Financial requirements and Pro Forma 209 Australian financial services licence conditions aims to ensure REs have the resources to meet operating costs and ensure alignment of interests with investors, according to the Australian Securities and Investments Commission (ASIC).
REs must now prepare 12-month cash-flow projections which must be approved at least quarterly by directors. To meet new net tangible asset (NTA) requirements they will also need to hold the greater of $150,000; 0.5 per cent of the average value of scheme property (capped at $5 million), or 10 per cent of the average RE revenue, ASIC stated.
At least half of the NTA requirement must be held in cash or cash equivalents and REs must hold an amount equal to the NTA requirement in liquid assets.
Through the consultation period there were some objections to the liquidity requirements, which some submissions said could be onerous or represent an inefficient use of capital, but ASIC said they were necessary in order to address unanticipated risk.
The increased NTA requirements were broadly supported by most respondents through the submission phase. Most respondents agreed there was a need to revisit the financial resource requirements placed on REs, which had not been updated since 2002, ASIC stated.
"To help ensure confident and informed investors, schemes wanting to take on the responsibility of managing investors' money must be backed by REs with appropriate financial substance," ASIC chairman Greg Medcraft said.
"As Australia raises its profile as a leading financial centre, increasing minimum responsible entity capital requirements to a level that is globally comparable improves confidence in the integrity of our markets."
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