Views on product performance not ‘ASIC’s role’: Regulator responds to AIOFP concerns

The Australian Securities and Investments Commission (ASIC) has responded to a number of concerns over its handling of managed investment schemes (MIS), noting that it “takes its consumer protection role seriously”.

In a letter sent to both ASIC chair Joe Longo and Financial Services Minister Daniel Mulino, Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston, queried who is responsible for the conduct of those involved in MIS structures.

Johston argued the amount of MIS issues signified that the regulator is taking an “all care and no responsibility attitude” towards regulation.

“If ASIC takes no responsibility for product content/release and no responsibility for product conduct, what exactly do they do in this space to protect consumers?” he said.

“Unless the intended structure of the CSLR is amended to reflect what the Ramsay report/Comm Hayne originally recommended and both sides of politics agreed to, it will ultimately destroy the advice profession. The CSLR rules must be returned to the pre-FSC influenced structural ‘adjustments’.”

In response, ASIC executive director regulation and supervision, Peter Soros, noted that as part of the regulator’s role operators of retail and wholesale schemes and distributors of financial products must hold an ASIC-issued AFSL and retail schemes must be registered with ASIC before the operator can issue units in the scheme.

However, Soros explained that it’s not “part of ASIC’s role under the relevant legislation to express any views about whether a particular financial product will perform as expected”.

“As you would be aware, Australia has a largely free-market, disclosure-based system, when it comes to investing,” he said.

Soros added that ASIC is required under legislation to assess applications for registration of retail schemes within 14 days of lodgement, “subject to a very limited number of exceptions”.

“ASIC assesses applications to ensure that the proposed responsible entity of the scheme is licensed to operate the scheme, the application is complete in terms of the necessary information and documentation, and that the scheme’s constitution and compliance plan contain the necessary information,” he said.

“However, the assessment does not involve a merits assessment of the investment strategy and features.”

While Soros said the regulator does not look at the investment strategy, it does investigate MIS operators’ compliance to detect issues.

Last month, ASIC detailed this process and findings of what it said were failures within compliance plans among MIS responsible entities.

The regulator assessed 50 compliance plans used by REs in the operation of a combined 1,471 funds – with managed investments totalling almost $1 trillion – and found a range of issues, including some failing to even address DDO at all.

This suggests, ASIC commissioner Alan Kirkland said, that “they haven’t been meaningfully reviewed since 2021”.

Similarly, Soros said the regulator “takes its consumer protection role seriously”.

“We actively use our administrative powers to address breaches of the applicable law, such as the product design and distribution obligations, stopping defective PDSs, responding to misleading and deceptive conduct or inappropriate advice, and banning or suspending individuals and entities from providing financial services,” he added.

“Where necessary, ASIC takes court action to protect the interests of consumers, including for example freezing orders, appointment of third-party administrators and pursuing civil and criminal penalties.”

Addressing Johnston’s concerns around both the Compensation Scheme of Last Resort (CSLR) and vertical integration more broadly, Soros said any changes to the operation of the scheme or the legality of vertical integration were a “matter for the government”.