In-depth analysis of Treasury’s MIS reform proposals

This proposal is aimed at strengthening the regulatory framework governing compliance in managed investment schemes by improving the quality, specificity and oversight of compliance plans, audits and compliance committees. Treasury considers that many current compliance plans are too broad and do not properly address key obligations, including reportable situations, design and distribution obligations and internal dispute resolution. 

To address these issues, Treasury outlines four proposed changes.

• Proposal 1.1 introduces stricter content requirements for compliance plans. Plans would need to clearly describe the scheme’s nature, investment strategy and the processes used to identify and manage significant risk.
• Proposal 1.2 changes the liability framework, so REs and their officers are liable only for material breaches of compliance plans. This is intended to encourage more tailored and practical plans.
• Proposal 1.3 makes existing auditing and assurance standards mandatory for compliance plan audits, strengthening the audit process.
• Proposal 1.4 requires REs to notify ASIC when compliance committee members are appointed, removed or resign, improving ASIC’s oversight. 

Treasury is proposing that REs have a majority external directors and the removal of the option of a compliance committee to promote better governance and compliance.

The consultation paper explains that stronger independent oversight can support more objective board decisions and reduce the influence of conflicts of interest, allowing for better governance. External directors (defined as individuals without recent employment or material interests in the RE or related bodies corporate) are seen as enhancing ‘detached supervision,’ like the governance model already required for retail corporate collective investment vehicles (CCIVs).

While the proposal could strengthen investors protections, Treasury acknowledges that it may also increase governance costs. Independent directors may command higher renumeration and there may be a limited pool of suitable candidates. Some industry stakeholders have also raised concerns about potential disruption to existing governance structures and a possible increase in reliance on external RE providers. 

Despite these challenges, the proposal is intended to improve governance by reducing conflicts and strengthening independent oversight of MIS operations. 

Treasury is also proposing to prohibit REs from entering into related party transactions, except in limited and clearly defined circumstances. The proposal responds to past governance failures involving non-arm’s length dealings that have harmed investors. 

The consultation paper refers to examples where scheme property was used to acquire substantial shareholdings in a related entity without member approval, or where funds were lent to directors personally via an unregistered related scheme. 

Treasury recognises that some related party arrangements form part of legitimate investment structures, particularly in sectors such as agriculture or in fund-of-funds models. Any reform would need to include carefully designed exceptions. 

Overall, the proposal aims to reduce conflicts of interest and strengthen protections around scheme assets so that investment decisions are made in members’ best interests.

Treasury also seeks to amend the framework used to set financial requires for REs, with a focus on determining whether more specific and risk-sensitive capital requirements are needed.

Currently, the Corporations Act 2001 (Cth) requires REs to maintain adequate financial resources. However, the detailed requirements are set out in ASIC Instrument 2023/647, which includes minimum cash and net tangible assets (NTA) thresholds. 

Treasury notes that these requirements are not designed to ensure MISs can absorb unexpected losses, unlike prudential frameworks for banks or insurers. ASIC is also separately reviewing whether the current NTA requirements should increase. 

Proposal 4 asks whether the framework itself should change. Possible options mandating more prescriptive financial resource standards, setting capital buffers aligned with risk profiles, or moving responsibility for setting requirements from ASIC to legislation or regulations.

The aim is to better align the financial resources of REs with member interests so that in the event of failure they can withstand operational shocks and support orderly transitions or wind-ups. 

Treasury has identified significant gap in the data available to ASIC about the retail MIS sector. Currently, ASIC collects only limited information, mostly at the RE level, and often relies on ad hoc notice, incomplete cross-agency data and inconsistent reporting. 

These limitations make it harder for ASIC to identify scheme-level risks, potential misconduct, liquidity issues and governance failures in a timely way.

Under the proposal, ASIC would be able to collect:

• recurrent operational data which provides visibility over trends and flows within individual schemes; and

• event‑based alerts, such as notifications of actions that may indicate investor risk (for example, frozen redemptions). 

More consistent and timely data would help ASIC detect potential misconduct earlier, target supervision more effectively and improve transparency across the sector.

Treasury also notes that a more coordinated data-sharing system and streamlined reporting framework could help reduce duplication and compliance burden while supporting stronger governance. 

The final proposal would require superannuation trustees to report suspicious or unusual patterns of superannuation switching behaviour to ASIC.

Superannuation switching, including rollovers or the redirection of contributions between funds, is generally driven by member choice. However, risks arise when switching is driven by high-pressure sales tactics or inappropriate advice.

The consultation paper refers to the Shield and First Guardian collapses, demonstrate how members were encouraged to move from low‑risk products into high‑risk MISs, often facilitated by advisers and lead generators.

Currently, trustees must report only ‘reportable situations.’ This threshold may not capture early warning signs such as unusual spikes in advice‑fee deductions, third‑party authorisations, or rollover patterns concentrated around specific advisers. 

Treasury notes that trustees are well‑placed to identify these behavioural patterns because they already process rollovers and fee deductions, but they lack a clear obligation to share this intelligence.

The aim is to reduce member harm by improving early detection of potential misconduct.