Thinking | 19 June 2020

Four key reminders for fund managers and responsible entities

By Harry New and Vince Battaglia

In this article, we summarise four key regulatory priorities recently outlined by ASIC that fund managers and responsible entities should keep in mind this year.

On 11 June, ASIC published its ASIC Interim Corporate Plan 2020-21 (Interim Corporate Plan) and updated its timetable of regulatory work and priorities, providing more clarity to industry on ASIC’s priorities and its program of work as revised in light of the disruption caused by COVID-19.

We highlight the following four key regulatory priorities that fund managers and responsible entities should be aware of:

  • new fees and costs disclosure regime for PDSs will be deferred with an opt-in;
  • ASIC will be monitoring registered funds to ensure they are true-to-label;
  • ASIC will establish relief eligibility criteria and other assistance for frozen funds; and
  • regulatory guidance on DDO will be published in Q3 2020.

For more information, see the table below.

ASIC's focusWhat this means
New fees and costs disclosure regime for PDSs will be deferred with an opt-inASIC recently announced that it will be amending the transitional arrangements for PDSs under the new fees and costs disclosure regime in updated ASIC Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements (RG 97).

Responsible entities will be able to opt in to the new disclosure regime for PDSs that they give on or after 30 September this year. However, any PDSs that are given on or after 30 September 2022 will need to comply with the new regime.

No changes will be made to the transitional arrangements for periodic statements. This means responsible entities will still be able to opt in to the new regime for a periodic statement with respect to a reporting period that commences on or after 1 July 2020, or that ends on or after 1 July 2020 (where the reporting period ends because the product holder ceased to hold the product on that date). Responsible entities will need to comply with the new regime for periodic statements where the reporting period commences on or after 1 July 2021.
ASIC will be monitoring registered funds to ensure they are true-to-labelAccording to the Interim Corporate Plan, ASIC will monitor advertising and website promotions of managed funds to ensure that they are ‘true-to-label’. This includes:
• testing advertising and promotions against formal disclosure documents, constitutions, and underlying assets (eg statements about fund liquidity); and
• taking regulatory action as necessary where advertising and promotions are not consistent with the underlying documents and fund assets.

On 15 June, ASIC put responsible entities on notice that they must ensure their fund advertising provides clear, balanced and accurate information. ASIC also reminded responsible entities that they must take extreme care when using any terms or phrases in advertising and websites that might give the impression that a product is safe or withdrawals will be available at short notice, especially in the current environment.

Earlier in May, ASIC warned consumers about investment advertising that represented risky fixed-term investment products as ‘alternatives’ or ‘substitutes’ for relatively low-risk term deposits.
ASIC will establish relief eligibility criteria and other assistance for frozen fundsAccording to its Interim Corporate Plan, ASIC will continue to provide support to and take action where appropriate against responsible entities in light of liquidity issues caused by the current environment. ASIC states that it will:
• take action to deal with an expected increase in applications for hardship and rolling withdrawal relief for frozen funds by:
- establishing eligibility criteria and standard relief, processing relief in a timely manner, and potentially making a legislative instrument;
- collecting and publishing statistics on frozen funds; and
• focus on maintaining financial system resilience and stability, including by:
- monitoring liquidity challenges and engaging with industry to ensure that responsible entities are maintaining fair business standards and compliance with their legal obligations;
- helping responsible entities in distress with a focus on protecting the interests of fund members;
- taking regulatory action where appropriate against responsible entities that are no longer fit or able to operate managed investment schemes; and
- identifying schemes where assets are not being appropriately valued.

This work program reflects ASIC’s ongoing concern with scheme liquidity in light of the disruption caused by COVID-19. Earlier this year in March, ASIC published a letter it wrote to several larger responsible entities outlining ASIC’s expectations in relation to responsible entities approach to monitoring and taking action in relation to scheme liquidity, and reminding responsible entities that they may wish to consider applying for hardship or rolling withdrawal relief.
Regulatory guidance on DDO will be published in Q3 2020ASIC states that it will publish regulatory guidance on product design and distribution obligations (DDO) in Q3 of 2020. This is a little later than ASIC originally planned.

The DDO impose significant regulatory and compliance obligations on product issuers and distributors, including responsible entities and fund managers. ASIC has already deferred the commencement of the DDO regime from 5 April 2021, to 5 October 2021. For more information, see our report in Issue 40 of our fortnightly financial services update.

On 19 December 2019, ASIC released a draft DDO regulatory guide for public consultation. For more information on the draft guidance, see our earlier article.

Please contact us if you have any questions about, or would like assistance with, these regulatory developments.

Contact

Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

Vince Battaglia

Vince is an experienced funds management and financial services practitioner, working with Australian and global fund managers.

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