Happy New Year and welcome to the first of our monthly financial services blogs for 2013.

In this blog we cover:

  • ASIC’s focus on Responsible Entities (REs) and Custodians
  • ASIC consults on changes to scheme property arrangements
  • FoFA update
  • ASIC reviews the money market funds sector

ASIC’s focus on Responsible Entities (REs) and Custodians 

As we reported in July 2012 ASIC Report 291 raised a number of weaknesses in the way in which custodial services are provided in Australia. The net result of this ASIC focus will be a series of Consultation Papers, updated Regulatory Guides and new Class Orders that not only affect Custodians but also REs and trustees of unregistered schemes.

To kick off ASIC has released Consultation Paper 194: Financial requirements for custodial or depository service providers (CP 194).

CP 194 contains a number of proposals, including:

  • a new requirement that providers of “incidental custodial or depository services”, such as certain types of trustees of unregistered schemes, hold a certain level of NTAs; and
  • proposed increases to the NTA requirements for Custodians, REs holding scheme property or assets other than special custody assets (unless the RE has appointed a separate/eligible custodian) and operators of IDPSs.

Following a period of consultation, expect ASIC to update RG 166 by April 2013, with any changes to be effective for new providers as of 1 July 2013. It is likely that there will be a transitional period of 12 months for existing providers until 1 July 2014.

ASIC consults on changes to scheme property arrangements

Rolling on from this, ASIC has also recently released CP 197 which includes proposed changes to RG 133: Managed investments: Scheme property arrangements.

CP 197 should have particular relevance to:

  • REs of registered managed investment schemes holding scheme property/other assets;
  • custodial or depository service providers, including those providing custody services incidentally; and
  • certain MDA and IDPS operators responsible to clients for holding assets as part of these services.

The key proposed changes include:

  1. Modification of the Corporations Act so that asset holders are required to meet certain minimum standards from 1 July 2014 (organisational structures, staff capabilities, resources and checks on clients).
  2. Extending the proposals to all licensed custody providers, regardless of whether the services are provided as a main business or merely incidentally.
  3. Ensuring that custody agreements are drafted to include an obligation on the asset holder to implement adequate arrangements to ensure reports are provided to ASIC within 10 business days if the asset holder suspects that the client may be in beach of s912D (AFSL significant breach reporting), or s60FC(1)(l) (RE reporting requirements).

Submissions on CP 197 are due by 28 February 2013, with an updated RG 133 expected shortly thereafter.

FoFA update

One thing is certain this year; the FoFA train will continue to rumble on. The Corporations Amendment Regulation 2012 (No. 10) was registered late last year making a number of amendments to the Principal Regulations, mainly in relation to the best interests obligation and the ban on conflicted remuneration.

Stockbrokers in particular will be keen to read that certain types of payments common to the industry will fall within a series of expanded exemptions, including:

  • stamping fees (fees paid by or on behalf of an entity to a financial services licensee or representative for raising capital or debt on behalf of the entity); and
  • the brokerage exemption, although this still only applies to market participants.

ASIC has also released final guidance for the best interests duty (RG 175: Licencing Financial product advisers – conduct and disclosure) and scaled advice (RG 244: Giving information, general advice and scaled advice).

ASIC reviews money market funds sector

As part of an exercise by the International Organisation of Securities Commissions, ASIC has released the results of its systemic review of Australian money market funds sector. For more information, see ASIC Report 324: Money market funds.

Unlike similar funds in the United States and Europe, ASIC found no significant issues with Australian money market funds to warrant regulatory intervention at this stage. However, ASIC is concerned about product branding and will be liaising with industry to ‘encourage’ standardisation of product branding to enable investors to better distinguish between ‘enhanced’ money market funds from cash-type money market funds.

How CompliSpace can help

Australian Financial Services Licence holders are inundated with a raft of corporate governance obligations and an ever-growing compliance burden, which can easily distract focus away from core business activities.

CompliSpace delivers industry specific web-based policies, programs and procedures that can be quickly tailored and configured to suit an organisation’s needs and are kept up-to-date with legal and regulatory changes by our team of specialists.

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Contact Details

P: +61 (2) 9299 6105 (Sydney) / +61 (8) 9288 1826 (Perth)

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This blog is a guide to keep readers updated with the latest information. It is not intended as legal advice or as advice that should be relied on by readers. The information contained in this blog may have been updated since its posting, or it may not apply in all circumstances. If you require specific or legal advice, please contact us on (02) 9299 6105 and we will be happy to assist.