12-168MR ASIC review of unlisted property MIS sector
Tuesday 17 July 2012
ASIC has today released the findings of a proactive review of responsible entities (REs) operating managed investment schemes in the unlisted property sector.
As part of this review, ASIC is highlighting some areas where compliance behaviours could be improved to meet both the legal obligations of the REs and good practice within the industry.
ASIC Commissioner, Greg Tanzer, said ASIC chose REs operating unlisted property schemes because they are a popular investment vehicle for retail investors and they pose some risks, particularly because of their illiquidity. Current economic conditions meant this sector had been experiencing some stress.
‘We found that the majority of the REs reviewed are complying with their obligations and adhering to good industry practice. We are pleased with the level of cooperation we received and the willingness of REs to commit resources to address issues raised by ASIC.
‘However, there were some areas of non-compliance with key obligations which we have highlighted to ensure RE’s take immediate steps to rectify’, Mr Tanzer said.
These areas include:
non-compliance with key Australian financial services (AFS) licence conditions including net tangible assets (NTA), base level financial requirements, professional indemnity insurance, external dispute resolution scheme membership and key persons
inappropriate compliance arrangements for the nature, scale and complexity of the REs business and insufficient resources to undertake the compliance function
poor risk management systems/plans
insufficient measures to control and monitor the release of information to investors, and
inadequate controls to manage related party transactions.
‘Non-compliance was generally associated with inadequate numbers of compliance staff or in circumstances where there has been significant restructuring at either the RE or scheme level’, Mr Tanzer said.
‘ASIC has required REs to rectify the breaches identified and to amend and update compliance and risk management arrangements to improve ongoing compliance. We have been following up with REs to ensure the necessary changes are made in a timely manner’, Mr Tanzer said.
ASIC has suspended the AFS licence of one RE due to substantial non-compliance with its key obligations.
‘Although the focus of this review was the unlisted property scheme industry, we expect all REs will benefit from publication of the issues identified and assist them in discharging their duties and obligations as REs and AFS licence holders. In particular, ASIC encourages all REs to ensure that they are adequately resourced to regularly review and implement their compliance arrangements’, Mr Tanzer said
‘ASIC will be conducting ongoing reviews across the managed investment scheme sector. We will take action where we identify significant or systemic non-compliance in order to improve industry standards and generate broader investor confidence in the sector’, he added.
ASIC’s review covered a cross section of REs which operate managed investment schemes in the unlisted property sector. ASIC selected REs on the basis of criteria such as significance in the sector, number/frequency of breach notifications, financial position, failure to lodge statutory reports, industry intelligence and those REs who have little contact with ASIC.
The reviews sought to examine whether the RE was in compliance with the conditions of its AFS licence and whether compliance, risk management and continuous disclosure arrangements were adequate to ensure the RE meets, and continues to meet, its obligations under the Corporations Act 2001 and AFS licence for the registered managed investment schemes it operates.