A regulatory review of the managed discretionary accounts (MDA) sector has proposed increasing the financial requirements on operators.
The Australian Securities and Investments Commission’s (ASIC’s) Consultation Paper 200 Managed discretionary accounts: Updates to RG 179 (CP 200) outlines proposed changes to the guidance and relief for MDAs, following a review of the MDA sector commenced by ASIC last year.
The increased net tangible asset (NTA) requirements would aim to bring requirements for MDA operators into line with obligations imposed by ASIC on other financial providers such as responsible entities.
CP 200 also proposes the revocation of two temporary no-action positions covering certain MDA arrangements, as well as the implementation of three alternative proposals which seek to ensure MDA investors are adequately informed when their MDA operator has discretion to invest in products where recourse is not limited (such as contracts for difference)
The paper also proposes that MDA operators should provide more detailed and more specific upfront disclosure on key issues, and that there should be an update to ASIC’s guidance to provide greater certainty and to reflect the regulatory changes that have been implemented as part of the Future of Financial Advice reforms.
ASIC commissioner Peter Kell said the MDA sector had changed significantly since initial guidance was released in 2004.
“This review will ensure that our requirements for MDA operators are up to date, address emerging risks and are consistent with our approach to other financial products and services,” he said.
The consultation was welcomed by managed accounts industry body the Institute of Managed Account Providers (IMAP). IMAP chair Toby Potter described the regulator as “ahead of the curve in anticipating evolving markets”.
IMAP conceded the NTA requirements would impose a significant burden on some current operators but said the paper would “result in an excellent outcome for investors and MDA providers alike”.
“Many advisory businesses which had contemplated adopting MDAs will have a much clearer understanding of the requirements and will find a managed account much more attractive as they restructure in response to ASIC,” Mr Potter said.
“The various tidying-up proposals and alignment of MDA and [Future of Financial Advice] requirements is particularly welcome as there have been too many financial services regulations released which had the effect of contradicting those already in effect,” he said.
Mr Potter said most of the changes will have good outcomes in terms of clarifying aspects of regulation which were previously unclear or contradictory. They include the proposed removal of the No Action letter relating to discretionary management on platforms and the removal of reporting duplication where portfolios are managed through platforms.
