PFA Conference. Regulatory Update. Tuesday 30 April Presented by Harry New Partner, Hall & Wilcox

Transcription

1 PFA Conference Regulatory Update Tuesday 30 April 2013 Presented by Harry New Partner, Hall & Wilcox

2 Outline Significant investor visas (SIV) FOFA conflicted remuneration Custody Financial Requirements (ASIC CP 194) Holding scheme property (ASIC CP 197) Risk Management (ASIC CP 204) Managed Investment Scheme Constitutions (ASIC CP 188) Other issues #Docnum 2

3 Significant Investor Visas Commenced in November 2012 How does SIV regime work? $5 million investment in complying investment No age, English language or business experience requirements Temporary 4 year visa with pathway to permanent residency subject to meeting the 160 days in four years residency requirement Process Expression of interest Nomination by State or Territory (conditions?) Invitation to apply Fund manager provides certification of complying investment (Form 1413) #Docnum 3

4 Significant Investor Visas When will a managed investment scheme be a complying investment? Regulated by ASIC as either a wholesale scheme or registered scheme Must be limited to investing in certain categories of assets including infrastructure, cash, government or corporate bonds, Australian equities, real estate in Australian or Australian agribusiness Investments in funds holding derivatives or capable of investing in other asset classes appear to be prohibited

5 Significant Investor Visas State of Play (as at 22 April 2013) number of SIV 'expression of interest' submissions made; number of 'invitations' to lodge an SIV made; number of SIV applications lodged; (Primary) number of SIV applications approved or refused (if any); - NIL demographic data available on the applicant's (country of origin, etc). - 94% lodged by applicants holding a Chinese passport (source: Department of Immigration and Citizenship)

6 Significant Investor Visas Issues Distribution, Distribution, Distribution! Getting money out of source country eg China Tax structuring

7 FOFA - Conflicted Remuneration From 1 July 2013 FOFA becomes mandatory and certain types of conflicted remuneration will be banned What is conflicted remuneration? Any benefit (monetary and not-monetary) given to a licensee or adviser that provides financial product advice to retail clients that, because of nature of the benefit or circumstances in which it is given, could reasonably be expected to influence the advice or choice of product recommended. Substance over form Product issuers prohibited from giving conflicted remuneration (s963k) Anti-avoidance provisions sole or non-incidental purpose #Docnum 7

8 FOFA - Conflicted Remuneration Exceptions from conflicted remuneration prohibition: Payment in relation to wholesale clients Payments made from the client s own funds at the client s direction for advice (must be genuine, express and specific) eg. Application Form. Grandfathering Requirement for pre-existing arrangement before 1 July 2013 Does not apply to new arrangements Triggers? Allowances for transition period from 1 July 2013 to 30 June 2014

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10 Custody Financial Requirements (CP194) ASIC CP 194 Financial requirements for custodial or depository service providers Released 14 November 2012 Proposes changes, include: NTA the greater of $10 million or 10% of average revenue (currently $5 million) Introduction of NTA requirement for holding incidental property the greater of $150,000 and 10% of average revenue 50% held in cash or cash equivalents 12 month cash projections Annual NTA calculation provided to ASIC

11 Custody Financial Requirements (CP194) Implications for wholesale property fund/syndicate operators Proposed to apply from: Existing licensees - 1 July 2014 New licensees 1 July 2013 Updated RG 166 was to be released in April 2013

12 Holding Scheme Property and other assets (CP 197) Released 20 December 2012 Also applies to incidental custody holders Onerous proposals include: Minimum standards for organisational structure, staff capabilities, capacity and resources and checks on clients, including: RE - extensive documented processes for selecting custodian Custodian due diligence and ongoing enquiries (at reasonable intervals ) of RE to provide reasonable assurance that it is not facilitating unlawful activities. (eg credit assessments, review of corporate records, systems etc,) Custody agreement must include provisions for Custodian to: provide indemnity to RE for losses arising from failure to meet prevailing standards report suspicious matter to ASIC within 10 business days of suspecting breaches by RE

13 Holding Scheme Property and other assets (CP 197) Timing: New RG to be released in June 2013 and new requirements to apply from 1 July 2014 Implications: Role of custodian as watchdog isn t this the regulators job? Is a custodian really equipped to take this on? Is it fair to impose such obligations on custodian? And what about the additional costs? How will this effect the commercial relationship between RE/Trustee and custodian.

14 Risk Management (CP204) ASIC CP 204 Risk management systems for Responsible Entities Released 21 March 2013 Background 500 REs, 4000 registered schemes (as at Feb 2013) CP responds to ASIC review of adequacy of risk management systems (REP298) which concluded that systems had not changed during GFC Global focus on risk management as fundamental to business sustainability and consumer protection

15 Risk Management (CP204) ASIC intends to improve existing RE risk management by providing specific requirements, expectations and good practice guidance, including: A thorough process of documenting structure, context, risk and risk appetite for risk management system and regular review (at least annually) Fostering a strong risk management culture, supported by board by education, training and reporting of breaches. If outsourced, still need to have adequate skills to understand and monitor Identifying risk: ASIC expects RMS to cover strategic, governance, operational, investment and liquidity risks. Assessing risk: Acknowledge different methods. Managing risks: Document risk treatment policies, monitor compliance, stress/scenario test and regularly review Submission close 3 May 2013 Timing: Proposed issue date August 2013

16 Registration of Constitutions (CP 188) ASIC CP188 proposes to update RG 134 Released 18 September 2012 Purpose: to give more certainty as to when ASIC will register an MIS constitution Corporations Act requires adequate provision for provisions including unit pricing, RE powers, complaints, withdrawals and winding up. safe harbour system proposed for unit pricing (currently regulated by CO 05/26) Updated RG 134 was to be released in March 2013 for commencement on 1 May 2013.

17 Other updates Taxation MITs : Awaiting draft legislation (elective attribution regime, codification of unders/overs and cost base adjustment). Start date now 1 July 2014 MIT withholding: Withholding rate increased from 7.5% to 15% effective 1 July 2012; introduction of 10% rate for fund payments by clean building MITs. Investment manager regime - release of exposure draft in April Retail Debentures ASIC CP199: Debentures: Reform to Strengthen Regulation under Chapter 2L of Corporations Act. Mandatory capital and liquidity requirements for Lender issuers who onlend to third parties (including property developers). Enhancing roles of trustee and auditor SMSF as retail client (ASIC QFS150) No progress Informal feedback Insurance Difficulty in obtaining PI insurance for retail funds #Docnum 17

18 Summary 1. Too much regulation? 2. SIVs have generated tremendous interest but doubts remain. You may have the product but do you have the connections? 3. FOFA has changed the way in which issuers interact with financial advisors and must come to terms with this remember that it doesn t apply to the wholesale market. 4. Capital requirements are being extended to incidental custody and custodians are being forced to become watchdogs - this does not sit well and further reflects the consolidation and increased barriers to entry in funds management industry. 5. Risk management is the latest buzz work in compliance. ASIC is focused on it and so should property fund managers. #Docnum 18

19 Contact us Harry New, Partner Banking & Financial Services Phone harry.new@hallandwilcox.com.au #Docnum 19

20 Thank you.