Investment platform operators will need to explain how they choose the different products on offer to investors through their platforms after the regulator introduced tough new rules.
The Australian Securities and Investments Commission (ASIC) has strengthened disclosure requirements as part of a suite of new requirements following a review of the sector, which now has around $90 billion in funds under management.
“Our updated guidance moves with the times and recognises that, with consumers taking a more hands-on approach to investing, their rights must be at the forefront of platform operators’ minds,” said ASIC commissioner Greg Tanzer.
“Consumers may assume that products on a platform are ultimately going to work for their benefit. ASIC wants to ensure they make confident, informed choices and are aware of platform operators’ practices.”
The revised requirements apply immediately to Australian Financial Services Licensees that are licensed to operate a platform from that July 1. Existing operators have until July 1, 2014 to comply with the requirements.
They also have the option to comply earlier by providing a written notification to ASIC, together with notification on their website.
Further requirements include ensuring they have adequate resources to conduct their financial services businesses, have appropriate corporate structures and compliance arrangements, and have policies in place for when consumers do not opt in to continuing to receive advice.
Investors must also have access to a product issuer’s internal dispute-resolution system when they have concerns about investments made through platforms.
The regulator added that it will give further consideration to extending this requirement to cover external dispute resolution and corresponding compensation arrangements.
The cost of compliance
While feedback from industry indicates there will be compliance costs, ASIC does not believe significant, ongoing costs will be incurred to implement the new requirements.
“While the direct cost impact of our final proposed positions would vary from entity to entity, and may represent a higher percentage increase in compliance costs for smaller platform operators compared with larger operators, in light of the lack of such submissions, we cannot conclude that compliance costs to meet the new requirements will be significant,” says the regulator in an impact statement.
“Although the smaller platform operators may find it harder to absorb the compliance costs associated with changing their structure from proprietary to public and adopting the new financial requirements obligations compared to other larger platform operators, ASIC believes that ensuring confident and informed consumer and investor decision making is vitally important.
“Therefore, platform operators must be able to meet these new changes to ensure that they have sufficient financial resources and strong corporate structures to support the conduct of their financial services business. The proposal concerning corporate structure only affects a small portion of operators and is likely to be only a ‘one-off cost’, while the financial requirements obligation will be ongoing for all operators.”
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