ASIC recently sent out a series of letters to MDA providers asking for information about their offering, in an attempt to get a handle on how to better regulate the area.
Letters to platforms that support managed account providers were believed to have been sent several months ago, with a further round scheduled in late June to be directed at a handful of managed discretionary account advisers.
ASIC’s investigation into the managed accounts sector actually started late last year, according to Simon Carrodus, senior associate at The Fold Legal.
Carrodus, who provides legal and regulatory advice to several licensees, said they advised their key managed account clients about the project, which started with the collection of information from platforms that support managed account providers.
“As at March this year, ASIC had reviewed all the material and prepared a draft report for internal use,” Carrodus told clients. “The next stage will be to collect information from ten MDA advisers to help ASIC understand how MDAs are being provided across the industry.”
Carrodus noted the send-out of adviser letters has been delayed over five months due to restructuring at ASIC, but should be out by late June. He warned licensees – responding on behalf of advisers – to be careful in how they respond.
“We understand that the questions should be fairly generic, but we have seen cases in the past where licensees responding to this type of ‘fact finding’ investigation have unwittingly provided information that later leads to regulatory action.”
A blind spot
The letters are part of ASIC’s ‘FinTech, Platforms and Wraps’ project, which was first announced in a 2016 speech by former ASIC Commissioner Greg Tanzer.
“As we approach what is potentially the beginning of a new chapter for MDAs, ASIC has undertaken a review of our regulatory policy for MDA’s,” Tanzer stated.
He admitted MDAs – broadly defined as investment management services whereby the manager is given discretion to manage a portfolio according to prescribed guidelines – are a blind spot for the regulator, with existing regulation stemming from “a class order and some No Action Letters issued as far back as 2002”.
“As a result, there is a sector of the market that is largely opaque to ASIC,” he added.
Of particular interest, Tanzer said, were the conflicts of interest that could arise in the provision of MDA services. He described MDA disclosure as “often generic”, while some providers “do not prioritise their client’s best interests”.
“An MDA provider can be subject to many conflicts of interest in the course of providing an MDA,” Tanzer stated. “Most enforcement matters that ASIC has investigated in relation to MDAs… involve inadequate management of conflicts of interest by MDA providers and advisers.”
“To address these concerns ASIC intends to provide more detailed regulatory guidance about the management of conflicts of interest for MDA providers,” Tanzer concluded.
Carrodus confirmed this, saying “suitability, conflicts of interest, fee levels, MDA disclosures and MDA compliance procedures” would be the ASIC’s likely focus.
The MDA project is going ahead while ASIC is also approaching licensees for information on grandfathered commissions, which have been tabled for banning, reflecting the regulator’s new proactive approach in the wake of the Hayne royal commission.
