Stephen Jones addressing the issue via LinkedIn

The Minister for Financial Services Stephen Jones has clarified that despite reports to the contrary, there has been no decision on the outcome of the Managed Investment Scheme review.

Reported as an exclusive in the Australian Financial Review on 12 January, the paper reported Labor would raise the sophisticated and wholesale investor net-assets threshold from $2.5 million to $4.5 million.

However, on a video posted on LinkedIn on Monday evening, the minister said the Treasury review was ongoing and no decision has been made.

“The review is ongoing, and Treasury is still looking into the things they haven’t made their recommendations to government on,” Jones said.

“So obviously government hasn’t made any decisions on this either. When we do, we’ll maintain our commitment to the Australian people and to investors to work collaborate and consultatively to make sure we get the best outcomes for Australian consumers and investors. We want to continue to talk to you but important message: no decision has been made.”

Introduced via the 2022 Federal budget in October after Labor came into power, the MIS review would examine the rules around managed investment schemes, most notably the threshold for how a sophisticated and wholesale investors are defined.

If a person has a certificate from a qualified accountant confirming they have received gross income of $250,000 a year or more in each of the past two years or have net assets of $2.5 million or more – which can include the family home – they can then be classified as a “sophisticated investor” if they’re being offered debt or shares or as a “wholesale investor” if they’re being offered a financial product (excluding superannuation or insurance).

The designation matters because investors are assumed to be more capable of understanding and taking on risk if they exceed the thresholds, and are thus disqualified from external dispute resolution services like AFCA and or receive damages or lost assets via the Compensation Scheme of Last Resort.

“Put simply, the rules around managed investment schemes haven’t been looked at in over 20 years,” Jones said.

“Over that period, we’ve seen a number of high-profile collapses. We saw Trio Capital, we saw Timbercorp and more recently we saw Stirling Income Trust. These have been hugely painful for investors. They lost millions.”

Amongst the criticism for the increase in the threshold was the potential for orphaned clients, as well as the loss of venture capital from fewer so-called ‘angel investors’ who support start-up companies.

“We have no interest in stifling innovation or unnecessary restricting mum and dad investors investing in our future,” Jones said, speaking generally without reference to any specific criticisms raised in the public forum.

“Our main focus is to make sure the consumer protections and investor protections are fit for purpose in a modern economy.”

The Financial Services Council pushed back during the CSLR legislative hearings over including managed investments schemes in its purview, and Liberal Senator Andrew Bragg argued including MISs would legislate the de-risking investment.

Despite supporting the inclusion of MISs in the CSLR pre-election, Labor ultimately excluded it after introducing legislation after forming government, instead later announcing the MIS review to compromise.

“We know investments carry varying degrees of risk and we need to get the balance right to make sure we have incentives but also appropriate consumer protections in place,” Jones said.

“We thought that after 20 years, it was worth having a look at the framework to make sure it still fit for purpose in 2024 and into the future.”

In response to the minister’s comments, FSC chief executive said in a statement “the case has not been made” for a regulatory overhaul.

Blake Briggs

“Australia has a highly regarded funds management industry which is underpinned by a robust regulatory regime and whilst the MIS review is ongoing, the FSC is confident this will be demonstrated by the review,” Briggs said.

“The Government should therefore only consider fine tuning of the regime, such as potential modernisation of the wholesale investor definition.”

Briggs highlighted the introduction of the Design and Distribution Obligations and ASIC’s product intervention powers that have been introduced since collapses like Sterling.

“ASIC’s ability to protect consumers using its existing powerful toolkit can also be enhanced by collecting the right information at registration, such as the proposed scheme’s investment strategy and personnel, so that it can identify potential risks early on and devote sufficient surveillance resources,” Briggs said.

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