The corporate regulator has identified widespread poor practice from managed investment schemes with investigations of potential breaches of compliance plans expected to happen.
The review conducted by ASIC into managed funds compliance plans concluded responsible entities (REs) of managed investment schemes must ensure their compliance plans are both adequate and comply with the controls set out in them.
“Our review of compliance plans developed and maintained by responsible entities identified the need for improvement,” ASIC said in the report.
“We are considering a range of regulatory responses, including writing to responsible entities on our expectation for review and modification of their plans. ASIC is also investigating potential breaches of compliance plan obligations.”
The review covered 50 REs which accounted for 14.5 per cent of all REs, 45 per cent of all registered funds, and 47 per cent of all registered fund sector assets worth nearly $2 trillion in total.
The law allows REs to use a “master compliance plan” across multiple funds, provided the responsible entity operates all the funds.
However, ASIC said some REs had wrongly relied on parts of the master compliance plan of a fund operated by a different RE, meaning those funds had a substantive compliance plan.
ASIC said inadequate compliance plans can be indicative of governance failings and risk exposing retail investors to harm.
The regulator found most plans failed to adequately address three regulatory obligations covered in the review: the reportable situations regime, Design and Distribution Obligations, and Internal Dispute Resolution processes and reporting.
Inadequate treatment of the compliance obligations was widespread, and ASIC identified fulfilling DDO obligations as the “poorest” of the three, followed by IDR.
Some plans even failed to address DDO – a reform that came into place in late 2021 – which ASIC said indicated updates haven’t been done since the regime came into place.
“ASIC has provided long-standing guidance to help REs maintain adequate compliance plans,” ASIC Commissioner Alan Kirkland said in a media release.
“There is no excuse for the scale of poor practice we have identified. In ASIC’s view, these types of deficiencies raise concerns that governance arrangements are lacking.”
Compliance plan audits were not in the scope of the review, but ASIC said none of the 23 auditors of the 50 compliances reviewed issued qualified audit reports relating to the areas of concern identified in the review over the last three audit cycles, nor did auditors raise any concerns to the regulator during this period.