The process to approve the release of a managed investment scheme (MIS) should be a key area of reform for the government, with a group of industry bodies noting regulators have limited powers to prevent most of them coming to market.
The claim was made by the SMSF Association, Chartered Accountants Australia and New Zealand, CPA Australia and Institute of Public Accountants in a joint submission to a Treasury consultation on enhancing MIS oversight and governance.
While the four bodies supported reforms that strengthened MIS governance and improved the compliance plan, which outlined how responsible entities ensured a scheme complied with the law, they highlighted the relative ease with which an MIS could be registered with the Australian Securities and Investments Commission (ASIC).
“We understand that ASIC’s review of applications is limited to an assessment of whether a scheme satisfies the legislative criteria in section 5C of the Corporations Act, including ensuring that each scheme’s constitution, compliance plan and governance arrangements satisfy ASIC,” the submission stated.
The joint associations noted ASIC chair Joe Longo stated in February 2025: “The bar is so low to register one, it basically serves no barrier to entry at all. It doesn’t matter if the underlying asset is alpacas or meme coins – if the fund has a valid trust deed and disclosure document, ASIC has to register it.”
The submission noted: “This is not acceptable and poses high potential risks that the underlying investments are not suitable for retail investors.
“This includes situations where investments designed for wholesale or sophisticated investors are made available to retail investors through arrangements such as platforms or superannuation funds.
“Where a compliance plan is registered and a scheme is approved by ASIC, retail investors can reasonably form the expectation that the scheme has met a minimum standard of quality and governance, and that it is appropriate for retail distribution.
“If the regulatory framework allows schemes with weak, generic or poorly calibrated compliance arrangements to be registered, it risks undermining investor confidence and creating a misleading perception that regulatory approval equates to product quality or safety, when in practice it does not.”
The joint associations also noted ASIC has powers under the design and distribution obligations in the Corporations Act to prevent the issue, sale or distribution of a financial product and limit ongoing distribution where there is no target market determination or if it was defective or inappropriate.
“Strengthening compliance plans and audits should therefore be paired with upstream gatekeeping or earlier intervention mechanisms to prevent investor harm before it occurs,” they said.
“While improved compliance plans and audits are important, they will be most effective when paired with regulatory settings that support early intervention and proactive oversight, rather than reliance on enforcement after investor harm has occurred.”
