IMAP welcomes ASIC’s release of updated MDA Regulation
Toby Potter
The Institute of Managed Account Professionals (IMAP) has welcomed the release by ASIC of a long foreshadowed revision of the MDA Class Order. “The new version of Regulatory Guide 179 is easy to read and a clear and pragmatic response that makes it more likely that advisers will take up MDA’s because of the flexibility they allow in the advice process” said Toby Potter, Chair of IMAP.
“ASIC have recognised that Managed Accounts are operated in many ways and the new Regulatory Guide recognises this in allowing multiple modes of operating. This reflects the IMAP submission to the consultation paper.”
“The FUM in Managed Accounts has expanded enormously to over $31bn since 2004 when the Class Order was first issued and the number of providers and the ways in which Managed Accounts are offered has developed tremendously” said Potter. “ASIC signaled with the release of a consultation paper in 2013 that they recognised that market practice had moved in advance of the old regulations. This update brings a welcome alignment of regulation and industry practice. For example, ASIC seemed uncomfortable with Limited MDAs and these are now brought into the regulatory regime.”
IMAP welcomed ASIC not implementing a net tangible asset requirement as signaled in the consultation although they will be reviewing this over the next two years while they determine the impact of the changes in this update. “IMAP’s view is that this is appropriate given that MDA services have been almost completely free of either product or issuer failure. In addition, the ownership arrangements and involvement of a platform or custodian mean there is less need for this type of client protection” said Potter.
The major change implemented by the updated regulations is terminating limited MDAs. Potter said “This provides a two-year window for advisers who are currently using platforms to determine their best option. ASIC indicated that they will give some consideration to the experience gained in operating a limited MDA service for those who apply to be fully fledged MDA Providers. ASIC has provided these advisers with several options including introducing a new type of MDA – MDA on a Regulated Platform – with specific reliefs.”
“The approach to adviser’s Best Interest obligations which ASIC developed in the FoFA legislation comes out very clearly in this new document. Both Best Interest obligations and the treatment of conflicts of interest are clearly spelled out.”
“There are a number of points that existing MDA Operators will be uncomfortable with in the new regulations. There are a large number of changes to process and obligations which will be cumulatively significant and the transition period for them is limited to one year. That really is a short period to implement what could be substantial changes. In particular the Regulatory Guide makes it mandatory for MDA Providers to confirm the suitability of their MDA service for a client with an External Adviser. This is quite a new and onerous obligation” said Potter.
In addition, as ASIC signaled in the consultation process, they have tightened the requirements on MDA Providers who include investments which may open the clients to losses beyond their initial investment. Stronger disclosure and review processes will be required. “This will be welcomed by most advisers” said Potter.
IMAP will be holding a presentation session with ASIC in both Sydney and Melbourne on 26 October to provide further detail on the Class Order and provide an opportunity to question ASIC and a number of lawyers about the impact of the changes.
