PFA Members - ASIC Update December 2021
Property Funds Association met with ASIC in late November, to discuss various issues impacting the unlisted property investment community. Here’s a summary of the main issues discussed:
New Chair, but business as usual: ASIC has a new Chair and Deputy Chair and the focus is on business as usual. ASIC states it will be moving away from its previous “why not litigate?” stance and will instead use all of its regulatory tools. The regulator is still focussed on reducing consumer harm and detecting investment scams, on cyber-resilience, on governance, the product Design and Distribution Obligations (DDO), the COVID recovery and reducing the regulatory burden on stakeholders.
Corporate Collective Investment Vehicles (CCIV): ASIC is currently working with Treasury regarding the CCIV bill, and the regulations will be released for consultation early next year. CCIV will not apply to illiquid property assets, which means take-up will be limited among unlisted property funds. PFA suggested to ASIC that PFA members may like the opportunity to use the CCIV structures in future if they were available.
Marketing returns and risk: The way in which investment returns and risk are marketed to investors continues to be a major focus for the regulator. ASIC said it is conducting another surveillance exercise, reviewing traditional and digital media for examples of marketing which promote implausibly high or unreliable investment returns. ASIC will also be looking for examples where risk is downplayed, or where risk is not mentioned at all.
Another focus of this surveillance will be misleading use of benchmarks, and the use of past performance in a misleading way. The surveillance will trawl through PDSs, TMDs, websites and other promotional material, and will occur throughout most of 2022.
While the focus is on retail investment products, ASIC has said it will intervene if they see inappropriate marketing to vulnerable wholesale investors.
Recurrent data project: ASIC says it is mindful it lags global best practice in data collection, but is also aware it does not want to add to the industry burden unnecessarily while other regulatory changes are in play. PFA is participating in the recurrent data project, and will be involved in future consultation with the regulator.
Design & Distribution Obligations (DDO): ASIC is interested in what the DDO experience has been like for retail funds. There has been some feedback that some product issuers have found the application of DDO difficult.
PFA explained the IRC committee’s work on creating a DDO template for unlisted property funds, and the challenges they faced. Moving early on the DDO was important as it created some complexity in unexpected areas, such as the way ‘orphaned’ (or formerly-advised) retail investors interact with investment products on the major platforms.
Insurance issues to watch for: ASIC and PFA raised an emerging issue where some funds are finding it difficult to secure professional indemnity (PI) insurance – ASIC says it is seeing some applications for relief on this issue. PFA said there were some smaller fund managers, and those in the mortgage space, which had found problems and there is potential for some funds to be terminated for retail investors, with funds moving to wholesale only. ASIC said it was open to assist where it could but that it is not mindful to relieve licensees of the need for PI insurance.
Breach reporting: with the new breach reporting regime just commencing, ASIC is seeing some breach reports coming through and is expecting a large increase in breach notifications. ASIC also said it will mine this data for information about industry trends and (if warranted) to conduct targeted surveillance on regulated persons.
ESG: There has been an increased focus on ESG claims, and ASIC has flagged ESG as an issue it will be observing – ASIC currently has no plans to introduce new regulations or legislation, but expects ESG to attract more of the regulator’s attention as more product issuers claim ESG credentials.
For any questions regarding our meeting with ASIC, and to raise any regulatory issue with PFA, please contact Paul Healy on pfa@propertyfunds.org.au or 0411 306 604.