Rule changes to prevent moves to in-house platforms
Changes to the rules governing investor directed portfolio services (IDPS) will make it harder for dealer groups to bring platform services inhouse, according to Minter Ellison partner Chris Brown .
It has been mooted that groups looking to offset a loss of revenue resulting from a ban on volume rebates under Future of Financial Advice changes could look to bring such services inhouse, essentially becoming a product issuer.
But a "long overdue" re-evaluation of RG148, the regulatory guide governing platforms, will make this far trickier, according to Brown.
The Australian Securities and Investments Commission (ASIC) will require IDPS operators to comply with the same net tangible asset (NTA) requirements as managed investment scheme operators, which is the greater of $150,000, 5 per cent of assets under administration, or 10 per cent of gross revenue, he said.
For a dealer group with $1 billion on platform this would amount to $5 million, which could be achievable but is made more onerous by the liquidity requirement of 50 per cent cash and 50 per cent liquid assets, he said.
That will make it more difficult for smaller, less sophisticated operators to comply, he said.
"With a rash of vertical integration, ASIC will look to make it more difficult for dealer groups to obtain this kind of licensing, and this is one way they'll do it," he said.
ASIC will also require all IDPS operators to be public companies, and although there is currently a carve-out for badged operators providing white label services, that may change, he said.
And although the scrutiny on dealer groups is currently similar to that placed on public companies, groups would also then have to comply with Chapter 2-related party transaction provisions, meaning "the ability to interact with the company as if it is your own is reduced, and deals now have to be at arm's length," according to Brown.
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