ASIC’s MDA changes bring good and bad
The Australian Securities and Investments Commission (ASIC) has provided managed discretionary account (MDA) providers with a two-year transition period before it closes off what has represented a loophole in its broader regulatory approach to MDAs.
A number of MDA providers had been utilising a no-action letter to provide their services, and ASIC has given what amounts to a two-year transition to move to the new requirements.
But the issue which was worrying many MDA providers was ASIC's decision to make it mandatory for MDA providers to confirm the suitability of their MDA service for a client with an external adviser with the Institute of Managed Account Providers (IMAP) describing it as "quite a new and onerous obligation".
The regulatory guide said that MDA providers currently offering MDAs under ASIC's regulated platform no-action letter must comply with the new regulatory requirements by 1 October 2018, including the new requirement to obtain an MDA specific dealing by issue licence authorisation.
The ASIC regulatory guidance said other existing MDA providers must comply with the revised requirements from 1 October, next year.
The guidance also took a generous approach with respect to the financial resourcing requirements for MDA providers, backing away from proposals which would have ensured the requirements correspondent with those of the responsible entities of managed investment schemes.
However, ASIC noted that it was important that MDA providers maintained adequate financial resources to operate their MDAs effectively and compliantly and warned that it would be reviewing the situation over the next two years.
"ASIC will review these requirements over the next two years after we have further information about the kinds of entities affected, taking into account licence authorisation applications made by those who have been relying on the no-action position for regulated platforms," it said.
The ASIC approach has been welcomed by the IMAP, with its chairman, Toby Potter, saying the regulator had recognised that MDAs were operated in many ways requiring multiple modes of operation.
He said IMAP welcomed ASIC not implementing a net tangible asset requirement as signaled in the consultation although it would be reviewing this over the next two years.
"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," Potter said.
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