ASIC today released a consultation paper on proposed changes to Regulatory Guide 133 Managed investments: Scheme property arrangements (existing RG 133), together with a draft updated RG 133.

The paper also seeks comments on a possible change to Class Order [CO 11/1140] Financial requirements for responsible entities (existing [CO 11/1140]) which would amend the definition of 'special custody assets'.

Consultation Paper 197 Holding scheme property and other assets (CP 197 including draft updated RG 133) seeks feedback on:

• the types of pre-contract enquiries that a custodian should make in relation to its own clients
• the proposal that the client agreement executed by the custodian and the responsible entity contains certain content requirements
• primary production schemes ensuring registered interests in the land are by members or an entity controlled by members, on trust for members
• how the role of a custodian should be explained in product disclosure statements and retail facing marketing material
• the requirement that custody assets must be held on trust, by the custodian or the responsible entity
• encouraging custodians to report a broader range of suspicious transactions, and
• the proposed renewal and modification of Class Order [CO 98/51] Relief from duty to separate assets of a managed investment scheme which permits the use of omnibus accounts on certain conditions.

ASIC Commissioner Greg Tanzer said responsible entities and custodians are important gatekeepers in the financial services industry and it is important that our guidelines reflect current law and practice.

‘We propose to clarify and significantly strengthen the standards that asset holders must meet as important gatekeepers in the financial services industry,’ Mr Tanzer said.

The proposed requirements would also apply to investor directed portfolio service operators, managed discretionary account operators and sub-custodians as discussed in RG 133.

ASIC is seeking feedback on CP 197 by 28 February 2013.

Background

Proposed content requirements in client agreements include that the custodian provides an indemnity to the responsible entity and has adequate arrangements to ensure it will report to ASIC if it suspects that its clients may have failed to report breaches to ASIC.

An omnibus account involves custodians holding financial assets in a way which does not separate scheme property for one managed investment scheme from the scheme property of other managed investment schemes.

ASIC released Report 291 Custodial and depository services in Australia (REP 291) in July 2012. The report included recommendations of some matters of ‘good practice', some of which are reflected in the draft updated RG 133.

CP 197 forms part of a broader review of the custodial industry and the manner in which member assets are held by the responsible entity and its custodian and sub-custodians.

Feedback

ASIC will consider updating guidance in RG 133 based on the response to this consultation paper, as well as [CO 11/1140] and issuing a further class order to reflect certain other proposed modifications to the Corporations Act.