From 1 October 2018, Australian Financial Service (AFS) licensees providing a Managed Discretionary Account (MDA) service on a regulated platform will no longer be able to rely on ASIC’s no-action letter.

Background

On 29 September 2016, ASIC replaced its Class Order [CO 04/194] with a new legislative instrument, ASIC Corporations (Managed Discretionary Account Services) Instrument 2016/968 (Instrument). At the same time, ASIC revised Regulatory Guide 179 which set out the changes to the relief that previously applied to MDAs via ASIC’s 2004 no-action letter.

MDA providers were required to comply with the Instrument by 1 October 2017. However, AFS licensees who relied on ASIC’s 2004 no-action letter prior to 1 October 2016 could continue to rely on the letter’s terms until 1 October 2018.

ASIC’s no-action letter

In accordance with ASIC’s 2004 no-action letter, if an MDA provider held a limited power of attorney that:

  • was valid only within a regulated platform; and
  • was limited to authorising the MDA provider to transfer funds between investments offered through the regulated platform, but did not permit the MDA provider to contribute or withdraw funds

the MDA provider was not required to hold an AFSL authorisation to deal by issuing interests in an MDA.

The situation from 1 October 2018

AFS licensees providing an MDA service from 1 October 2018 must ensure it holds the appropriate authorisations in respect of:

  • interests in managed investment schemes limited to MDA services or miscellaneous financial investment products limited to MDA services; and
  • other authorisations for dealing in the financial products covered by the regulated platform to which the MDA relates.

Responsible Managers will need to meet the RG 105 requirements relevant to the MDA authorisations.

There are a number of other requirements which will apply, including additional disclosure in the AFS licensee’s Financial Services Guide and the MDA contract.