To kick off the start of the second quarter of 2013, we set out the seven key regulatory issues driving risk, operations and market trends for asset managers this year.


The Future of Financial Advice reforms start from 1 July 2013. The reforms continue to pose significant challenges for Australian retail distribution in 2013. For example, significant challenges remain for the distribution of listed products. An overview of the FoFA requirements can be found here.

Stronger Super

The transparency measures within the Stronger Super reforms will become effective on 1 July 2013. The breadth of the portfolio holdings disclosure requirements will likely pose significant compliance burdens on superannuation trustees.  We are already seeing some trustees seeking to move that burden to asset managers. The restrictions on performance fees for funds in which MySuper products are invested will be a challenge to super funds allocating to funds which typically include performance fees. Asset managers need to prepare a better rationale for their performance fees.  Finally, revised APRA outsourcing standards will see superannuation trustees seek to renegotiate agreements with service providers including IMAs with asset managers.

Significant Investor Visa Funds

The Significant Investor Visa program targets high net worth individuals giving them the opportunity to apply for an Australian visa and consequently permanent residence provided they maintain an investment of at least $5 million for four years in "complying investments".  Considerable interest in the new visa has been shown by high net worth individuals across Asia.  Managers should contemplate whether, and how, they wish to tap into this new opportunity during 2013.

Hedge Fund Test

In 2012 ASIC released Regulatory Guide 240 – “Hedge funds: Improving disclosure” which sought to define “hedge funds” and set out a prescriptive and burdensome disclosure model. The definition is very broad and will catch categories of funds that would not ordinarily be considered hedge funds – eg leveraged property or infrastructure funds that charge a performance fee, and funds of hedge funds.  Fund managers will need to consider whether their funds fall within the definition of a “hedge fund” and decide whether to comply with the RG 240 disclosure model. “Hedge funds” are also excluded from the shorter PDS regime.

US Impact – Dodd Frank and FATCA

The US Dodd Frank Act introduces a plethora of changes which affect the oversight and supervision of financial institutions.  Importantly, the legislation significantly narrows the scope of SEC registration exemptions for Australian fund managers and the proposed Volcker rule may impose a prohibition on most proprietary trading by banks and their affiliates, and restrict certain institutions from owning, sponsoring or investing in hedge funds or private equity funds. 

The Foreign Account Tax Compliance Act (FATCA) allows the US Internal Revenue Service (IRS) to identify and collect tax from “US persons” who invest in US assets through non-US entities.  Australian managers will be required to identify US clients and disclose their details to the IRS, or subject US investors to 30% withholding tax on US sourced income.  The US and Australian governments are negotiating an Intergovernmental Agreement during 2013, the terms of which will make FATCA part of Australian law. 

European Impact - AIFM Directive

The EU directive on alternative investment fund managers (AIFMD) which is now in force and will be reflected in the laws of each EU Member State by 22 July 2013 will affect Australian and Asian based funds and fund managers that market to EU investors. In particular, additional conditions for EU private placements will apply after 22 July 2013.

Regulatory Capital Requirements

ASIC has recently consulted on the regulatory capital requirements for providers of a “custodial or depository service”, proposing (i) an increase to the minimum NTA requirement from $5 million to $10 million for custodial service providers and responsible entities of registered managed investment schemes and (ii) the introduction of a NTA requirement for “incidental” providers, together with a definition of those who can be deemed to provide custodial services which are “incidental” to another financial service.  ASIC’s proposals are due to be finalised by July 2013.  Fund managers should be aware of the potential increase in capital costs.