MIS REs found wanting but no CSLR change in sight

Mike Taylor

Managing Editor/Publisher, Financial Newswire

3 June 2025

ANALYSIS

Financial advisers who are hit annually by the levy to fund the Compensation Scheme of Last Resort (CSLR) have every reason to gripe after reading the Australian Securities and Investments Commission’s (ASIC’s) review of managed fund compliance.

That review, based on a cross-section of compliance plans used by the responsible entities (Res) of managed investment schemes (MISs) has identified serious shortcomings with ASIC itself referencing “widespread poor practice”.

This matters because, from virtually the moment the CSLR was envisaged, it was strongly argued and even envisaged that managed investment schemes would be levied to meet the cost of the scheme alongside financial advisers, securities dealers and credit providers.

The reason it was always envisaged that MISs would be compelled to help provide funding was that there was and is abundant evidence that many of the product failures which have bedevilled the Australian financial services sector can be attributed to managed investment schemes.

While financial advisers have been strong advocates of making MISs pay their way with respect to CSLR funding, the Financial Services Council (FSC) as recently as November told the Senate Economic References Committee that such a move would likely increase the cost burden on advisers.

“The incorporation of AFCA complaints concerning MISs would significantly expand the CSLR and potentially increase the cost burden on financial advisers,” it said and suggested there were other mechanisms available for reducing costs.

“If complaints against MISs were to be brought within the scope of the CSLR, it is not immediately clear that basis for it not also being expanded to capture other subsectors such as banking, superannuation or insurance,” the FSC said.

In announcing the release of its review yesterday, ASIC said it assessed 50 compliance plans used by REs in the operation of a combined 1,471 funds and found that most of the compliance plans failed to adequately address the most important requirements across the design and distribution obligation (DDO), internal dispute resolution (IDR) and reportable situations (RS) regimes.

ASIC noted that the 50 participants in ASIC’s review operate 45% of all registered managed funds and hold 47% of the approximately $2 trillion value of all registered managed fund sector assets.

It is likely the ASIC review will be considered as part of Treasury’s current review of the CSLR, but one of former Assistant Treasurer, Stephen Jones’ last comments as Minister for Financial Services was to downplay the likelihood of including MISs in the funding formula.