The Australian Securities and Investments Commission is reviewing its guidance and regulation of managed discretionary accounts, as a result of significant changes to the sector since 2004, when the commission’s guidance was released.

“This review will ensure that our requirements for MDA operators are up to date, address emerging risks and are consistent with our approach to other financial products and services,” ASIC commissioner, Peter Kell, said in a statement. 

MDAs are arrangements that involve a person (an MDA operator) managing a portfolio of assets for a retail client on an individual basis. There are a wide variety of arrangements that can constitute an MDA - common types include separately managed accounts and individually managed accounts.

ASIC commenced a review of the MDA sector in 2012 as a result of the recent growth in the number of offerings and increased interest from financial planners as a result of Future of Financial Advice reforms. 

Proposal

The consultation paper proposes that ASIC:

• revoke two temporary no-action positions which cover certain MDA arrangements and incorporate the final position on those issues into the main guidance and relief;
• implement one of three alternative proposals which seek to ensure MDA investors are adequately informed when their MDA operator has discretion to invest in products where recourse is not limited (e.g. contracts for difference);
• insist on more detailed and specific upfront disclosure from MDA operators on key issues; and
• update the guidance to provide greater certainty, and to reflect the changes in the law that have been implemented as part of the FOFA reforms.

It has also been recommended to update the financial requirements for MDA operators to ensure they are consistent with the obligations imposed by ASIC on other financial products.

“Higher financial requirements are designed to ensure that MDA operators have adequate resources to fulfil their obligations,” said Kell. 

Comments on the consultation paper are due by 19 April 2013.