Global

Details

  • Service: Tax
  • Type: Regulatory update, Survey report
  • Date: 1/1/2014

Australia - Regulation 

International funds and fund management survey

1.1 Type of funds
1.2 Laws
1.3 Managers, trustees, and custodians
1.4 Investment restrictions
1.5 Borrowing
1.6 Accounts and prospectus
1.7 Supervision
1.8 Fund ownership
1.9 Fund structure
1.10 Stock exchange
1.11 Anti-money laundering
1.12 Fund set-up
1.13 Foreign funds
1.14 Bearer shares
1.15 Use of the internet



1.1 Type of funds

Collective investment funds can be organized in Australia either as trusts or as companies. Companies may be either public or private. In practice most funds are organized as unit trusts.


Unit trust structures are most commonly adopted for the management of both wholesale and retail funds and are generally referred to as managed investment schemes, schemes, or retail schemes to distinguish them from other types of unit trusts, such as those used to carry on active businesses.


Trust structures are also usually established for the management of superannuation (pension/retirement) funds.


back to top

1.2 Laws

All trusts are created in equity rather than under statute.


A company is established under and subject to the Corporations Act 2001.


Both wholesale unit trusts (those funds whose units are held by large investors including other funds) and retail unit trusts (those funds widely held and offered to the public for subscription), either must be or can be registered under the managed investment scheme provisions of the Corporations Act (Chapter 5C). Registered Schemes must prepare and lodge a Compliance Plan which must be audited annually.


Superannuation entities are regulated by the Superannuation Industry (Supervision) Act 1993 (SIS Act) and it's Regulations.


ASIC Class Order 11/1140 imposes financial requirements for Responsible Entities of Managed Funds. These are outlined in ASIC Regulatory Guide 166. The Responsible Entity must hold a certain amount of net tangible assets (NTA), fulfill liquidity and extended cashflow projection requirements.


back to top

1.3 Managers, trustees, and custodians

Managers


A Responsible Entity (RE) must be appointed to manage schemes registered under the Corporations Act. The RE must be an Australian registered public company and hold an Australian Financial Services (AFS) license authorizing it to operate a managed investment scheme. The Australian Securities and Investments Commission (ASIC), (the Regulator) must also accept lodgment of the constitution of the scheme before it can become registered under the Corporations Act.


Trustees


A superannuation fund must have a trustee. The trustee must be a constitutional corporation, or where allowed, two or more individuals. The trustee of a public offer superannuation entity (superannuation fund, approved deposit fund, pooled superannuation trust) must hold a license to operateissued by APRA.


back to top

1.4 Investment restrictions

There are generally no restrictions on the type of investments which funds may make. The scheme constitution or the AFS licence may provide specific restrictions which need to be observed.


back to top

1.5 Borrowing

Funds are allowed to borrow and there are generally no limits on their powers of borrowing. Specific limitations apply in the case of superannuation entities (SIS Act section 67).


back to top

1.6 Accounts and prospectus

Widely-held (retail) schemes may only be offered to the public for subscription on publication of a Product Disclosure Statement (PDS). The Corporations Act contains provisions applying to the content of the document.


Funds must be audited and accounts must be published at least annually. Audit reports must be lodged with ASIC. Under tax law, funds are generally (but not always) required to produce accounts to 30 June in each year.


back to top

1.7 Supervision

The Australian Securities and Investments Commission (ASIC) is the federal regulatory body for publicly subscribed unit trusts and companies and superannuation entities, in accordance with the Corporations Act. The Australian Prudential Regulation Authority (APRA) also regulates superannuation entities under the SIS Act. There is no separate state supervision of funds.


Other regulators that may be applicable include the Australian Taxation Office, the Australian Privacy Commission and AUSTRAC.


back to top

1.8 Fund ownership

There are generally no restrictions on the percentage of units in the fund which may be held by any one person.


back to top

1.9 Fund structure

Funds are permitted to invest in other funds. Umbrella funds and hedge funds are also permitted. The same regulatory requirements apply to hedge funds as they apply to other funds.


back to top

1.10 Stock exchange

Stock exchange quotations are available to funds but there are no provisions exempting them from the full requirements relating to obtaining a listing.


back to top

1.11 Anti-money laundering

Funds are captured by the anti-money laundering (AML) and counter terrorist financing (CTF) laws. The laws require reporting entities to develop, implement, and maintain an AML/CTF program which much include appropriate risk based systems and controls. The systems should be designed to effectively identify and materially mitigate the risk that providing a designated service might involve money laundering or the financing of terrorism.


back to top

1.12 Fund set-up

The cost of creating a fund can vary from upwards of AUD20,000, depending on the complexity of the fund. Creating the fund can take upwards of two months.


back to top

1.13 Foreign funds

Where a widely held fund is offered to the public for subscription in Australia, it is necessary that a Product Disclosure Statement be published regardless of whether the fund is foreign or domestic.


Under certain circumstances the Regulators will grant relief from the law prohibiting the offering of certain unit trusts in Australia except by a public company. This relief is granted on an individual scheme basis and is subject to the standard pre-conditions and ongoing conditions of the law. In general, unit trusts governed by the Hong Kong Securities and Futures Commission, the UK Financial Services (Regulated Schemes) Regulations, the Investment Company Act of 1940 (US), the New Zealand, and Guernsey jurisdictions, have been approved by the regulators as meeting the key regulatory requirements for the granting of relief.


Exchange Control regulations require disclosure of cash transactions exceeding AUD10,000. Therefore it may be necessary to disclose details of substantial investments in foreign organized mutual funds. Foreign funds need to comply with the new AML/CTF laws.


back to top

1.14 Bearer shares

Units are not issued in bearer form in Australia as a matter of practice although there are no regulatory or legal restrictions on the issue of such units. However, from a tax perspective it should be noted that an investor must quote a tax file number or an Australian Business Number in connection with an investment in order to avoid a 48.5 percent withholding tax being deducted from any payment arising on the investment.


back to top

1.15 Use of the internet

The Australian managed investments industry has embraced the internet as a means to accessing a larger customer base and the provision of more timely information to customers.


ASIC permits widely held funds to provide Product Disclosure Statement information on the internet. In addition, nothing in the Corporations Act precludes applications from being submitted to the issuer in electronic form and paper form, where the application is a print out of a computer screen.




© 2014 KPMG Australia Pty Limited, an Australian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

 

Share this

Share this

Contact

Jacinta Munro

KPMG in Australia

+61 3 9288 5877

International funds and fund management survey

International hedge funds survey

The annual KPMG International Hedge Fund Survey looks at the taxation and regulation issues affecting hedge fund management.