Collective investments

The inquiry into collective investments was conducted jointly with the Companies and Securities Advisory Committee (CSAC). Its aim was to review the regulatory framework for prescribed interests and similar collective investments schemes.

Consultation papers published as part of the Collective Investments inquiry were:

• an issues paper—Collective Investments (ALRC IP 10);
• and two discussion papers—Collective Investment Schemes: Superannuation (ALRC DP 50) and Collective Investment Schemes (ALRC DP 53).

During the course of the review, the federal Attorney-General asked for an urgent report on superannuation issues. Accordingly, Collective Investments: Superannuation (ALRC Report 59) was released in 1992. The three-volume report, Collective Investments: Other People’s Money (ALRC Report 65) was released in 1993.

ALRC Report 59

ALRC Report 59 identified two means of government intervention to ensure retirement savings in superannuation were protected—requiring superannuation schemes to insure against the risk of failure; and prescribing measures to reduce liquidity and institution risk. The report reflected that prudential supervision was an acceptable way of intervening in the market.

ALRC Report 59 concluded that existing methods of regulatory control of superannuation schemes were unsuitable.

ALRC Report 65

ALRC Report 65 found that collective investments were a rapidly growing sector in investment in Australia, of considerable importance to the economy. The report concluded that policy should therefore ensure the twin objectives of encouraging business activity while ensuring that investors were adequately protected. In identifying the types of risk that collective investors face, the report proposed that although the government should not intervene to reduce investment risk it should intervene to reduce or control compliance and institutional risk.

Key recommendations

ALRC Report 59

• It should be a legislative requirement that there be a single entity responsible for each superannuation scheme.
• Legislation should also strengthen the requirements of disclosure to members of the super scheme and the duties of the responsible entity to the members of the scheme.
• A Superannuation Review Panel should be established to provide external review in disputes between members and the responsible entity.

ALRC Report 65

• Trustees and managers of collective investment schemes should be replaced with a single responsible entity.

• There should be tighter legislative control of scheme operators.
• The disclosure requirements should be strengthened.
• The obligation for scheme operators to buy back interests in the schemes should be abolished.
• The Australian Securities Commission (ASC, now the Australian Securities and Investments Commission) should be given greater investigative and enforcement powers.

Implementation

ALRC Report 59

The Superannuation Industry (Supervision) Act 1993 (Cth) and Superannuation (Resolution of Complaints) Act 1993 (Cth) were enacted in 1993. They gave effect to a large number of the inquiry’s recommendations.

The Superannuation Industry (Supervision) Act 1993 (Cth) provided for the Insurance and Superannuation Commissioner to have effective supervisory and enforcement powers in relation to the prudential requirements and obligations placed on funds and responsible entities. It also dealt with the fiduciary responsibilities of the responsible entity and investment managers, their suitability, and control of the responsible entity by the regulator and fund members.

The Superannuation (Resolution of Complaints) Act 1993 (Cth) provided for the establishment of a Superannuation Complaints Tribunal to resolve complaints through conciliation and through reviewing the decision of the responsible entity to which the complaint relates.

ALRC Report 65

The requirements of disclosure were strengthened with passage of the Corporate Law Reform Act 1994 (Cth).

In 1998, the Managed Investments Act 1998 (Cth) was passed through parliament, thus implementing many of the recommendations proposed by ALRC Report 65 Collective Investments and bringing non-superannuation collective investment schemes into line with the changes to the regulation of superannuation.

Continuing issues

Superannuation law continues to change as the collective investments industry grows. For further information on the current laws, see the website of the Australian Taxation Office (ATO) for self-managed funds and the Australian Prudential Regulatory Authority (APRA) for other superannuation funds.