A Managed Investment Scheme (MIS) brings together money or other contributions from multiple investors so those assets can be managed collectively to generate financial benefits.
That structure can trigger several distinct financial services obligations. Depending on how the scheme is established, promoted, operated and administered, the business may need AFSL authorisations to:
- operate a registered managed investment;
- issue interests in a managed investment scheme;
- deal in scheme interests;
- provide financial product advice;
- arrange for investors to acquire interests;
- provide custodial or depository services; or
- deal in, advise on or provide regulated portfolio-management services in relation to underlying financial products.
For an unregistered scheme, the licensing requirement arises from the particular financial services provided rather than from a specific authorisation to operate the scheme.
The licensing analysis should be completed before the scheme accepts investors, promotes an offer or begins investing contributed money.
Whether holding scheme property constitutes a custodial or depository service depends on the legal capacity in which the property is held, the rights of investors or the scheme, the services performed and any applicable statutory exclusion or relief.
A scheme structure that appears commercially straightforward can create significant regulatory obligations. These obligations can arise under both Chapter 5C and Chapter 7 of the Corporations Act 2001.
What is a managed investment scheme?
A managed investment scheme is an arrangement with three central features:
- people contribute money or money’s worth to acquire rights to benefits produced by the scheme;
- the contributions are pooled or used in a common enterprise to produce financial benefits or interests in property; and
- the contributors do not have day-to-day control over the operation of the scheme.
The legal definition is broad.
A managed investment scheme may include:
- a property fund;
- mortgage fund;
- private credit fund;
- equity fund;
- agricultural scheme;
- venture capital fund;
- investment syndicate;
- unlisted unit trust;
- pooled property development;
- an infrastructure, private equity or alternative-assets fund;
- investment club;
- another non-corporate collective investment arrangement through which investor contributions are pooled or used in a common enterprise; or
- another structure through which investor contributions are managed collectively.
Whether an arrangement is a managed investment scheme depends on the statutory definition rather than its commercial label or legal structure.
The legal form doesn’t determine the outcome.
A trust, partnership, contractual arrangement or other structure may be a managed investment scheme if the arrangement satisfies the statutory definition.
Not every collective arrangement is a managed investment scheme. The definition excludes several structures, including companies and certain regulated superannuation arrangements. The precise exclusions should be checked before relying on them.
Does a managed investment scheme require an AFSL?
Usually, one or more participants will require AFSL authorisations, even where the scheme itself does not need to be registered.
A registered scheme must be operated by a public company holding an AFSL that authorises it to operate the scheme. An unregistered scheme does not require an “operate a registered scheme” authorisation, but its trustee, issuer, investment manager, adviser, distributor or custodian may still need authorisation for issuing, dealing, arranging, advice, custody or services involving the scheme’s underlying financial products.
Registration and licensing are separate questions. Both must be assessed before the scheme is promoted, accepts applications or begins investing contributed money.
What is the regulatory framework?
Managed investment schemes are primarily regulated under:
- Chapter 5C of the Corporations Act;
- Chapter 7 of the Corporations Act;
- the Australian Securities and Investments Commission Act 2001;
- the scheme’s constitution;
- the scheme’s compliance plan, where required;
- the responsible entity’s AFSL;
- ASIC legislative instruments and regulatory guidance; and
- applicable financial reporting, audit, disclosure and fundraising requirements.
Chapter 5C establishes the registration, responsible entity, constitution, compliance plan and scheme governance framework.
Chapter 7 regulates financial services connected with the scheme, including:
- issuing scheme interests;
- providing advice;
- dealing;
- disclosure;
- design and distribution;
- advertising;
- financial services licensing; and
- conduct towards retail clients.
ASIC administers the managed investment scheme and financial services licensing regimes.
Other legal frameworks may also apply, including:
- anti-money laundering and counter-terrorism financing;
- privacy;
- taxation;
- foreign investment;
- land ownership;
- consumer protection;
- sanctions;
- credit regulation;
- market integrity rules; and
- sector-specific laws.
The regulatory analysis should therefore cover both the scheme structure and the activities undertaken by each participant.
When must a managed investment scheme be registered?
A managed investment scheme generally must be registered with ASIC if:
- it has more than 20 members; or
- it is promoted by a person, or an associate of a person, who is in the business of promoting managed investment schemes.
Be aware that the promoter test can require registration even where the scheme has 20 or fewer members. Businesses should therefore not treat the 20-member threshold as a general safe harbour. ASIC may also determine that closely related schemes must be treated together when assessing the 20-member threshold.
A scheme does not have to be registered if all issues of interests made in the scheme would not have required a Product Disclosure Statement had the scheme been registered when the issues were made. This commonly applies to schemes whose interests are issued exclusively to wholesale clients, although the statutory test should be applied to each issue.
The fact that a scheme is not registered does not mean that it is unregulated.
Operating, issuing or distributing interests in an unregistered wholesale scheme can still involve regulated financial services requiring an AFSL.
The distinction is therefore between:
- whether the scheme must be registered; and
- whether the participants need financial services authorisations.
These are separate questions.
What is a registered managed investment scheme?
A registered managed investment scheme is a scheme registered by ASIC under Chapter 5C.
A registered scheme must have:
- a responsible entity;
- a constitution meeting the statutory requirements;
- a compliance plan;
- appropriate scheme property arrangements;
- financial reporting and audit arrangements;
- compliance plan audit arrangements; and
- governance systems supporting compliance with the law and scheme documents.
A conventional registered managed investment scheme is not incorporated as a company and does not have its own board. Its responsible entity is the public company responsible for operating it.
The responsible entity operates the scheme and performs the functions that would otherwise have been divided between a trustee and scheme manager.
An activity matrix
The most reliable licensing method is to identify each activity, the entity performing it and the potential regulatory characterisation before considering licence authorisations or exemptions.
| Activity | Potential regulatory characterisation |
|---|---|
| Acting as responsible entity of a registered scheme | Operating a registered managed investment scheme |
| Establishing or controlling an unregistered scheme | Not a standalone AFSL category; assess issuing, dealing, advice, arranging, custody and underlying investment activities |
| Establishing or controlling the scheme | Operation or provision of other financial services |
| Issuing units or interests | Dealing by issuing |
| Providing application material or links | May constitute dealing by arranging, depending on the person’s involvement in bringing about the acquisition |
| Recommending the scheme | General or personal financial product advice |
| Assisting with applications | Dealing by arranging |
| Making investment decisions for the fund | Advice, dealing or scheme-management functions depending on structure |
| Holding assets | Potential custody or trustee functions |
| Introducing investors only | May be unregulated, but depends on conduct and remuneration |
What AFSL authorisation is needed to operate a registered scheme?
The responsible entity of a registered managed investment scheme must be a public company holding an AFSL authorising it to operate a registered managed investment scheme.
This is a specific AFSL authorisation.
An AFSL authorising financial product advice or dealing does not, by itself, authorise the licensee to act as the responsible entity of a registered scheme.
The authorisation will usually specify the kinds of scheme the licensee can operate.
ASIC may consider matters including:
- the nature of the scheme;
- the underlying assets;
- the investment strategy;
- whether interests are offered to retail clients;
- custody arrangements;
- valuation;
- liquidity;
- leverage;
- related-party transactions; and
- the Responsible Managers’ experience.
A responsible entity should not assume that experience operating one kind of fund demonstrates competence to operate every kind of registered scheme.
For example, experience managing a liquid securities fund may not establish competence to operate:
- a mortgage fund;
- direct property scheme;
- agricultural scheme;
- complex derivatives fund; or
- illiquid private asset fund.
What AFSL authorisations may be required for an unregistered scheme?
An unregistered managed investment scheme does not have a responsible entity under Chapter 5C. It will ordinarily have a trustee, operator, investment manager or other entity responsible for establishing and operating the arrangement.
There is no specific AFSL authorisation to operate an unregistered managed investment scheme. However, interests in the scheme are generally financial products. The activities undertaken in establishing, operating, promoting and distributing the scheme may therefore involve financial services requiring an AFSL.
Depending on the structure and functions performed, the relevant entities may need to hold, or be covered by, AFSL authorisations for financial services that include:
- deal in scheme interests by issuing, varying or disposing of those interests;
- arrange for investors to apply for or acquire scheme interests;
- provide general or personal financial product advice about the scheme;
- deal in financial products held as the scheme’s underlying investments;
- provide financial product advice concerning those investments; or
- provide custodial or depository services in relation to scheme property.
The licensing analysis should identify which legal entity performs each financial service. The trustee or operator that issues scheme interests as principal may require its own AFSL authorisation, while an investment manager, distributor or adviser may operate under its own AFSL or, where legally available, as a representative of another licensee.
Licensing exemptions may apply in limited circumstances, including the intermediary authorisation exemption. Their application depends on the legal and operational structure and should not be assumed merely because another participant holds an AFSL.
Restricting participation to wholesale clients will commonly affect disclosure obligations and may mean that the scheme does not have to be registered. It does not automatically remove the AFSL requirements applying to the trustee, operator, issuer, investment manager, adviser, distributor or custodian. The registration test must be applied to the issues actually made, while each participant’s financial services must be assessed separately.
A scheme is not exempt from registration merely because it is described as a wholesale scheme. The statutory question is whether all issues of interests made in the scheme would have been exempt from the applicable disclosure requirement. Wholesale client status will often be central to that analysis, but the test must be applied to each issue and the circumstances in which it was made.
ASIC’s INFO 251 explains the AFS licensing requirements applying to trustees of unregistered managed investment schemes that issue, vary or dispose of scheme interests. It also addresses the limited circumstances in which a trustee may rely on the authorised representative exemption in s 911A(2)(a) or the intermediary authorisation exemption in s 911A(2)(b) of the Corporations Act.
In ASIC v BPS Financial Pty Ltd [2025] FCAFC 74, the Full Federal Court held that an authorised representative can rely on the exemption in s 911A(2)(a) only where it provides the relevant financial services as representative of the appointing AFSL holder. BPS could not rely on the exemption because, in substance, it issued and promoted the financial product on its own behalf rather than in a representative capacity. The Court emphasised that the outcome depends on the particular facts and did not decide that a product issuer can never act as an authorised representative.
The decision didn’t alter the separate intermediary authorisation exemption in s 911A(2)(b). The Federal Court had confirmed that this exemption requires the product provider to be a separate person from the intermediary making the offers, and ASIC did not appeal that finding. Trustees and operators should therefore test any proposed reliance on either exemption against the actual contractual arrangements, disclosure and promotional materials, transaction process, division of responsibilities and practical involvement of the AFSL holder.
Note: ASIC is currently reviewing and remaking a number of legislative instruments affecting managed investment schemes. Businesses relying on ASIC legislative relief or class relief should confirm that the relevant instrument remains in force and that its conditions continue to be satisfied before relying on it.
What authorisations are required to issue scheme interests?
An interest in a managed investment scheme is generally a financial product.
Issuing an interest can therefore constitute dealing in a financial product.
Issuing, varying or disposing of an interest ordinarily constitutes dealing by the product issuer.
The issuer must therefore hold the relevant AFSL authorisation unless it can rely on a valid exemption, including, where its requirements are satisfied, an intermediary-based exemption. Reliance on an exemption must be tested against the actual contractual, promotional and transaction arrangements.
The licensing analysis should identify:
- which legal entity issues the interests;
- whether the scheme is registered or unregistered;
- whether investors are retail or wholesale clients;
- what kind of scheme interest is being issued;
- whether the issuer also operates the scheme;
- whether another party arranges the issue; and
- whether any exemption applies.
The responsible entity of a registered scheme will commonly require authorisations both to operate the scheme and to issue interests in it.
An operator of an unregistered scheme may also require an issuing authorisation, even though the scheme itself is not registered.
What authorisations are required to promote or distribute a scheme?
Promoting a scheme can involve several regulated activities.
A person may provide financial product advice if they make a recommendation or statement of opinion intended, or reasonably capable of being regarded as intended, to influence a decision about scheme interests.
A person may deal by arranging where their conduct has sufficient involvement in bringing about an investor’s acquisition of scheme interests.
Relevant conduct may include:
- recommending the scheme;
- presenting the scheme as suitable for a particular type of investor;
- comparing it with other investments;
- helping complete an application;
- collecting investment instructions;
- passing applications to the issuer;
- negotiating investment terms;
- providing application links as part of a sales process; or
- receiving transaction-based remuneration in connection with arranging or facilitating an investment.
Calling the activity marketing, capital raising, investor relations or introduction does not determine the licensing outcome.
The substance of the activity matters.
Businesses involved in scheme distribution should determine whether they require authority to:
- provide general advice;
- provide personal advice;
- deal by arranging;
- deal in scheme interests; or
- act as an authorised representative of an appropriately licensed entity.
Practical tip: Prepare an activity-to-authorisation matrix that maps each proposed marketing, referral, introducing, arranging and advisory activity to its potential AFSL implications. The matrix should identify the entity performing each activity, the authorisation or exemption relied on and the evidence supporting that conclusion.
Can a corporate authorised representative operate a scheme?
A corporate authorised representative may provide only the financial services covered by:
- the principal licensee’s AFSL;
- its written authorised representative appointment; and
- any applicable restrictions.
A representative arrangement does not permit the representative to exceed the principal AFSL’s authorisations.
The operator should also consider whether the proposed role can lawfully be performed as a representative rather than by the licensee itself.
A registered scheme’s responsible entity must itself be the public company holding the AFSL authorising operation of the registered scheme. It cannot satisfy that requirement merely by becoming an authorised representative of another licensee.
Different arrangements may be possible for unregistered schemes, but they require careful analysis of:
- who legally operates the scheme;
- who issues the interests;
- who holds scheme property;
- who makes investment decisions;
- who contracts with investors; and
- whose AFSL authorisations apply.
What is a Responsible Entity?
The Responsible Entity (RE) is the licensed public company that operates a registered managed investment scheme.
It holds the scheme property on trust for scheme members and is responsible for the scheme’s management and compliance.
The responsible entity is not merely an administrator or nominal trustee.
It is the central accountable entity under Chapter 5C.
The responsible entity performs this role in its own statutory capacity, not merely as an administrator engaged by the scheme. Under s 601FB of the Corporations Act, it operates the scheme and performs the functions conferred on it by the Act and the scheme’s constitution.
Subject to those limits, it has the powers necessary to operate the scheme. It also holds scheme property on trust for members and must exercise its powers consistently with its statutory duties, the constitution and the compliance plan.
The responsible entity’s functions may include:
- issuing interests;
- managing investments;
- holding or arranging custody of scheme property;
- calculating unit prices;
- managing applications and withdrawals;
- making distributions;
- maintaining registers;
- preparing disclosure;
- managing service providers;
- monitoring compliance;
- maintaining the compliance plan;
- reporting to members;
- managing conflicts;
- handling complaints; and
- responding to regulatory obligations.
Functions may be outsourced, but the responsible entity remains accountable for selecting, appointing, monitoring and supervising service providers and for ensuring the scheme is operated in accordance with its obligations.
What duties apply to a responsible entity?
Section 601FC of the Corporations Act imposes specific duties on the responsible entity.
These include duties to:
- act honestly;
- exercise the degree of care and diligence that a reasonable person would exercise in the responsible entity’s position;
- act in the best interests of members;
- give priority to members’ interests where there is a conflict;
- treat members of the same class equally;
- treat members of different classes fairly;
- ensure scheme property is clearly identified and held separately;
- ensure payments from scheme property are made in accordance with the constitution and the Act;
- comply with the compliance plan;
- ensure the scheme’s constitution and compliance plan meet statutory requirements; and
- report material breaches of the Act relating to the scheme to ASIC where required.
Officers and employees of the responsible entity also have specific duties concerning the operation of the scheme.
These duties exist in addition to the general AFSL obligations.
The responsible entity must therefore govern both:
- its business as a financial services licensee; and
- each scheme for which it acts.
What should the scheme constitution contain?
A registered scheme must have a constitution that meets the requirements of Chapter 5C.
The constitution creates the legal framework governing the relationship between the responsible entity and members.
It should address matters such as:
- consideration paid to acquire interests;
- the responsible entity’s powers;
- member rights;
- withdrawals;
- fees and expenses;
- indemnity;
- winding up;
- distributions;
- valuation and unit pricing;
- scheme property;
- member meetings; and
- amendments.
The constitution must be legally enforceable between the responsible entity and members.
ASIC’s RG 134 explains its guidance on the statutory requirements for registered scheme constitutions.
The constitution should align with:
- the disclosure document;
- investment mandate;
- operational model;
- compliance plan;
- service-provider arrangements; and
- actual scheme processes.
Inconsistency between these documents creates legal and operational risk.
What is a compliance plan?
A registered managed investment scheme must have a compliance plan.
The compliance plan sets out the measures the responsible entity will apply in operating the scheme to ensure compliance with:
- the Corporations Act; and
- the scheme’s constitution.
Section 601HA provides a non-exhaustive list of matters that must be addressed. These include arrangements concerning:
- identification and separation of scheme property;
- valuation of scheme property;
- compliance with the constitution;
- record keeping;
- complaints;
- monitoring;
- compliance plan review;
- ensuring adequate resources;
- oversight of agents and service providers; and
- reporting and rectifying breaches.
ASIC explains that the legislation does not prescribe a single set of adequate measures. The controls should be tailored to the particular scheme.
The compliance plan is therefore not intended to be a generic policy document.
It should describe the actual controls used to operate the scheme.
What makes a compliance plan effective?
An effective compliance plan should identify:
- the obligation or risk being addressed;
- the control applied;
- the person responsible;
- the frequency of the control;
- the records retained;
- monitoring arrangements;
- escalation triggers;
- breach reporting requirements; and
- corrective action.
For example, a control dealing with scheme property should explain:
- how property is identified;
- whose name it is held in;
- how it is separated from other assets;
- how ownership records are reconciled;
- who reviews the reconciliation;
- what happens when a discrepancy is identified; and
- what evidence is retained.
A statement that the responsible entity “will ensure scheme property is properly held” is unlikely to provide a sufficient operational control.
ASIC’s recent review of registered scheme compliance plans found that many plans required significant improvement, particularly where they contained generic, incomplete or inadequately tailored controls.
Does a compliance plan need to be audited?
Yes.
The compliance plan of a registered scheme must be audited annually.
The compliance plan auditor examines:
- whether the responsible entity complied with the plan during the financial year; and
- whether the plan continued to meet the statutory requirements.
The compliance plan audit is separate from the scheme’s financial statement audit.
The responsible entity should treat the audit as an independent assurance process, not a document-completion exercise.
It should ensure that:
- the auditor has access to relevant records;
- control evidence is complete;
- findings are assessed promptly;
- material matters are escalated;
- remediation is tracked;
- recurring issues are analysed; and
- changes to the compliance plan are considered.
An audit finding can reveal weaknesses in both the scheme and the responsible entity’s broader compliance infrastructure.
When is a compliance committee required?
A responsible entity must generally establish a compliance committee if less than half of its directors are external directors. A committee must have at least three members and a majority must be external members.
The committee provides additional independent oversight of the responsible entity’s compliance with the scheme’s compliance plan.
Its functions include:
- monitoring compliance with the compliance plan;
- reporting breaches to the responsible entity;
- reporting matters to ASIC in specified circumstances;
- assessing the adequacy of the compliance plan; and
- making recommendations about required changes.
The committee should have:
- appropriate independence;
- relevant expertise;
- access to information;
- clear meeting processes;
- reliable reporting;
- authority to escalate concerns; and
- adequate support.
A compliance committee should not operate as a procedural substitute for effective board oversight.
The directors of the responsible entity remain responsible for the company’s governance and the operation of the scheme.
What governance does a responsible entity need?
A responsible entity needs governance at two connected levels.
Responsible entity governance
This addresses the licensed business itself, including:
- organisational competence;
- Responsible Managers;
- financial resources;
- risk management;
- conflicts;
- compliance;
- outsourcing;
- representatives;
- regulatory reporting; and
- corporate governance.
Scheme governance
This addresses each scheme, including:
- investment mandate;
- valuation;
- liquidity;
- leverage;
- withdrawals;
- distributions;
- scheme property;
- related-party transactions;
- service providers;
- disclosure;
- member interests;
- compliance plan controls; and
- winding-up arrangements.
The two levels should not operate separately.
A problem with a scheme can create:
- an AFSL breach;
- a compliance plan breach;
- a breach of responsible entity duties;
- member detriment;
- a reportable situation;
- a disclosure issue;
- a liquidity problem; or
- a threat to the responsible entity’s financial resources.
Governance reporting should allow the board to see those connections.
Remember that a breach may require separate assessment under the scheme-specific notification obligation in s 601FC(1)(l) and the AFSL reportable-situations regime. Satisfaction of one regime should not be assumed to satisfy the other.
What should the board of a Responsible Entity monitor?
The board should receive sufficient information to assess whether each scheme is being operated lawfully, within its mandate and in members’ best interests.
Reporting may include:
- investment performance;
- mandate compliance;
- liquidity;
- valuation exceptions;
- unit-pricing errors;
- scheme property reconciliations;
- withdrawal requests;
- related-party transactions;
- conflicts;
- complaints;
- breaches;
- disclosure issues;
- service-provider performance;
- compliance plan testing;
- audit findings;
- financial resources;
- remediation;
- significant risks; and
- overdue actions.
The board should not receive only confirmation that controls were completed.
It should understand:
- what failed;
- why it failed;
- whether members were affected;
- whether other schemes are exposed;
- what action was taken;
- whether the action worked; and
- whether the responsible entity remains adequately resourced.
The interests of members must remain central to those decisions.
How should conflicts be managed?
Conflicts are a significant risk for responsible entities and scheme operators.
Potential conflicts may arise where:
- the responsible entity receives fees from scheme property;
- related parties provide services;
- assets are acquired from associates;
- multiple schemes compete for the same investment;
- the manager co-invests with the scheme;
- investors receive different terms;
- related lenders provide finance;
- valuations affect fees;
- liquidity decisions favour some investors; or
- the responsible entity’s commercial interests diverge from members’ interests.
The responsible entity must have adequate conflicts arrangements under its AFSL obligations.
It must also give priority to members’ interests where its own interests conflict with those of members.
A conflicts framework should address:
- identification;
- disclosure;
- avoidance;
- control;
- independent review;
- approval;
- valuation;
- related-party requirements;
- record keeping; and
- monitoring.
Disclosure alone may not adequately manage a conflict.
The responsible entity should determine whether proceeding with the transaction is consistent with its duty to act in members’ best interests and give priority to members’ interests where a conflict exists.
How should scheme property be protected?
Scheme property must be clearly identified and held separately from the responsible entity’s property and the property of any other scheme. Where a custodian or other asset holder is appointed, the custody arrangements should also appropriately segregate scheme property from the provider’s property and other client assets.
The responsible entity may appoint a custodian or asset holder.
It remains responsible for ensuring that the arrangements are appropriate.
Controls should address:
- legal title;
- account naming;
- asset registers;
- reconciliations;
- transaction authority;
- access controls;
- valuation;
- encumbrances;
- cash management;
- record keeping;
- service-provider oversight; and
- incident escalation.
The responsible entity should be able to identify where each material asset is held, who controls it and what evidence establishes the scheme’s interest.
What financial requirements apply?
Responsible entities are subject to financial requirements under their AFSL conditions, ASIC’s RG 166 and applicable legislative instruments. These requirements can be more substantial than the base-level requirements applying to many other AFSL holders.
They are intended to support the responsible entity’s financial viability, enable it to perform its obligations and reduce the risk of disorderly disruption to the schemes it operates. They should not be treated as assurance that the responsible entity can meet every compensation or remediation liability.
The applicable NTA and cash-needs requirements should be modelled before the licence application or variation is lodged. They can materially affect the commercial viability of acting as a responsible entity, particularly where scheme property is not held by an eligible external custodian.
The applicable requirements depend on factors including the responsible entity’s activities, whether it holds scheme property, the value of scheme property, its cash needs, its net tangible assets and any tailored licence conditions or legislative requirements.
At a minimum, the responsible entity must satisfy ASIC’s cash-needs requirements and maintain the required level of net tangible assets. The applicable NTA threshold will depend on the responsible entity’s activities, the value of scheme property and the arrangements used to hold that property.
Using an eligible external custodian can materially reduce the responsible entity’s NTA requirement. By contrast, a responsible entity that holds scheme property itself may be subject to substantially higher financial requirements. The custody model should therefore be considered as part of the scheme’s commercial design, not as a separate operational decision made after licensing.
Financial requirements should also be modelled across the scheme’s expected growth. An arrangement that satisfies the applicable thresholds at launch may cease to do so as funds under management, scheme property, operating costs or liquidity needs increase. Forecasting should therefore test the responsible entity’s expected position under both normal growth and plausible stress scenarios.
The responsible entity should monitor financial resources continuously.
It should not treat the financial requirement as an annual calculation performed only for audit purposes.
What risk management systems are required?
A responsible entity must maintain adequate risk management systems.
ASIC’s RG 259 explains its expectations for risk management at:
- the responsible entity level; and
- the individual scheme level.
ASIC’s AFSL obligations guidance directs responsible entities to RG 259 when considering their risk management obligations.
Relevant risks may include:
- investment risk;
- liquidity risk;
- valuation risk;
- counterparty risk;
- credit risk;
- leverage;
- operational risk;
- conflicts;
- custody;
- outsourcing;
- cyber risk;
- fraud;
- key-person risk;
- compliance risk;
- market disruption;
- financial resource risk; and
- winding-up risk.
The risk framework should connect:
- risk appetite;
- risk assessments;
- controls;
- monitoring;
- incidents;
- escalation;
- actions; and
- board reporting.
A static risk register is not sufficient.
What product-governance obligations apply when interests are offered to retail clients?
Where interests in a managed investment scheme are offered to retail clients, the operator’s obligations extend beyond licensing and disclosure. The issuer must also comply with the product governance requirements in Part 7.8A of the Corporations Act, together with the disclosure, conduct and complaints obligations that apply to retail financial products.
For most retail managed investment schemes, this means the responsible entity or issuer should:
- prepare and maintain a Target Market Determination (TMD) where required;
- take reasonable steps so distribution is consistent with the TMD;
- monitor distribution outcomes and review the TMD when review triggers occur;
- report significant dealings outside the target market to ASIC;
- provide a compliant Product Disclosure Statement (PDS);
- maintain internal dispute resolution procedures that comply with ASIC RG 271;
- be a member of the Australian Financial Complaints Authority (AFCA); and
- ensure marketing and distribution practices comply with the anti-hawking provisions and other applicable conduct obligations.
These obligations operate alongside, rather than instead of, the AFSL obligations discussed throughout this guide. Holding the appropriate licence authorisations does not, by itself, satisfy the product governance framework.
In practice, product governance requires more than preparing a TMD. Operators should be able to demonstrate that product design, target market assumptions, distribution channels, monitoring, complaints, remediation and governance reporting all operate together as part of an effective compliance framework. Distribution data, adviser feedback, complaints, withdrawal patterns and compliance monitoring should all feed back into periodic reviews of whether the product continues to be distributed appropriately.
Practical tip: Product governance should be treated as an ongoing operational control rather than a disclosure exercise. A documented governance framework that allocates responsibility for product design, distribution oversight, monitoring, review triggers and regulatory reporting will generally provide stronger evidence of compliance than relying on the TMD alone.
Scheme Launch Readiness Assessment
A scheme operator should be able to answer ten questions clearly:
- Is the arrangement a managed investment scheme?
- Must the scheme be registered?
- Which entity operates the scheme?
- Which entity issues the interests?
- Who advises or arranges investments?
- Does each participant hold the correct AFSL authorisations?
- Who holds and controls scheme property?
- How are conflicts and related-party transactions governed?
- How will the board know whether the scheme is operating compliantly?
- What evidence demonstrates that the controls are effective?
If any answer is uncertain, the scheme may not be ready to launch.
What are the most common licensing mistakes?
Assuming a wholesale scheme does not require an AFSL
Wholesale status may remove the scheme registration requirement.
It does not automatically remove licensing requirements applying to the operator, issuer, adviser or distributor.
Applying for only an advice authorisation
Providing advice about a scheme is different from operating it, issuing its interests or arranging investment.
Each activity must be mapped separately.
Using the wrong legal entity
The entity holding the AFSL may not be the entity that:
- operates the scheme;
- issues the interests;
- contracts with investors;
- holds scheme property; or
- receives fees.
The licensing structure should align with the actual legal and operational model.
Treating capital raising as unregulated marketing
Capital-raising activities can constitute financial product advice or dealing by arranging.
Relying on an authorised representative appointment without testing its scope
The principal AFSL and the representative authority must cover the services actually provided.
Underestimating the Responsible Manager requirements
Responsible Managers should have experience relevant to:
- the scheme type;
- underlying assets;
- investment management;
- operations;
- compliance;
- distribution; and
- client group.
General financial services experience may not be enough.
Ignoring custody authorisations
A participant that holds financial products or beneficial interests for another person should assess whether it is providing a custodial or depository service. The outcome depends on the legal capacity in which the property is held, the rights of the client or scheme, the services performed and any applicable statutory exclusion or licensing relief.
Launching before licensing is settled
Launching marketing activities, expressions of interest or investor application processes before confirming licensing and disclosure obligations may itself create regulatory risk.
What are the most common governance mistakes?
Using a generic compliance plan
The plan repeats the legislation but does not describe the scheme’s actual controls.
Failing to align scheme documents
The constitution, disclosure document, compliance plan, investment mandate and operational procedures contain inconsistent requirements.
Relying excessively on service providers
The responsible entity assumes the administrator, custodian, investment manager or registry provider is responsible for compliance.
Weak related-party governance
Related-party transactions are treated as ordinary commercial decisions without sufficient member-interest analysis or independent challenge.
Inadequate liquidity planning
Withdrawal terms are offered without adequately testing whether the scheme’s assets can support them under stress.
Poor valuation governance
The valuation process lacks independence, reliable evidence or escalation for difficult-to-value assets.
Incomplete scheme property records
The responsible entity cannot readily demonstrate ownership, location or reconciliation of scheme assets.
Reporting activity instead of risk
The board receives confirmation that controls occurred but little information about failures, member impact or unresolved weaknesses.
Closing findings without effectiveness testing
An action is closed because a policy was amended, without testing whether the underlying control improved.
What does ASIC typically examine during surveillance or regulatory review?
ASIC expects responsible entities and other fund operators to maintain compliance and oversight arrangements appropriate to the nature, scale and complexity of:
- the operator;
- the scheme;
- its assets;
- its investors;
- its service providers; and
- its risk profile.
ASIC’s RG 132 emphasises that compliance measures should be tailored to the particular fund rather than applied as generic documentation.
ASIC may examine:
- whether the AFSL authorisations match the activities;
- whether the scheme should have been registered;
- whether Responsible Managers have relevant competence;
- whether the constitution is compliant;
- whether the compliance plan contains adequate measures;
- whether controls operate in practice;
- whether scheme property is protected;
- whether service providers are supervised;
- whether conflicts are appropriately managed;
- whether members are treated fairly;
- whether breaches are identified and reported;
- whether the board receives reliable information; and
- whether remediation is effective.
The existence of a constitution, compliance plan and AFSL does not prove that the scheme is being properly governed.
ASIC will consider how the arrangements operate.
What is a practical implementation framework?
A prospective scheme operator should complete the following stages before launch.
1. Define the arrangement
Document:
- the commercial objective;
- proposed structure;
- investor contributions;
- investor rights;
- management arrangements;
- investment strategy;
- fees;
- decision-making;
- withdrawals; and
- distribution model.
2. Confirm whether it is a managed investment scheme
Test the arrangement against the statutory definition and exclusions.
3. Determine whether registration is required
Consider:
- investor numbers;
- wholesale or retail status;
- promotion arrangements;
- related schemes; and
- available exemptions.
4. Map each regulated activity
Identify who will:
- operate the scheme;
- issue interests;
- provide advice;
- arrange investments;
- manage assets;
- hold assets;
- administer the scheme; and
- promote the offer.
5. Map AFSL authorisations
Confirm that each regulated activity is covered by:
- the operator’s AFSL;
- another participant’s AFSL;
- an authorised representative appointment; or
- a valid exemption.
6. Assess organisational competence
Map Responsible Manager experience to:
- scheme operation;
- asset classes;
- products;
- investors;
- custody;
- compliance;
- risk; and
- distribution.
7. Establish governance
Define:
- board oversight;
- delegations;
- conflicts governance;
- investment governance;
- service-provider oversight;
- escalation;
- reporting; and
- member-interest decision-making.
8. Prepare scheme documents
Develop and align:
- the constitution;
- compliance plan;
- disclosure document;
- investment mandate;
- service-provider agreements;
- policies;
- registers; and
- operational procedures.
9. Implement compliance infrastructure
Establish workflows for:
- applications;
- withdrawals;
- valuations;
- unit pricing;
- complaints;
- incidents;
- breaches;
- related-party matters;
- conflicts;
- regulatory change;
- monitoring;
- audit findings; and
- corrective actions.
10. Test readiness
Before launch, confirm:
- authorisations are effective;
- systems are configured;
- staff are trained;
- providers are operational;
- scheme property arrangements are in place;
- governance reporting is ready;
- disclosure is consistent; and
- evidence can be produced.
Pre-launch tip: Before accepting investors, prepare a one-page checklist confirming that the required documents, approvals, AFSL authorisations, responsible persons and governance evidence are in place. The checklist should identify any unresolved conditions and the person responsible for closing them before launch.
How does Assured Support help?
Assured Support helps fund operators, responsible entities and prospective licensees establish defensible licensing and governance arrangements.
Before applying for an AFSL, varying an existing licence or accepting investors, complete a structured scheme and authorisation assessment. Assured Support can map the arrangement, regulated activities, legal entities, required authorisations, Responsible Manager capability and governance controls, then identify the gaps that must be resolved before launch.
Planning or reviewing a managed investment scheme? Book a call to test the structure, authorisations and governance arrangements before regulatory exposure is created.
This article provides general information and professional education. It is not legal advice.
Further reading
Frequently Asked Questions
Restricting participation to wholesale clients commonly affects disclosure obligations and may remove the need to register a scheme under Chapter 5C, but it does not automatically remove financial services licensing obligations. The relevant question is whether a person is providing a regulated financial service such as issuing scheme interests, arranging investments, providing financial product advice or providing custody services.
Practically, operators should map every activity to the legal entity performing it, then confirm that entity has the appropriate AFSL authorisation or valid exemption. Many licensing failures occur because businesses assume wholesale status removes regulation altogether rather than changing only selected obligations.
A compliance plan should describe how controls actually operate, not simply restate legislation.
ASIC’s focus is increasingly on operational effectiveness rather than document completion. A compliance plan that merely states the responsible entity “will ensure compliance” provides little evidence that controls exist, are monitored or are effective.
Boards should expect each control to identify ownership, frequency, evidence retained, escalation triggers and remediation processes. This allows both management and auditors to test whether controls genuinely reduce regulatory risk rather than merely existing on paper.
The most reliable approach is to map activities before considering licences.
Rather than asking “What licence do we need?”, operators should identify every regulated activity, including operating the scheme, issuing interests, providing advice, arranging investments, managing assets and providing custody.
Only after that activity mapping should each legal entity be matched to the required AFSL authorisations.
This approach avoids one of the most common licensing errors—obtaining an advice authorisation while overlooking issuing, arranging or operating authorisations that are equally necessary.
No.
Technology can strengthen monitoring, evidence retention, workflow management and board reporting, but it cannot replace directors’ duties, Responsible Entity obligations or regulatory judgement.
Effective governance still depends on appropriate oversight, challenge, escalation, conflict management and evidence-based decision making. Technology should support these activities by improving visibility and auditability rather than substituting for governance itself.
The strongest implementations connect operational controls with documented evidence, ongoing monitoring and board reporting.
Well-governed schemes produce evidence, not simply policies.
Examples include documented board decisions, compliance monitoring results, scheme property reconciliations, valuation reviews, breach assessments, compliance plan testing, service-provider oversight, conflict registers, remediation records and audit outcomes.
Collectively, these records demonstrate that governance operates continuously rather than only during audits or ASIC reviews. The article’s implementation framework reinforces that operational evidence should exist before launch and continue throughout the scheme’s life.
