FinTech businesses often introduce new and innovative products to the market and services that present a better way of providing existing services. However, all FinTech businesses should be mindful if their products or services have characteristics that can trigger additional legal obligations. For example, you should consider whether your product or service is dealing with an interest in a managed investment scheme. If so, you must consider and comply with the applicable legal obligations. This article explains the legal obligations that any business that deals with interests in a managed investment scheme should note.
What is a Managed Investment Scheme?
A managed investment scheme is where a group of people pool money or other assets (for example, cryptocurrencies) to invest in a common venture to create a financial return. A person (called a responsible entity) manages the scheme, which the investors rely on to invest and manage the pooled money or assets appropriately. The investors have little to no day-to-day control over managing a managed investment scheme. Instead, they may have other rights like voting rights and the right to obtain financial returns from the common venture.
Each investor’s rights in the scheme are referred to as their interests. Likewise, those interests would likely be financial products in Australia.
Registered vs Unregistered Managed Investment Scheme
When dealing with managed investment schemes, your legal obligations vary depending on whether you manage a registered or unregistered managed investment scheme. Registered managed investments are those which you must register with the Australian Securities and Investment Commission (ASIC).
A managed investment scheme must register with ASIC if any investors in the scheme are retail clients and:
- the scheme has 20 or more investors;
- the scheme is promoted by businesses that usually promote managed investment schemes; or
- ASIC otherwise decides that the managed investment scheme should be registered.
Any managed investment scheme that is not registered with ASIC is called an unregistered managed investment scheme.
Continue reading this article below the formLegal Obligations
There are some key legal obligations that all managed investment schemes must comply with. This is irrespective of whether it is registered or unregistered.
| Obligation | Description |
| Obtain an Australian Financial Service Licence (AFSL) | Any person providing a financial service in connection with a managed investment scheme must hold an AFSL (unless an exemption applies). Applicants must apply for an AFSL with ASIC or be an authorised representative of an entity with an AFSL. |
| Comply with the relevant disclosure obligations | A business or person that issues, varies or disposes of interests in a managed investment scheme has certain disclosure obligations which it must make to potential investors. These disclosure documents are necessary so that potential investors can review them to understand better the risks and rewards associated with the managed investment scheme. |
| Comply with the design and distribution obligations | If your business issues or distributes interest in a managed investment scheme, it must comply with the design and distribution obligations or DDO. Obligations require issuers and distributors of financial products to take a consumer-centric approach when issuing and distributing financial products. They ensure products are suited to the target customer. |
Additional Obligations
Some additional legal obligations apply if you are managing a registered managed investment scheme.
- an Australian public company that holds an AFSL must appoint and authorise the responsible entity who will manage the scheme;
- the responsible entity must hold tangible assets of $50,000 or 0.5% of the value of the scheme’s gross assets up to $10 million. If a custodian is appointed to the scheme, the amount reduces to $5 million;
- the scheme must prepare a constitution and a compliance plan for the managed investment scheme and lodge them with ASIC. A compliance plan explains how the managed investment scheme will meet the compliance requirements under the scheme’s constitution and Australian law; and
- a compliance committee must be established if the board of directors of the responsible entity does not comprise at least half of external directors.
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Key Takeaways
In summary, a managed investment scheme is where a group of investors pool their assets and collectively invest in a venture to create financial returns. You must comply with certain legal obligations if your FinTech business provides financial services in connection with an investor’s interest in managed investment schemes. The legal obligations include the following:
- potentially obtaining an AFSL;
- making certain disclosures to a potential investor;
- complying with design and distribution obligations; and
- complying with the report and record-keeping requirements as ASIC stipulates.
If you would like to understand better if your service or product is a managed investment scheme or would like assistance complying with the associated legal obligations, our experienced Banking, Finance and FinTech lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
A managed investment scheme is where a group of investors pool their assets and collectively invest in a venture to create financial returns.
You provide a financial service if your business sells, deals with or provides financial advice in connection with financial products. If you operate a registered managed investment scheme, you will be deemed to be providing a financial service.
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