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List of Recommendations
Chapter 4—The compliance committee
Recommendation 1
The Committee
recommends that:
- the definition of ‘external director’ and ‘external member’ in
sections 601JA and 601JB respectively of the Corporations Act 2001 should
be amended to ensure that:
- they are independent;[1]
- relatives and de facto spouses of ineligible individuals are
ineligible to act on the compliance committee (whether as the board or an
external compliance committee)[2];
and
- the meaning of ‘material’ be clarified.
Recommendation 2
The Committee recommends that the
RE be required to:
- report all appointments, retirements, resignations or removals of
compliance monitors (whether as members of the board or of a separate
compliance committee) to ASIC within a specified period (e.g. 5 business days);
- disclose annually to scheme investors the names of all current
compliance monitors; and
- disclose annually to scheme investors the names of compliance
monitors who have retired, resigned or been removed in the previous year and
the reasons for all resignations and removals.
Recommendation 3
The
Committee recommends that ASIC be empowered to remove a member of a compliance
committee where ASIC forms the view that the member is not performing
adequately or otherwise should not be on the committee. The removal would be
subject to reasonable notice requirements and rights to administrative review
of ASIC’s decision.
Recommendation 4
The Committee recommends that the
Corporations Act 2001 be amended to ensure that:
- the requirements in the compliance plan dealing with the
arrangements which a compliance committee must make regarding membership,
holding of meetings and so on, as far as appropriate, be expressly applied to
the board when acting in the compliance monitoring role; and
- the functions and duties applicable to the compliance committee,
as far as appropriate, be expressly applied to the board when acting in the
compliance monitoring role.
Recommendation 5
The
Committee recommends that the Corporations Act 2001 be amended so that
the RE of a registered scheme must establish a compliance committee if a
majority of its directors are not external directors.
Recommendation 6
The Committee recommends that
the Corporations Act 2001 be amended to allow a corporate compliance
entity to act as a member of a registered scheme’s compliance committee.
Recommendation 7
The Committee recommends that the
Corporations Act 2001 be amended to require:
- the compliance plan of a registered scheme to set out detailed
minimum standards of competency and integrity which each compliance monitor
must meet;
- any amendments to the compliance plan regarding these minimum
standards must be approved by a majority of compliance monitors before lodgment
of the amendments with ASIC. The copy lodged with ASIC should also be signed
by the compliance monitors; and
- the RE to disclose details of the minimum standards annually,
preferably at the same time as details of compliance monitors are disclosed.
Recommendation 8
The
Committee recommends that ASIC, in consultation with industry, develop
guidelines and model minimum standards for competency and—if considered
necessary—integrity, for in-house compliance monitors.
Chapter 5—Compliance plan auditing
Recommendation 9
The
Committee recommends that the Corporations Act 2001 should be amended to
strengthen the independence of compliance plan auditors to include:
- a general statement of
principle requiring the independence of compliance plan auditors;
- a requirement for compliance
plan auditors to report to ASIC annually about their management of independence
issues according to benchmarks developed by ASIC; and
- a requirement for compliance
plan auditors to report to ASIC any attempts to corrupt the integrity of the
audit.
Recommendation 10
The Committee recommends the application of qualified
privilege and whistleblower protection to employees of the RE and, if not
already covered by subsection 601HG(8) of the Corporations Act 2001, to
employees of, and the compliance plan auditor reporting any suspected breaches
of the law to ASIC in good faith and with reasonable cause.
Recommendation 11
The
Committee recommends that the Department of the Treasury, in consultation with
ASIC and relevant industry stakeholders, look into the feasibility of opening
up the field for compliance plan auditors where it is considered that persons
other than registered company auditors as defined under the Corporations Act
2001 could effectively carry out the requirements of a compliance plan
auditor.
Recommendation 12
The
Committee recommends that the Corporations Act 2001 be amended to accommodate
ASIC’s proposals to:
- require the compliance plan
auditor to report to scheme members;
- clarify that the auditor’s
opinion relates to a scheme’s performance for the entire year being audited;
- require a compliance plan
audit of a newly registered scheme within the first year of its registration;
- require an auditor’s opinion
on the adequacy of the compliance plan to be included with a scheme’s
application for registration; and
- clarify that the compliance
plan audit need only focus on material issues.
The
Committee further recommends that the Department of the Treasury and ASIC
should develop a test of materiality.
Chapter 6—Other checks and balances
Recommendation 13
The
Committee recommends that ASIC review its NTA and insurance requirements for
REs to determine whether they should be subject to periodic adjustment to take
into account, for example, CPI rises or the quantum of funds under management.
Chapter 8—Costs and fees
Recommendation 14
The Committee recommends that the
Government commission an independent cost/benefit analysis with a view to
determining the impact of the Managed Investments Act 1998 and other
relevant legislation. This will then establish a useful benchmark for future
studies. The analysis should specifically look at:
- Australia’s performance on costs and fees compared with major
overseas financial centres;
- whether and to what extent the MIA has limited or stimulated
competition within the industry; and
- whether understanding, transparency and disclosure for consumers
has improved and/or is sufficient with regard to managed investments costs and
fees.
Recommendation 15
The Committee recommends that the
Corporations Act 2001 be amended to provide for a ‘fair’ treatment
criterion in lieu of ‘equal’ treatment but only to provide for differential
fees.
The
Committee further recommends that what constitutes ‘fair’ treatment should be
developed through consultation between the Department of the Treasury, ASIC and
industry groups. The Committee notes that the Department is presently
consulting with regard to this issue.
Chapter 9—Proposals for change
Recommendation 16
The Committee recommends that the
current provisions of the Managed Investments Act 1998 relating to third-party
custodianship, should be monitored by ASIC with regular reports being made to
the Parliamentary Joint Committee on Corporations and Financial Services with
particular regard to:
- the number of entities opting into third-party
custodianship; and
- providing some qualitative comparative analysis of the
performance of those entities with, and those without, third-party
custodians.
The Committee further
recommends that on the basis of these reports, the Committee should regularly
review the efficacy of the current opt-in provisions in the Act compared
with an alternative opt-out provision regarding optional third-party
custodianship.
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