Footnotes

List of recommendations

[1]        A definition of ‘independent’ should be developed that reflects the qualities referred to in the introduction to this chapter.

[2]        The terminology used in the Act is ‘relative or de facto spouse’.  ‘Relative’ and ‘de facto spouse’ are defined in section 9 of the Act.

Chapter 1 - The Committee's Inquiry

[1]        Review of the Managed Investments Act 1998, Press Release, 19 December 2001.

[2]        Turnbull Review, pp. 14–15.

Chapter 2 - Inquiry background and objectives

[1]        The information in this section is drawn from various sources, including the report of the Australian Law Reform Commission and Companies and Securities Advisory Committee, Collective Investments: Other People’s Money, Report No. 65, 1993;  Second Reading Speeches for the Managed Investments Bill 1997 in March, May and June 1998; the Turnbull Review and, as otherwise indicated, in text notation.

[2]        Collective Investments: Other People’s Money, Report No. 65, 1993, vol. 1, pp. 1–3.

[3]        Wallis Report, pp. 490-1.

[4]        Senator the Hon. Ian Campbell, Second Reading Speech, Senate Hansard, 5 March 1998, p. 447.

[5]        Senator the Hon. Ian Campbell, Second Reading Speech, Senate Hansard, 5 March 1998, pp. 445-8.

[6]        See, for example, Mr Kelvin Thomson MP, Second Reading Speech, House Hansard, 3 March 1998, pp. 237-9, Mr Stephen Martin MP, Second Reading Speech, House Hansard, 4 March 1998, p. 364 and Senator the Hon. Peter Cook, Second Reading Speech, Senate Hansard, 28 May 1998, pp. 3345-6.

[7]        Managed Investments Bill 1997, Schedule of Amendments made by the Senate to which the House of Representatives has agreed, 25 June 1998.

[8]        This has been replaced by the Corporations Act 2001.

[9]        Turnbull Review, p. 1 and see the Hon. Peter Costello MP, Treasurer, Embargo: Treasurer Heralds New Era for Financial System, Press Release, 1 July 1998.

[10]      Drawn from a table provided in ASIC’s submission to the Turnbull Review, Part 1, pp. 9–10.

[11]      The Hon. Peter Costello MP, Treasurer, Embargo: Treasurer Heralds New Era for Financial System, Press Release, 1 July 1998.

[12]      Senator the Hon. Ian Campbell, Second Reading Speech, Senate Hansard, 5 March 1998, pp. 445-8.  See also the Turnbull Review, pp. 18–19.

[13]      Senator the Hon. Peter Cook, Second Reading Speech, Senate Hansard, 28 May 1998, pp. 3342-6.

[14]      Turnbull Review, p. 1.

[15]      Review of the Managed Investments Act 1998, Press Release, 19 December 2001.

[16]      See in particular, Turnbull Review, p. 58.

[17]      Report on the Managed Investments Bill 1997, p. 9.

[18]      Figure at March Quarter 2002, Australian Bureau of Statistics, 5655.0 Managed Funds, Australia.

Chapter 3 - Has the MIA Regime proved itself?

[1]        Managed Investments Act Consultation Paper, 29 May 2002, p. 2, referred to throughout as the Treasury consultation.

[2]        Vol. 1, pp. 8-10.

[3]        ALRC/CASAC report, vol. 1, Chapter 10 (regarding the RE) and Chapter 14 (regarding ASIC).

[4]        ALRC/CASAC report, vol. 1, Chapter 12,  pp. 132-3.

[5]        Sections 601EA (regarding documents to be lodged for registration) and 601ED (regarding ASIC’s consideration of the registration application).

[6]        Section 601FA.

[7]        Subsection 601QA(1).

[8]        Section 601FB.

[9]        Sections 601HA (compliance plan), 601JA (when a compliance committee is required) and 601JC (functions of the compliance committee).

[10]      Section 601HG.

[11]      Paragraph 601FC(1)(l).

[12]      Compliance plan auditor’s reporting obligations are in subsection 601HG(4).  Compliance committee members’ reporting obligations are in subsection 601JC(1).

[13]      Turnbull Review, p. 58.

[14]      Committee Hansard, 17 June 2002, pp. 17–18.

[15]      Committee Hansard, 12 July 2002, p. 24.

[16]      Committee Hansard, 12 July 2002, p. 25.

[17]      Committee Hansard, 12 July 2002, p. 25.

[18]      Committee Hansard, 12 July 2002, p. 59.

[19]      Committee Hansard, 12 July 2002, p. 59.

[20]      Committee Hansard , 12 July 2002, p. 62.

[21]      Committee Hansard, 11 July 2002, p. 17.  (Mr Stewart’s evidence was given in a personal capacity and not as a representative of Minter Ellison Lawyers.)

[22]      Mr Sean Hughes, Committee Hansard, 7 August 2002, p. 101.

[23]      Committee Hansard, 7 August 2002, pp. 100–1.

[24]      Mr Nigel Ray, Committee Hansard, 7 August 2002, p. 86.

[25]      Ms Lynn Ralph, Committee Hansard, 12 July 2002, p. 26.

[26]      Committee Hansard, 12 July 2002, p. 26.

[27]      Committee Hansard, 12 July 2002, p. 47.

[28]      Committee Hansard, 11 July 2002, pp. 10-11.

[29]      Committee Hansard, 11 July 2002, p. 11.

[30]      Committee Hansard, 11 July 2002, pp. 11-12.

Chapter 4 - The compliance Committee

[1]        Subsection 601HA(1).

[2]        Joint Committee of Public Accounts and Audit, Review of Independent Auditing by Registered Company Auditors, Report 391, August 2002, p. 6.

[3]        Sections 601JA and 601JB.

[4]        Section 601JB.

[5]        In the interests of brevity, references to the compliance committee or the compliance monitor should be taken to include the RE’s board when it is performing the compliance monitoring function.

[6]        Supplementary submission no. 4A, p. 2 of attachment.  Another witness, Mr Russell Stewart, Partner, Minter Ellison Lawyers (but appearing in a personal capacity) also commented on the need to clarify ‘material interest’ so that otherwise well qualified people would not be excluded from a compliance monitoring role.  See reference below.

[7]        Submission no. 10, p. 1.

[8]        ASIC’s submission to the Turnbull Review, Part 2.

[9]        Submission no. 6, p. 3; Committee Hansard, 11 July 2002, p. 21.  (Mr Stewart’s evidence was given in a personal capacity and not as a representative of Minter Ellison Lawyers.)

[10]      Committee Hansard, 12 July 2002, p. 33.

[11]      Submission no. 2, Attachment 1, p. 19.

[12]      Committee Hansard, 7 August 2002, p. 96.

[13]      ASIC’s submission to the Turnbull Review, Part 2.

[14]      Committee Hansard, 12 July 2002, p. 53.

[15]      A definition of ‘independent’ should be developed that reflects the qualities referred to in the introduction to this chapter.

[16]      The terminology used in the Act is ‘relative or de facto spouse’.  ‘Relative’ and ‘de facto spouse’ are defined in section 9 of the Act.

[17]      Turnbull Review, pp. 62–3.

[18]      This could be because a number of witnesses made submissions on these issues to the Turnbull Review and the Committee’s inquiry.

[19]      Committee Hansard, 12 July 2002, p. 49.

[20]      Committee Hansard, 11 July 2002, p. 3.

[21]      Committee Hansard, 11 July 2002, p. 3.

[22]      Submission no. 7, p. 2.

[23]      Committee Hansard, 12 July 2002, pp. 50–1.

[24]      Committee Hansard, 12 July 2002, p. 62.

[25]      Mr Dave Maher, Committee Hansard, 7 August 2002, pp. 82–3.

[26]      Mr Dave Maher, Committee Hansard, 7 August 2002, p. 83.

[27]      Submission no. 10, p. 1.

[28]      Committee Hansard, 12 July 2002, p. 60.

[29]      Submission no. 10, p. 2.

[30]      Mr Ian Johnston, Committee Hansard, 7 August 2002, p. 97.

[31]      ASIC’s submission to the Turnbull Review, Part 2, p. 17.

[32]      Subsection 601JC(1).

[33]      ASIC’s submission to the Turnbull Review, Part 2, p. 15.

[34]      Committee Hansard, 12 July 2002, p. 50.

[35]      Committee Hansard, 12 July 2002, p. 50.

[36]      Subsection 601JA(1).

[37]      Subsection 601JB(1).

[38]      Submission no. 3, p. 2.

[39]      Committee Hansard, 12 July 2002, p. 48.

[40]      Turnbull Review, pp. 64–5.

[41]      Mr Ian Johnston, Committee Hansard, 7 August 2002, pp. 91–2.

[42]      Committee Hansard, 12 July 2002, p. 38.

[43]      Committee Hansard, 12 July 2002, p. 60.

[44]      Committee Hansard, 11 July 2002, p. 3.

[45]      Committee Hansard, 11 July 2002, p. 8.

[46]      Committee Hansard, 11 July 2002, pp. 7 and 14.

[47]      Submission no. 7, p. 5.

[48]      Submission no. 3, Appendix 2, pp. 1-3.

[49]      Submission no. 6, p. 3.

[50]      Committee Hansard, 11 July 2002, p. 21.

[51]      Committee Hansard, 11 July 2002, p. 21.

[52]      Committee Hansard, 12 July 2002, p. 60.

[53]      Turnbull Review, pp. 59–60, Recommendation no. 10.

[54]      Committee Hansard, 12 July 2002, pp. 64–5.

[55]      Committee Hansard , 12 July 2002, p. 62.

[56]      Committee Hansard, 12 July 2002, p. 33.

[57]      Committee Hansard, 12 July 2002, pp. 44–5.

[58]      Committee Hansard, 12 July 2002, pp. 65-6.

[59]      Committee Hansard, 12 July 2002, p. 52.

[60]      Mr Ian Johnston, Committee Hansard, p. 93.

[61]      In the United States, the Sarbanes-Oxley Act of 2002 was introduced into law on 30 July 2002.  In the United Kingdom, the Financial Services Authority is reviewing listing rules in several areas including corporate governance and has commissioned an independent review of the role of non-executive directors.  In Canada, the Joint Committee on Corporate Governance issued its final report, Beyond Compliance: Building A Governance Culture, in November 2001.  In Australia, the Government has recently released its CLERP 9 discussion paper.

[62]      Under this Act, public companies must have independent audit committees which pre-approve independent audit and non-audit services.  Disclosure is required in quarterly and annual reports as to whether or not the audit committee has at least one ‘financial expert’ and, if not, the reasons for this must be stated.  A new rule proposed by the Securities Exchange Commission under the Act will also require public companies to disclose the number and names of ‘financial experts’ on the company’s audit committee.  See the United States Securities and Exchange Commission Release no. 2002-150, SEC Proposes Additional Disclosures, Prohibitions to Implement Sarbanes-Oxley Act, 16 October 2002, www.sec.gov/news/press/2002-150.htm.

Chapter 5 - Compliance plan auditing

[1]        Section 601EA.

[2]        Section 601HA.

[3]        Sections 601HC and 601HE.

[4]        Sections 601HD and 601HE.

[5]        Subsection 601HG(1).

[6]        Subsection 601HG(2).

[7]        For commentaries and studies, see for example: Professor Ian Ramsay, Independence of Australian Company Auditors: Review of Current Australian Requirements and Proposals for Reform, October 2001; Joint Committee of Public Accounts and Audit, Review of Independent Auditing by Registered Company Auditors, Report 391, August 2002; Ernst & Young, Survey of Top 200 Companies’ Compliance with NYSE Listing Rules, Corporate Governance Series, September 2002.  See also ASIC’s survey of auditor independence concluded in December 2001 (ASIC Media and information release 02/13 ASIC announces findings of auditor independence survey, 16 January 2002.

[8]        Subsection 601HG(3).

[9]        Subsection 601HG(4):  ASIC must be notified if the auditor has reasonable grounds to suspect that a contravention of the Act has occurred and believes that the contravention has not or will not be adequately dealt with by commenting on it in the auditor’s report.

[10]      Mr Sean Hughes, Committee Hansard, 7 August 2002, p. 92.

[11]      Committee Hansard, 7 August 2002, p. 99.

[12]      Turnbull Review, p. 71; Treasury consultation pp. 29–31.

[13]      See ASIC’s submission to the Turnbull Review, Part 2, pp. 12–15; Turnbull Review p. 71.

[14]      Committee Hansard, 7 August 2002, p. 97.

[15]      Mr Michael Shreeve, Committee Hansard, 12 July 2002, p. 49.

[16]      Supplementary submission no. 4A, p. 2.

[17]      Committee Hansard, 11 July 2002, p. 2.

[18]      Committee Hansard, 12 July 2002, pp. 49–50.

[19]      Mr Dave Maher, Committee Hansard, 7 August 2002, p. 88.

[20]      The Sarbanes-Oxley Act of 2002 passed by the United States Congress on 30 July 2002 requires all members of the audit committee to be fully independent and at least one to be appropriately qualified.  The committee is responsible for the appointment and supervision of the independent auditor.

[21]      See ASIC Media and information release 02/12 ASIC announces findings of auditor independence survey, 16 January 2002 with attachment.  The findings were based on answers to questionnaires sent to 100 of Australia’s largest companies, of which 67 provided comprehensive replies.

[22]      Ernst & Young News Release, Ernst & Young study reveals Australian corporate lag behind in board independence and Survey of Top 200 Companies’ Compliance with new NYSE Listing Rules, Corporate Governance Series, 24 September 2002.  (See Chapter 4 for commentary on the Sarbanes-Oxley Act of 2002, regarding ‘financial experts’.)

[23]      ICAA and CPA Australia Media release, New Australian standard for audit independence, 23 May 2002.

[24]      Review of the Managed Investments Act 1998 Report, Department of the Treasury Discussion Paper, Chapter 3.

Chapter 6 - Other checks and balances

[1]        See, for example, Senator the Hon. Peter Cook, Second Reading Speech, Senate Hansard, 28 May 1998, pp. 3345-6; Senator Dee Margetts, Second Reading Speech, Senate Hansard, 22 June 1998, p. 3562; Senator Brian Harradine, Second Reading Speech, Senate Hansard, 22 June, 1988, pp. 3569-70.

[2]        ASIC’s submission to the Turnbull Review, Part 1, p. 48.

[3]        ASIC’s submission to the Turnbull Review, Part 1, p. 48.

[4]        ASIC Media and information release 02/168 ASIC welcomes additional funding, 15 May 2002.

[5]        Committee Hansard, 23 May 2002, p. 68.  (The hearing was for the Committee’s inquiry into the regulations and ASIC’s policy statements made under the Financial Services Reform Act 2001.)

[6]        Committee Hansard, 23 May 2002, p. 70.  (The hearing was for the Committee’s inquiry into the regulations and ASIC’s policy statements made under the Financial Services Reform Act 2001.)

[7]        Committee Hansard  pp. 46 and 62.

[8]        Submission no. 7, p. 1.

[9]        Submission no. 1, p. 1.

[10]      Committee Hansard, pp. 72–4.

[11]      This is only a very brief summary of the basic requirements.  These requirements vary according to the type of managed investment scheme involved.

[12]      Paragraphs 131.16 to 131.19.

[13]      Turnbull Review, p. 27.  See also ASIC Policy Statement 131 Managed investments: Financial requirements, para. 131.10.

[14]      Mr Ian Johnston, Committee Hansard, 12 July 2002, p. 90.

[15]      Turnbull Review, p. 28.

[16]      Recommendation 89, pp. 490-1.

[17]      Options for Improving the Safety of Superannuation—Draft Recommendations of the Superannuation Working Group, 4 March 2002, p. 27.  (This recommendation applied to trustees approved under the Superannuation Industry (Supervision) Act 1993.  Another recommendation applied to superannuation funds without a trustee.  The SWG did not consider capital was necessary for these funds but proposed alternative measures such as insurance.)

[18]      Options for Improving the Safety of Superannuation—Report of the Superannuation Working Group, 24 October 2002, Recommendation 16, p. 51.

[19]      Committee Hansard, 12 July 2002, p. 49.

[20]      Committee Hansard, 12 July 2002, pp. 54 and 56.

[21]      Committee Hansard, 12 July 2002, p. 54.

[22]      Committee Hansard, 11 July 2002, p. 3.

[23]      Committee Hansard, 11 July 2002, p. 7.

[24]      Mr Nigel Ray, Committee Hansard, 7 August 2002, p. 87.

Chapter 7 - Liability of the responsible entity and section 1325

[1]        See Parliamentary Secretary to the Treasurer, Senator the Hon. Ian Campbell, Second Reading Speech, Senate Hansard, 5 March 1998, p. 446.

[2]        Subsection 601FB(2).

[3]        Managed Investments Bill 1997, Explanatory Memorandum, Parliament of the Commonwealth of Australia, House of Representatives, p. 18.

[4]        Paragraph 601FC(i); section 601FB; paragraph 601FC(j).

[5]        Subsection 601QA(1) confers a discretion on ASIC to require third-party custodianship of scheme property.  ASIC’s Policy Statement 131 Managed investments: Financial requirements provides that ASIC will generally require an RE to appoint a custodian if its net tangible assets are under $5 million.

[6]        Turnbull Review, p. 30.

[7]        Mr Dave Maher, Committee Hansard, 7 August 2002, p. 80.

[8]        Submission no. 7, p. 3.

[9]        Committee Hansard, 11 July 2002, p. 3.

[10]      Submission no. 3, p. 5.

[11]      Committee Hansard, 12 July 2002, p. 55.

Chapter 8 - Costs and fees

[1]        Turnbull Review, pp. 75-6.

[2]        The United States Securities and Exchange Commission, Division of Investment Management: Report on Mutual Fund Fees and Expenses, December 2000:

www.sec.gov/news/studies/feestudy.htm (October 2002), p. 4.

[3]        Retail Registered Schemes Fees and Charges: Second Release, July 2002.  (IFSA commissioned KPMG to prepare this report.)

[4]        Committee Hansard, 11 July 2002, p. 9.

[5]        Submission no. 3, p. 7.

[6]        Committee Hansard, 12 July 2002, p. 26.  Quoted from Retail Registered Schemes Fees and  Charges: Second Release, July 2002, p. 1.  (MERs generally measure the ongoing management costs of funds but do not factor in the full range of fees applying across managed funds, for example, entry and exit fees.  However, in a recent report on disclosure of fees and charges in managed investments commissioned by ASIC, Professor Ian Ramsay commented that the MER ‘provides useful information relating to relative costs across similar funds and can identify trends in relation to ongoing management charges and expenses over time.  It is to be noted that similar operating expense ratios are used in other countries such as Canada, New Zealand and the United States...’  (See Professor Ian Ramsay, Disclosure of Fees and Charges in Managed Investments, Review of current Australian Requirements and Options for Reform, 25 September 2002, p. 205.)

[7]        Committee Hansard, 12 July 2002, p. 27.

[8]        Committee Hansard, 12 July 2002, p. 28.

[9]        See, for example, submission no. 6A, p. 2.

[10]      Committee Hansard, 11 July 2002, p. 4.

[11]      Committee Hansard, 11 July 2002, p. 4.

[12]      Committee Hansard, 12 July 2002, p. 52.

[13]      Committee Hansard, 12 July 2002, p. 43.  (In evidence to the Committee, Mr Paul Dortkamp also touched on the changes mentioned by IFSA.  See Committee Hansard, 12 July 2002, p. 67.)

[14]      Committee Hansard, 12 July 2002, p. 43.

[15]      Managed Investments Bill 1997, Explanatory Memorandum, Parliament of the Commonwealth of Australia, House of Representatives, p. 9.

[16]      Submission no. 12, p. 2.

[17]      See ASIC Media and information release 01/352 ASIC releases Ramsay Report on disclosure of fees and charges, 25 September 2002.  In this media release, ASIC announced the release of Professor Ian Ramsay’s report, commissioned by ASIC, Disclosure of Fees and Charges in Managed Investments, Review of Current Australian Requirements and Options for Reform.  ASIC said this report would ‘facilitate further consultation by ASIC with industry and consumer representatives about the future direction of disclosure for investment products under the FSRA regime’.

[18]      Turnbull Review, p. 78.

[19]      ASIC’s submission to the Turnbull Review, Part 2, pp. 1-2.

[20]      Mr Ian Johnston, Committee Hansard, 7 August 2002, p. 100.

[21]      Committee Hansard, 11 July 2002 p. 22.  (Mr Stewart’s evidence was given in a personal capacity and not as a representative of Minter Ellison Lawyers.)  Paragraph 601GA(1)(a) says that the constitution of a registered scheme must make adequate provision for the consideration that is to be paid to acquire an interest in the scheme.  Subsection 601GA(2) says, among other things, that any rights the RE is to have to be paid fees out of scheme property must be specified in the scheme’s constitution.

[22]      Submission no. 2, Attachment 1 (submission to the Turnbull Review), p. 19.

[23]      Committee Hansard, 7 August 2002, p. 86.

Chapter 9 - Proposals for change

[1]        Mr Nigel Ray, Committee Hansard, 7 August 2002, p. 78.

[2]        Submission no. 2 (Investment & Financial Services Association Ltd), p. 2 of letter attached to main submission.

[3]        Supplementary submission no. 6A (Mr Russell Stewart), p. 2.

[4]        Submission no. 12 (Professor Paul von Nessen), p. 1. 

[5]        Submission no. 3 (Trustee Corporations Association of Australia) and submission no. 7 (Trust Company of Australia Limited).

[6]        Submission no. 9 (Dr Shann Turnbull); submission no. 3 (Trustee Corporations Association of Australia) and submission no. 7 (Trust Company of Australia Limited).

[7]        Submission nos. 3 and 7.

[8]        Submission no. 1 (Mr J McAuley).

[9]        IFSA’s submission to the Turnbull Review, p. 3.

[10]      IFSA submission no. 2, p. 2.

[11]      Committee Hansard, 12 July 2002, pp. 47–8.

[12]      Committee Hansard, 11 July 2002, p. 9.

[13]      Submission no. 2, p. 4.

[14]      Submission no. 7, p. 7.

[15]      Committee Hansard, 12 July 2002, p. 48.

[16]      Committee Hansard, 12 July 2002, p. 48.

[17]      Submission no. 7, p. 1.

[18]      Committee Hansard, 12 July 2002, p. 51.

[19]      Submission no. 3, p. 1.

[20]      Submission no. 1, p. 1.

[21]      Ms Lynn Ralph, Committee Hansard, 12 July 2002, p. 26.

[22]      Turnbull Review, pp. 28–9.

[23]      Turnbull Review, p. 30.

[24]      Submission no. 9, pp. 1-2.

[25]      Submission no. 7, pp. 4-5.

[26]      Committee Hansard, 12 July 2002, p. 49.

[27]      Submission no. 3, p. 4.

[28]      The survey referred to was conducted by KPMG in 1995.  See submission no. 3, p. 4.

[29]      Submission no. 3, p. 4.

[30]      Committee Hansard, 11 July 2002, pp. 18-19.  (Mr Stewart’s evidence was given in a private capacity and not as a representative of Minter Ellison Lawyers.)

[31]      Committee Hansard, 11 July 2002, p. 18.

[32]      Submission no. 7, p. 2.

[33]      Committee Hansard, 11 July 2002, p. 12.

[34]      Submission no. 3, pp. 8-9.  Committee Hansard, 12 July 2002, pp. 49-50.  See also Productivity Commission, Review of the Superannuation Industry (Supervision) Act 1993 and Certain Other Superannuation Legislation, Report no. 18, 10 December 2001, pp. 60-7.

[35]      Submission no. 3A, p. 1.

[36]      Committee Hansard, 12 July 2002, p. 52.

[37]      Address by Mr David Knott, Chairman, ASIC, to the CPA Congress 2002 Conference, Protecting the investor: the regulator and audit, 15 May 2002.

[38]      Address by Mr David Knott, Chairman, ASIC, to the CPA Congress 2002 Conference, Protecting the investor: the regulator and audit, 15 May 2002.

[39]      Committee Hansard, 7 August 2002, p. 79.

[40]      Committee Hansard, 7 August 2002, p. 79.

Supplementary report - Review of the Managed Investments ACT

[1]        Review of the Managed Investments Act 1998, p. 30.