3 min read
September 4, 2024
Fact Checked

Registered vs Unregistered Managed Investment Schemes: ASIC Requirements3 min read

Published By:

Gavin McInnes

Founder of GRM LAW

Key Takeaways:

Mandatory Registration Thresholds: Under the Corporations Act 2001, a managed investment scheme must be registered with ASIC if it has more than 20 members or is driven by a professional scheme promoter.
The Small-Scale Offering Exemption: A scheme can legally remain unregistered if it raises no more than $2 million from a maximum of 20 people within any 12-month period, as this removes the need for a Product Disclosure Statement.
The Wholesale Client Exemption: You can operate an unregistered managed investment scheme if all investors are wholesale clients, such as individuals investing at least $500,000 or holding $2.5 million in net assets.
Non-Financial Product Exclusions: If a structure does not meet the specific member or promoter thresholds, its interests are not classified as financial products, which is why standard family trusts avoid ASIC registration.

Once you have established that your venture or investment is a managed investment scheme, you will need to work out whether an interest in it is a financial product and, if so, whether the scheme requires registration with ASIC.

An interest in a managed investment scheme is a financial product unless specifically excluded (see below).

Under the Corporations Act 2001 (Act), (Section 601ED) a managed investment scheme (where interests in it are financial products) must be registered if:

it has more than 20 members; or
it was promoted by a person, or an associate of a person, who was, when the scheme was promoted, in the business of promoting managed investment schemes; or
a determination [is in force under which ASIC has determined that a number of managed investment schemes are closely related and must be registered when the total number of investors across all the scheme exceeds 20].

Case law generally indicates that a person promoting a single scheme with fewer than 20 members will not be regarded as being “in the business of promoting managed investment schemes”. (ASC v Stephen Su [1995] SASC 5061)

Note that if any of (a), (b) and (c) are not met then interests in the managed investment scheme are not financial products at all (Section 765A). This is why family trusts will not usually be regulated by ASIC even though they are, technically, managed investment schemes.

It is important to note that the need for registration set out above is overridden if:

all of the issues of interests in the scheme that have been made would not have required the giving of a Product Disclosure Statement under Division 2 of Part 7.9 if the scheme had been registered when the issues were made.

The key two situations in which a Product Disclosure Statement (PDS) will not be required are where:

all the members of the scheme are wholesale clients; or
the issuer of the interests in the managed investment scheme issues financial products to no more than 20 people in any 12-month period and raises no more than $2 million from issuing financial products in any 12-month period (Section 1012E).

If the managed investment scheme meets either of these criteria, it does not need to be registered, regardless of whether it meets (a), (b) or (c) above. If you were wondering “What is an unregistered managed investment scheme?”, then this is it.

Situations in which a person may be treated as a wholesale client are set out in the Act. Common examples include where:

the person provides an accountant’s certificate stating that they hold net assets of at least $2.5 million or gross income for each of the last two financial years of at least $250,000; or
the value of the investment is at least $500,000.

A managed investment scheme that is not registered by virtue of the fact that all its members are wholesale clients, is often called a “wholesale managed investment scheme”.

Again, it is easy to underestimate the scope for complexity here. Considerations like whether a person is “in the business of promoting managed investment schemes”, or the number of people to whom financial products are issued and the funds raised as a result, require careful legal expertise. It is important to get this analysis right so that the managed investment scheme and its associated activities and governance framework can be set up in compliance with the law.

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For more information, please contact Gavin McInnes on 07 3367 8681 or gmcinnes@grmlaw.com.au.

The information contained in this article is general in nature and cannot be regarded as anything more than general comment. Readers of this article should not act on the basis of this comment without consulting one of GRM LAW ‘s legal practitioners who will consider their particular circumstances.

Expertise

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