By David Court and Frank Varga
Holley Nethercote
There are still scores of advisers who operate their MDA service through a regulated platform and are not ready to comply with ASIC’s amended policy in relation to Managed Discretionary Accounts (MDAs).
ASIC’s 2016 amendments to its policy in relation to MDAs included the removal of its ‘no-action’ letter position for those advisers who provided an MDA on a regulated platform holding a limited power of attorney. This no-action letter was very popular and many advisers took advantage of it over the past 13 years, as they structured their business to meet the terms of the no-action letter.
To continue to provide MDA services, those advisers who relied on the no-action letter will need to apply for a variation of their AFSL to provide MDA services and be approved by 1 October 2018.
The number of existing licensees transitioning to a licence enabling them to provide MDA services has been quite low to date. As with previous licensing transition periods, it is likely there may be a rush of applications being submitted with ASIC in the first half of 2018.
However, unlike previous transition periods, such as margin lending, ASIC assessment periods are now quite lengthy, with most applications taking approximately six months to be finalised.
On 28 November last year, ASIC notified licensing experts that it is pushing out its decision timeframes for 70 per cent of applications from two months to five months, and for 90 per cent of applications from three months to eight months.
Therefore, licensees applying to add MDA services will need to ensure they treat the application process seriously by submitting quality applications; otherwise the applications may be rejected prior to assessment or they may have an extended assessment period.
Advisers should also consider new ASIC ‘fee-for-service’ regulations being proposed by Treasury from 1 July 2018. Current fees to vary an AFSL are approximately $300. Fees proposed by Treasury may see the cost of a variation application increase to as high as $11,305.
In addition to the requirement to be appropriately authorised, there are new disclosure and reporting obligations that will require changes to existing documentation.
However, it’s not all bad news, as ASIC will allow transitioning licensees to count their experiences in operating under the no-action letter as relevant Responsible Manager experience for the licence variation.
In light of this extended assessment period and the new fees from 1 July 2018, there is a need for advisers to commence their preparation to comply with the new policy (including preparing the licence application).
We have been helping industry participants’ transition into an MDA-licensed regime, and would welcome current licensees who offer MDA services to contact us at Holley Nethercote to discuss their needs in relation to licensing and documentation updates. Just go to the AFSL Applications and Variations page on the Holley Nethercote website at www.hnlaw.com.au.
David Court is a Partner and Frank Varga is a Licensing Specialist at Holley Nethercote Commercial and Financial Services Lawyers and Compact Compliance and Training.