Regulatory Background

6

ASIC’s regulatory framework for mortgage schemes principally consists of:

  1. a requirement for operators of mortgage schemes, that meet the criteria for registration as a managed investment scheme, to comply with Chapter 5C of the Act;
  2. application of RG 144 and RG 45, as well as other relevant ASIC regulatory guides applicable to managed investment schemes generally; and
  3. relief to mortgage scheme operators in certain cases, such as operators of small, low risk schemes e.g. solicitors’ mortgage practices, may be permitted to comply with an approved industry body’s rules (for example, those of the relevant State or Territory professional law bodies) rather than all of Chapter 5C, if the body can demonstrate effective supervision over such participants.[1]

1

For schemes of this kind with no more than 20 investors and no more than $7.5 million in total loan capital, ASIC allows such operators to participate in an industry-based compliance structure approved by ASIC. However, ASIC has indicated that it will impose various conditions on such schemes, including the application of the disclosure and anti-hawking provisions of the Act.

7

RG 144 indicates that a mortgage scheme is likely to be regarded as being a managed investment scheme if:

  1. the legal or commercial character of the investment is determined by the nature of the business operations of the promoter e.g. where money contributed by different investors is lent under one mortgage; and
  2. commercial decisions are taken by the operator or the promoter of the scheme and not by investors.

8

RG 144 recognises that subsection 601ED(1) must also be satisfied for a mortgage scheme to be required to be registered as a managed investment scheme under Chapter 5C. In particular registration may be required under subsection 601ED(1) if:

  1. the scheme has more than 20 members (investors); or
  2. the scheme 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
  3. ASIC has determined that the scheme is one of a number of schemes that are closely related and the total number of members is greater than 20.[2]

2

Auditors of smaller schemes not directly regulated by ASIC but administered as part of an industry-based compliance structure may also be required to report on various compliance matters as part of the auditing arrangements which are agreed to with the individual State or Territory industry supervisory bodies.