Financial services lawyer questions focus on property funds in MIS review

In his response to the government’s announced review of the regulatory framework for managed investment schemes, partner at Hall & Wilcox specialising in financial services and funds management, Vince Battaglia, has raised concerns about whether certain types of registered schemes should be subject to specific regulations or higher standards of regulation than others. He also questioned whether the review is placing too much emphasis on property funds.

Namely last week, Financial Services Minister Stephen Jones said the MIS review will examine whether the regulatory framework is fit-for-purpose, identify potential gaps, and consider what enhancements can be made to reduce undue financial risk for investors.

However, having looked into the documents supplied by the government, Mr Battaglia found that “there appears to be a focus on property funds”.

“This is evident by the Minister calling out both some failed property or property-related funds, but also liquidity requirements. Key questions arise as to whether the failures in the funds mentioned in his release (Sterling Income Trust, Trio Capital, and Timbercorp) were particular governance failures of that responsible entity rather than a failure of regulation in principle, and whether the unusual nature of the real estate investments of Sterling Income Trust and the risks associated with it bear any relationship with traditional property funds,” Mr Battaglia said.

Mr Battaglia also raised an additional concern regarding whether it is appropriate for the law to differentiate between registered schemes based on the asset class being invested in, such as real estate or real estate derivatives, by imposing specific or higher standards of regulation.

“Managed investment schemes invest in all kinds of assets, many of which are more speculative in nature than real estate,” he said, adding that the review appears to be broader than merely the laws regulating registered schemes.

Ultimately, he said, Hall & Wilcox anticipates that the review will create “much debate” in the industry.

“In the investment funds industry, but also the financial services industry more broadly, we expect that there will be much consultation and divergent views,” Mr Battaglia said.

“We may be in for a long period of industry debate. Depending on the political will for law reform, the Treasury’s consultation may be the dawn of a new regime regarding the regulation of managed investment funds.”