Enhancing oversight and governance of managed investment schemes

Where incremental change ends and structural reform begins 9 min read

In the wake of the Shield Master Fund and First Guardian Master Fund collapses, the Australian Government has released a Consultation Paper on 'enhancing oversight and governance of managed investment schemes'. The consultation closes on 27 February 2026.

The Consultation Paper sets out six proposals: five relating to registered managed investment schemes and one relating to superannuation. While some of the proposals are modest, others could have very significant implications for responsible entities and superannuation trustees.

The proposals are:

• Require superannuation trustees to alert ASIC about 'superannuation switching'
• Amend the framework for setting financial requirements for responsible entities
• Require responsible entities to have a majority of external directors
• Prohibit responsible entities from conducting related party transactions, with limited exceptions
• Strengthen the regulatory framework for compliance plans and committees
• Increase ASIC's data collection powers for registered schemes.

In this Insight, we unpack the six proposals in the Consultation Paper and highlight the issues industry participants should focus on as the consultation progresses.

Require superannuation trustees to alert ASIC about 'superannuation switching'

The alleged practices employed in the cases of Shield and First Guardian included financial advisers telling investors to roll over their existing superannuation balances into a choice superannuation fund available on a platform, or to set up an SMSF, in either case to facilitate investment into the applicable registered scheme.

Treasury notes that, as superannuation trustees process rollovers and deductions of advice fees, they have access to data from which they may be able to identify 'suspicious or anomalous patterns of behaviour that may be indicators of misconduct'.

Treasury suggests that information about 'unusual or suspicious spikes' in advice-fee deductions from a specific adviser or licensee, or in third-party authorisations initiated by a specific adviser or licensee, or in switching requests from vulnerable cohorts (such older members or individuals with lower-balances) to 'potentially inappropriate or higher-risk environments, such as SMSFs', could provide useful intelligence to ASIC, noting that this data 'would not inherently indicate misconduct'.

the real question will be how any new requirement to alert ASIC of 'patterns of behaviour' should be framed.  

It may be difficult to argue with the concept of superannuation trustees being required to provide potentially useful data to ASIC. However, the real question will be how any new requirement to alert ASIC of 'patterns of behaviour' should be framed. Will criteria such as 'unusual', 'vulnerable' and 'potentially inappropriate or higher-risk' be defined with specificity, or will a superannuation trustee be required to exercise judgement in deciding whether a 'pattern of behaviour' is reportable to ASIC? Treasury seems to have the latter in mind, referring as it does to patterns of behaviour 'which the trustee reasonably considers could place their membership at risk of significant detriment'.

We think great care will need to be taken to avoid placing an unreasonable burden on superannuation trustees, as well as some of the pitfalls associated with the reportable situation reporting regime (and its predecessor breach reporting regime). For example, while ASIC already expects superannuation trustees to be monitoring unusual advice fee activity, taking the step of creating a specific obligation to detect and report such activity could be perilous. Treasury may be alive to the dangers, as it is also seeking feedback (as an alternative to placing a new obligation on trustees) on whether periodic data reporting by trustees could be expanded 'to enable better detection of high risk super switching behaviour'.

Amend the framework for setting financial requirements for responsible entities

ASIC is currently reviewing the net tangible asset requirement that it sets for responsible entities and will consult separately on that matter.

In its Consultation Paper, Treasury asks some broader questions. In particular, whether 'more specific' financial resource requirements should be imposed on responsible entities (in addition to the general obligation to have adequate resources under section 912A(1)(d) of the Corporations Act). For instance, should more specific capital requirements be imposed to ensure responsible entities have more 'skin in the game' or 'a reserve of money available based on the risk profile of the business'?

These are big questions and, if answered 'yes', they could have very significant implications for responsible entities. As Treasury itself notes, the financial requirements for registered schemes are (unlike capital requirements for APRA-regulated entities such as banks and insurers) not designed to ensure that registered schemes are able to absorb unexpected losses or to maintain the ongoing viability of schemes. ASIC is not a prudential regulator and would not currently be equipped to set financial requirements of the kind Treasury alludes to.

This then leads to a further question about how any further requirements should be imposed—eg through primary legislation or regulations or by ASIC using existing or new powers.

Require responsible entities to have a majority of external directors

Currently, a responsible entity must establish a compliance committee if fewer than half of its directors are external directors (in which case, the compliance committee is required to have a majority of external members). Treasury proposes that responsible entities be required to have a majority of external directors and that 'the option of having a mandatory compliance committee instead' be removed.

Treasury specifically refers to the possibility of requiring responsible entities to have a majority of independent directors but then appears to dismiss this possibility in favour of requiring them to have a majority of external directors. In order to be 'external', a director must not have been, in the previous two years, an employee of the responsible entity or a related body corporate, or a senior manager of a related body corporate, and they must not have a material interest in the responsible entity or a related body corporate.

Treasury's proposal will rekindle the longstanding debate about whether—and if so, the extent to which—external (or independent) elements of corporate governance structures make a positive difference and, assuming they do, whether they are justified by the associated costs and practical implications. Treasury itself seems a little unsure about whether this proposal would be beneficial, but concludes 'it is likely [that the proposal] would result in stronger governance standards and help ensure the interests of investors are protected'.

Prohibit responsible entities from conducting related party transactions, with limited exceptions

Responsible entities are already prohibited from conducting related party transactions unless an exception applies. Specifically, a responsible entity must already obtain member approval to provide a financial benefit to itself or to a related party unless the benefit is given on arm's-length terms (or on terms favourable to the related party).

The Shield and First Guardian matters involved loans to, and investments in, related parties. Treasury notes that reporting by liquidators 'indicates that many of the transactions in the Shield and First Guardian matters were not genuine, arms-length commercial transactions' and that the directors of the responsible entities (Keystone and Falcon) 'were also directors or key personnel at the investment managers responsible for the investment of the assets of the schemes and some of the entities into which investments were made'.

Beyond emphasising that the exceptions to the prohibition should be more limited than they currently are, Treasury is non-specific, saying that 'any further restrictions on related party transactions would require consideration of limited exceptions for legitimate structures'. In particular, 'an exception may be required for circumstances where the investment manager of an MIS is a related party of the responsible entity'. This is because, in Treasury's view, 'there is limited evidence available to indicate that a responsible entity being independent of the investment manager of a scheme results in better consumer outcomes'.

Strengthen the regulatory framework for compliance plans and committees

Treasury notes that a 2025 ASIC review of the compliance plans of responsible entities identified widespread poor practice. It says that inadequate compliance plans 'can be indicative of governance failings and risk exposing retail investors to harm'. Against this background, Treasury contemplates introducing stricter compliance plan content requirements while, at the same time, removing the prospect of liability for immaterial contraventions of a compliance plan (on the premise that this would incentivise 'higher quality plans'). However, Treasury appears to be treading carefully here (and quite rightly so). As Treasury itself acknowledges, 'legislating more specific compliance plan requirements may make the framework less flexible and increase regulatory burdens across the industry' and any additional requirements should 'not create undue compliance burdens or prevent responsible entities from taking a consistent approach across a corporate group'.

Treasury also proposes to make existing audit and assurance standards mandatory for auditors of compliance plans. This should be uncontroversial (and it is difficult to believe that the existing 'standards' are not already 'mandatory').

Finally, Treasury also proposes to require responsible entities to notify ASIC of the appointment, removal or resignation of compliance committee members. Again, this should be uncontroversial.

Increase ASIC's data collection powers for registered schemes

Treasury proposes to increase ASIC's data collection powers for registered schemes but does not provide much of a clue as to what, more precisely, it has in mind. Rather, it asks a series of open questions. What types of recurrent data could help to detect risks? What data should be collected? What 'event notifications' should be provided to ASIC (eg a notification when redemptions are frozen or suspended)? What would the impacts of the proposal be, including compliance costs? This last question will be difficult to answer, given the proposal's lack of definition.

As with the proposal about superannuation trustees providing 'alerts' to ASIC, it may be difficult to argue with the concept of responsible entities being required to provide potentially useful data to ASIC. Much will turn on the detail of any particular new reporting requirement, whether periodic or event-based. It seems Treasury may be looking for industry to 'speak first' in this regard.

Other

In addition to the Consultation Paper, there will also be separate consultations by Treasury on:

• stopping 'inappropriate lead generation';
• introducing a waiting period for 'superannuation switching' and limiting 'inappropriate financial advice fee charging';
• strengthening 'platform governance';
• reforming the industry-funded Compensation Scheme of Last Resort (CSLR) 'to ensure its long-term sustainability',

and, as noted earlier, there will be a separate consultation by ASIC on net tangible asset requirements for responsible entities.

While some proposals are incremental, others would represent a material shift in the regulatory settings for managed investment schemes and superannuation trustees, underscoring the importance of close industry engagement during the consultation process. Stakeholders should consider whether and how to make submissions to Treasury ahead of the 27 February 2026 consultation deadline.