In brief
The Australian Treasury ("Treasury") is consulting on proposals to enhance the governance of registered managed investment schemes (MIS). Submissions close on 27 February 2026. To provide a submission, refer to this site.
Key takeaways
On 10 February 2026, the Treasury released the 'Enhancing oversight and governance of managed investment schemes' consultation paper ("Consultation Paper"). The Consultation Paper proposes to strengthen retail consumer protections and improve stability and confidence in the superannuation and financial services sectors, predominantly through strengthening governance and capital holding requirements for registered MISs.
The Consultation Paper also considers measures such as waiting periods for superannuation switches and constraints on inappropriate advice‑related fees.
Ultimately, the measures proposed in the Consultation Paper aim to prevent harm to retail consumers stemming from poor governance practices, whilst maintaining investor confidence in the Australian financial system.
In more detail
This comes after the collapse of two MISs, the Shield Master Fund ("Shield") and the First Guardian Master Fund ("First Guardian"). Both Shield and First Guardian, and their alleged practices employed, have been the subject of ongoing investigations by the Australian Securities and Investments Commission (ASIC), and have intensified regulatory scrutiny and prompted consideration of reform options.
The predominant regulatory issue is the governance and oversight of MISs. The Treasury observes that aspects of the current framework may not adequately mitigate conflicts of interest or misconduct risks and this has contributed to consumers suffering losses. Whilst all investments carry risk, the cases of Shield, First Guardian and other MIS collapses have been characterised by financial misconduct, substantial governance shortcomings and conflicts of interest, rather than merely bad investment choices.
The collapses of various MISs, such as Shield and First Guardian, have placed increased pressure on the entire industry. This has placed increased pressure on the industry-funded Compensation Scheme of Last Resort, which is now set to be reformed by the Government to ensure its long-term sustainability.
Improving MIS governance
Proposal 1: Enhance the regulatory framework for compliance plans
Compliance Plan content
The Treasury presents concerns that current compliance plans contain high-level content which addresses minimum obligations, without detailed procedures for ensuring compliance. There is currently no express statutory requirement for compliance plans to be scheme‑specific, beyond general obligations of adequacy. The Treasury notes that this has, in some cases, resulted in the use of generic plans across multiple schemes, which may reduce their effectiveness.
The Treasury proposes introducing stricter compliance plan requirements, such as more detailed descriptions of the nature of the scheme and its investment strategy and outlining the management process of stricter risks. However, there is a risk that this may make the framework less flexible and increase regulatory burden across the industry.
Another proposal by the Treasury is to amend the liability framework to ensure liability attaches only to material contraventions of the compliance plan. The Treasury hopes that this will incentivise higher quality plans.
Compliance Plan audit
Currently, compliance plans are required to be audited annually by independent, registered company auditors, or audit firms. However, in assessing whether the responsible entity has complied with the scheme's compliance plan, auditors are not required to meet any minimum qualitative standards under the Corporations Act. The Treasury notes concerns that this may contribute to compliance plan audits not providing the regulatory oversight expected. The Treasury has proposed that existing audit and assurance standards should be made mandatory for auditors of compliance plans.
Compliance committee
A compliance committee is required if less than half of the directors of a responsible entity are external directors. The compliance committee assesses whether a compliance plan is adequate, monitors the responsible entity's compliance with the compliance plan, reports any breaches to the responsible entity, and where a responsible entity is not adequately dealing with reported breaches, reports such matters to ASIC.
While compliance committee members have duties to act honestly and exercise care and diligence, there are no legislative requirements addressing the qualifications and experience of compliance committee members. The Treasury has proposed that responsible entities should be required to notify ASIC of the appointment, removal or resignation of committee members. The Treasury notes that this will assist in supporting ASIC's surveillance activities.
Proposal 2: Require majority of external directors on responsible entity boards
The Treasury proposes requiring responsible entities of registered MISs to implement a majority of external directors. The current option of alternatively having a compliance committee would be removed. The Treasury considers that this may promote more effective oversight through independent judgement and 'detached' supervision.
Proposal 3: Prohibit responsible entities of registered MISs from conducting related party transactions, with limited exceptions
Related party transactions, such as investing or lending to companies that are controlled by a member of the responsible entity's board, or companies that are related bodies corporate of the responsible entity, are currently permitted following member approval, or where the benefit provided to related parties is provided on an arms' length basis, or on terms less favourable to the related party.
The Treasury has proposed to restrict responsible entities of registered MISs from conducting related party transactions more generally. The Treasury has acknowledged that limited exceptions to such a related party transaction prohibition would be required in situations where there is a legitimate business need for the related party transaction (such as a retail scheme investing into a wholesale fund run by the same responsible entity) or where the investment manager of an MIS is a related party of the responsible entity. The Treasury has not otherwise provided any detailed insight as to the scope or conditions of any proposed exception.
Proposal 4: Amend the framework for setting financial requirements for responsible entitles
The Corporations Act prescribes certain requirements for Australian financial services licensees to hold adequate resources, including financial resources. Currently, ASIC has imposed a minimum cash requirement of AUD 150,000 and a minimum net tangible asset requirement of AUD 150,000 or AUD 10 million for responsible entities, pursuant to the ASIC Corporations (Financial Requirements for Responsible Entities, IDPS Operators and Corporate Directors of Retail CCIVs) Instrument 2023/647 (Instrument 2023/647).
The Treasury is seeking feedback on the framework under which ASIC sets the relevant MIS financial requirements and whether more specific financial resource requirements should be imposed on responsible entities, and if so, if this should be legislated, or imposed by way of regulation or ASIC's powers. Separate to the consultation by Treasury, ASIC is expected to release a consultation paper on capital requirements for responsible entities, IDPS operators and Directors of Retail CCIVs in early 2026, including potential increases to NTA requirements.
Enhancing ASIC's access to MIS data
Proposal 5: Increase ASIC's data collection powers on the retail MIS sector
The Treasury is of the view that ASIC's ability to perform its regulatory role for the MIS sector is impacted by the limited data which is available in relation to the retail MIS sector. Specifically, ASIC is only able to collect recurrent data on the retail MIS sector as the responsible entity holds most data regarding the retail MIS.
The Treasury proposes to increase ASIC's data collection powers on the retail MIS sector. The Treasury is hopeful that allowing access to data on flows into and out of MISs, alerts on certain types of events and information about MIS type and complaints data, could enable more efficient and effective regulatory action. Potential data sharing between regulators could also reduce regulatory burden regarding the reporting of retail MISs, and streamline the overall process.
Enhancing ASIC's visibility of superannuation switching
Proposal 6: Alerts to ASIC about superannuation switching
The Treasury notes that regulators consider that the process of superannuation members transferring their existing superannuation account from one fund to another could allow superannuation trustees access to data from which they may be able to identify suspicious or anomalous patterns of behaviour that may be indicators of misconduct.
The Treasury has proposed placing an obligation on superannuation trustees to report to ASIC any suspicious behaviours, which the trustee reasonably considers could place their membership at risk of significant detriment.
Conclusion
The Treasury is accepting responses to the Consultation Paper until 27 February 2026 on how to strengthen governance arrangements and oversight by ASIC. It is anticipated that ASIC may consult in early 2026 on potential changes to net tangible assets requirement for responsible entities of MISs.
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William Fuggle, Consultant, and Archit Dhillon, Associate, have contributed to this legal update.