MDA Providers: Time for action
The end of 'no action'
On 6 August 2018, ASIC released an Information Paper for MDA Providers using a regulated platform.
The update was primarily intended for those advisers and licensees who have been relying on ASIC's "No Action" Letter.
As we've previously advised, from 1 October 2018 ASIC's 'no action' position will no longer apply.
Five steps to manage change
1. Lodge your complete application now
If you're an AFSL that wants to continue to operate as an "MDA Provider" and you don't already have the required authorisations, you'll need to have your licence varied. Assuming you're already authorised to advise and deal, you'll need to apply for licence variation that covers:
- interests in managed investment schemes limited to a right to receive MDA services; and/or
- miscellaneous financial investment products limited to a right to receive MDA services.
Submitting the application for a variation isn't too difficult but remember that your application needs to be complete and supported by all the required mandatory information and proof documentation.
ASIC will require you to provide proof of historical compliance if you've relied on the their 'no action' position. The documents ASIC may require include:
- any agreements between you and the regulated platform proving that you've been providing MDA services under the 'no action' position;
- a copy of a current or former agreement between you and any client using the arrangement;
- proof that you've complied with the requirements of ASIC's 'no action' position;
- explanation for any non-compliance recorded in your breach register;
- a copy of the Operator Capacity Statement and the new MDA Contract;
- a copy of a client investment program;
- information on the aggregated average value of client portfolios over the last 12 months;
- an updated "A5 Business Description" and "B1 Table of Organisational Competence" to demonstrate a compelling case showing both the need for the variation and your capacity to provide the services.
2. Confirm your financial fitness
You need to be able to demonstrate to ASIC that you can satisfy the financial resource requirements imposed by your licence conditions.
Review Part C of Regulatory Guide 166 "Licensing: financial requirements" to ensure you have, or have access to, the financial capital required. Pro forma 209 explains that Surplus Liquid Funds (SLF) of $50,000 is required unless aggregate client portfolios are less than $100,000 or you don't have the power to dispose of a client's property under a power of attorney.
ASIC insist that the $50,000 SLF requirement will be required even if:
- the Licensee does not hold a power of attorney from their client. It is sufficient that the Licensee has the authority or capability to dispose of a client’s property.
- the Licensee does not have any power to deposit or withdraw any monies from a client bank account.
- the funds are in the control of either the regulated platform operator or the client of the Licensee and not the MDA provider.
3. Get Professional Indemnity Insurance
ASIC will expect to see a certificate of currency for your professional indemnity insurance.
Your level of cover has to be adequate for the nature, scale and activities of your business and needs to cover
Speak to a Broker that understands the services you're providing and the risks and regulations associated with providing an MDA.
4. Pay the Man
The cost for your application for variation has changed since ASIC have moved to an Industry Funding Model.
Lodging your FS03 will cost you between $2,214 and $3,704 depending on whether your a natural or corporate person and depending on whether you lodge online or in hard copy.
It's cheaper and faster to lodge on line.
5. Get advice and support
If you're currently relying on ASIC's 'no action' position, you need to have a solution in place before 1 October 2018. Rather than wasting time, we'd recommend that you get expert advice, useful information and assured support.
The Institute of Managed Accounts Professionals (IMAP) is an ideal place to start. As the leading association in this space they're likely to have guides and other materials that are available to their members.
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