ASIC’s Karen Chester says insolvencies and macro forces could present greater liquidity challenges to fund managers and affect investors’ ability to withdraw from funds.
ASIC (Australian Securities and Investments Commission) is working with the government to ensure greater public sharing of data on retail and wholesale funds, including information on non-banking lending.
In a keynote speech at the AFR Banking and Wealth Summit on Wednesday (18 November), ASIC acting chair Karen Chester said an “inevitable uptick in insolvencies” and “extreme macro forces” will present greater liquidity challenges to investment managers.
“As underlying assets come under stress (SME debt, corporate debt, private equity), so will the managed funds that invest in them. Some investors will likely be surprised to find they are unable to withdraw from previously liquid managed funds,” she said.
To address these risks and prevent consumer harm, ASIC is working with the Treasury to ensure it has access to and can publicly share data on retail management investment products, wholesale funds and non-banking lending.
Chester also spoke of a review currently underway in collaboration with Deloitte Access Economics to assess competition in the Australian funds management industry. She said the review, commenced in August, was to “identify where competition is effective, where it is not, and if not, why not”.
Australia has over AUD 1 trillion in assets under management, invested across retail investment products and wholesale funds, for which Chester expressed a need to ensure good consumer outcomes, which is “more likely where competition is robust and effective.”
To this effect, ASIC has used its powers where unhealthy supply side competition caused consumer harm, and has sought to promote healthy disruptive competition, for example through the establishment of an Innovation Hub in 2015 and a concessional regulatory sandbox in 2016.
The regulator has also invested in its data foundations to drive efficiency and effectiveness of its regulatory work, including through the appointment of a Chief Data and Analytics Officer, Chester said.
“With this new role we have developed a recalibrated data strategy. We have implemented new systems that enable ASIC to better exploit our existing data but also create the foundations needed to scale up our analytics and data collection capability.”
These systems, she said, use modern technology and advanced analytics to analyse and detect early warning signs of harm and unhealthy competition in markets.
“Where unhealthy competition exists, you are more likely to find a greater opportunity and thus propensity for misconduct and ultimately harm. We’ve some great pilots underway in recurrent data. The value-add to our calibrated regulatory stance cannot be overstated.”
Chester labelled managed funds as an “opaque sector” that was of increasing concern to ASIC. Investment funds are “complex” and when combined with old-fashioned product disclosure, and comparison of funds has become “difficult at best”, she said.
ASIC has responded by requiring responsible entities to have ‘true to label’ marketing and labelling, and releasing comparative data to support healthy competition. Following a review of more than 350 managed funds, the regulator ordered 13 responsible entities with inappropriate or confusing product labels to take corrective action.
However, Chester noted that the absence of data collection powers ASIC had to “slowly harvest the data through surveillance and a tailored compulsory data request”.
“With licensing and litigation our primary tools of the past, we are seeking to use new age tools,” Chester said. “But to do so we need data.”