Australia is a jurisdiction that is welcoming to alternative fund strategies and managers. While alternative asset classes were historically under-served by experienced managers and under-allocated to by investors, this environment is changing, with attractive tax treatment for private equity and venture capital strategies, and an increasing desire by institutional and high net worth investors to allocate capital to hedge funds, alternative credit funds and other private asset funds.

The types of alternative funds that are commonly established in Australia include private equity, hedge, alternative credit and venture capital funds. Increasingly, foreign institutional investors are looking to establish direct mandates that are management arrangements only.

Due to their flexibility, unit trusts are the most commonly used structure.

Limited Partnerships

A limited partnership can be used for private equity and venture capital funds, usually as a venture capital limited partnership or early-stage venture capital limited partnership (which attract tax concessions in certain circumstances).

Unit Trusts

Where a limited partnership is not suitable, a unit trust is typically used. A unit trust is simpler to establish and offers greater flexibility with respect to the asset classes in which it can invest; however, certain limited partnerships can attract tax benefits for investors and fund managers where certain requirements are met.

For hedge and credit strategies, a unit trust is the most common local structure.

Corporate Collective Investment Vehicles (CCIVs)

Since 1 July 2022, a new vehicle called a “corporate collective investment vehicle” (CCIV) has been available. CCIVs are intended to provide for a tax regime so that a corporate vehicle can be taxed in the same way as an attribution-managed investment trust, with a number of underlying sub-funds, in particular as a flow-through vehicle. This vehicle specifically provides for segregated sub-funds under the umbrella of a single corporate vehicle. In practice, the CCIV has had little market uptake.

The establishment of a unit trust does not require any regulatory approval if it is established as an unregistered managed investment scheme. Only CCIVs and their constituent sub-funds are formed on registration by the Australian Securities and Investments Commission (ASIC).

Registration of Managed Investment Schemes

Not all managed investment schemes need to be registered with ASIC. Where it is proposed to register a managed investment scheme, the registration process is relatively straightforward and only requires that:

• the trustee of the fund holds an Australian Financial Services Licence (AFSL), authorising it to be the “responsible entity” for a registered managed investment scheme;
• the responsible entity is an Australian public company; and
• the constitution of the fund meets the requirements of the Corporations Act 2001 (Cth) (the “Corporations Act”).

Once an application for registration is received by ASIC, a decision on registration must be made within 14 days.

Registration of CCIVs

Similar to registered managed investment schemes, a CCIV must have as its director a corporate director who must:

• be a public company; and
• hold an AFSL authorising it to operate the business and conduct the affairs of a CCIV. 

In addition, the CCIV must:

• comprise at least one sub-fund with a member; and
• have a constitution that meets the requirements of the Corporations Act.

Product Disclosure Statement (PDS)

In respect of registered schemes offered to retail clients and retail CCIVs, the issuer must prepare a disclosure document known as a “product disclosure statement” (PDS). A PDS is subject to specific disclosure and content requirements set out in the Corporations Act and Corporations Regulations 2001 (Cth). These include specific disclosures with respect to fees and costs (including those borne indirectly). In addition, where funds are deemed “disclosing entities”, there are statutory reporting obligations with respect to the fund’s financial reports. Additional disclosure requirements apply for certain types of products, such as products deemed to be “hedge funds” (this is a technical test and may capture many funds not thought of as hedge funds) as well as residential mortgage funds. A PDS does not have to be publicly available but must be issued to every retail client investing in a product.

Target Market Determination (TMD)

In addition, where a fund is required to issue a PDS, the issuer is also required to prepare a target market determination (TMD), which is publicly available. The TMD sets out the target market for which the issuer has determined the fund in question is appropriate. The issuer is required to take steps to ensure that the fund is not marketed or distributed in a manner inconsistent with the TMD.

General Disclosure Standards

Funds available to wholesale clients only, typically do not have specific disclosure requirements. However, all funds must be marketed in a manner consistent with the Corporations Act, under which it is prohibited to engage in misleading and deceptive conduct in the provision of financial services. Accordingly, any disclosure document distributed in Australia should be consistent with Australian general disclosure standards for these purposes.

Taxation of a Trust

Typically, the income and gains of a trust are subject to flow-through tax treatment (ie, the taxable income of a trust is taxed at the hands of the investors) and therefore, investors are taxed directly on their pro rata share of the income of the trust and gains arising from the disposal of any investment of the trust.

In order for a trust to qualify as a “managed investment trust” (MIT), the trust broadly:

• needs to be managed by an AFSL holder;
• needs to be widely held;
• needs to be not closely held; and
• cannot control a trading business.

Where the trust qualifies as an MIT:

• fund payment distributions made by the managed investment trust to foreign investors residing in a foreign jurisdiction that has signed an Exchange of Information arrangement with Australia may be subject to the concessional managed investment withholding tax of 15%, although this may be reduced to 10% where the MIT holds a “green building”; and
• investors’ share of the gains arising from disposal of investments by the funds should be taxed under the capital gains tax provisions, where a certain election has been made by the trust (as a result, a potential capital gains tax discount may be available for eligible Australian resident investors).

Taxation of a VCLP or ESVCLP

A “venture capital limited partnership” (VCLP) or “early stage venture capital limited partnership” (ESVCLP) provides fund managers and investors with support to help stimulate venture capital investments by way of tax benefits.

For a VCLP, the key Australian tax implications include:

• “flow-through” treatment – taxable income derived by the VCLP “flows through” the partnership to the investors and will be taxed in the hands of the investors; and
• “CGT exemption” – a full capital gains tax (CGT) exemption is available for eligible venture capital partners (ie, tax-exempt foreign residents or foreign venture capital funds) on gains derived from the disposal of eligible venture capital investments (EVCIs) made by the VCLP (subject to satisfying certain requirements).

For an ESVCLP, the key Australian tax implications, which are more concessionary than the VCLP regime, include all the following:

• “Flow-through” treatment – taxable income derived by the ESVCLP “flows through” the partnership to the investors and will be taxed in the hands of the investors.
• “Tax offset” – a non-refundable carried-forward tax offset is available to investors for the lesser of either 10% of their eligible contributions or share of investment in the ESVCLP (subject to satisfying certain requirements).
• “Revenue gain or profit exemption” – any revenue gain or profit arising from the disposal of an EVCI by an ESVCLP will be excluded from the taxable income of an investor of the ESVCLP. This applies only if the revenue gain that arises would have been subject to the CGT exemption if the asset disposed of was a CGT asset. Note that the exemption is capped where the relevant investment exceeds AUD250 million.
• “Income exemption” – an investor’s share of income (eg, dividend) derived from EVCIs made by an ESVCLP will be excluded from the partner’s taxable income calculation if the partner is a limited partner of an Australian-resident general partner.

Taxation of a CCIV

Complying CCIV sub-funds (referred to below as “sub-fund trusts”) will be treated as attribution MITs (“AMITs”) by default. Under the AMIT attribution flow-through regime:

• for income tax purposes, amounts derived or received by a CCIV sub-fund trust that are attributed to members retain the character they had in the hands of the trustee of the CCIV sub-fund trust;
• the CCIV sub-fund trust is taken to be a fixed trust and members are taken to have a vested and indefeasible interest in a share of the income and capital of the trust; and
• the CCIV sub-fund trust is able to use the “unders” and “overs” regime to reconcile a variance in calculating trust components of a particular character for an income tax year in the income year that the variance is discovered.

The withholding tax and tax treaty provisions apply to attribution CCIV sub-fund trusts and their members in the same way that they apply to AMITs, notwithstanding that the CCIV is a corporate entity and pays a legal form dividend.

However, where a CCIV sub-fund trust fails to meet the AMIT eligibility criteria, the CCIV sub-fund trust will be taxed in accordance with general trust provisions, including where the trust is taxed as a public trading trust under Division 6C of Part III of the Income Tax Assessment Act 1936 (Cth). 

Where a CCIV sub-fund trust is considered to be a public trading trust, it will effectively be taxed as a company. Accordingly, this puts a lot of pressure on the interpretation of what constitutes a public trading trust (which will result in the fund being taxed as a company). 

Funds can originate loans and alternative credit funds are becoming significant competitors to Australian banks as providers of finance at all levels of the capital stack, including as senior secured, subordinated and mezzanine financiers. 

Where loans are provided to consumers, the lender may need an Australian credit licence; however, this is not typical for alternative credit funds.

The origination and provision of loans is not generally a financial service and, accordingly, (other than in respect of consumer loans) no regulatory licensing is necessary for this activity. However, management or promotion of a credit fund does constitute a financial service and regulatory licensing will usually be required, as discussed in 3.3 Regulatory Regime for Managers.

Funds in general can invest in any asset in Australia, subject to local law. Funds can hold digital currencies, loans, consumer credit and other assets. Investments into cannabis and cannabis-related investments are the subject of regulation. To the extent that these assets are lawful in Australia, funds can hold them. Where a fund lends to consumers, it may be required to hold an Australian credit licence.

The use of subsidiaries for investment purposes is common in a unit trust in order to effect segregation of the assets of one class of units from others and to ring-fence legal liability in respect of underlying investments. Subsidiaries may also be useful where investors external to a fund co-invest into an asset, in situations where the manager desires to retain control of the asset or charge fees to the co-investors.

A foreign-domiciled manager may be appointed as the investment manager of an Australian fund, provided the foreign manager complies with Australian financial services licensing requirements, as discussed in 3.3 Regulatory Regime for Managers.

Generally, the licensing requirements with which a foreign manager must comply or relevant exemptions on which it may rely will depend on whether the foreign manager provides financial services to retail or wholesale clients and the class of financial products for which it provides financial services. 

Licensing

In general, there are no locality restrictions in the Australian fund management universe. As long as a manager complies with the Australian financial services licensing regime, the manager can be located entirely offshore. 

However, registered managed investment schemes and CCIVs must be operated by a responsible entity or corporate director (respectively) which, among other things, must be an Australian public company, as set out in 2.3 Regulatory Regime for Funds.

Partnerships

VCLPs and ESVCLPs can be registered where the partnership was established as a limited partnership in a foreign country that has a particular category of double-taxation agreement with Australia and where all the partnership’s general partners are resident in such a country. In addition, the partnership would still need to meet the same requirements as Australian partnerships for these purposes. The manager for the partnership can be located offshore. In these circumstances, if a financial service is being provided in Australia – which would be likely unless all the investors were offshore – both the general partner and the manager may need to comply with Australian financial services licensing laws (see 3.3 Regulatory Regime for Managers).

Trusts

While a foreign entity can be the trustee of an Australian unit trust, licensing requirements have made this fairly uncommon. Foreign managers wishing to establish an Australian vehicle (such as a hedge, private equity, venture capital or credit fund) typically hire an Australian corporate trustee to perform this role and arrange local licensing for the management entity separately.

Where a foreign entity is the trustee of an Australian unit trust, the trust is generally unable to qualify as a managed investment trust (in 2.5 Tax Regime for Funds, see the tax benefits of qualification as a managed investment trust).       

In Australia, there are generally no requirements as to the choice and location of service providers, including administrators, custodians and fund administrators. However, where a custodian is used, it is typical for an Australian custodian holding an appropriate AFSL to be selected in order to mitigate cash balance sheet requirements.

There has been a public consultation in respect of a number of proposed changes to the regulation of managed investment schemes, including considering governance reforms and the possibility of raising the threshold to qualify as a wholesale client. No firm changes to legislation are currently known but it is widely expected that there will be changes to the regulation of managed investment schemes and the system of wholesale client qualification.

Typically, promoters or sponsors would come from Australia; however, fund managers frequently use offshore promoters to target foreign investors, particularly in Europe and North America.         

Alternative fund managers themselves are typically structured as Australian proprietary companies limited by shares. However, fund managers’ internal structures often provide that the management entity may contract with other internal entities for the provision of investment advisory services to mitigate any tax and legal exposure.

A fund manager would need to hold an AFSL or be exempt from the requirement to hold an AFSL. It is common for managers who do not hold an AFSL to be authorised under another AFSL-holder’s licence. The relevant AFSL or authorisation would need to authorise the manager to perform a variety of financial services, such as:

• provide financial product advice in respect of securities, interests in managed investment schemes and derivatives; and
• issue interests in the relevant class of financial products (or arrange for these to be issued).

Managers of funds have specific duties to the persons to whom they provide financial services, usually imposed via their licensing obligations. In addition, the Corporations Act prohibits the use of misleading and deceptive conduct in the provision of financial services. The trustee or issuer of the relevant fund would have a fiduciary duty to investors and where a manager of the fund is appointed, it is common that under the relevant investment management agreement, the manager is authorised to additional contractual obligations to act in the best interests of investors of the fund.

Foreign managers who provide financial services in Australia are bound by Australian financial services laws to apply for an AFSL or a foreign AFSL (which is a limited AFSL for foreign managers providing financial services to wholesale clients), or to operate under an exemption. 

It is worth noting that a foreign firm is not able to market funds to Australian retail clients unless it holds, or is otherwise authorised under, an AFSL with the appropriate retail authorisations.

In practice:

• it may be possible for a foreign firm to provide financial services in Australia as an authorised representative of a holder of an AFSL; or
• where the foreign firm is regulated by a regulator that has been assessed by ASIC as being sufficiently equivalent to local regulation, it may be possible to apply to ASIC for an individual relief instrument from the requirement to hold an AFSL.

For completion, pre-existing relief continues to be available for foreign financial services providers (FFSPs) that were taking advantage of this relief; however, this is set to expire in April 2025. As mentioned in 3.10 Anticipated Changes, there are proposals to enact a permanent solution for FFSPs providing financial services in Australia.

There also exists temporary, very limited, relief that may allow an offshore person to engage in limited marketing to wholesale clients in certain circumstances. Where this relief applies, it is not necessary for a non-local manager to be licensed in Australia.

In certain circumstances, a foreign manager may be required to register as a foreign company in Australia, if it is carrying on a business in Australia. At the date of writing, there is a proposal to introduce a more streamlined regime for FFSPs to provide financial services in Australia. See 3.10 Anticipated Changes for more information.

Management fees (including performance-based fees) paid to a fund manager from a trust should be treated as assessable income for Australian income tax purposes. Consideration should be given to whether any benefits under the relevant double-tax treaty are available for management fees received by a foreign-resident fund manager.

Management fees (excluding performance-based fees) paid to a fund manager from a VCLP/ESVCLP should be treated as assessable income for Australian income tax purposes. Consideration should be given to whether any benefits under the relevant double-tax treaty are available for management fees received by a foreign-resident fund manager. 

The income tax implications arising from “carried interests” are outlined in 3.6 Taxation of Carried Interest.

The “investment manager regime” (IMR) provisions under the Australian income tax system provide an exemption for returns or gains that would otherwise be assessable income of a fund for Australian income tax purposes, only because these returns or gains are attributable to a permanent establishment in Australia which arises solely from the use of an Australian-based manager. Income tax implications arising from “carried interests” are outlined in 3.6 Taxation of Carried Interest.

Broadly, this exemption is only applicable for an IMR financial arrangement (ie, a financial arrangement excluding a financial arrangement that is, or relates to, a CGT asset that is taxable Australian property) that has been made on behalf of an IMR entity (ie, a non-resident entity, regardless of the type) by an independent Australian fund manager.

In addition, the exemption requires the IMR entity to have less than 10% interest in the counterparty to the IMR financial arrangement and the IMR entity, and not to carry on a trading business in Australia.

The requirements that need to be satisfied to obtain this exemption are complicated and, therefore, careful consideration is required. 

Where structured appropriately, “carried interest” received by a fund manager from a VCLP/ESVCLP should be subject to concessional capital gains tax treatment.

Carried interest received by a fund manager from a trust should be treated as the ordinary assessable income of the fund manager. No capital gains tax discount should be available for the fund manager in this scenario.

Australian managers can outsource many of their investment functions and business operations with relative freedom. If outsourcing investment functions, it is likely that the provider of investment services would be required to hold an AFSL or otherwise be authorised by the holder of an AFSL.

The outsourcing of business operations is generally beyond the scope of financial services’ regulation, other than in respect of anti-money laundering services. Compliance with anti-money laundering legislation is required by the issuer of interests in the relevant fund. This function can be outsourced and it is likely that the person undertaking such services will be required to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian anti-money laundering regulator.

There are no relevant requirements specific to Australian fund managers. However, where a manager holds an AFSL, it is subject to strict conditions (both financial and non-financial) under the AFSL and associated legislation with which it must comply, including having adequate financial and operational resources to carry on its financial services business.

From a tax perspective, a substantial proportion of the investment management activities of a MIT or AMIT must be undertaken in Australia to ensure that the concessional withholding tax rate is available on distributions to foreign unit-holders.

Where a fund manager holds an AFSL, any change of control must be notified to ASIC.

Draft legislation has been released that is aimed at streamlining and resolving the significant uncertainty in the Australian market with respect to FFSPs. The new legislation provides for a number of new exemptions from the requirement of FFSPs to hold an AFSL. These include:

• a professional investor exemption, under which financial services provided by FFSPs from outside Australia or on marketing visits (not exceeding 28 calendar days per financial year) are provided to certain categories of professional investors (persons controlling AUD10 million or more and other types of institutional investors) where those services do not include dealing in certain financial products tradeable on licensed markets, and where the FFSP reasonably believes such conduct would be lawful in its home state; and
• comparable regulator exemption – where the FFSP is regulated by certain approved foreign regulators, it will be able to provide financial services to wholesale clients.

Alternative funds are frequently invested in by institutional investors from both Australia and offshore. Most major Australian institutional investors have an allocation for private equity funds.

Typical investors into Australian alternative funds include high net worth (HNW) investors, family offices, superannuation funds, partnerships, sovereign wealth funds and national and international alternative investment managers.

The last 12 months have seen a distinct increase in the offering of alternative fund strategies to HNW and retail investors. This is particularly true in respect of private credit and private equity-related strategies offered via wealth platforms to the wholesale and retail market.

The use of side letters in funds marketed exclusively to wholesale or institutional clients is common and is often expressly contemplated in funds’ constitutional documents. In these circumstances, best practice is to disclose the possibility of side letters in the relevant offering documents. In certain circumstances, from a structural perspective, it will be preferable to effect side letter arrangements via the issuance of a separate class of interests in the relevant fund.

In respect of registered managed investment schemes and retail CCIVs, there is a statutory obligation for the issuer to treat investors in a class equally and to treat investors of different classes fairly. In practice, this typically means that in such funds when agreeing side letter terms, it would be necessary to use different classes of interests to avoid contravening these statutory obligations.

Alternative funds can be marketed to any client in Australia, as long as the person marketing the fund is authorised under an AFSL (or has an exemption – see 3.3 Regulatory Regime for Managers) to provide financial product advice, or deal in the relevant fund interests to the relevant client group. Typically, these funds would be marketed to wholesale clients only.

If the person is not authorised to provide these services to retail clients, marketing activities must be limited to wholesale clients. In addition, where the fund is distributed to retail clients, it would usually need to be registered with ASIC as a “registered managed investment scheme” or as a retail CCIV (see 2.3 Regulatory Regime for Funds and 2.10 Other Local Requirements) and to comply with regulated disclosure requirements (see 2.4 Disclosure/Reporting Requirements) and associated rules applying to regulated products.

As previously stated, any person (including a firm) must hold (or be exempt from holding) an AFSL authorising the provision of financial product advice to the relevant client group, namely, retail or wholesale clients (as the case may be). The AFSL authorisation must relate to the specific type of financial product that is to be marketed (typically, securities or interests in a managed investment scheme).

The use of placement agents is very common in Australia. A placement agent would typically provide financial services and on that basis would require the appropriate Australian financial services licence conditions or an exemption. Manager’s personnel can also be compensated for asset raising in respect of wholesale clients. The use of commissions and other financial incentives in respect of asset raising from retail clients is strictly regulated and frequently prohibited.

As previously discussed, the taxable income of a trust (or a complying CCIV sub-fund, which is treated as a trust), VCLP or ESVCLP is generally taxed in the hands of the investors.

For Australian income tax purposes, different kinds of investors are subject to different taxation principles and taxation rates, for example:

• corporates are taxed at the corporate tax rate – generally 30% unless a complying small business;
• individuals are taxed at the relevant marginal tax rate – the highest being 45% plus certain levies; and
• complying superannuation funds are taxed at a rate of 15%.

Tax Concessions

It should be noted that tax concessions may be available for foreign pension funds and sovereign wealth funds, although legislating the extent of these exemptions has been limited where pension funds and sovereign wealth funds have non-portfolio interests in the investee entities.

Where a capital gain has been derived by an Australian investor from its investment in an investment vehicle (ie, as a result of the disposal of a capital asset by the investment vehicle, or the disposal of an interest in the investment vehicle), the capital gain could be subject to a discount where the relevant asset has been held for at least 12 months and the investor is a qualifying taxpayer. A company does not qualify for the CGT discount.

Where a capital gain has been derived by a non-resident investor from its investment in an investment vehicle (ie, as a result of the disposal of a capital asset by the investment vehicle or the disposal of an interest in the investment vehicle), the capital gain could be exempt if the relevant asset is not “taxable Australian property” (ie, broadly, it does not relate directly or indirectly to Australian real estate or mining rights). No capital gains discount is available for non-resident taxpayers.

Where a non-resident investor disposes of an asset that qualifies as taxable Australian property (eg, interest in a land-rich Australian fund), the purchaser will be required to withhold 12.5% of the purchase price and remit this amount to the Australian Taxation Office. The non-resident investor should be able to claim a tax credit for the amount withheld (which could be refundable if the tax liability of the non-resident investor is lower than the withheld amount). 

There are special or preferential tax treatments available for investors of a VCLP or ESVCLP, as previously outlined.

Given the complex nature of the Australian taxation system, consideration should be given by an investor to the application of the Australian income tax provisions based on the facts and circumstances of the investor.

Generally, a resident trust should be able to qualify for the benefits of a double-tax treaty between Australia and a foreign jurisdiction. However, this should be considered on a jurisdiction-by-jurisdiction basis.

Note that there are limitations on VCLPs and ESVCLPs investing in foreign jurisdictions. Accordingly, it has not been considered further as to whether a VCLP or ESVCLP can qualify for benefits under double-tax treaties.

Similar to a trust, a VCLP or ESVCLP should be treated as a flow-through entity for Australian income tax purposes. Accordingly, the benefits under double tax treaties would need to be considered by a foreign partner (along with any Australian tax concessions) in determining the Australian tax implications of their share of the VCLP or ESVCLP’s taxable income.         

FATCA

Entities that are treated as “Reporting Australian Financial Institutions” under the FATCA Agreement between Australia and the United States (which broadly includes banks, private equity funds and managed funds) are required to provide the following information about their “US Reportable Accounts” (as defined in the FATCA Agreement) to the Australian Taxation Office, no later than 31 July in the following income year:

• the account-holder’s name, address and account number;
• the US tax-identification number;
• the account balance or value of the account at the end of the relevant period; and
• the name and identifying number of the institution.

For completeness, note that “Reporting Australian Financial Institutions” only have obligations to provide the requisite FATCA information to the Australian Taxation Office (and not to the Internal Revenue Service).

CRS

Australia has signed the OECD Multilateral Competent Authority Agreement on Automatic Exchange of Account Information. Entities that are treated as “Reporting Financial Institutions” under the CRS (ie, Part II.B of the Standard for Automatic Exchange of Financial Account Information in Tax Matters) are required to provide certain information regarding a Reportable Account under the CRS to the Australian Taxation Office no later than 31 July in the following income year. 

The CRS reporting obligations of a Reporting Financial Institution under the relevant Australian tax legislation should be broadly consistent with the CRS Commentary (ie, Part III.B of the Standard for Automatic Exchange of Financial Account Information in Tax Matters). The relevant Australian tax legislation does make certain specifications to clarify how the Reporting Financial Institutions are to apply the due diligence procedures contained in the CRS and the CRS Commentary for the purposes of Australian taxation law.       

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (the “AML/CTF Act”) is the primary piece of legislation relating to the prevention and detection of money laundering and terrorism financing. The AML/CTF Act operates concurrently with the Anti-Money Laundering and Counter-Terrorism Financing Rules Instrument 2007 (No 1) (Cth) and associated regulations (the “AML Requirements”). The AML/CTF Act is enforced by AUSTRAC.

The AML/CTF Act applies to reporting entities who carry on the business of providing a “designated service”, which may include:

• responsible entities of registered funds;
• trustees or managers of unregistered funds; and
• custodians holding assets of registered and unregistered funds.

Any entity performing a designated service must, in addition to enrolling with AUSTRAC, comply with the AML Requirements, including:

• maintaining an AML/CTF compliance programme;
• AUSTRAC reporting; and
• appropriate record-keeping.

Designated services include issuing securities (including interests in a fund), accepting money on deposit and opening accounts. In practice, some investment managers may not be undertaking a designated service. However, issuers of funds (such as trustees) would typically be performing such services and would need to register with AUSTRAC and comply with the AML Requirements.

To comply with the AML Requirements, trustees are required, among other things, to:

• verify the identity of investors and the source of investors’ application monies before providing services to them;
• re-identify investors if the trustee considers it necessary to do so; and
• where investors supply documentation relating to the verification of investors’ identity, keep a record of this documentation for seven years.

It is typical for investment managers or trustees to engage fund administrators to perform the relevant AML/CTF management of funds, provided that discharging these will still be the statutory duty of the person providing the designated service. 

The Privacy Act 1988 (Cth) (the “Privacy Act”) regulates the handling of personal information by business entities, including trustees and investment managers (other than excluded entities such as certain small businesses).

The Privacy Act includes 13 Australian Privacy Principles (APPs), which create obligations on the collection, use, disclosure, retention and destruction of personal information. The APPs include:

• open and transparent management of personal information;
• disclosure to a person that their personal information will be collected;
• restrictions on the use and disclosure of personal information;
• obligations to ensure the accuracy of collected personal information; and
• obligations to protect personal information.

Trustees (and in some instances investment managers) may often collect personal information from investors to be able to process their applications, administer their investment, and for other purposes permitted under the Privacy Act and the APPs. In some circumstances, trustees may disclose investors’ personal information to the trustee’s related entities or service providers that perform a range of services on their behalf. Privacy laws apply to trustees’ handling of personal information and how they collect, use and disclose investors’ personal information in accordance with their privacy policies. In particular, where a trustee or investment manager holds personal information, there are strict obligations to protect that personal information from any unauthorised disclosure or access. If there is a breach of this obligation (such as a data breach), the Privacy Act prescribes notification obligations.

No changes to the regulatory regime as it pertains to investors are currently anticipated.