PFA argues against several proposals in Treasury Consultation Paper submission

Regulatory

17 Mar 2026

Property Funds Association of Australia (PFA) has provided a submission to Treasury’s Consultation Paper entitled Enhancing oversight and governance of managed investment schemes (Consultation Paper), arguing against the potential for adverse ‘structural changes’ which might apply across a diverse funds management industry including property funds.

In its submission, PFA acknowledged Treasury’s focus on strengthening investor protections in the managed investment scheme (MIS) sector given recent failures of retail funds, Shield Master Fund (Shield) and the First Guardian Master Fund (First Guardian), which caused serious harm to investors.

PFA acknowledged “…that it warrants consideration into whether the existing regulatory regime is appropriate given the size and complexity of the industry, whether there are any governance gaps and whether ASIC's supervisory capacity should be enhanced”.

However, the PFA is “deeply concerned” that several proposals in the consultation paper go beyond targeted intervention, and prescribe more widespread structural change across the highly diverse MIS industry, including unlisted property funds.

PFA wishes to emphasise that the unlisted property funds sector was not implicated in the failures prompting this review.

In its submission, PFA also argued that current legislation already imposes some of the world’s most stringent regulations, and that scheme failures reflect breaches of existing obligations rather than structural deficiencies:

“The existing MIS regulatory framework is robust. The Corporations Act 2001 already imposes some of the most stringent fiduciary and statutory duties worldwide. ASIC's regulatory guidance provides further prescriptions on how these obligations should be met.

“Where scheme failures have occurred, they reflect breaches of existing obligations and governance failures, not structural deficiencies in the legislative framework.

“The PFA notes that the enforcement actions arising from the recent failures are still ongoing, and it would be prudent for these processes to play out before making significant structural regulatory changes.”

Rather than restructure a framework that has operated across many market cycles for more than 25 years, the PFA argues that: “The appropriate response is targeted enforcement, enhanced supervisory capability for ASIC, and proportionate refinement of existing obligations.”

Increased compliance burden could negatively impact fund managers and ultimately investors

Treasury’s recommendations could have a negative impact on smaller fund managers due to the increased compliance and cost burden if they are implemented. PFA is concerned that, if implemented, these proposals could see diminished competition in the funds management industry, and fewer investment opportunities for investors.

This is particularly relevant for unlisted property funds, many of which are offered by small boutique managers.

But it has potential to impact the entire funds management ecosystem in challenging economic times.

In its submission, PFA says: “Similarly to the Joint Parliamentary Committee on Corporations and Financial Services’ conclusion in relation to the wholesale investor test review, we believe that there is insufficient evidence of market failure to justify such significant and fundamental changes to registered MIS regulation, which would significantly increase the compliance burden and costs to fund managers and which will impact on investor returns and economic activity.

“The PFA believes that existing regulation is robust and adequate. The focus should be on early detection of issues via monitoring and surveillance, and enforcement where real and material issues are identified.”

Some other key points from PFA’s submission to Treasury

The Consultation Paper covers a lot of ground in its proposals, some of which PFA supports. But PFA also flagged the following key issues:

Proposal 1 – Enhancing the regulatory framework for compliance:

Mandatory audit standards (1.3): PFA argues these would increase audit time and costs without evidence current standards are inadequate. There is potential to detract from investor returns as costs are borne by schemes.
Expanded compliance plan content requirements: PFA opposes detailed prescriptive requirements because they would duplicate existing disclosures (e.g. PDS), create operational complexity, and increase audit and systems costs, particularly for managers using master compliance plans across multiple funds.
Overall, the proposals may raise compliance costs without demonstrable improvements in investor protection, with costs ultimately passed to investors.

Proposal 2 – Require a majority of external directors on responsible entity boards

PFA argues the existing compliance committee model already provides specialised compliance oversight, and replacing it with majority external directors could weaken expertise-focused supervision.
The number of suitably qualified external directors in Australia is insufficient for the ~400 responsible entities and thousands of schemes, risking tokenistic independence or difficulty recruiting directors.
Higher costs and operational disruption: The requirement would lead to governance restructuring, higher director remuneration and insurance costs, and operational delays, which would ultimately increase costs for investors.
Loss of specialised oversight: Removing compliance committees could reduce the focus on compliance issues, as directors oversee the entire business rather than scheme compliance specifically.

Proposal 3 – Prohibition on related party transactions, with limited exceptions

Disproportionate response: PFA argues the proposal targets misconduct that is already illegal, meaning the problem is enforcement failures rather than regulatory gaps.
Premature reform: Legislating changes while ongoing court cases and ASIC investigations are unresolved is the wrong sequencing of policy reform.
Economic impact on property funds: Related party transactions are structurally important to the property funds sector, and enable the efficient management of property assets by related parties of responsible entities and investment managers.
International inconsistency: Most global jurisdictions regulate related party transactions through disclosure and governance oversight, not prohibition, meaning Australia would become a global outlier.

Proposal 4 – Amend the framework for setting financial requirements for responsible entities

PFA argues no evidence has been presented that insufficient financial resources caused recent MIS failures.
Any increase in financial requirements would impact market structure as it would create barriers to entry, encourage consolidation and increase reliance on outsourced responsible entities, raising costs and reducing market diversity.

Proposal 5 – Increase ASIC’s data collection powers on the retail MIS sector

PFA warns against blanket expansion of reporting obligations, arguing that this would create significant operational and systems costs.
PFA argues ASIC should better analyse existing data first, and that any new framework should avoid duplication across regulators and inefficient reporting systems.

A full copy of the PFA’s submission to Treasury’s Consultation Paper is available here.

Questions?

For any questions to the IRC, please email pfa@propertyfunds.org.au

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