Improving the efficacy and efficiency of the legal and regulatory framework for protection of retail investors investing in collective investment schemes CIS

Abstract

The history of collective investment schemes (‘CIS’) in Australia is replete with examples of failures of the legal and regulatory regime to the detriment of retail investors. Billions of dollars have been lost by retail investors and little has been done to reform this particular framework since the major reform to the laws governing CIS were made in 1998, now known as the managed investment scheme (MIS). This is despite numerous inquiries and Governmental reports containing recommendations for changes in that framework.

This thesis examines the failures that have occurred under the current framework, where the framework was inadequate for the protection of the retail investor from losses caused by factors other than normal investment risks. This is exemplified by a number of the case studies and some of the reports regarding MIS referred to in the thesis.

Through the application of the three research methodologies described in Chapter 2, answers to these research questions were derived for each area of the existing legal and regulatory framework of the MIS. Through this process, conclusions were reached as to how the ‘law as it is’ can be reformed to strengthen the efficacy and efficiency of the MIS legal and regulatory framework to protect the retail investor, i.e. what the ‘law ought to be.’ A further analysis of these proposed reforms to the law leads to the conclusion that, on the balance of probabilities, such reforms are not onerous and therefore should not cause REs to abandon the retail market.

The results of this research contribute to the knowledge and understanding of the flaws in the current legal and regulatory framework and how the proposed reforms flowing from an analysis of that current framework should improve the protection of retail clients who invest in CIS without over-regulating the industry.