Monday 1st of September 2003

Fund managers who have broken Australian managed fund laws will not escape penalty under draft rule changes being considered by the Securities Commission, it said today. The draft changes would not be applied retrospectively, meaning managers who have broken the law will have to return investors' money that went into the improperly distributed schemes. They would also have to pay 10 percent interest a year. The first fund manager to admit it had a problem, BT Funds Management, may have to return hundreds of millions of dollars to up to 28,700 investors who put money in 60 of its funds. To legally distribute Australian funds, fund managers have to get an exemption to securities law and even a small breach of the rules governing that exemption -- such as the late filing of documents -- would make marketing the fund to investors illegal. In June, the commission asked 60 fund managers to declare they had complied with the rules. Commission general counsel Liam Mason said the probe had uncovered fund managers with the problem, but he would not give any further details before the regulator's response was mailed to those fund managers. Mr Mason confirmed the draft rule changes being circulated meant "the great majority" of the breaches by funds that the commission knew about would not face the same penalties as under present rules. The new version of the exemption would require the same documents to be filed, such as details of the scheme's constitution. Any delay would attract an initial fine of up to $300,000 plus a fine of up to $10,000 a day while the breach continued. Only the late filing of a prospectus or product disclosure statement and any later amendments would still cancel a fund's exemption. "We think the principal offer document is important and should be on record," Mr Mason said. "The majority (of known breaches) did not involve the prospectus... they wouldn't have the same consequence." The commission could not make the changes retrospective because of a 1995 court ruling on backdating changes to exemptions. Submissions on the draft changes closed today and the rules were likely to be put in place in September. The draft did not cover schemes registered in Britain, but Mr Mason said it was likely similar changes would be made to those.