ASIC today announced new relief measures for operators of managed funds to facilitate withdrawals by members facing financial hardship (hardship relief) during the COVID-19 pandemic.
The conditional relief is available through a legislative instrument, which applies to all responsible entities (REs) of registered managed investment schemes (schemes) that have become ‘frozen funds’.
The relief measures will ease some of the statutory restrictions on REs and improve access to investments by members who meet specific hardship criteria. ASIC previously granted hardship relief to REs of frozen funds on a case-by-case basis only.
ASIC Deputy Chair Karen Chester said, ‘At times of extreme market volatility, responsible entities of some managed funds may need to suspend redemptions and freeze funds to protect the interests of the members as a whole’.
A fund is frozen when the responsible entity has suspended or cancelled redemptions to prevent withdrawals from destabilising their fund. When a fund is frozen members will generally not have access to their investments for a period of time. This does not necessarily mean that there has been a loss of asset value or that investors will not get their money back eventually.
Ms Chester further said, ‘ASIC recognises that it may be the right thing for responsible entities to freeze their funds in such circumstances, and in doing so protect the interests of all members. But this can be especially problematic for some individual members experiencing financial hardship.
‘The hardship relief will make it easier for responsible entities of frozen funds to enable withdrawals by investors suffering hardship. However, in doing so, responsible entities will still have to act in the best interests of members. We encourage responsible entities to consider whether the relief is appropriate for their particular fund.’
ASIC has also issued Information Sheet 249 and revised Regulatory Guide 136 Funds management: Discretionary powers to provide updated guidance to REs of frozen funds on available ASIC relief during the COVID-19 pandemic. ASIC has also provided information on hardship withdrawals for members of frozen funds.
Requirements for REs
Hardship relief under the legislative instrument is available to all REs of frozen funds regardless of whether their scheme was originally liquid or illiquid, as defined in the Corporations Act, provided that the RE has ceased allowing new interests in the scheme, including distribution reinvestments and issues to existing members.
A RE seeking to rely on the legislative instrument must:
- notify ASIC and scheme members of its intention to rely on the relief;
- before making a hardship withdrawal, be satisfied that it has adequate cash to fulfill future hardship withdrawal requests and continue the day-to-day operations of the scheme over the following six months;
- provide quarterly data to ASIC in the prescribed form; and
- comply with all other conditions of the relief.
If a RE is unable to meet these requirements, it can seek individual relief from ASIC for its particular circumstances. REs of frozen funds will be breaching the Corporations Act if they allow hardship withdrawals without relief.
ASIC expects REs relying on the hardship relief to ensure ongoing compliance with their legal obligations, the scheme constitution and the terms of relief.
Hardship eligibility criteria for members
To be eligible to make hardship withdrawals from frozen funds, a member must meet at least one ‘hardship criteria’ such as severe financial hardship, unemployment for over three months, compassionate grounds or permanent incapacity.
An eligible member may:
- withdraw up to a total of $100,000 of their investment per calendar year; and
- receive up to four withdrawals per calendar year.
A RE has the discretion to facilitate a hardship withdrawal where the RE is satisfied that the member has met the hardship criteria.
Members of frozen funds should contact their RE for information on hardship withdrawals in the first instance. More information on frozen funds and hardship eligibility is available on ASIC’s Moneysmart website.
Additional relief for frozen funds – rolling withdrawal relief
ASIC will continue to consider relief to REs of illiquid schemes on a case-by-case basis to allow rolling withdrawal offers to be made to members with administrative ease. REs of frozen funds that are illiquid who seek to facilitate a withdrawal offer to all members (or members of a class) can apply for the ‘rolling withdrawal relief’.
- Legislative Instrument
- Regulatory Guide 136 Funds management: Discretionary powers
- Information Sheet 249 Frozen funds – Information for responsible entities
ASIC initially granted REs case-by-case hardship relief and rolling withdrawal relief during and in the years after the Global Financial Crisis when many schemes became frozen. This relief was outlined in 08-214MR, 09-148MR, 09-269MR and INFO 111. Given the impact of COVID-19, ASIC has reviewed and updated the existing relief and guidance.