Submissions - Paul Dortkamp
Managed Investments Act Review
I am an external member of three compliance committees and a co-founder of the Independent Compliance Committee Member Forum (ICCMF). I am also the co-author of the Securities Institute course "Compliance in Practice for Fund Managers" launched in 1998.
My comments on the effectiveness of the arrangements introduced under MIA are;
There is now greater certainty of the responsibilities and obligations of the Responsible Entities. The activities that I see in RE's leave me in no doubt that the directors and management of RE's see themselves with the ultimate responsibility for investors assets
From my time as a fund manager with major Australian fund management groups, I have witnessed the growth of a vigorous compliance culture within successful fund management firms. In the early 1990's compliance was mainly centred on adherence to the investment mandate. Over time this was widened to include the wider responsibilities of a fund management firm. I looked back over the titles on my business cards, by the mid 1990's my business card had changed from "Head of Asset Allocation" to "Head of Asset Allocation & Risk Management", reflecting the growing importance of risk management and compliance within a fund management organisation. The compliance function was formalised within the investment management division but was quickly developed into a full time role with a separate reporting line to the senior management. MIA took this responsibility a step further by formalising the compliance plan into a key part of the management process of fund management firms.
There have been many questioning the function of compliance committees and I would like to take the opportunity of outlining the developments in this area
Membership of a compliance committee established under the Managed Investments Act, created many challenges. Independent compliance committee members sought to increase their knowledge and understand their responsibilities.
To assist in dealing with the challenges, Paul Dortkamp of Rivergum Investors and Anne Ridgway of A&G Ridgway, established the Independent Compliance Committee Forum in March 1999. Each month we have an informal lunch where we feature a speaker on a topic of interest. An ASIC representative usually gives an update. While the discussion is oriented towards independent compliance committee members, compliance professionals are welcome to attend.
There is no membership fee. Anyone wishing to join the Independent Compliance Committee Forum in Sydney should send an e-mail to Paul Dortkamp at firstname.lastname@example.org and you will be added to the email distribution list. E-mail notices with details of the next meeting are usually sent out early each month. There are approximately 220 people on the Sydney distribution list and approximately 80 attend the forum each month. Around half those attending are compliance committee members.
It is my belief that MIA has been the catalyst for a huge lift in the standards of compliance related activities in fund managers. This is not to say that all managers have achieved an optimum level, there is room for improvement at all levels, the model is working well and there is a substantial amount of compliance momentum within RE's.
A significant breakthrough has been the healthy acceptance of compliance breaches as examples of compliance in practice, rather than as evidence of failure. I urge that this healthy acceptance is maintained and that exceptions are not trivialised into marketing or political point scoring directed at individual managers. Running an RE is a demanding role and there will be errors. What is important, is how these are used to make organisations stronger, rather than fostering a culture of fear. I have seen many examples where individuals have "self-declared" compliance plan breaches removing the petty game of "see if you can catch me" and adopting a responsible attitude of "this has happened, how do we remedy it and who will see this through to completion".
My suggestion for refinement is:
An area of concern to members of compliance committees is the issue of professional indemnity insurance under the existing Directors and Officers policy. A minority (including some at ASIC) narrowly interpret the provisions of the MIA to mean that external members have to seek their own insurance. The majority broadly interprets the Act to allow them to be included in the RE's D&O policy, which is my own view. Insurers such as AIG have newer policies framed specifically for the provisions of MIA and clearly cover external members of Compliance Committees. In other cases compliance committee members are added as additions to the standard policy. My suggestion is that the legislation makes clear that external members of Compliance Committees may be coved by the RE's policy. I reject totally the view that external members of Compliance Committees should carry their own insurance. The cost to individuals would be prohibitive and the nature of claims incurred policies would crate a burden for indefinite years following resignation from a Compliance Committees. The incremental cost of adding external members of Compliance Committees to existing policies is close to zero and cover continues after resignation. Individual polices for external members of Compliance Committees, if available, would vastly raise the cost and deter the risk conscious individual that are well suited to roles as external members of Compliance Committees. These changes should be very carefully worded after consultation with external members of Compliance Committees; poor drafting could create a flight of experienced external members from Compliance Committees.
I speak to a large number of external members of Compliance Committees and insurance is an area of continuing concern and is almost always raised by new external members of Compliance Committees.
As a person who has worked in the Australian securities industry for 30 years, my view is that the MIA regime has significantly increased the level of investor protection.
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