The responsible entity of a registered managed investment scheme is often involved in dealings and transactions with persons related to the responsible entity, creating the potential for conflicts of interest. Examples of such dealings and transactions include the:

• contracting with a related party to provide services in relation to the scheme;

• lending and investing of funds of the scheme to a related party;

• provision of guarantees to a related party; and

• purchase or sale of scheme property from or to a related party.

The corporate provisions in the Corporations Act 2001 (Cth) in respect of related party transactions are extended to registered managed investment schemes which restrict the responsible entity's ability to enter into such related party transactions. A responsible entity of a registered scheme may only give a financial benefit to a related party if it falls within an exception or where the formal approval of scheme members is obtained. However, where expressly specified in the scheme's constitution, the responsible entity may pay itself fees, be reimbursed for expenses and exercise a right of indemnity.

See Related party transactions.

The Corporations Act related party requirements do not apply to unregistered schemes. The trustee of an unregistered scheme may therefore give a financial benefit to a related party without members' approval, subject to the terms of its constitution and the relevant trust law.

Unlisted property schemes and unlisted mortgage schemes have additional disclosure obligations to investors in respect of transactions with related parties. This is because ASIC takes the view that such schemes often invest in, makes loans to, or transact with, related parties, usually on terms which are not arm's length or commercial.

A person involved in the failure to obtain members' approval where it is required to give a financial benefit to a related party commits an offence which may result in a civil penalty. That person, and not the responsible entity of the scheme, is liable for the contravention.

See Effect of contraventions.

In relation to remedies, where a member has suffered loss or damage resulting from a breach of duty or a contravention, statutory remedies are available to that member against the responsible entity and other persons involved in the breach or contravention.

A person may apply to ASIC for an exemption from compliance with, or a modification to, a provision of the Corporations Act 2001 (Cth).

See Remedies.