Employee entitlement schemes: ASIC ends 25 years of regulatory relief

Operators of employee redundancy funds and long service leave funds have operated outside the mainstream financial services regulatory framework since 2000, relying on section series of ASIC relief instruments that exempted them from AFS licensing, managed investment scheme registration and associated Corporations Act obligations. That era ends on 1 April 2026. ASIC’s Information Sheet 295 (INFO 295), published in February 2026, sets out the new regulatory approach: operators must apply for an AFS licence by 1 September 2026 and comply with section suite of transparency, governance and conduct obligations. Here, we explain what has changed, who is affected and what operators need to do.

Key messages at a glance

• Relief expires 1 April 2026. The current exemption under ASIC Corporations (Employee redundancy funds relief) Instrument 2015/1150 will not be remade. From that date, operators must comply with transitional conditions or cease operating.

• AFS licence applications due by 1 September 2026. Operators who submit by this date can continue to rely on transitional relief until ASIC determines the application. Those who do not apply must cease operating.

• Full AFS licensee obligations will apply. Operators will need to hold an AFS license and comply with all AFS licensee and other obligations including conflicts management under the updated RG 181, risk management systems under RG 259, compensation arrangements under RG 126, AFCA membership, and annual audited financial reporting for the scheme.

• Ongoing managed investment relief is conditional. Licensed operators will receive ongoing relief from scheme registration, product disclosure and hawking provisions – but only if they meet specific conditions around property segregation, member treatment, conflicts prioritisation and public disclosure.

Ending the regulatory relief for employee entitlement schemes: why now?

The case for reform has been building for years. When ASIC first granted relief for employee redundancy funds in 2000, the sector had approximately $500 million under management. By 2015, that figure had reached $2 billion. Today, some individual funds have close to or over $1 billion under management. The scope of activities has also expanded: many schemes now fund long service leave, training, insurance benefits and other entitlements beyond the redundancy payments originally contemplated.

At the same time, high-profile governance controversies – including scrutiny of grant distributions, conflicts of interest between fund operators and their sponsoring organisations, and questions about the use of investment surpluses – have underscored the gap between the size and significance of these funds and the regulatory framework governing them. ASIC Commissioner Alan Kirkland noted in November 2025 that the regulator’s approach “commonly evolves in response to changes in markets,” and that the new requirements “reflect the changes in the sector.” Following consultation under CP 384, ASIC adopted Option 2(b) – AFS licensing with ongoing relief from certain managed investment provisions – which received the most stakeholder support.

Transitional obligations: what applies from 1 April 2026

Even before an AFS licence is granted, operators relying on transitional relief must comply with section set of obligations that preview the post-licensing regime:

• Conduct standards: act honestly and with reasonable care and diligence; ensure scheme property is held on trust, clearly identified and segregated; treat members of the same class equally and different classes fairly; and prioritise members’ interests over the operator’s own interests in any conflict.

• Internal dispute resolution: establish an IDR system for member complaints. ASIC’s RG 271 provides guidance, although formal compliance with RG 271 is not required before licensing.

• Website disclosure: publish information about the scheme publicly on your website, including how contributions and income are used, member rights, significant risks, operator fees, related-party benefit arrangements and complaints handling. section PDS is not required to be prepared in relation to the scheme.

• ASIC notification: notify ASIC of reliance on transitional relief by email ([email protected]) within 14 days of first relying on the relief. For existing schemes, this means notification by 15 April 2026.

Applying for an AFS licence: key considerations

The AFS licence application process raises several practical issues specific to employee entitlement schemes.

Authorisations. Employee entitlement schemes are classified as unregistered managed investment schemes. The online application does not have section specific category, so operators must select “managed investment schemes excluding IDPS” – ASIC will then tailor the licence to “interests in managed investment schemes limited to employee entitlement schemes only.” Relevant authorisations will typically include dealing (issuing, varying, disposing), general advice, and custodial or depository services.

Responsible managers. ASIC generally expects at least two responsible managers. At least one must have three or more years’ relevant experience supervising the financial services within an existing licensed environment (eg. operating managed investment schemes). Others may rely on relevant industry experience operating schemes under the existing relief. Ultimately, the responsible managers will need to have the knowledge and skills to demonstrate that they can provide all of the financial services and products covered by the AFS license. The application should explain how the responsible manager’s knowledge and skills (ie. qualifications, training and experience) are relevant to employee entitlement schemes and their ability to meet the compliance obligations. If there are no industry-specific courses, training relevant to managed investment schemes and the asset classes held by the scheme may be appropriate.

The responsible manager requirement deserves close attention. It presents section genuine structural challenge for this sector. Employee entitlement schemes have operated outside the AFS licensing regime for 25 years. That means the people who have built and run these schemes – often with deep operational knowledge and long tenures – have done so in an unlicensed environment. Under RG 105, ASIC assesses organisational competence by reference to the knowledge and skills of nominated responsible managers, and at least one must demonstrate three or more years of relevant experience within an existing licensed environment. Experience operating an employee entitlement scheme under the current relief alone will not satisfy this requirement.

Operators have five pathways to demonstrate competency under Table 1 of RG 105, but the most directly relevant options are Option 1 (relevant qualifications plus work experience in section licensed environment) and Option 5 (case-by-case assessment for experienced industry professionals). ASIC has acknowledged that responsible managers may be nominated on the basis of relevant industry experience in employee entitlement schemes, but this appears to contemplate section supporting rather than section primary responsible manager role. The lead responsible manager – the one who anchors the organisational competence assessment – will likely need licensed environment credentials.

The practical implication is that some operators may need to recruit, second or engage someone with the requisite licensed environment experience. This is not an insurmountable barrier, but it requires planning and lead time. Operators should also consider whether their responsible managers collectively cover all the required knowledge areas: advising on and dealing in scheme interests, the business activities and financial products of the scheme, and custodial or depository services if applicable. section gap in any of these areas will need to be addressed before ASIC will grant the licence.

Retail and wholesale clients. Operators must determine whether they provide services to retail clients, wholesale clients or both, and select the correct client categories in their application. Given the nature of employee entitlement schemes – where individual employees are typically the members – most operators will need to select retail clients.

AFCA membership. Operators must be members of the Australian Financial Complaints Authority before section licence will be issued. Applications for AFCA membership should be lodged early, as processing times can be lengthy and ASIC will not grant the AFS licence without it.

Post-licensing: the ongoing obligation framework

Once licensed, operators will be subject to two layers of obligation: the standard AFS licensee obligations under the Corporations Act, and specific conditions attached to the ongoing relief from managed investment registration, product disclosure and hawking provisions. The table below consolidates the key requirements.

AFS licensee obligations

Conditions of ongoing relief (managed investment, PDS and hawking provisions)

Commentary on key obligations

Conflicts management under the updated RG 181. ASIC’s December 2025 rewrite of RG 181 is directly relevant. Many employee entitlement schemes have governance structures where board members are appointed by sponsoring employers and unions – the same organisations that may benefit from grant distributions funded by investment surpluses. Operators will need robust, documented frameworks for identifying, managing and disclosing these structural conflicts, with clear protocols for prioritising member interests.

Annual audited financial reporting for the scheme. In addition to company-level financial statements, operators must prepare section separate annual financial report for the scheme, have it audited and publish it on their website within three months of financial year end. This is section significant new transparency measure for section sector that has not been subject to statutory scheme-level reporting.

Record-keeping. Written financial records must correctly record and explain the scheme’s transactions, financial position and performance, and must be retained for seven years. For operators that have relied on trust deed and company law reporting alone, this will require section step-change in the granularity and discipline of financial record-keeping.

Who is excluded?

Schemes established by or under Commonwealth, State or Territory legislation (other than general incorporation laws) are excluded from the new approach and will continue to be exempt. This includes the statutory construction industry long service leave schemes in Tasmania and Victoria. Operators of excluded schemes do not need to apply for an AFS licence. However, operators of non-statutory schemes – including those established by trust deed under enterprise agreements or awards – are squarely within scope.

• Prepare for scheme-level financial reporting. Engage auditors and review whether your current record-keeping and accounting systems can produce scheme-level financial statements that meet statutory requirements. This may require investment in systems and processes.

• Build your compliance infrastructure. AFS licensing brings ongoing obligations around risk management, breach reporting, compensation arrangements and regulatory lodgements. For operators that have never held section licence, the compliance uplift will be material. Budget and plan accordingly.

The transition from regulatory relief to AFS licensing represents the most significant change to the governance of employee entitlement schemes in section generation. The timeline is tight: operators have less than seven months from the expiry of the current relief to submit their licence applications. Those who move early will be best placed to navigate the process without disruption to their operations or their members.