Insurance-like groups known as discretionary mutual funds (DMFs) will file annual reports for the Australian Prudential Regulation Authority (APRA) by late next year under proposals unveiled last week by the Federal Government.

In lieu of tighter regulation, the Government will spend three years collecting information to improve its understanding of DMFs, and it has stipulated annual reporting rather than quarterly or half-yearly.

Although operating in a similar way to insurance companies, DMFs are not regulated by APRA because claims are not guaranteed. They are paid at the discretion of the fund manager.

DMFs also escape state insurance taxes such as stamp duty and the fire services levy, and can therefore offer much cheaper premiums. Prudential supervision will be reconsidered by the Government in 2010.

A discussion paper released by APRA last week says DMFs must initially lodge three forms: one providing basic contact details, another outlining the company's structure and a third outlining assets, liabilities, equity and other financial details.

In the second and third years, only an annual financial report must be filed.

APRA Executive Member John Trowbridge says the proposed reporting regime is not as comprehensive as that applied to insurance companies. For example, DMF reports do not need to be audited.

"APRA has developed the reporting proposals recognising that DMFs do not have the same reporting infrastructure or business models as APRA-authorised insurers.

"The outcome is that DMFs will need to provide significantly less detailed reporting compared with APRA-authorised insurers."