Corporations Amendment Regulations 2004 (No. 6) 2004 No. 149
EXPLANATORY STATEMENT
Statutory Rules 2004 No. 149
Issued by the Parliamentary Secretary to the Treasurer
Corporations Act 2001
Corporations Amendment Regulations 2004 (No. 6)
Subsection 1364(1) of the Corporations Act 2001 (the Act) provides that
the Governor-General may make regulations prescribing matters required or
permitted by the Act to be prescribed by regulations, or necessary or
convenient to be prescribed by such regulations for carrying out or giving
effect to the Act.
The Financial Services Reform Act 2001 (FSRA) commenced on 11 March
2002. It amended the Act to introduce a uniform licensing, conduct and
disclosure regime for financial service providers.
The purpose of the Regulations is to support the reforms to the regulation of
the financial services industry which were implemented in the FSRA and
associated legislation.
The Regulations include amendments that:
• provide relief from requirements in the Act to
disclose in dollar terms where the Australian Securities and Investments
Commission (ASIC) determines that it is not possible for compelling reasons;
• afford transitional relief from the provisions in
the Act until 1 January 2005;
• ensure that ASIC has the ability to provide relief
to classes of financial service providers;
• provide ASIC with the additional operational
flexibility to consider the provision of relief where there is an unreasonable
burden on a regulated person or where such disclosure is not in the interests
of the consumer;
• rectify a potential loophole in the wording of the
legislation to ensure that information presented on the subject items includes
an amount (and is accordingly subject to the dollar disclosure provisions);
and
• confirm Parliament's intent that ASIC has the
ability to make determinations granting relief in accordance with the
Corporations Regulations 2001 (the Principal Regulations).
Further, the Regulations reinstate periodic statement disclosure obligations
that were affected by a disallowance motion on 24 March 2004, and which was
rescinded on 13 May 2004.
Details of the Regulations are set out in the Attachment.
Regulations 1 to 3 and Schedule 1 commence on 1 July 2004 and those in Schedule
2 on 1 January 2005. The differing commencement dates affords
transitional relief to industry while permitting ASIC to commence making the
relevant determinations.
ATTACHMENT
DETAILS OF THE CORPORATIONS AMENDMENT REGULATIONS 2004 (NO. 6)
Regulation 1 provides that the name of the Regulations is the Corporations
Amendment Regulations 2004 (No. 6).
Regulation 2 provides that regulations 1 to 3 and Schedule 1 commence on 1 July
2004 and those in Schedule 2 on 1 January 2005.
Regulation 3 provides that Schedules 1 and 2 of the Regulations amend the
Corporations Regulations 2001 (the Principal Regulations), as amended by
Corporations Amendment Regulations 2003 (No.8), recognising that these
latter regulations do not come into effect until 1 July 2004.
Schedule 1 - Amendments commencing on 1 July 2004
Items [1], [6] and [11] - Regulations 7.7.10A, 7.9.15A and subregulation
7.9.74A(1) & (2)
The regulations provide that the dollar disclosure obligations in the
Corporations Act 2001 apply generally after
1 January 2005, subject to any determination(s) made by the
Australian Securities and Investments Commission (ASIC).
The regulations provide transitional relief from the dollar disclosure
obligations in line with the recommendations of the Parliamentary Joint
Committee on Corporations and Financial Services (PJC) report into Corporations
Amendment Regulations 2003 (Batch 6); Corporations Amendment Regulations
2003 (Batch 7) and draft Corporations Amendment Regulations 2004
(Batch 8).
The transitional period ensures that those regulated persons that are not able
to comply with the dollar disclosure requirement do not face a legal obligation
which they cannot fulfil. However, to the extent that regulated persons are in
a position to comply before that time, it would be in the interests of
consumers and consistent with the intended operation of the legislation for
them to do so.
The regulations modify the operation of the following sections within the Act
to address a potential loophole that may have allowed regulated persons to not
disclose information in dollars in the first instance, including:
• Paragraph 947B(2)(h);
• Paragraph 947C(2)(i);
• Paragraph 947D(2)(d);
• Paragraph 1013D(1)(m); and
• Subsection 1017D(5A).
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The modifications clarify that ASIC has the ability to make determinations on
whether information may be disclosed in a form other than dollars and that the
regulations provide the guidelines for those determinations.
Items [2], [4], [5], [6], [12] and [13] - Subregulations 7.7.11(2) and (3),
7.7.12(2) and (3), regulations 7.7.13A and 7.9.15B, subregulations
7.9.75(3)-(6) and regulation 7.9.75C
The regulations provide ASIC with the ability to determine that 'for a
compelling reason, it is not possible' for the regulated person to disclose
information in dollar terms.
If it is not possible to provide the amount in dollar terms the regulations
require the disclosure to be provided in percentage terms. If presentation as
a percentage is not possible, then a description of how the item is determined
is provided. An exception to a description is provided for periodic statements
where parties are advised where to obtain information, on the basis that
provision of information in this form is better provided through other forms
such as a Product Disclosure Statement (PDS) rather than unduly complicating
statements that are intended to summarise details of a person's investment
holding during the period.
Worked examples are required to be provided in conjunction with disclosure of
items as percentages or via other descriptions, unless inappropriate, in order
to facilitate an investor's ability to comprehend the material provided.
The criterion, under which ASIC may make its determination, requires very
strong arguments to support a party's contention that disclosure in dollars is
not possible. It is not considered that this criterion permits ASIC to take
into consideration a range of supporting compliance considerations. For
example, as the test relies on whether it is possible to disclose (or not) it
is arguable that where theoretically possible a regulated person is required to
comply even where there was a resulting significant financial burden imposed
(even to the extent of causing bankruptcy). The compelling reasons needs to be
overwhelming for the party for ASIC to allow them to avoid the disclosure
obligation.
However, information regarding a range of intangible and unquantifiable items,
may still be able to be considered by ASIC under this criterion.
The regulations require such ASIC determinations to be in writing, which under
the operation of section 46 of the Acts Interpretations Act 1901 and
associated case law permits ASIC to provide relief on a class basis.
Items [3], [5], [6], [11] & [13] - Regulations 7.7.11B, 7.7.13, 7.7.13B,
7.9.15C, subregulations 7.9.74A(3) to (5) and regulation 7.9.75D
The regulations provide ASIC with the ability to determine that disclosure
should occur in terms other than dollars where there is an unreasonable burden
on a regulated person (including for a period of time) or such disclosure is
not be in the interests of the consumer.
In those circumstances the regulations require the disclosure of information to
be in percentage terms. Again if presentation as a percentage is subject to
similar concerns, then a description of how the item is determined must be
provided (excepting for periodic statements).
Worked examples are required to be provided in conjunction with disclosure of
items as percentages or via other descriptions, unless inappropriate, in order
to facilitate investors' ability to comprehend the material provided.
These regulations enable ASIC to consider a range of compliance issues and
costs associated with the provision of information in dollar terms. For
example, the extent to which a matter constitutes an unreasonable burden may
include consideration of the necessary systems changes required to collate the
information.
The regulations also permit ASIC to determine whether relief was required for a
limited time where there was an unreasonable burden to the regulated person.
This may provide ASIC with the ability to determine whether there remain any
outstanding transitional issues that need to be addressed after 1 January 2005.
This is especially required as ASIC will make an array of determinations on
either a class or individual basis, within a limited 6 month timeframe.
The regulations require such ASIC determinations to be in writing, which under
the Acts Interpretations Act 1901 permits ASIC to provide relief on a
class basis.
Items [7] & [8] - Subregulations 7.9.19(1) & (2)
The regulations address an unintended consequence from the combination of the
disallowance Item [7] of Schedule 3 of Corporations Amendment Regulations
2003 (No.8) on 24 March 2004 and not disallowing Item [6] at the same time.
Without correction, disclosure requirements relating to withdrawal benefits for
superannuation fund periodic statements would not have applied for reporting
periods commencing from 1 July 2004.
Item [7] removes the inappropriate restriction on the operation of the
disclosure requirements from 1 July 2004, while the amendment to subregulation
7.9.19(2) redefines the correct application of the regulation.
Items [9] & [10] - Paragraphs 7.9.72(b) & (c)
The regulations ensure that the dollar disclosure requirements under subsection
1017D(5A) applies to the disclosure of information in the periodic statements
of superannuation fund members and retirement savings account holders.
Schedule 2 - Amendments
Items [1] to [5] - Regulations 7.9.19, 7.9.19A, 7.9.19B, 7.9.20, 7.9.20A
& 7.9.20B
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The amendments to regulations 7.9.19 and 7.9.20, and the introduction of
regulation 7.9.19A enhance the existing requirement to disclose information
about the amount of a 'withdrawal benefit' or other significant benefits. (A
withdrawal benefit is the amount a fund would provide to a member for the
voluntary cessation of their interest in the superannuation fund at the end of
a period.)
The amendments require further disclosure of the nature of any withdrawal or
significant benefits, including informing the product holder:
• that the withdrawal benefit is an indicative
estimate that may vary from the actual benefit provided; and
• how to access further information.
Through the other regulations presentation for the disclosure of amounts in
dollar terms apply as outlined above in relation to the amendments to
regulations contained in Schedule 1. That is, if it is not possible to provide
the amount in dollar terms the regulations require the disclosure to be
provided in percentage terms. If presentation as a percentage is not possible,
then a description of how the item is determined is provided.
Items [6], [7] & [8] - Amendments to regulation 7.9.75
The amendments overcome any uncertainty in relation to the disclosure of
amounts paid in respect of a financial product from a common fund.
The requirement to disclose amounts paid from a common fund was previously
subject to the interpretation that it permitted disclosure of the total amount
applicable to a common fund rather than an amount related to the product
holder's interest. The amendments contained in paragraph 7.9.75(1)(b) require
the disclosure of common fund amounts in a form that can be related to the
product holder.
The ability to disclose a proportion rather than an actual amount is consistent
with the nature of pooled investment products.
The requirement to disclose amounts paid by a product holder during a period is
also clarified by the inclusion of subregulation 7.9.75(2) to be consistent
with definitions of amounts payable contained in section 1013D of the Act.
Further, the requirement to disclose the ability to obtain further information
is enhanced in paragraph 7.9.75(1)(d), by ensuring that the means by which a
product holder can gain access to that information is included in product
disclosure statements.
REGULATION IMPACT STATEMENT
DISCLOSURE OF AMOUNTS IN DOLLAR TERMS - PROPOSED CORPORATIONS REGULATIONS
7.7.11, 7.7.11B, 7.7.12, 7.7.13, 7.7.13A & B, 7.9.15B & C, 7.9.74A,
7.9.75, 7.9.75C & D
Issue
The Financial Services Reform Act 2001 (FSR
Act), which commenced on 11 March 2002, introduced a uniform disclosure and
licensing regime to the financial services industry. The FSR Act is intended to
provide a strengthened and more consistent regulatory regime to promote the
confident and informed use by consumers of financial services and markets.
The FSR Act requires a range of disclosure documents, including Statements
of Advice, Product Disclosure Statements and periodic statements to include
details of benefits, fees and charges, and other payments - information
necessary for retail investors to make informed investment decisions and
understand their holdings of financial products.
Regulations contained in
Schedule 3 of Corporations Amendment Regulations 2003 (No.8) were made to
address a lack of clarity associated with various provisions of, and
regulations under, the FSR Act which require parties to present 'information
about' the above mentioned items within disclosure documents. It was
considered that the earlier 'information about' requirements may potentially
have resulted in the information being provided in a form that was sub-optimal
from a consumer comprehension viewpoint. The regulations were to commence on 1
July 2004.
The regulations explicitly required items that can be disclosed as
amounts under the FSRA to be displayed as a dollar figure. If it was not
reasonably practicable to provide the amount in dollar terms then the item was
to be disclosed in percentage terms. If presentation as a percentage was not
reasonably practicable, then a description (as appropriate) of how the item is
determined was to be provided. Worked examples were also required to be
provided.
Those regulations were subsequently overridden by requirements
introduced with the Financial Services Reform Amendment Act 2003 on 5
December 2003. The requirements within the Act (that are to commence on 1 July
2004) require the disclosure of amounts in dollar terms unless in accordance
with regulations. At that time, the Senate agreed to promulgate underlying
regulations that utilised a criterion based on the Australian Securities and
Investments Commission (ASIC) making a determination that it was 'not possible
for a compelling reason'.
The Parliament requires a higher test than the
original 'reasonably practicable' criterion be used. However, the extent of
application of any test is limited by operational considerations affecting the
information provider and weighed against the benefits to the consumer in the
application of these disclosure obligations.
Objective
To provide
for the effective and appropriate disclosure of information relating to
financial products and services.Options
The following options have been considered:
a) Do nothing - Make no regulations to underlie
the requirements in the Corporations Act
This option would have the requirements in the Act to disclose information
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about a relevant item as a dollar figure in all circumstances.
b) Introduce Corporations Amendment Regulations
using the criterion proposed in the Senate
This option would have the proposed 'not possible for a compelling reason'
criterion as the only means for determining relief from the obligation to
disclose in dollar terms. ASIC would be required to specifically determine the
circumstances (on a class or individual basis) within the not possible for a
compelling reason constraint.
The regulatory approach would be structurally consistent with the operation of
previous requirements from Schedule 3 of Corporations Amendment Regulations
2003 (No.8) in terms of its
cascading
disclosure requirements. The regulations explicitly require items that can be
disclosed as amounts under the FSRA to be displayed in dollar terms in the
first instance. The secondary form would be to disclose the information in
percentage terms. The final permissible form would be to provide a description
(as appropriate) of how the item is determined. Worked examples would also be
presented to aid consumer comprehension in relation to presentation of
percentages and other descriptive forms.
c) Introduce Corporations Amendment Regulations that provide for additional
relief criteria
Regulations could be made to require industry to disclose items in dollar terms
using the criterion for relief under Option (b) and additional criteria (for
example, to provide a transitional period). Specifically, providing additional
relief from that under the not possible for a compelling reason criterion to
disclose in dollar terms is necessary in relation to:
allowing consideration of whether the disclosure obligations within the Act
impose an unreasonable burden on the regulated person or is not in the
interests of the consumer; and
consideration of transitional needs, including a transitional period until 1
January 2005 and affording ASIC the ability to provide relief for specified
periods.
The additional relief criteria are consistent with the recommendations of the
Parliamentary Joint Committee on Corporations and Financial Services.
The requirement for an ASIC determination in relation to the extended criteria
is consistent with the application of the 'not possible for compelling reasons'
and the intention of Parliament for ASIC to be involved in the process.
The use of regulations would provide a consistent regulatory form of relief
with that agreed by the Senate and moreover, is in line with Parliament's
intent given that the requirements in the Act allow for relief to be provided
through regulations.
Impact analysis
The financial services and product disclosure regimes under the FSR Act affect
a broad range of businesses within the financial services sector and their
associated consumers. The financial services sector includes:
• depository entities (such as banks, building
societies and credit co-operatives);
• insurance entities and pension funds (that is, life
insurance, general insurance, superannuation funds); and
• other financial entities, including financial
intermediaries (such as financial unit trusts and investment companies) and
financial auxiliaries (such as financial advisers).
a) Do nothing This option would require the
giving of information in relation to financial products and services as an
amount in dollar terms in all instances. This would include instances where it
would be impossible to do so - for example if a charge was dependent on a
variable or unpredictable future event the law would require it to be
quantified in dollar terms at this point in time.
As it may also not be possible to reliably quantify amounts at the current time
such disclosures would potentially be in conflict with other requirements of
the Corporations Act (eg, prohibits on misleading statements).
The disclosure requirements in the Act apply from 1 July 2004 and the industry
has been uncertain as to whether or not there would be regulations to provide
circumstances for relief (and then in what form) from the requirements in the
Act. Accordingly, there may not have been sufficient time for industry
participants to satisfy the new requirements. This may result in a general
inability for industry to comply with the legislated requirements.
Moreover this option is not consistent with the intentions of Parliament which
are specifically indicated by the Government's commitment to produce
regulations to underlie the requirements in the Act.
Specific Costs
Industry would be required to inject a large amount of resources to meet the
almost immediate deadline of 1 July 2004 for the introduction of a blanket
requirement. This would entail the wholesale scrapping and replacement of
existing disclosure documentation and a potential array of system changes to
make the necessary calculations. The parties would seek to recover the cost of
these resources through higher charges to consumers.
Moreover it would be unlikely that industry, or at least many individual
participants, would even be able meet that timetable. As such, the majority of
regulated persons would be subject to a range of criminal and civil penalties
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if they continued to offer financial products and services. The alternative
would be for industry participants to withdraw from the market.
Moreover, a do nothing approach would still result in the imposition of
disclosure obligations where it is not even possible to quantify amounts.
b) Introduce Corporations Amendment Regulations using the criterion
proposed in the Senate
This option would have the requirements to disclose in dollar terms relieved
based on the 'not possible for a compelling reason' criterion. This would
remove immediate concerns associated with the imposition of a legal obligation
under Option (a) that did not even account for the concept of possibility.
The approach is also consistent with the intentions of Parliament and the
commitment provided by the Government on 5 December 2003.
However, subject to determining the threshold point and providing relief from
the obligation to disclose in dollar terms, there is a question of determining
the extent of any relief to balance the interests of the providers of the
information and the interests of the consumer.
The 'not possible for a compelling reason' criterion does not account for those
circumstances where the costs of compliance outweigh the potential benefits to
the consumer.
For
example, as the test relies on whether it is possible to disclose (or not) it
is arguable that where theoretically possible a regulated person would be
required to comply even where there was a resulting significant financial
burden imposed (even to the extent of causing bankruptcy). The compelling
reasons would need to be overwhelming for the party for ASIC to allow them to
avoid the disclosure obligation.
Further, this option does not take account of the need for industry to have an
acceptable transitional period in which to deal with the change to a stricter
test from the earlier proposed 'not reasonably practicable'.
Specific Costs
As per Option (a), industry would still be required to inject large amounts of
resources to meet the almost immediate deadline of 1 July 2004 for the
introduction of a stricter test than was originally provided under Corporations
Amendment Regulations 2003 (No.8). Again these costs may be recovered through
higher charges to consumers.
Without additional transitional relief it would be unlikely that industry, or
at least many individual particularly, would be able to meet that timetable
given the necessary systems and documentary changes.
There will be systems costs for ASIC and industry associated with the need for
applications for class order or individual relief from the disclosure
requirements. However, it was the intention of Parliament for ASIC to be an
integral part in the process of determination.
Greater detail of potential costs is not possible to be ascertained prior to
publication of ASIC determinations.
c) Introduce Corporations Amendment Regulations that provide for additional
relief criteria to that under Option (b)
This option would provide ASIC with additional flexibility from that under
Option (b) to determine a range of circumstances when it may not be appropriate
or unreasonable to provide information in dollar terms. Simply, it permits
that ASIC to consider a broader range of issues, in balancing the needs.
The additional circumstances (that is, unreasonable burden, consumer interest
and transitional) were recognised as necessary elements to be considered in the
recommendations of the Parliamentary Joint Committee on Corporations and
Financial Services (PJC).
Specific Costs
The potential burden associated with any amendments to existing industry
systems would be further moderated from that under Option (b) through the
delayed commencement of the provisions until 1 January 2005. In addition,
ASIC will have the ability to address any outstanding transitional or other
issues (both on a class and individual basis).
The proposed relief criteria is by definition a tighter test than 'reasonably
practicable', in particular with regard to application outside of the
transitional and will result in the expedition of disclosure in dollar terms
from that provided under the previously proposed criterion. Accordingly,
industry will experience costs associated with the necessary systems changes to
calculate the amounts and meet the stricter test.
There will be systems costs for ASIC and industry associated with the need for
applications for class order or individual relief from the disclosure
requirements. However, it is apparent that it was the intention of Parliament
for ASIC to be an integral part in the process of determination of relief from
the subject provisions of the Corporations Act.
Further information on costs is not available prior to publication of ASIC
determinations.
Consultation
Draft amendment regulations, that became Corporations Amendment Regulations
2003 (No.8), relating to the disclosure of dollar amounts were released for
public consultation on the Treasury website on two occasions, 12 March
2003 and 27 August 2003. The Ministerial Council for Corporations has on both
occasions been provided with copies of the proposed amendments.
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The Association of Superannuation Funds of Australia (ASFA) support the
proposed introduction of dollar-based disclosure as proposed in the draft
regulations. ASFA noted that consumer testing they had undertaken has found
consumers better understand dollar-based disclosure as compared with
percentages.
A version of the proposed dollar disclosure regulations consistent with the
commitments given in the Senate on 5 December 2004 and Option (b) was released
for public comment on 7 January 2004 and subject to an inquiry by the
Parliamentary Joint Committee on Corporations and Financial Services (PJC).
Submissions received in both forums generally sought greater relief
(transitional or otherwise) to account for a broad array of operational issues.
This included submissions from the Investment and Financial Services
Association expressing operational concerns (citing issues with fees calculated
as percentages and fees that have a negotiable range) and the need for
transitional relief. The Australian Bankers' Association noted the potential
costs, disruptions and possible market implications that could exceed consumer
benefits under the proposed regulations. These views were supported by the
recommendations of the PJC.
The current version of the draft regulations was released for public comment on
2 June 2004. Comments received, while supportive of disclosure in dollar terms
and the general operation of the obligations, raised concerns over the
requirement for ASIC to make determinations over all the instances affected by
the dollar disclosure provisions. Moreover submissions, such as that provided
by the Investment and Financial Services Association, discussed the
circumstances under which ASIC may seek to provide relief from the disclosure
obligations in the Corporations Act.
Conclusion and recommended option
Option (c) is recommended. The extent of relief afforded under this option
represents an effective and appropriate means of addressing operational
concerns related to the disclosure of items in dollar terms under the FSR Act.
Moreover the proposed relief under this option reflects a appropriate balance
of a regulated person's ability to provide the information against the consumer
benefit.
Implementation & review
To allow sufficient time for transition, and ASIC to prepare the necessary
determinations, it is proposed that these requirements will only apply after 1
January 2005.
DISCLOSING INFORMATION ON SUPERANNUATION BENEFITS - AMENDED CORPORATIONS
REGULATIONS 7.9.19, 7.9.19A & B, 7.9.20 AND 7.9.20A & B.
This Regulation Impact Statement was previously tabled with Corporations
Amendment Regulations 2003 (No.8). It has merely been updated to reflect
events since that time and the new commencement date.
Issue
The Financial Services Reform Act 2001 (FSR Act), which commenced on 11
March 2002, introduced a uniform disclosure and licensing regime to the
financial services industry.
Periodic statements for financial products that contain an investment component
(such as superannuation and managed funds) provide holders of financial
products with regular information on details, such as, a summary of
transactions during the period and the termination of the investment at the end
of the period. This information is the only regular information received by
the holder of the financial product and is vital to keeping the holder informed
of the position of the investment.
Under Corporations Regulations 7.9.19 and 7.9.20, periodic statements for
superannuation fund members are specifically required to inform members of the
amount of a 'withdrawal benefit' and details of other significant benefits for
their interest. Such information is necessary for a superannuation fund
member making a decision whether or not to retain their interest in the fund.
However, superannuation funds are not specifically required by existing
Corporations Regulations to disclose material that would aid a member's
comprehension of the nature and composition of such benefits.
The FSR Act is intended to provide a broad regulatory disclosure
regime to promote better informed consumers and hence a more competitive market
place.
Regulatory requirements the same in substance were contained in
Schedule
3 of Corporations Amendment Regulations 2003 (No.8) but were included in a
disallowance of items within that schedule that took place on 24 March 2004.
The proposed regulations reinstate the effect of the disallowed
regulations.The disallowance motion was rescinded on 13 May
2004.
Objectives
To enhance existing disclosure obligations within periodic statements relating
to the superannuation fund benefits. In particular, through disclosure of what
withdrawal benefits and any other significant benefits comprise (rather than
just stipulating an amount).
Options
a) Do nothing
Under this option, regulations 7.9.19 and 7.9.20 would be maintained as they
already require some disclosure of the amount of withdrawal benefits and other
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significant termination benefits.
b) Guidance from Australian Securities and
Investments Commission (ASIC)
This option would involve ASIC providing greater guidance on the operation of
the existing regulations through ASIC publications such as Policy Statements
and Frequently Asked Questions.
c) Amend Corporations Regulations
Corporations regulations 7.9.19 and 7.9.20 provide the existing requirements to
disclose information about the amount of termination benefits from the holding
of superannuation and retirement savings account products. The termination
benefits include such items as 'withdrawal benefits' - being the amount a fund
would provide to a member for the voluntary cessation of their interest in the
superannuation fund at the end of a period - or disability benefits.
Those regulations could be amended to reflect the Government's expectation of
what constitutes relevant information and ensure that it is disclosed in a
manner that is meaningful and which promotes consumer understanding.
Impact analysis
Consistent with the Government's general approach to the regulation of
self-managed superannuation funds (SMSF), SMSF will not be subject to the
proposed increase in specification of periodic statement reporting
requirements. Corporations regulations 7.9.19 and 7.9.20 currently exclude
SMSF.
Accordingly, those sectors of the superannuation industry potentially affected
by any proposed greater specification of periodic statement reporting
requirements, would incorporate approximately 2472 superannuation funds with
assets of approximately $415 billion and 24.7 million accounts[1].
a) Do nothing
The Government has determined that the current information requirements
prescribed by Corporations regulations 7.9.19 and 7.9.20 are not optimal, as
they do not provide sufficient information to investors. Accordingly, the
option not to alter the current regulations 7.9.19 and 7.9.20 would not be
considered consistent with the requirements of subsection 1017D(4) of the Act
which requires the provision of information that is reasonably believed for the
holder of the product to understand their investment.
Costs
This option would incur nil costs to industry, however consumers may require
additional financial services (potentially at a cost) in order to fully
understand the nature of any superannuation benefits.
b) Guidance from ASIC
This option would be more flexible in operation than other legislative
instruments, however policy guidance is not binding or enforceable in a court
of law.
Costs
The proposed specification of additional information may require system changes
and modification of periodic statement templates by industry participants who
followed ASIC's guidance to supply the required information.
c) Amend Corporations Regulations
The proposed regulations reflect the Government's expectation that the relevant
information is disclosed in a manner that is meaningful and which promotes
consumer understanding. By putting these requirements into law, there is also
greater certainty and provides ASIC with a firmer basis on which to provide
guidance and enforce the provisions through reliance on the regulations.
Proposed amendments to regulations 7.9.19A and 7.9.20 are intended to enhance
the existing requirement to disclose information about the amount of
termination benefits from the holding of superannuation and retirement savings
account products. In particular, they require:
• an indication of the amount of any fees and charges
payable that would be associated with estimated termination benefits at the end
of the reporting period; and
• informing the product holder that the amount of
benefits described is a notional amount and may be subject to change; and
• the advising of the product holder of the
availability of further information.
The regulation amendments proposed increase consumer protection in relation to
the superannuation industry, through clarifying what is believed to be
necessary for a product holder to understand their investment. There is
general support for the principle of providing members with information on fees
and penalties upon exiting a fund. This information will assist in the quality
of member decision-making.
It is intended that clarifying the disclosure requirements for costs associated
with leaving a superannuation fund will present holders with a more accurate
indication of their account and provide an easier comparison if they wish to
consider changing funds. In addition, the inclusion of further descriptive
statements will ensure that product holders have a better understanding of the
nature of the amounts presented in the periodic statement.
Requiring the presentation of this information is consistent with the purpose
of periodic statements, which is to provide investors with regular information
to enable them to understand their investment and its performance.
Costs
As per Option (b), this proposal may affect industry system requirements and
existing statement templates.
However, information regarding applicable fees and charges may already be
calculated in determining a figure for any end benefits. Further, the
disclosure of those components is subject to a reasonably practicable
criterion, which may permit alternate arrangements to access information where
a regulated person is not able to supply the necessary details.
Consultation
Consultations primarily relate to the earlier requirements contained in
Schedule 3 of Corporations Amendment Regulations 2003 (No.8). Therein draft
regulations were released for public consultation on the Treasury website on
two occasions, 12 March 2003 and 27 August 2003. The Ministerial Council
for Corporations has been provided with draft copies of the regulations.
The draft of 12 March 2003 was widely criticised by industry in relation to
their ability to implement and the vagueness of its operation.
The revised August draft was not subject to such criticism by industry bodies.
Further, the Association of Superannuation Funds of Australia (ASFA) support
providing superannuation fund members with information that will assist the
quality of decision making. In particular, ASFA indicated that superannuation
fund members should be alerted to the impact of exit and withdrawal fees on
received benefits through the periodic statement.
Draft regulations for reinstatement of the requirements following the
disallowance were released on 2 June 2005. Only one submission was
received, from Superpartners Pty Ltd, and which suggested there was no
additional benefit from the requirements in the periodic statement. Though an
alternative of including the information in the annual report was suggested.
Conclusion and recommended option
The preferred option is option c), amend the Corporations Regulations to
provide for increased disclosure, which will result in more effective
information being provided in relation to the impact of fees and charges when a
person leaves a fund and the nature of disclosed termination values. The
provision of the information within a periodic statement is considered to be
timely to any possible decision to dispose of an interest and more closely
aligned with the provision of the information.
It is considered that the current regulations do not provide sufficient clarity
as to the content required within a periodic statement for the requirements in
the Act pertaining to a product holder's knowledge of their investment to be
satisfied.
Implementation & review
To allow sufficient time for transition to these amended requirements, it is
proposed that these requirements apply from 1 January 2005.
The amending regulations enhance the operation of provisions existing in the
FSR Act, accordingly, no specific review of the regulations is intended.
FOOTNOTES:
[1] Australian Prudential Regulation Authority,
Superannuation Market Statistics, December 2002