On 26 March 2007, Treasury released draft Corporations Amendment Regulations (draft regulations) containing another round of proposed refinements to financial services regulation under the Corporations Act 2001.
The draft regulations address a number of the financial services reforms announced by Treasury on 16 August 2006 following the consultation paper released on 7 April 2006.
The draft regulations propose changes that will affect the insurance and superannuation and funds management industries as well as other financial services industries. Some of the key changes are outlined below.
- Product Disclosure Statement (PDS) dollar disclosure - the draft regulations propose to relieve general insurers from the obligation to disclose costs and benefits in dollars in the PDS where the dollar disclosures are instead provided in the policy schedule. The PDS will still need to disclose the relevant costs and benefits as a range, percentage or description.
- Transition period extended - changes to the content rules for general insurance PDS documents introduced in the Corporations Amendment Regulations 2005 were scheduled to commence on 20 June 2007. The draft regulations propose to extend the transition period to 30 June 2008. The timing of this relief may prove critical to insurers with June 2007 renewals three months away.
- Bundled general insurance products - the draft regulations propose to treat general insurance products that contain ‘predominately’ wholesale type insurance cover as wholesale even though some aspects of the cover may, of its own, constitute retail cover.
- Sickness and accident products - the draft regulations propose to treat employers taking out sickness and accident products (typically retail type cover) for their employees as wholesale where the sickness and accident cover is bundled as a package of worker’s compensation insurance.
Superannuation and managed funds industries
- Custodians and fund administrators - the draft regulations do not contain relief for third party custodians or administrators of superannuation funds or managed investment schemes from the Financial Services Guide (FSG) requirements. Treasury is of the view that relief is not needed but will accept submissions on this.
- Wholesale treatment of superannuation trustees - the draft regulations propose to allow for the wholesale treatment of a superannuation trustee who does not meet the $10 million threshold in certain circumstances.
- Wholesale treatment of employers for superannuation products - the draft regulations propose to allow for the wholesale treatment of employers who are not small businesses in respect to superannuation financial services.
Financial services providers generally - disclosure document changes
- Updating FSGs and PDSs - the draft regulations propose to allow financial service providers to update their FSG and PDS without preparing a new document where the omission of the additional information would not be materially adverse to the client. The proposed relief requires certain statements to be included in the FSG or PDS and only apply in certain circumstances.
- Combining FSGs - the draft regulations propose to allow for the combining of an FSG with a prospectus, short form prospectus, profile statement or offer information statement in a manner similar to the provisions relating to combining an FSG and PDS.
- Advice or product rejected - the draft regulations propose to relieve financial service providers from the obligation to give an FSG or Statement of Advice (SoA) where their advice or product is rejected by the client. This relief appears to apply only in certain situations.
- Oral disclosures - the draft regulations propose to relieve financial service providers from the need to make oral disclosures in time critical situations in certain circumstances and subject to certain conditions.
- Incorporation by reference - the draft regulations propose to allow a PDS and SoA to incorporate certain information by reference to a publicly available source in some circumstances.
Financial services industry generally - other changes
- Badging of disclosure documents - the draft regulations propose to allow a person to modify a financial service provider’s documents without the giving of such a document amounting to a financial service. The commentary accompanying this regulation appears to suggest this will allow non Australian Financial Services licensed persons to ‘badge’ a financial service provider’s documents without this amounting to advice. However, the regulations as drafted do not address the issue of whether badging is a financial service and may give little comfort to service providers in this situation.
- Secondary service providers - the draft regulations propose to relieve a secondary service provider providing financial services to a retail client through an intermediary licensee from the FSR obligations to that client. The regulation only applies in certain situations and is subject to obtaining the intermediary’s agreement.
Treasury is seeking written submissions on the draft regulations to be submitted by 23 April 2007.
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