On 21 December 2009, the Hon Chris Bowen MP released, for public comment, draft Corporations Amendment Regulations 2009 (draft Regulations) and an example PDS for superannuation funds and managed investment schemes. The draft Regulations and example PDS were the products of a Financial Services Working Group charged with examining, among other things, financial services disclosure.
Unlike a superannuation PDS produced under the current regime which, subject to the prescriptive content requirements, remains open to tailoring for a particular superannuation fund (or interest in the fund), the proposed regime aims to produce a 'one size fits all' short-form superannuation PDS.
While a number of aspects of the current regime will be retained, including the issuer bearing responsibility for the PDS and the requirement for content to be up-to-date and 'clear, concise and effective', much is up for change.
So, What May Be Changing?
As a starting point, the draft Regulations prescribe length, font size, content and incorporation by reference rules. This is summarised in the table below:
Length | 6 pages (if printed on A4) / 12 pages (if printed on A5) / 18 pages (if printed on DL) |
Font size |
8 point - for issuer's name, address, ABN/ACN (as applicable) and AFSL 9 point - all other text |
Content |
Key sections Inclusion of the following sections, which must be numbered and titled as follows:
If insurance cover is not offered, section 9 can be presented as section 8 and references to section 9 in the Regulations are to be read as references to section 8. Importantly, the Regulations prescribe the specific content for each key section, much of which tends to be educational rather than tailored to the particular product. Other content The PDS must also:
|
Incorporation by reference |
|
Other proposed changes include:
- abolition of combined PDS/Financial Services Guide (FSG)
- cessation of SPDS and multiple part PDS
- retention & record keeping - A PDS and matters incorporated by reference need to be retained for a minimum of 7 years from the date the PDS was issued. If a matter incorporated by reference is changed, this needs to be retained for 7 years from the date of change.
- different fees and costs disclosure - significantly, this includes a simplified version of the current enhanced fee disclosure requirements, a requirement to include only 'main' fees (thereby excluding 'minor fees' of less than $10) and a requirement to include a maximum fee level, with a statement that the member may actually pay less
Industry Concerns
A number of common issues have emerged from the industry submissions regarding the proposed Regulations. These include concerns regarding:
- the greatly reduced capacity to inform consumers under the proposed structure, notwithstanding the non-reduction of the disclosure obligations of the product issuer;
- the prominence of prescribed 'educational' content in lieu of specific product information;
- the restricted length of the PDS;
- the practical and cost implications arising from the cessation of the SPDS, which is currently used to update information or correct errors;
- liability issues arising from the very restricted disclosure on key features, especially in relation to fees and insurance;
- the rigidness of the draft Regulations, which do not readily cater for defined benefit and pension interests;
- the ability of Trustees to record and retain the correct versions of matters incorporated by reference; and
- the inconsistent use and/or lack of clarity regarding terminology.
Where To Now?
Given the closing day for submissions has now passed, it will be interesting to see how the Government responds to industry feedback and whether any material changes are made to the draft Regulations and example PDS.
Much remains uncertain at this point - when the Regulations will commence, their ultimate form and the applicable transition period (at minimum, industry appears to anticipate 12 months).
If you are considering replacing your PDS, you might wish to consider whether the nature of the amendments can be documented in a Supplementary Product Disclosure Statement. However, if that is not feasible, by all means proceed with a replacement PDS but bear in mind that significant changes to the PDS as we know it are likely to be implemented, one way or another.
Watch this space.
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