media release

IR 05-28 ASIC compliance guidance on the FSR refinement proposals and fees template requirements

Published

The Australian Securities and Investments Commission (ASIC) today provided guidance to financial service providers about its compliance response to proposed law reform refinements, and new regulations to the Corporations Act 2001.

The particular proposals and regulations are:

  • the Federal Government's Refinements to Financial Services Regulation (FSR) proposals paper, issued on 2 May 2005 (the Refinements paper); and
  • the enhanced fee disclosure regulations (the Corporations Amendment Regulations 2005) that were made on 10 March 2005, and which include the fee template requirements.

'ASIC has released this guidance to ensure that financial service providers have certainty, up front, on ASIC's administrative approach to the refinement proposals and the newly-made enhanced fee disclosure regulations', ASIC Executive Director of Compliance, Ms Jennifer O'Donnell, said.

The advice issued today supplements earlier releases from ASIC, including:

  • the Refinements paper (see ASIC Media Release 05-110: ASIC welcomes financial services refinements proposals paper issued on 2 May, and ASIC Information Release 05-22: ASIC provides details on financial services refinement projects issued on 12 May); and
  • enhanced fee disclosure regulations (see ASIC Information Release 05-19: ASIC provides answers on some fees and costs questions).

Compliance during the FSR refinements implementation process

ASIC will take into account the Refinements paper proposals in determining whether licensees are complying with the financial services provisions of the Corporations Act.

ASIC will generally not take action for breaches of the financial services provisions that are the subject of the refinement proposals, where that conduct is more likely than not to be lawful if the refinement proposal became law.

This general position is subject to circumstances where the conduct is, or is likely to:

  • materially harm or disadvantage consumers; and/or
  • undermine the confident and informed participation of consumers in the financial market.

The current obligation on Australian financial service licensees (AFS licensees) to report significant breaches of the financial services laws to ASIC still applies to the those financial services provisions that are the subject of the Refinements paper.

ASIC expects AFS licensees to continue to identify breaches, or likely breaches of these provisions, give proper consideration to whether the breach is significant, and where required, provide timely notifications to ASIC. Consistent with our general compliance approach to the Refinements paper, ASIC will give due weight to the fact certain provisions may be the subject of change.

As a last point, ASIC does not intend to pre-empt any of the FSR refinements proposals in instruments of relief.

Compliance with the enhanced fee disclosure regulations

Under the enhanced fee disclosure regulations, product disclosure statements (PDSs) for most superannuation products provided to retail clients on or after 1 July 2005 must include:

  • a standardised fees and costs template;
  • an example of annual fees and costs for a balanced or similar fund; and
  • a boxed consumer advisory warning.

These requirements apply to other investment linked PDSs from 1 July 2006.

ASIC is aware that issuers of superannuation PDSs have had a relatively short period to update or replace their current PDSs in order to comply with the enhanced fee disclosure regulations from 1 July 2005 and that a number of technical compliance issues have arisen. For example, it may be difficult for an issuer of a superannuation PDS to contain exact fees and costs details when the calculations depend on details from underlying managed investment issuers who are not required to comply with the regulations for another 12 months.

'During the first 12 months of application of the enhanced fee disclosure regulations, ASIC will expect issuers of superannuation PDSs to comply with the spirit and substance of the requirements', Ms O'Donnell said.

'Generally, we will not take action over minor and technical compliance issues with the enhanced fee disclosure regulations where issuers of superannuation PDSs have made a genuine effort to comply with the requirements to properly inform retail clients about fees and costs', Ms O'Donnell added.

In all cases, ASIC expects issuers of superannuation PDSs to be able to demonstrate the process by which they have arrived at fees and costs figures, and may seek this information when reviewing superannuation PDSs issued after 1 July 2005.