The Australian Prudential Regulation Authority (APRA) and ASIC today released a newly updated Unit pricing - guide to good practice for the life insurance, superannuation and funds management industries.
The joint APRA/ASIC guide has been amended so that scheme operators can elect not to make payments to exited members for unit pricing errors where the compensation due is less than $20.
‘All stakeholders ultimately bear some cost through having to deal with small compensation amounts. We have heard these concerns and acted to ensure that the rectification of a unit pricing error is undertaken as efficiently as possible, for the benefit of all stakeholders’, APRA Deputy Chairman, Mr Ross Jones, said.
Both regulators understand there are significant costs involved for scheme operators in writing cheques for very small amounts and think drawing the line at the $20 level is reasonable. The goal is to reduce the costs of doing business, without compromising the interests of members.
The amendment does not affect the legal rights of members – this remains a matter for scheme operators to assess. However, the regulators will be satisfied if scheme operators adopt this amendment when determining compensation to individual members.
The $20 minimum would only apply to payments made to exited members; those members still in the fund should expect to be compensated regardless of the amount involved. The aim of the rectification process is to restore all parties to the position they would have been in had the unit pricing error not occurred. At the end of that process, any net cost is to be met by the scheme operator. However, if there is a net benefit from amounts not paid to exited members, that benefit is to remain in the fund - the scheme operator must not benefit from the process. The scheme operator also remains responsible for all administrative rectification costs.
APRA and ASIC reiterated that unit pricing issues can be complex and providers need to remain vigilant in applying robust risk management practices, as well as meeting their trustee and responsible entity obligations.
‘All of the evidence we have received suggests industry practices have improved since the guide was first published in 2005. We need to maintain that improvement. The guide is, at its core, a principles-based document and we look to providers to regularly monitor the application of those principles, even as the investment environment evolves’, Mr Jones said.
APRA and ASIC will continue to review aspects of unit pricing practice and generally expect that product providers will follow the ‘good practices’ described in the guide. That said, APRA and ASIC understand that alternative practices are sometimes appropriate but expect product providers to have a reasonable and well-documented justification for adopting them.