ASIC has today provided an overview of some compliance issues identified during its proactive surveillance of responsible entities and superannuation trustees that are also holders of an Australian financial services (AFS) licence.

ASIC Commissioner Peter Kell said that while some compliance issues were expected, there were some areas where processes and behaviours could be improved across the board.

'ASIC urges all licensees to take stock and implement any measures that are necessary to meet both legal obligations and good practice within the industry', Mr Kell said.

For responsible entities, the notable compliance concerns included:

1.  defective or misleading disclosure and advertising material and an absence of effective controls over the authorisation and review of promotional materials and disclosure documents.

ASIC expects licensees to develop, maintain and comply with documented processes dealing with the authorisation and review of promotional materials.

2.   deficiencies in compliance and governance frameworks, including: inadequate internal processes, failures to comply with established internal procedures, inconsistencies between funds' governing documents and internal policies, as well as inadequate record keeping to demonstrate compliance with licensee obligations.

ASIC expects licensees to document their compliance measures, fully implement them and monitor and report on their use and regularly review the effectiveness of these measures and ensure they are up-to-date. In ASIC’s view, failure to do this will make it more difficult to comply with the general obligations and to demonstrate compliance with them.   

3.   in a small number of cases, absence of an appropriate monitoring processes to ensure that returns information of a licensees' funds, published by third party data aggregators, are consistent with the returns published by the responsible entity. This led to discrepancies between returns information available from these third party service providers and those published by the responsible entities.

ASIC expects licensees to have periodic reconciliation controls on returns to monitor and resolve any material discrepancies.

For superannuation trustees, the notable concerns included:

1.   the presentation of rollover forms attached to product disclosure statements that may have given new members the impression that they were required to rollover their existing superannuation accounts into the fund in order to become members,

2.   the promotion of 'self-managed' investment options which, on occasions, gave the impression that they provided members with the same level of choice and control as a self-managed superannuation fund.  In fact, investing in the self-managed investment option did not afford members the same rights and responsibilities for the fund’s management as an investment in a self-managed superannuation fund and often, the range of assets in which members could invest was restricted,

3.   promotional material and advertisements for financial products that did not contain balanced messages about product risks and benefits, as stipulated under Regulatory Guide 234  Advertising financial products and services (including credit): Good practice guide (RG 234).

Mr Kell said, 'ASIC reminds superannuation trustees that when developing and implementing strategies designed to gain and retain fund members, they should be mindful of the financial services laws and ensure that any communications to new or existing members is not misleading or deceptive.

'Some licensees who are trustees also need to ensure they keep up to date with recent legislative changes under the 'Stronger Super' reforms. This includes the new requirements to disclose executive officer remuneration and systemic transparency, but also the new arrangements for complaints handling'.

As a result of the compliance failures and areas of concern that were identified during the reviews, ASIC has required both responsible entities and trustees:

• to amend and update compliance measures,
• to develop procedures such as those related to the due diligence and authorisation of disclosure documents and promotional material,
• who are responsible entities, to make changes to their risk management arrangements and implement additional measures to monitor the reporting of returns.
• to withdraw disclosure documents and marketing materials, and
• to issue revised or supplementary disclosure.

The surveillance program of responsible entities also resulted in a number of regulatory outcomes, including the  imposition of additional AFS licence conditions in one case and more broadly, amendments and improvements in the quality of licensees' compliance arrangements and governance frameworks.  

'ASIC will continue to conduct reviews of licensees in the superannuation and managed investments sector to assess compliance with their AFS licence obligations, rectify any deficiencies and to improve overall industry standards', Mr Kell said.