Issue 551, 24 November 2014
In this issue:
ASIC consultation on permitting electronic disclosure to be the default
On Friday 14 November, ASIC released Consultation Paper 224 – Facilitating electronic financial services disclosures and draft updated Regulatory Guide 221 – Facilitating electronic financial services disclosures. The documents are available here.
The key focus of the Consultation Paper is to enable financial services providers to deliver disclosures electronically as a default, if they choose to do so, with consumers being given the option to opt out.
ASIC Commissioner John Price said, “ASIC is focused on making disclosure more effective and meaningful for consumers of financial services. We want to encourage more innovative ways of delivering important information presented in a way that consumers can understand and act on. At the same time, we believe electronic disclosure could reduce costs for providers and enable them to better align their disclosure with consumer preferences.”
This consultation on electronic disclosure is welcomed by ASFA. It is a great opportunity for the industry to shape the disclosure regime in a manner that looks at the disclosure question from the consumer perspective, recognises and accommodates current technologies and facilitates the adoption of new electronic communication technologies.
The deadline for submissions is Friday, 16 January, 2015. If you have any comments that you would like ASFA to consider including in our submission, please provide them in writing to Robert Hodge by Wednesday, 24 December.
It would assist if each comment is referenced to the paragraph number or the specific feedback question in the consultation paper.
Please note that ASIC would like to fully understand and assess the financial and other impacts of their proposals and any alternative approaches. To facilitate this, they are seeking comments on:
- the likely compliance costs
- the likely effect on competition
- other impacts, costs and benefits.
ASIC is seeking both quantitative and qualitative information, where possible.
ASIC issues further guidance on superannuation forecasts
ASIC has issued further guidance in the form of updated Regulatory Guide 229 – Superannuation forecasts (RG 229) to assist superannuation fund trustees to provide their members with retirement estimates.
The changes will allow a superannuation fund to include an estimate of the Age Pension that might be available to the member, along with the member’s superannuation benefit at retirement, both in the form of a statement (referred to as a ‘retirement estimate’) or as a calculator. These changes are aimed at helping members to engage with their superannuation.
RG 229 explains how ASIC’s general relief for providers of financial calculators applies to superannuation calculators. The revised guidance and relief also make a number of minor technical changes to the previous version issued in December 2011. The updated version of RG 229 can be downloaded by clicking here.
Disallowance of FoFA regulations
On Wednesday 19 November, the Senate voted to disallow in full the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (the Regulation).
The Regulation sought to make the following amendments to the Corporations Regulations 2001 relating to the Future of Financial Advice (FoFA) provisions in Part 7.7A of the Corporations Act 2001:
- removing the need for clients to renew their ongoing fee arrangement with their adviser every two years (also known as the ‘opt-in’ requirement)
- removing the requirement to provide an annual fee disclosure statement to clients in ongoing fee arrangements prior to 1 July, 2013
- removing the ‘catch-all’ provision from the list of steps an advice provider may take to satisfy the best interests obligation, and facilitating scaled advice
- clarifying the treatment of ‘intra-fund advice’
- amending the application of the ban on conflicted remuneration including:
- providing that benefits relating to general advice are not conflicted, subject to certain conditions
- amending the execution-only services provision
- clarifying the application of the existing client-pays provision
- broadening the training and education provision
- broadening the basic banking products provision.
As a result of the disallowance of the Regulation, the above amendments will no longer proceed.
Following the disallowance by the Senate, ASIC has issued a media release saying that it will “take a practical and measured approach to administering the law as it now stands…We will take into account that – as a result of the change to the law that applies to the provision of financial advice – many Australian financial services (AFS) licensees will now need to make systems changes. ASIC recognises this issue may arise in particular areas, including fee disclosure statements and remuneration arrangements.
“We will work with Australian financial services licensees, taking a facilitative approach until 1 July 2015.”
ASIC derivative transaction reporting: reminder
In ASFA Action Issue 537, dated 26 May, 2014, we informed members of the requirements of the ASIC Derivative Transaction Rules (Reporting) 2013, which will impose ‘over the counter’ (OTC) derivative reporting requirements on Australian financial services licence (AFSL) holders (referred to as ‘phase 3’ reporting entities), which includes super funds who hold OTC derivative contracts.
In June 2014, ASIC issued Class Exemption 14/0633, which deferred and staggered the commencement date for phase 3 reporting entities. Phase 3 has been divided into two phases. Phase 3A entities (being funds with total gross notional outstanding OTC derivative exposure of $5 billion or more as at 30 June 2014) commence reporting from 13 April 2015. Phase 3B entities (being funds with total gross notional outstanding OTC derivative exposure of less than $5 billion as at 30 June 2014) commence reporting from 12 October 2015.
It is essential that funds immediately determine if they are phase 3A or phase 3B reporting entities. If you are a phase 3A reporting entity, you need to be preparing for reporting now. Notwithstanding that reporting will probably be delegated to external investment managers, there will be a significant lead time to put appropriate arrangements in place. Phase 3B reporting entities (which will include most funds that hold OTC derivatives) have a longer lead time but should commence discussions on how they will comply with their reporting obligations.
