Issue 577, 28 July 2015
In this issue:
- ASIC: urgent consultation on fee disclosure
- ASIC: new guidance on digital disclosures
- APRA update on superannuation data reporting
- Capability review of ASIC
- Disability lump sums: calculation of tax-free component
- ASIC guidance: advice on self-managed superannuation funds
- ASFA member survey
ASIC: urgent consultation on fee disclosure
As members will be aware, ASIC has been undertaking a lengthy period of consultation on fee and cost disclosure in product disclosure statements (PDSs) and periodic statements. This has included the release of an extensive class order [CO 14/1252] and a draft updated version of Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (RG 97) (see ASFA Action issue 553 for details).
ASIC has advised ASFA that it has made a number of revisions to draft RG 97 in response to submissions received from the industry, and has also developed a proposed class order that will make amendments to [CO 14/1252]. ASIC is now seeking very urgent feedback on these revisions and amendments.
ASIC has advised that the proposed class order will make modifications to [CO 14/1252], including:
- amending the ‘interposed vehicle’ definition to include listed property and infrastructure funds, and to exclude non-operating holding companies under some circumstances
- revising the definition of the costs of over-the-counter (OTC) derivatives that needs to be included in the indirect cost definition
- revising the consumer advice warning for superannuation
- clarifying that indirect costs and indirect fees need to be reported separately for superannuation products on periodic statements
- adjusting the transition period so that issuers may opt in early, with some provisions, without needing to adopt the entire class order early
- amending the note to the fee example, so that it refers to the ‘buy-sell’ spread, and ensuring the exit fee is payable on ‘exit’, rather than on ‘early exit’
- adding a provision that ensures any issuer that has adopted [CO 14/1252] prior to the proposed modification is not unintentionally non-compliant.
ASIC has also indicated that the main revisions made to the regulatory guide include:
- further guidance on the definition of ‘interposed vehicle’, ‘indirect cost’ and making ‘reasonable estimates’
- clarification on when forward looking estimates of indirect cost may be used
- clarification of indirect costs relating to OTC derivatives.
ASFA has received approval from ASIC to make the proposed class order and the draft updated RG 97 available to members, with a view to providing feedback to ASIC as a matter of urgency.
If you have any comments on the proposed class order or the draft updated RG 97 that you would like ASFA to consider including in a submission to ASIC, please forward them in writing to Fiona Galbraith by close of business Friday 31 July 2015.
ASFA will be looking to convene a working group of interested members to discuss the feedback received on the proposed class order and draft updated RG 97, and to provide further input into its response to ASIC. This working group is likely to meet early to mid-next week. If you would like to be considered for inclusion in this working group (or would like to nominate a member of your organisation for inclusion), please email Fiona Galbraith by close of business Friday 31 July 2015.
ASIC: new guidance on digital disclosures
ASIC has released new regulatory guidance and relief to facilitate the provision of disclosures to financial services consumers through digital channels, and to encourage innovative communication of information about financial products and services.
Importantly, the new releases explain ASIC’s view that providers do not need relief in most instances to use clients’ electronic addresses for delivery of disclosures. Relief provided via legislative instruments also creates a new default method of digital delivery, enabling financial services providers to publish a disclosure digitally and notify the client that it is available.
The guidance and relief are contained in new Regulatory Guide 221 Facilitating digital financial services disclosure (RG 221) and two new legislative instruments:
The changes follow recent consultation through Consultation Paper 224 Facilitating electronic financial services and disclosures (CP 224) (see ASFA Action issue 551).
ASIC’s media release indicates that it has facilitated the use of innovative digital disclosures by:
- explaining ASIC’s view that providers do not need relief in most instances to use clients’ electronic addresses for delivery of disclosures
- giving relief to create a new method of digital delivery enabling financial services providers to publish a disclosure digitally and notify the client that it is available
- giving relief to enable superannuation fund trustees to meet their obligation to give a PDS and ongoing disclosures to a default fund member by using an email address provided by the member’s employer
- giving relief for the innovative use of digital media for PDSs, financial services guides and statements of advice
- providing additional guidance, in ASIC’s Good practice guidance for digital disclosure (Appendix D of RG 221), to help ensure that clients continue to receive clear, concise and effective information when disclosures are delivered digitally, and that consumer protections are retained in the digital environment.
ASIC Commissioner John Price said:
“The changes mean product disclosure statements (PDS) and other financial services disclosure documents will be delivered to consumers digitally as the default option, unless the consumer opts out. This will reduce the costs of printing and mailing for businesses while preserving choice for those consumers who wish to receive paper.
ASIC wants industry to harness the opportunities of digitisation and is encouraging the use of more engaging forms of communication using digital media – interactive, video and audio. This can boost consumer understanding of financial services and products.”
APRA update on superannuation data reporting
APRA has recently written to registrable superannuation entity (RSE) licensees, to provide guidance on a number of data reporting matters.
Topics covered in the letter include:
- a reminder about the due dates for quarterly reporting periods, with the transitional 35 calendar day lodgement timeframe now extended to apply for quarterly reporting periods ending on or before 30 June 2017
- guidance on APRA’s expectations in relation to reporting of remuneration for RSE licensee directors
- new guidance on how to meet reporting obligations triggered by ad hoc events, such as the winding up of an RSE
- recently finalised reporting forms that apply to the 30 June 2015 annual reporting period
- other information to assist with reporting, including guidance on matters such as ‘winding up’ of an RSE, and how to find guidance on reporting obligations on the APRA website.
The letter is available on the APRA website.
Capability review of ASIC
The Assistant Treasurer, the Hon. Josh Frydenberg, has announced that the government is commissioning a review to consider the capabilities of ASIC. The review is intended to ensure that ASIC has the appropriate governance, capabilities and systems to meet their objectives and future regulatory challenges.
This announcement forms part of the government’s response to the Financial System Inquiry (FSI), which recommended periodic reviews of the capabilities of financial regulators, commencing with a review of ASIC in 2015 to ensure it has the skills and culture to carry out its role effectively. Findings from the review will also provide information to assist the government’s consideration of the FSI recommendation for ASIC’s regulatory activities to be funded by the industry.
The review will be led by an expert panel, which brings senior leadership experience from public and private sector roles, as well as an understanding and experience in industries regulated by ASIC. The expert panel will be supported by a team of public and private sector personnel, and will provide a final report to the government by the end of 2015.
In undertaking the review, the expert panel will consult extensively with private sector businesses regulated by ASIC, peak bodies, regional and consumer representatives, as well as other stakeholders.
The review may examine, and make recommendations on, how efficiently and effectively ASIC operates in achieving its strategic objectives, including:
- identification and analysis of immediate and forward-looking priorities or risks
- resource prioritisation and responsiveness to emerging issues
- the skills, capabilities and culture of ASIC and its staff
- organisational governance and accountability arrangements.
Disability lump sums: calculation of tax-free component
The ATO has recently clarified its guidance on how RSE licensees should calculate the tax-free component when paying a superannuation disability lump sum.
The taxable and tax-free components of a superannuation disability lump sum are calculated according to section 307-145 of the Income Tax Assessment Act 1997. Subsection 307-145(3) contains a formula that increases the tax-free component to broadly reflect the period where the relevant person would have expected to have been gainfully employed.
The formula to calculate this disability lump sum benefit modification is:
- Amount of benefit x [Days to Retirement / (Service Days + Days to Retirement)]
The ATO has indicated that any days that are included in both ‘service days’ and ‘days to retirement’ are to be counted only once in the formula’s denominator. The denominator is therefore equal to the number of days in the period from the start of the ‘service period’ for the disability lump sum to the person’s ‘last retirement day’.
The ATO website has been updated to reflect this view.
ASIC guidance: advice on self-managed superannuation funds
ASIC has released two information sheets to improve the quality of advice provided by advisers on self-managed superannuation funds (SMSFs):
- Information Sheet 205 Advice on self-managed superannuation funds: Disclosure of risks
- Information Sheet 206 Advice on self-managed superannuation funds: Disclosure of costs.
The information sheets are intended to assist advisers comply with their conduct and disclosure obligations under the Corporations Act 2001, and outline what ASIC looks at when undertaking surveillance in this area. The sheets specify the types of risks and costs that an adviser should consider, discuss and then disclose to clients when providing advice on establishing or switching to an SMSF.
The information sheets also deal with the cost-effectiveness of an SMSF, making clear ASIC’s view that an SMSF with a starting balance of $200,000 or below is unlikely to be in the client’s best interests, and that advice to establish one below that threshold is more likely to be scrutinised by ASIC.
ASIC’s media release and the information sheets are available on the ASIC website.
ASFA member survey
Last week, Pauline Vamos invited ASFA members to complete a brief online survey in regard to their views on ASFA and ASFA services.
The response has been strong, with close to 400 surveys now completed, and comments noted.
To ensure ASFA receives a true representation of the views of its members, more responses are welcome.
The survey can be found by following the link, and will only take a few minutes to complete.