FSR imposes significant operational requirements for many superannuation entities, most specifically in the areas of licensing and product disclosure.
Updated as at 11 March 2004.
What does FSR mean for the superannuation industry?
Who does it affect and how?
FSR applies to 'superannuation entities', which means regulated superannuation funds (both public offer and non-public offer funds), approved deposit funds (ADFs) and pooled superannuation trusts (PSTs).
All superannuation products and Retirement Savings Accounts (RSAs) are specifically stated to be retail products, which means that most of the consumer protections afforded by FSR automatically apply.
Specific requirements
The most significant ways in which participants in the superannuation industry are affected are:
Licensing
- Regulations exempt the trustees of superannuation entities (other than the trustees of public offer entities) and the trustees of PSTs which are used only to invest assets of regulated superannuation funds with net assets of at least $10 million or which are not used to invest assets of regulated superannuation funds, from the requirement to be licensed.
- Trustees of superannuation entities (other than public offer entities) are exempt from the requirement to be licensed only to the extent that they limit their activities to issuing or varying interests in the fund - if they give financial product advice, whether general advice (other than in a PDS) or personal advice, to members or potential members, they need to be licensed.
- The Australian Securities and Investments Commission (ASIC) is responsible for issuing licences.
Disclosure
To whom- PDSs must be provided to retail clients (NB: all superannuation and RSA products are retail).
- PDSs must be provided to standard employer-sponsors of superannuation entities when they first become an employer-sponsor.
- Where a superannuation fund trustee goes beyond offering membership of its fund and offers financial advice outside of the PDS, it may have to provide members, prospective members and employers to whom this advice is to be provided with a Financial Services Guide (FSG).
- A PDS and a FSG can be combined in a single document in some circumstances.
- Trustees must provide members with annual reports about the fund and personal member statements.
- Generally, a PDS must be provided at or before the time the advice is given or the superannuation product is issued including when a member moves from an interest in the growth phase to a pension in the same fund or from one sub-plan to another in the same fund.
- The PDS can be provided as soon as it is reasonably practicable (and, in any event, within three months after the product is issued to the client) where the fund is a regulated superannuation fund other than a public offer fund, a public offer fund (but only in respect of standard employer-sponsored members), a successor fund or (in some circumstances) an eligible rollover fund.
- A FSG must be provided as soon as practicable after it becomes apparent that the financial advice will, or is likely to, be given (and, in any event, before the advice is given).
- A PDS must contain a range of prescribed information, including: details about the trustee; any amounts payable (for example fees, commissions and ongoing management charges); any significant benefits, risks, features (for example investment options and preservation requirements) and taxation implications; cooling-off arrangements and other matters.
- In January 2004, the Government released proposed amendments to the Corporations Regulations, pursuant to which some disclosure documents will be required to disclose various product amounts (eg, fees and benefits) and service provider remuneration as amounts in dollars unless ASIC determines that, for a compelling reason, dollar disclosure of such amounts is not possible, in which case disclosure must be made in percentage terms or as a description of the method of calculating the amounts (including, if appropriate, worked dollar examples) instead. At this stage, the proposed amending regulations are intended to commence on 1 July 2004, although there is pressure from industry and consumer groups to extend the commencement date. Also, it should be noted that the Parliamentary Joint Committee on Corporations and Financial Services has been reviewing the proposed regulations (and is due to report by 11 March 2004) and industry bodies and Opposition parties have indicated that they believe there are still problems with how the Government is intending to regulate this issue. For further information about these new requirements and what they will mean for Australian financial services licensees and product issuers, refer to our report on this issue. To keep up–to–date with the latest developments, refer to our Breaking News.
- A FSG must contain a range of prescribed information, including details about the trustee, the kinds of financial services it is authorised to provide, commissions, dispute resolution systems and other matters.
- A PDS does not have a specified life span but must be replaced or supplemented if the information it contains is no longer current. Information cannot be incorporated into the PDS by reference. However, a PDS may consist of more than one document. This is designed to facilitate the provision of up-to-date material to investors because a PDS may consist of a number of parts which deal with different types of information and can be updated independently (for example one containing core information which will require infrequent revision, another with information on fees and charges and another containing performance information, each of which can be updated when changes occur).
- Information in the PDS that becomes out of date but is not materially adverse to the member can be updated by a method advised in the PDS such as on the fund's website.
- A FSG does not have a specified life span, but must be replaced or supplemented if the information it contains is no longer current. It may consist of two or more separate documents.
- The PDS for superannuation products does not have to be lodged with ASIC but the issuer is required to notify ASIC within five days after the PDS is first used.
Other obligations
Cooling-off
- Cooling-off requirements apply to public offer funds in most circumstances. Exceptions include in respect of standard employer–sponsored members and successor fund transfers.
- Cooling-off requirements do not apply to non-public offer funds except when a member moves from an interest in the growth phase to a pension or from one sub-plan to another in the same fund.
- If cooling-off applies, members and standard employers have a 14 day period in which they may return the superannuation product and obtain a refund.
- Where a new member exercises the right of return and the money to be repaid includes restricted non-preserved or preserved benefits, the member must nominate another superannuation entity or RSA to which those benefits are to be paid.
- Where the right of return is exercised by a standard employer–sponsor and the monies to be repaid include employer contributions, the employer–sponsor must nominate another superannuation entity or RSA to which the employer contributions are to be paid. If money has also been paid to the fund by or on behalf of the member, restricted non-preserved or preserved benefits must be paid to another superannuation entity or RSA as directed by the member and any other monies must be paid as directed by the member.
Confirmations
- Trustees of superannuation entities must give notice to the member to confirm transactions by which the member acquires or disposes of a superannuation product or which occur while the member holds the product.
- There are limited exceptions (for example: in respect of pre-arranged contributions and withdrawals; where an additional contribution was payable because of an increase in an external factor, such as a person's salary; debiting of fees, taxes, charges and surcharges; debiting or crediting investment returns; or where the transaction is a termination and the trustee has provided a member statement with the required information).
Who should I contact at Allens?
 |
|
 |
|
 |
|
 |
|
 |
|
 |
|
