Client Update: Abridged PDS regime for some financial products
31 August 2010
In brief: The Australian Securities & Investments Commission hopes that excessive jargon and unnecessary information that hampers investors making informed investment decisions will be limited under new corporations regulations on certain product disclosure statements. Partner Anna Lenahan and Senior Associate Marc Kemp look at the changes that mean some superannuation products and margin loans, as well as interests in simple managed investment schemes, may only be issued under a product disclosure statement limited to a certain number of pages.
How does this affect you?
Issuers of superannuation products1, margin loans or interests in simple managed investment schemes2 will need to prepare abridged product disclosure statements (PDSs) for those products by the dates set out in the following table (which also summarises the content requirements of the abridged PDS).
| Product | Commencement date | PDS length3 | Key content requirements |
|---|---|---|---|
| Superannuation products | For all new products and existing products where a supplementary PDS would be required: 22 June 2011.
Otherwise: 22 June 2012. |
Eight A4 pages |
The PDS must include the following sections:
|
| Standard margin lending facility | 1 January 2011. | Four A4 pages |
The PDS must include the following sections:
|
| Simple managed investment scheme | For all new products and existing products where a supplementary PDS would be required: 22 June 2011.
Otherwise: 22 June 2012. |
Eight A4 pages |
The PDS must include the following sections:
|
The content requirements listed in the table replace the content requirements in sections 1013C, D and E of the Corporations Act 2001 (Cth) in respect of relevant superannuation products, margin facilities and interests in simple managed investment schemes.
In each case, the PDS must also include a table of contents (which, in the case of superannuation products and simple managed investment schemes, is included in the page count) and the telephone number of the provider, and may incorporate additional or supplementary information by reference. Information incorporated by reference is part of the PDS (and subject to the requirements of Part 7.9 of the Corporations Act, such as the requirement that there be no omission that would be materially adverse from the point of view of a reasonable person considering whether to acquire the financial product concerned).
What is a simple managed investment scheme?
The Corporations Amendment Regulations 2010 (No. 5) (the Regulations) compel the issuer of interests in a simple managed investment scheme to use an abridged PDS. Responsible entities are therefore required to decide whether a scheme is simple or not.
The Regulations define a simple managed investment scheme as a registered managed investment scheme with one of the following two characteristics:
- the scheme invests at least 80 per cent of its assets in money in an account, or on deposit, with a bank on the basis that the money is available for withdrawal:
- immediately during the bank's normal business hours; or
- at the end of a fixed-term period that does not exceed three months; or
- the scheme invests at least 80 per cent of its assets under one or more arrangements by which the responsible entity of the scheme can reasonably expect to realise the investment, at the market value of the assets, within 10 days.
A simple managed investment scheme therefore has similar (but not identical) characteristics to a liquid scheme under s601KA of the Corporations Act. The main difference is that, under s601KA, the money or assets need only be realisable within the period specified in the constitution for satisfying withdrawal requests while the scheme is liquid. On the other hand under the Regulations, in the case of a simple scheme, the assets must be realisable immediately or at the end of a fixed-term period that does not exceed three months (for money in an account or on deposit), or within 10 days (for other assets). The 10-day period referred to in the Regulations presumably begins to run when the responsible entity decides to realise the assets of the scheme.
The Regulations do not make clear the consequences for a simple managed investment scheme that ceases to fall within the definition at a time when the scheme is still open for investment. Because the Regulations apply to a simple managed investment scheme, once a scheme ceases to be 'simple', the Regulations appear no longer to apply, and interests in the scheme could no longer be issued under the abridged PDS. The Regulations do not provide for the transition from an abridged PDS to a full-length PDS if this happens.
What's next?
The Regulations begin coming into force from 1 January 2011. Issuers of affected financial products who are planning to issue new products or to amend existing products in a way that would require a supplementary PDS will, from 22 June 2011, need to use an abridged PDS. By 22 June 2012, all affected financial products will need to be issued under an abridged PDS. Once the regime is in place, responsible entities of simple managed investment schemes should establish processes to monitor that the relevant schemes continue to fall within the definition of 'simple managed investment scheme', so that appropriate steps may be taken if this changes.
Footnotes
- All superannuation products other than those that are solely a defined benefit fund or solely a pension product.
- Excluding simple managed investment schemes that are quoted on a financial market; are part of a stapled group; or are platforms.
- Information incorporated by reference (but not the references themselves) are excluded from the page count. In the case of a PDS for a margin facility, the title page and table of contents are also excluded from the page count.
For further information, please contact:
- Susan BurnsPartner,
Sydney
Ph: +61 2 9230 4697
Susan.Burns@aar.com.au - Mark CerchéPartner,
Melbourne
Ph: +61 3 9613 8872
Mark.Cerche@aar.com.au - John BeckinsalePartner,
Brisbane
Ph: +61 7 3334 3520
John.Beckinsale@aar.com.au - Campbell DavidsonPartner,
Sydney
Ph: +61 2 9230 4465
Campbell.Davidson@aar.com.au
