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(February-2002) A big year for compliance
By now, most superannuation fund trustees should be well informed of the impact of the changes to be introduced by the Financial Services Reform Act 2001 (FSRA), which commences on March 11 this year. As part of their FSRA compliance process, trustees should be working to finalise their transition timetable for licensing and disclosure.
Which funds will be caught?
Broadly, any superannuation fund that issues an “interest” within the meaning of the SIS Act will fall within the boundary of the FSRA. (The term ”interest” has been re-defined in the FSRA to include changes of membership at the “sub-plan” level.) As a result, most super fund trustees will need to obtain an Australian Financial Services licence (AFSL) to continue offering these products.
However, some trustees will not be required to hold an AFSL, such as certain trustees of non-public-offer funds and pooled superannuation trusts. (In the recent discussion paper issued by the former Minister for Financial Services and Regulation, Joe Hockey, called Options for Improving the Safety of Superannuation, it was proposed that trustees of “corporate funds” should be required to obtain an AFSL.) In addition, APRA-regulated bodies that provide financial services solely to wholesale clients are exempt from licensing, where those services fall within APRA’s regulatory responsibility.
It is important to note, however, that even trustees who are exempt from FSRA licensing will need to comply with the new product disclosure statement (PDS) obligations.
Making the most of transition
Unless they decide to “opt-in” at an earlier time, existing public-offer fund trustees will have until March 11, 2004, to obtain an AFSL for their present activities. During this transition period, the existing regulatory arrangements under the SIS Act will continue to regulate these funds (for example, current product disclosure rules for superannuation products will apply).
The new product disclosure requirements will generally apply to all superannuation funds and in most cases will be subject to the FSRA transition period. After the transition period, however, trustees will be required to satisfy the new PDS format for their disclosure documents. Under FSRA, trustees of public-offer funds will have to satisfy a more rigorous disclosure regime for their “point of sale” documents.
Importantly, some obligations will apply to all financial products, whether new or existing, from March 11, 2002, including:
(i) the obligation to confirm a transaction;
(ii) requirements governing money received for financial products before the product is issued;
(iii) allowing a cooling-off period for return of the financial product;
(iv) the provision of certain information for existing holders of superannuation products; and
(v) other trustee obligations to provide information as may be specified in the FSRA regulations.
Predicably, many of the above trustee obligations essentially reflect the present requirements imposed under the SIS Act.
If trustees are responsible for a number of funds, but not all of these funds opt-in to the FSRA at the same time, the transition period will need to be carefully planned to ensure that document rollovers are managed efficiently between current requirements and the FSRA regime.
2002 — a big year for compliance
Before March 11, 2002, trustees need to have an FSRA implementation timetable, which takes into account:
(i) whether they will require an AFSL (and if so, when the application will be made);
(ii) what obligations will apply immediately after the FSRA commencement, and what changes will need to be made to ensure compliance; and
(iii) what disclosure obligations will apply during and after the transition period and whether certain funds will benefit from opting-in.
One of the difficulties facing trustees is that the FSRA legislation is yet to be finalised. On December 18, 2001, the Government released another round of draft changes to the FSRA regulations for industry comment. In addition, the Australian Securities and Investments Commission (ASIC) has released a number of new and draft policy statements which trustees should review in order to be aware of ASIC’s approach to the FSRA compliance and the underlying policy.
Hence, trustees will need to adopt a suitably flexible and reactive approach to their FSRA planning process to take account of proposed or actual changes in policy, FSRA legislation and its interpretation.
In addition to the implementation of the FSRA, trustees must also be aware of recent legislative changes in other areas, such as the widening scope of strict liability offences, privacy reform and family law amendments. This means, 2002 is destined to be another year dominated by compliance projects.
— Scott Charaneka is a partner at Ebsworth & Ebsworth Lawyers.
E-mail: [email protected]
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