Upcoming Mallesons seminarsRegistered managed investment schemes that invest at least 80% of their assets in financial assets and superannuation products.
What do you need to do?Review the draft regulations and example product disclosure statements and make comments by 26 February 2010.
Jim Boynton
Partner
Michelle Levy
Partner
Jim Boynton
Partner
T +61 2 9296 2086
Michelle Levy
Partner
T +61 2 9296 2437
Sydney
John Edstein
Mark McFarlane
Damien Richard
Melbourne
John Malon
Brisbane
Berkeley Cox
Canberra
Stephen Jaggers
Draft regulations were released yesterday requiring a short product disclosure statement (PDS) for any registered managed investment scheme that invests at least 80% of its assets in financial assets and for all superannuation products. The draft regulations take over 50 pages to specify what must be included in a PDS that must not exceed 6 A4 pages! Example PDSs for affected schemes and superannuation products have also been released for comment.
Which products will be covered?
The draft regulations apply to registered managed investment schemes and apply to listed as well as unlisted schemes. The scheme must invest at least 80% of their assets in financial assets. The term “financial assets” is not defined, but might be intended to adopt the definition used in current licence conditions. Because the new requirements are directed at “straightforward” schemes it is important that structured schemes investing in complex assets such as derivatives are not inappropriately covered. It is also not clear whether a single short PDS will be able to cover multiple schemes.
The superannuation products covered by the draft regulations are interests in regulated superannuation funds, approved deposit funds and pooled superannuation trusts.
A move back to very prescriptive content requirements
The PDS for a registered managed investment scheme must include sections which must be numbered and titled as follows:
1. About [name of responsible entity]
2. How to invest with [name of responsible entity]
3. Benefits of investing with [name of responsible entity]
4. Risks of managed investment schemes
5. How we invest your money
6. Fees and costs
7. How managed investment schemes are taxed
8. How to apply
The superannuation product PDS must include eight similar sections plus a section on insurance.
The draft regulations prescribe, at length, the content of each section. Much of the information is generic.
Compliance with the requirements will be compulsory and will replace the current main PDS content requirements for affected products. This includes the main content requirements of sections 1013D and E and regulations made under those sections. This marks another significant step away from the general disclosure test across all retail financial products to specific disclosure requirements for particular products.
The proposed prescribed content approach will remind many seasoned participants in the financial services industry of the very prescriptive key features statement regime that was replaced by the current PDS regime. One main difference to the previous regime is that much information may be incorporated by reference. This includes fees and cost information about investment options other than the balanced option (or in the case of superannuation products, the default option).
The prescribed content requirements will inevitably result in greater challenges for products that do not fit within the standard design envisaged by the draft regulations. The managed investment scheme requirements, for example, clearly envisage a pooled fund rather than a master trust or IDPS-like scheme.
Special rules for incorporating other information by reference
Existing incorporation by reference rules will not apply to PDSs for products covered by the new regulations. They will have their own regimes. Information that must be incorporated by reference will be prescribed. Information incorporated by reference is deemed to be part of the PDS (although, it will not count towards the 6 pages). It will also be possible to refer to other material in a PDS. This information does not form part of the PDS itself.
When will the new regime apply?
The commentary notes that appropriate “application and transitional arrangements will be made at a later date, which will take into account the need to give stakeholders sufficient time to comply with the new requirements”. Clearly an ongoing transitional arrangement will be needed for a managed investment scheme whose investments in financial assets vary around the 80% threshold.
Next steps
Comments on the draft regulations and related example PDSs are sought by 26 February 2010. The Financial Services Working Group is examining a number of interactions between the draft regulations and the existing provisions of the Act include existing provisions relating to listed schemes.
The consultation papers can be found here.