How does it affect you?

  • The ability to incorporate information by reference into statements of advice and product disclosure statements (subject to conditions being met) will reduce the length of those documents. This should help reduce costs for financial services providers and benefit consumers by allowing for more meaningful and precise disclosure.
  • Subject to a transitional period, the dollar disclosure requirements relating to general insurance products have now been modified to make them more appropriate for those products by enabling, in applicable circumstances, disclosure of the various costs and benefits of the insurance product to be disclosed by providing a range, percentage or description of the costs and benefits in the product disclosure statement.
  • There are still a number of initiatives that the Federal Government proposed in the draft regulations on which these new regulations are based that are yet to be either implemented or formally rejected by the Government. At this stage, there is no public indication of how the Government will deal with these matters.

Background

In April 2007, AAR reported on the release by the Federal Government of draft Corporations Amendment Regulations (see AAR Focus: Corporate and Financial Services – April 2007) (the draft regulations), which included a number of measures to be introduced as part of the Government's progress towards a simpler regulatory system arising out of the Corporate and Financial Services Regulation Review, which began in April 2006.

Return to top

The new regulations

The Corporations Amendment Regulations 2007 (No 10) (Cth) (the new regulations) commenced on 25 August 2007 and address some important changes proposed in the draft regulations. However, as noted below, there remain some issues included in the draft regulations that are still to be addressed as part of the Federal Government's simpler regulatory system initiatives. Details of the changes that have come into effect under the new regulations are as follows.

Incorporation by reference

Arguably, the most important change has been to allow for 'incorporation by reference' in product disclosure statements (PDSs) and statements of advice (SOAs). This means that financial services providers can incorporate some of the required information by providing a reference to another document or location where that information can be found, instead of including the information in full in the relevant disclosure document. Financial services providers, however, need to consider that information incorporated by reference will be taken to be included in the relevant disclosure document, which means that they will need to ensure that the PDS or SOA complies with the legislative and regulatory requirements and the Australian Securities & Investments Commission's (ASIC) policies applying to those documents (eg that the incorporated information is clear, concise and effective and is not misleading or deceptive etc).1

There are slightly different requirements applying to PDSs and SOAs.

PDSs

A statement or information can be incorporated by reference in a PDS if:

  • it is in writing and is publicly available2in a document (other than the PDS or a short-form PDS);
  • the PDS:
  • refers to the statement/information;
  • provides sufficient details about the statement/information so that a person can identify the document (or the relevant part of it) that contains the statement/information, locate it and decide whether to read or obtain a copy of it; and
  • states that the person can obtain a copy of the statement/information on request at no charge (and, where that occurs, the copy must be provided as soon as practicable).

Some core information, however, must be included in the PDS (ie cannot be incorporated by reference)3 if particular statements/information have been incorporated by reference in the PDS, including:

  • in relation to the product, a summary of:
  • the purpose and key features; and
  • the key risks;
  • the name and contact details of the product issuer and the seller (if it is a sale statement);
  • the enhanced fee disclosure requirements and the Consumer Advisory Warning in Part 2 of Schedule 10 of the Corporations Regulations (although some parts of the additional explanation of fees and costs in Division 4 are not classified as 'core');
  • information about the dispute resolution system for complaints and how it can be accessed by product holders; and
  • information about any cooling-off regime that applies to acquisitions of the product.

Where statements/information are incorporated by reference in a PDS not required to be lodged with ASIC, the document containing those statements/information must be kept for seven years after the date of the PDS. (If the PDS was required to be lodged with ASIC, the relevant document must also be lodged with ASIC.)

SOAs

A statement or information can be incorporated by reference in an SOA4 in similar circumstances to a PDS.

The person providing the SOA, however, must supply the client with the document (or relevant part of it), unless it has previously been given to the client. Where the providing entity is an authorised representative of an Australian financial services (AFS) licensee, then they don't have to give the document if another authorised representative of the AFS licensee or the licensee has done so.5

There are document retention requirements similar to those outlined above in relation to PDSs – in the case of SOAs, the SOA and the document (or part of it) mentioned in the SOA must be kept for seven years after the day on which the SOA is given to the client.

Dollar disclosure provisions for general insurance products

In recognition of the difficulties that the insurance industry was experiencing in applying the dollar disclosure requirements, the new regulations allow general insurers providing a PDS prepared on, or from, 1 July 2008 for a general insurance product to comply with modified dollar disclosure requirements as follows. If the information needs to be stated in dollars and the amount can only be determined after the responsible person assesses the risk of the insured or after the insured has nominated desired levels of insurance cover, the responsible person may give the insured a document6 containing the information as soon as practicable (but not later than five business days after the general insurance product is issued) and a statement in the PDS that sets out the information by providing it as a range of amounts in dollars, a percentage of a matter mentioned in the statement, or a description.7

There is a transitional period for complying with these new requirements, which ends on 30 June 2008. (The current class order relief continues to be available during the transitional period.8)

Licensing relief for actuaries

Actuaries who, in undertaking the ordinary activities of their business, provide financial product advice to wholesale clients, will not need to hold an AFS licence. This amendment will be welcomed by actuaries who have previously raised concerns that the existing categories of exemption from licensing did not necessarily apply to all aspects of their ordinary business.

Source – Internet -

Allens Arthur Robinson Law Firm

Further Article Clayton UTZ

Incorporation by reference for SOAs

The provisions concerning incorporation by reference for SOAs are broadly the same as for PDSs, other than that the following information cannot be incorporated by reference into an SOA:

  • a warning in accordance with section 945B if the advice is based on incomplete or inaccurate information - as contemplated by sections of the Corporations Act 947B(2)(f) and 947C(2)(g); and
  • information regarding the charges and benefits that a client may incur or lose where the advice recommends the replacement of one product with another - as required by section 947D of the Act.

In addition, information may only be incorporated by reference where the client has already been provided with the document containing the relevant information (including in the case of an authorised representative, where it has been given by another authorised representative or by the licensee itself), otherwise the document must be given to the client at the same time as the SOA.

Those involved in providing personal advice should consider the extent to which their existing SOAs contain relatively standard terms which may apply to groups or types of clients which can be incorporated by reference to streamline the content of the SOA itself.

Source -Clayton UTZ