On 29 November 2016, ASIC announced that it would extend the transition period for superannuation trustees and responsible entities to comply with the updated fees and costs disclosure rules for managed investment and superannuation product disclosure statements (PDS). The rules were scheduled to apply from 1 February 2017; now, they will only apply from 1 October 2017, provided responsible entities and superannuation trustees comply with certain conditions. This is the second ASIC extension of the introduction of these rules (and the rules continue to change with each delay).
In 2013 and 2014, ASIC reviewed industry practices for disclosing fees and costs and reported on its review in ASIC Report 398: Fee and cost disclosure: Superannuation and managed investment products published in July 2014.
In December 2014, ASIC published new fees and costs disclosure rules in Class Order 14/1252 (CO 14/1252). At the same time, ASIC published for comment a draft of an updated Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (RG 97).
In November 2015, after receiving comments on the updated draft of RG 97, ASIC published the current RG 97 and amended CO 14/1252. ASIC also delayed the introduction of the new disclosure rules for PDSs from 1 January 2016 to 1 February 2017.
Fast forward one year, and ASIC has again delayed the implementation of the fee disclosure rules, but only for PDSs, not periodic statements. It will do this by making further amendments to Class Order 14/1252. Although these amendments have yet to be published, ASIC has indicated that a responsible entity or superannuation trustee wishing to take advantage of the extension must inform ASIC by 31 January 2017 of its intention to rely on the extended transitional provision and provide ASIC with its calculations of the fees and costs by 31 March 2017.
Reason for latest delay
ASIC Commissioner Greg Tanzer stated that “we have agreed to an extension of the transition period to ensure that consumers can rely on more accurate information when issuers comply with our guidance”. This follows concerns raised by Industry bodies and associations that some information provided by the earlier date may not be reliable and therefore would not assist consumers in comparing fees and costs.
In addition to reliable information, it is likely to take further changes to the current rules if ASIC is to achieve its stated objective to ensure “that fees and costs disclosure is accurate, and provided on a consistent basis”. Since November 2015, responsible entities, superannuation trustees and various industry bodies have been grappling with the proposed requirements. Their success has not been unqualified and consideration of the proposed rules provides some insight as to why. The current version of CO 14/1252 spans 18 pages. This is before the latest round of amendments to be made to it. RG 97, without the table of contents and examples, spans over 50 pages, and it takes approximately 7,000 words to communicate the Q&As on the ASIC website.
The length of the various rules is not the only factor; nor is the complexity. In some cases, the rules seem to be misconceived. For example, the indirect cost to a fund investor of an OTC derivative is to be calculated based on the difference between an actual return (which is determined based on the difference in value of the derivative between the beginning and end of the financial year at its acquisition/disposal value) and the underlying return (which is effectively the derivative payout based on the reference assets for the year). It may be that there is a management cost associated with investing in OTC derivatives and with some OTC derivatives – such as total return swaps – the cost may be difficult to identify or calculate. However, it seems at odds with the treatment of other investments simply to equate management cost with the deviation between the change in price of an asset between the beginning and end of a year and its return/pay out for the year. Whilst this may be indicative for some derivatives, even with the exclusion from the rule for some hedging derivatives, given the diversity inherent in derivatives, their use, payout and valuation, it is unlikely to hold true for all. Requiring costs to be calculated in this manner appears to have added complexity and confusion about the application of the rule and could result in consumers being provided with misleading information. Similarly, simply deeming a cost of a derivative to be 10 basis points where a responsible entity or superannuation trustee cannot reasonably estimate the costs of the derivative could be equally misleading. In many of these cases, the real cost of the derivative will almost certainly be much less than 10 basis points.
ASIC’s commitment to ensuring “that fees and costs disclosure is accurate, and provided on a consistent basis” is commendable. RG 97 and CO 14/1252 require further consideration and amendment if this is to be achieved.