On 8 January 2019, ASIC released a consultation paper on reforms to the fees and costs disclosure requirements for managed investment schemes and superannuation funds. The paper is in response to the independent reviewer’s report into the fees and costs disclosure regime under the Corporations Act 2001 as amended by ASIC Class Order [CO 14/1252] and as augmented by its regulatory guidance. In this article, we outline some key points of the consultation paper.

Key points

  • ASIC has released its response to the independent reviewer’s report on the complexity of the current fees and costs disclosure regime.
  • ASIC proposes to adopt a number of recommendations and to reject others.
  • Key recommendations relate to:
    1. simplifying how fees and costs information is presented to consumers;
    2. reducing data inputs, including eliminating the disclosure of some cost categories, particularly property operating costs, borrowing costs and implicit costs; and
    3. making disclosure for managed investment schemes more consistent with superannuation fund disclosure.
  • ASIC is consulting with industry and stakeholders on its proposals, which include a new draft regulatory guide and drafting amendments to the relevant regulations.

Background

The Corporations Act 2001 (and its regulations), as modified by ASIC Class Order [CO 14/1252], sets out the fees and costs disclosure regime for Product Disclosure Statements (PDSs) and periodic statements in respect of managed investment products and superannuation products. ASIC provides guidance on this regime in Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements (RG 97) and in ‘questions and answers’ and other information on the ASIC website.

In July 2018, ASIC released the report by independent reviewer, Mr Darren McShane, in relation to the fees and costs disclosure regime for managed investment schemes and superannuation funds. The report is known as Report 581 Review of ASIC Regulatory Guide 97: Disclosing fees and costs in PDSs and periodic statements (REP 581). In our earlier article, we commented on some key recommendations of the independent reviewer in that report.

ASIC has provided its response to REP 581 by issuing the following documents for public consultation:

ASIC’s response is not only to recommendations and observations in REP 581, but also encompasses other matters of which it has become aware as part of its industry consultation process.

ASIC says that, concurrently with the industry consultation, it will undertake consumer testing of some of its proposals and will share the conclusions from this testing.

Overview of ASIC’s response

In CP 308, ASIC provides its response to REP 581 by setting out the following:

  • recommendations from REP 581 that it is proposing to adopt. Adopting these recommendations will require amendments to Schedule 10;
  • recommendations from REP 581 that it is proposing to adopt and which do not require amendments to Schedule 10;
  • recommendations and observations from REP 581 that ASIC does not propose to adopt at this stage; and
  • ASIC’s further amendment proposals arising from industry consultation.

We attach a separate table here outlining these responses in more detail.

Key recommendations to be adopted

ASIC proposes to take forward key recommendations from REP 581 that relate to:

  • simplifying how fees and costs information is presented to consumers;
  • reducing data inputs, including eliminating the requirement for fees and costs disclosure to incorporate some cost categories, particularly property operating costs, borrowing costs and implicit costs; and
  • making disclosure for managed investment schemes more consistent with superannuation.

Comments on the proposals

Our experience, and the experience of our clients, is that the current fees and costs regime has become overly complex and expensive for our clients to implement, without clearly achieving better consumer outcomes. In its media release, ASIC states that CP 308 ‘reflects ASIC’s commitment to ensuring that consumers seeking information on fees and costs receive transparent and useable information that helps them understand fees and costs, compare products, and make confident and informed choices.’ It will remain to be seen whether this ambition is achieved, though it is no doubt shared by industry participants and consumers alike.

The removal of the requirement to disclose particular cost categories, such as property operating costs, borrowing costs and implicit costs, will reduce complexity. It may also lead to reduced compliance costs because, in our experience, issuers expend considerable resources on these complex areas.

While simplified, the fees and costs regime in Schedule 10 to the Corporations Regulations 2001 as proposed to be amended by the Draft Legislative Amendments will still remain as a detailed and complex disclosure regime. Current rules will be replaced with new rules. Such rules will require legal advice and will be subject to varying interpretation. This is not a criticism of ASIC, as any legislative regime is subject to these characteristics. The fees and costs regime was implemented by Parliament, and ASIC’s role is to use its powers to make that regime work as practicably and sensibly as possible, to achieve the desired consumer outcome.

Next steps

In releasing the consultation package, ASIC states that it seeks to ensure that the proposed fees and costs disclosure regime is practicable for industry.

ASIC is seeking comments on its consultation package by 2 April 2019. This unusually three-month long period of consultation in our view reflects not only ASIC’s commitment to seek broad industry consultation, but also the complexity of the fees and costs disclosure regime. A response to submissions on CP 308 and the conclusions from consumer testing is expected to be released in the second half of this year.

ASIC states that its focus in the meantime is to ensure that issuers are applying the current legislative requirements in good faith and are not trying to mislead consumers about fees and costs, and that ASIC will continue to monitor disclosure and advertising.