ASIC CLASS ORDER [06/0602]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Paragraph 1020F(1)(c) – Declaration

The Australian Securities and Investments Commission (ASIC) makes Class Order [CO 06/0602] Transitional periodic statement relief for legacy superannuation products under s1020F(1)(c) of the Corporations Act 2001 (the Act).  Section 1020F(1)(c) provides that ASIC may declare that provisions of Pt 7.9 apply in relation to a person or a financial product or class of persons or financial products as if specified provisions were omitted, modified or varied as specified.

1. Background

The Corporations Regulations 2001 (the Regulations) require (among other things) enhanced disclosure of transactions, fees and costs in periodic statements for superannuation products from 1 July 2006.  In particular,

• reg 7.9.60B requires a periodic statement to list and briefly describe all transactions in relation to the product during the reporting period; and 

• Pt 3 of Schedule 10 to the Regulations requires periodic statements to include information about management costs not deducted directly from a member's or product holder's account, as well as specifying total fees paid during the relevant period covered by the periodic statement.

The Regulations also require the disclosure of 'common fund' expenses in periodic statements for superannuation products from 1 July 2006.  In particular, reg 7.9.75(1)(b) requires periodic statements to disclose an investor's share of any expenses, fees and charges that have been deducted from the common fund. 

For trustees of legacy superannuation products, implementation of these new disclosure requirements may require significant changes and upgrades to systems.  (Legacy superannuation products are, essentially, superannuation products that are no longer issued to new members and are supported by outmoded systems.)

2.      Purpose of the Class Order

[CO 06/0602] gives trustees of legacy superannuation products a further two years before they are required to comply with the new disclosure requirements, so that they have sufficient time to modify or replace their data processing systems or migrate affected products to modern systems. 

3.      Operation of the Class Order

[CO 06/0602] modifies regs 7.9.16K and 7.9.60B so that trustees of legacy superannuation products will have a further two years before they are required to make enhanced disclosure of transactions, fees and costs in periodic statements. 

[CO 06/0602] also modifies reg 7.9.75(1A) by continuing the alternative method of giving common fund disclosure set out in that regulation for a further two years.  Regulation 7.9.75(1A) provides that an issuer does not need to disclose an investor's share of any expenses, fees and charges that have been deducted from the common fund, provided that the issuer includes statements in the periodic statement alerting investors that common fund expenses, fees and charges have been deducted and that further information can be obtained from the product issuer. 

The relief in [CO 06/0602] is available where:

• the periodic statement for the superannuation product indicates who a person can contact to obtain details about transactions and costs;

• the trustee does not accept new applications for membership of the superannuation product (other than where there is a payment split for family law purposes or contribution splitting); and

• the superannuation product relies on software or other technology that was substantially developed more than 10 years ago.

In addition, the trustee must:

• notify ASIC in writing that it is relying on the relief; and

• certify that:

      the system used to maintain records of members holdings relies on software or other technology that was substantially developed more than 10 years ago;

      it would only be able to comply with its obligations under regs 7.9.60B, and 7.9.75(1)(b) and (e) if the system, software or other technology were modified or replaced; and

      modifying or replacing the system to implement the reporting requirements referred to in the background section to this explanatory statement would impose a unreasonable burden on the trustee or be detrimental to product holders; and

• take all reasonable steps to ensure that it will be able to make the disclosures required under reg 7.9.60B and regs 7.9.75(1)(b) and (e) from 1 July 2008.

4.      Consultation

ASIC consulted with Investment & Financial Services Association (IFSA) before [CO 06/0602] was made.  ASIC did not undertake any specific consultation with other stakeholders before [CO 06/0602] was made because it is of a minor and machinery nature.