Funds management
Overall, the funds management industry welcomed FSR as introducing a 'level playing field' between functionally similar products and streamlining licence requirements.
Updated as at 11 March 2004.
What does FSR mean for the funds management industry?
Who does it affect and how?
FSR affects all fund managers, custodians, investment advisers and all others involved in the industry. As from 11 March 2004 (which marks the end of the transition period), all those who operate in the funds management industry and who wish to provide (or continue providing) financial services must hold an Australian financial services licence.
What do I need to do now that transition is over?
Notwithstanding transition is now over, FSR still continues to present challenges for those affected, including the funds management industry.
Ongoing compliance
The next phase for most licensees is coming to terms with the ongoing compliance requirements imposed by the FSR regime. All licensed providers should now have in place the relevant compliance systems (eg, for risk management, training of authorised representatives, dispute resolution systems (where applicable) etc) but no doubt there will be refinements required as these systems are tested in practice. Licensees will also need to ensure they have established appropriate procedures to maintain their compliance systems.
The Australian Securities & Investments Commission (ASIC) has made it clear that post transition (at least for the first 12 months and likely beyond that point, depending on whether it considers that the industry is meeting its obligations at a satisfactory level), it will be conducting comprehensive compliance audits, reviewing disclosure documents and taking action against unlicensed providers. ASIC has also indicated that it intends to continue conducting random visits on licensees to check that they are maintaining procedures that are up–to–date and which are tailored to their business activities. Licensees should therefore ensure they are appropriately prepared for this possibility.
Dollar disclosure
This is another issue of particular importance for the funds management industry. Under FSR, the managed funds industry has generally been subject to a higher level of regulation in relation to fee disclosure. In broad terms, various fees, charges and benefits connected with financial products and services must be disclosed in dollar terms in product disclosure statements, statements of advice and periodic statements (Disclosure Documents) provided to retail investors.
While there is broad industry support for the objective of improving disclosure to consumers along these lines, there has been much debate between the Federal Government, regulators and industry bodies (including the Investment and Financial Services Association Ltd and the Association of Superannuation Funds of Australia) about how this should be achieved and the timing of implementation of the obligations.
Regulations to give effect to the dollar disclosure obligations were made in November 2003 but were subsequently challenged by the Federal Opposition as not being strict enough. As a result, amending legislation was passed in December 2003 to require various product amounts (eg, fees and benefits) and adviser remuneration to be disclosed in dollar terms in the Disclosure Documents unless otherwise provided for by regulation. Following on from this, new draft regulations were released in January 2004 which, from 1 July 2004, will require disclosure of the relevant amounts in dollar terms in Disclosure Documents unless ASIC makes a determination that, for a compelling reason, dollar disclosure is not possible, in which case disclosure of the amounts must be made in percentage terms or as a description of the method of calculating the amounts (including, where appropriate, worked dollar examples) instead. These latest draft regulations are intended to replace the regulations that were made in November 2003. However, these proposed regulations also appear to be under threat. They are being reviewed by the Parliamentary Joint Committee on Corporations and Financial Services (which is due to report by 11 March 2004) and industry bodies and Opposition parties have also indicated that they consider there are still problems with how the Government is proposing to regulate this issue.
No doubt this will continue to be a significant issue during 2004 and beyond. Refer to our report on dollar disclosure for further information on this issue as well as to our Breaking News to be kept up-to-date with the latest developments.
Some other issues to think about …
Based on our ongoing monitoring of the FSR regime, we believe the following areas will also continue to raise issues for many, including fund managers and their representatives.
- advice – When is it being given? Is it general or personal?
- product development – Is there a financial product?; Is there more than one?
- providing disclosure documents and keeping them up to date.
- making sure that only those who are allowed to represent your organisation do so.
- know your clients – Are they wholesale or retail?
Indeed, there is still much to think about as FSR continues to unfold.
Who should I contact at Allens?
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