At last! - Incorporation by Reference Regulations Released by TurksLegal

At last! - Incorporation by Reference Regulations Released by Jenny Willcocks | August 2007 Area of Expertise | Superannuation

The long awaited regulations allowing product issuers the option of incorporation by reference of statements and information (information) into their products for Product Disclosure Statement (PDS) and Statement of Advice (SOA) have been released. The Corporations Amendment Regulations 2007 (No. 10) (the Regulations) apply from 22 August 2007. While most of us would like to have seen them a lot sooner (i.e. before the rollover of PDS’s pre 30 June 2007), they will provide product issuers with a number of alternative ways to provide disclosure information to consumers. Hopefully this will make PDS’s and SOA’s more effective for those who need to read them, less costly and time consuming for those who have to produce them and save some trees along the way! As with all things of course there are conditions. The Regulations also include: •

an exemption from holding an Australian Financial Services Licence (AFS Licence) for ﬁnancial product advice given by an actuary subject to conditions; and

•

relief from compliance with dollar disclosure requirements in the PDS of a general insurance product.

Product Disclosure Statements The Regulations insert a new regulation 7.9.15DA that states that (subject to sub-regulation (4) dealing with core information) a responsible person is not required to include information mentioned in Part 7.9 of the Corporations Act (the Act) in a PDS if: •

that information is in writing and publicly available in a document other than the PDS; and

•

the PDS: • •

refers to that information; and provides sufﬁcient details about the information that enables a person: -

to identify by a unique identiﬁer the document or part of the document containing the information; to locate the information; and to decided whether to read the information or obtain a copy of it.

The PDS must also state that a copy of the information maybe obtained from the responsible person on request free of charge. That copy must be provided as soon as practicable. It must not be information that is in a short form PDS because that is already an abbreviated document. If the above is complied with the information not included in the PDS will be taken to have been included. This means that the liability provisions of the Corporations Act apply to the information included by reference in the same way as they apply to the PDS. If the above requirements are not met then the PDS would be non-complying. If a responsible person takes up this option it must still include certain core information in the PDS which cannot be incorporated by reference.

T U R K S L E G AL

TU R K A L E R T

At Last! - Incorporations by Reference Regulations Released by Jenny Willcocks

PUBLICLY AVAILABLE The term “publicly available” is not defined in the Regulations and therefore should be given its common meaning. There is no express reference to use of websites in the Regulations however making the statement or information available on a website with unrestricted access would make it publicly available. Providing sufficient detail to allow the person to locate the statement or information could also be achieved by the inclusion of a link to where it is displayed on a website. The explanatory memorandum to the regulations confirms “including electronic sources such as the internet” is acceptable.

HOW MUCH IS SUFFICIENT? How much information is sufﬁcient to allow a person to identify, locate and more importantly, decide whether to read or request a copy of the information? This will need to be determined by the product issuer including:

What will be a unique identifier and how will it be provided? This is not a defined term so its common meaning applies (i.e. it must be unique to the information and identify it). This could include a hyperlink to the information on the website if the PDS is viewed on line, or the relevant link if in hard copy. Alternatively if a copy is requested by phone it could be given a specific reference number in the PDS to ensure that the call centre can accurately identify the correct information to be sent and the correct version.

What information will be needed for a person to locate the information? The unique identiﬁer will obviously assist with this, but the statement or information will need to be clearly identiﬁed in the PDS.

What information is needed for a person to decide to read or request a copy? This is the most problematic condition. It will be essential for the description of the information and its purpose to be provided, and depending on what it is, a summary of what it contains may also be needed. The risk of playing down the importance of the information will be that it fails to meet the requirements of the Regulations and the PDS will then be non-complying.

How will requests for a copy be dealt with and recorded? If a copy is requested it has to be provided as soon as practicable and the product provider needs to be able to track when the request was received and when the copy was sent.

CORE INFORMATION Sub-regulation 7.9.15DA(1) sets out the above conditions and is subject to sub-regulation (4) which refers to the core information. The wording of sub-regulation (4) is not ideal but essentially provides that despite the Regulations providing that if their requirements are met the information included by reference is deemed to have been included in the PDS, if this option is taken up the responsible person must still include the core information. The Explanatory Memorandum provides: “While other information in Part 7.9 of the Act may be incorporated by reference, this item prescribes a set of core information that is required to be included in the PDS.”

T U R K S L E G AL

TU R K A L E R T

At Last! - Incorporations by Reference Regulations Released by Jenny Willcocks

The core information is as follows:

Key Features A description in summary of the purpose and key features of the product (s.1013D(1)(b) and (f)). This includes information about: •

any signiﬁcant beneﬁts to which a product holder will or may become entitled;

•

the circumstances in which and times at which those beneﬁts will or maybe provided; and

•

the way in which those beneﬁts will or may be provided; or

•

information about any other signiﬁcant characteristic or feature of the product or the rights, terms, conditions and obligations attaching to the product.

Key Risks A description in summary form of the key risks of the product based on s. 1013D(1)(c) of the Act, being any signiﬁcant risks associated with holding the product.

Information Contact Details - A statement setting out the name and contact details of the issuer of the ﬁnancial product (s.1013D(1)(a) of the Act); Dispute Resolution - Information about the dispute resolution system covering complaints by holders of the product and how that system may be accessed (s.1013D(1)(g) of the Act); Fees and Costs - In relation to fees and costs and explanation of advisory remuneration forming part of any fee or cost including where known a method of calculation, the amounts, or commissions or range of amounts, whether the amounts are negotiable or rebated and the way in which amounts may be negotiated or rebated (paragraph 209(e) division 4 part 2 of Schedule 10 of the Corporations Regulations); Examples •

Worked examples of fees and costs under “Additional Explanation of Fees and Costs” where appropriate (paragraph 209(h) of division 4 of Part 2 of Schedule 10 of the Corporations Regulations);

•

An example of annual fees and costs (divisions 5 and 6 of P 2art of Schedule 10 of the Corporations Regulations);

Warning - The consumer advisory warning (division 7 of Part 2 of Schedule 10 of the Corporations Regulations); Cooling off - Information about any cooling-off regime complies in respect of acquiring the product as by law or otherwise (s.1013D(1)(i) of the Act).

RECORDS Any PDS not required to be lodged with ASIC, and documents containing the information which have been incorporated by reference must

T U R K S L E G AL

TURKALERT

At Last! - Incorporations by Reference Regulations Released by Jenny Willcocks

be retained by the responsible person for 7 years. (Regulation 7.9.15DB). A product issuer of a PDS required to be lodged with ASIC, must also lodge any document containing information incorporated by reference. (Regulation 1.9.15DC) While it will be possible to establish as it is now that a person applying for the product received a PDS, keeping records of requests for the information incorporated by reference and to whom those documents are sent is less obvious and maybe impractical to do so. However, in circumstances where disputes arise regarding disclosure being able to establish whether a person received that information in full or not could be extremely important.

Statements of Advice Similar arrangements have been put in place for SOA’s by the insertion of a new regulation 7.7.09B. In the case of an SOA the providing entity is not required to include a statement or information (information) set out in Part 7.7 of the Act in an SOA given to a client if it: •

refers to the information; and

•

provides sufﬁcient detail about the information to enable the client: • •

•

to identify by a unique identiﬁer the document, or part of the document, that contains the information; and to decide whether or not to read the information or obtain a copy of it; and

states that a copy of the information maybe obtained from the providing entity on request at no charge.

If the requirements of the regulation are met the information is deemed to have been included in the SOA. (Regulation 7.709B(5))

EXCEPTIONS The only exceptions to this are. •

the obligation to warn a client if advice is based on incomplete or inaccurate information (s.945B of the Act); and

•

the additional requirements that apply when advice recommends replacement of one product with another (s.947D of the Act),

MUST HAVE GIVEN THE DOCUMENT PREVIOUSLY In addition the providing entity can only take advantage of incorporation by reference if it has already given the document or part of the document to the client. (Regulation 7.7.09B(2)) If they have not done this previously they must do so at the time the SOA is given to the client, which would appear to defeat the purpose of the exercise except that the two documents can be separate.

PROVISION BY AUTHORISED REPRESENTATIVES If the providing entity is an authorised representative of an Australian Financial Services Licensee the SOA may incorporate information previously provided to the client by another authorised representative of the same licensee, or by the licensee itself. (Regulation 7.709B(3))

T U R K S L E G AL

TURKALERT

At Last! - Incorporations by Reference Regulations Released by Jenny Willcocks

RECORDS The SOA and a document or part of a document referred to in it must be retained for 7 years. (Regulation 7.7.09C)

Effect of Changes These changes offer product providers a unique opportunity to achieve what has previously been unachievable. That is production of a PDS that can provide prospective members with the essential information they need to make a decision without overwhelming them with unnecessary detail which may or may not be of interest to them or relevant to their situation. It will allow product issuers to develop separate documents for variable information or information that changes frequently. This will avoid the need to reprint the whole PDS when one of these sections needs modiﬁcation or updating. Not only will this assist in making the PDS more effective but will also offer product issuers an opportunity to signiﬁcantly reduce the printing costs for those documents it elects to incorporate by reference. It is a much more attractive and practical alternative than that offered by the short form PDS. It is hoped that the Regulations will meet the Government’s objective as expressed in the Explanatory Memorandum to: •

reduce repetitive disclosure in SOA’s and PDS’s;

•

reduce costs to business; and

•

provide clearer disclosure for consumers.

Exemption from AFS Licence for Financial Product Advice by an Actuary The Regulations also include a further exemption to regulation 7.6.01 from holding an AFS licence where: •

ﬁnancial product advice is provided by an actuary in the ordinary course of providing actuarial services;

•

could not reasonably be expected to be included in a document that is to be given to a retail client; or

•

is provided to: • • •

a wholesale client; the Commonwealth, a State or Territory; or an exempt public authority.

This new exemption replaces the temporary release given to actuaries from holding an AFS licence by ASIC under class order 03/1096 which expired on 31 July 2007.

General Insurance Product PDS – Relief from Dollar Disclosure The regulations also provide relief from the dollar disclosure provisions for general insurers. This is due to the practical problems experienced

T U R K S L E GAL

TURKALERT

At Last! - Incorporations by Reference Regulations Released by Jenny Willcocks

by general insurers in disclosing all costs and beneﬁts of their products in dollar amounts in the PDS.

ALTERNATIVE METHODS TO COMPLY WITH DOLLAR DISCLOSURE The Regulations insert a new sub-regulation 7.9.15C(4) and (5) which provide: •

where information is required 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 the levels of insurance cover required,

the responsible person may comply with the requirement to state the information by either of the ways set out in 7.9.15C(5). Those methods allow the responsible person to state the information: •

as an amount in dollars in the PDS; or

•

by giving to the insured: • •

a document containing the information as soon as practicable (but in any case no later than 5 business days after the issue of the general insurance product); and a statement in the PDS setting out the information in at least 1 of the following formats: -

as a range of amounts in dollars; as a percentage of a matter that is mentioned in the statement; or as a description.

This is required even where the dollar amount is disclosed in the policy schedule.

TRANSITIONAL PERIOD Regulation 7.9.15(FA) has been inserted to provide general insurers with a transitional period for to comply with the dollar disclosure requirements in the new regulation 7.9.15C(3)(4)(5) until 30 July 2008. This is to allow sufﬁcient time for providers of these products to deal with the practical issues involved in meeting these new requirements.

ASIC RELIEF If a general insurer is unable to disclose a cost or beneﬁt in dollar amounts in the PDS or policy schedule, they will have to apply to ASIC for relief. However, to obtain relief the insurer will have to be able to show a compelling reason why dollar disclosure is not possible, that it would be unreasonably burdensome or is contrary to the clients’ interests.

T U R K S L E GAL

TURKALERT

At Last! - Incorporations by Reference Regulations Released by Jenny Willcocks

For more information, please contact: Jenny Willcocks Partner T: 03 8600 5001 jenny.willcocks@turkslegal.com.au

www.turkslegal.com.au This Tur kAler t is cur rent at i t s d ate o f p u b l i c at i o n . Wh i l e eve r y c a re h a s b e e n t a k e n i n t h e p re p a rat i o n o f t h i s Tu r k Aler t it do es not constitute legal advice a n d s h o u l d n o t b e re l i e d u p o n fo r t h i s p u r p o s e. Sp e c i f i c l e g a l a dv i ce s h o u l d b e s o u g ht o n p ar ticular matters. Tur ksLegal do es not ac ce p t re s p o n s i b i l i t y fo r a ny e r ro r s i n o r o m i s s i o n s f ro m t h i s Tu r k Al e r t . Th i s Tu r k Al e r t i s co py r i ght and no par t may b e repro duced in a ny fo r m w i t h o u t t h e p e r m i s s i o n o f Tu r k s Le g a l . Fo r a ny e n q u i r i e s, p l e a s e co nt a c t t h e a u t h o r o f this Tur kAler t.