In brief
- Corporations Amendment Regulations 2010 (No. 5) (Regulations) commenced on 22 June 2010. The Regulations, to take effect over a two year transitional period, introduce mandatory shorter and simpler PDSs for “simple managed investment schemes”, superannuation products and standard margin lending facilities.
- This alert focuses on the implications for managed investment schemes.
- Issuers of these financial products should be reviewing the new laws and planning revisions to their disclosure documents and systems in preparation for the new regime.
Background
In December 2009, the government released draft regulations for shorter PDSs for managed investment schemes and superannuation products and example PDSs, discussed in our Financial Services Alert from February 2010.
The Regulations represent the government’s final position following consultation on the draft regulations with stakeholders.
Simple managed investment schemes
A simple managed investment scheme is a registered scheme that is offered on the basis that it invests at least 80% of its assets in certain bank accounts or deposits, or in investments which the responsible entity can reasonably expect to realise at their market value within 10 days. This is an improvement from the draft regulations, which referred to schemes that invested in “financial assets”, which could have applied to a much broader range of funds, including those investing in complex structured products.
The Regulations will therefore apply to highly liquid schemes such as cash management trusts and schemes that invest in listed securities. The Explanatory Statement accompanying the Regulations states that schemes investing in less liquid assets will not be covered, such as those investing directly in real estate or mortgages.
Another change from the draft regulations is that the Regulations will not apply to listed schemes, schemes that form part of a stapled security structure or certain investor-directed portfolio services structured as managed investment schemes.
Content requirements
The Regulations modify the PDS content requirements in Part 7.9 as they apply to the shorter PDSs. The main content requirements in section 1013D and the general obligation to include other influential information in section 1013E are omitted.
The total length of the PDS must not exceed 8 pages. While this has been increased from 6 pages in the draft regulations, it appears that any title page and table of contents must now be included in the 8 pages, and accordingly this limit will be a challenge for issuers.
The Regulations provide for other material to be located outside the PDS document itself. This information can either be incorporated by reference (IBR) (and subject to the full PDS liability and enforcement provisions) or otherwise referred to (and not form part of the PDS).
The following table sets outs what numbered sections must be included in a shorter PDS, and summarises what the section must contain and what information can be IBR.
|
PDS section |
The section must … |
Information that can be IBR into the section |
|
1 |
About [name of responsible entity] |
summarise the RE and its role in operating the scheme, and the investment manager (if applicable) |
if there is more than 1 investment manager, descriptions of any particular manager |
|
2 |
How [name of simple managed investment scheme] works |
summarise how the scheme works, interests that members acquire, minimum investment amounts, how members may increase or decrease their investment
describe scheme structure and the frequency and calculation of distributions
state that the price of interests will vary as the market value of scheme assets rises or falls, and that in some circumstances members may not be able to withdraw their funds within the usual period upon request |
more detailed information on the acquisition and disposal of interests |
|
3 |
Benefits of investing in [name of simple managed investment scheme] |
first, summarise the significant features and significant benefits of the scheme |
other features and benefits of the scheme, or of simple managed investment schemes generally |
|
4 |
Risks of managed investment schemes |
contain certain prescribed statements regarding risk and return
summarise the significant risks of the scheme
describe other significant risks of managed investment schemes by including certain prescribed statements |
additional information about significant risks of managed investment schemes |
|
5 |
How we invest your money |
summarise the investment options
contain a prescribed warning about choosing investment options
contain prescribed information about at least one of the investment options (which must be the balanced option or the option with the most funds invested, if applicable) |
prescribed information about other investment options
information about switching or changing investment options, and the extent to which labour standards or environmental, social or ethical considerations are taken into account in investment decisions |
|
6 |
Fees and costs |
set out the Consumer Advisory Warning (as per existing Schedule 10)
for the investment option(s) described in section 5, include a fees and cost table as prescribed
contain a worked example based on existing Schedule 10 requirements subject to some variations [1]
refer to ASIC’s calculator on its FIDO website
include a warning that additional fees may be payable to a financial advisor (if applicable) and a reference to the Statement of Advice |
fees and costs information of each investment option in accordance with Schedule 10 (the RE must provide this information, and it may be IBR)
more detailed information about fees and costs |
|
7 |
How managed investment schemes are taxed |
include a warning about tax consequences and seeking tax advice
state that registered managed investment schemes do not pay tax on behalf of members and members are assessed for tax on any income and capital gains generated by the scheme |
additional information about taxation matters relating to registered managed investment schemes |
|
8 |
How to apply |
summarise how to invest
explain any cooling-off period and how complaints may be made |
more detailed information about cooling-off periods, complaints and dispute resolution |
A PDS must also include a table of contents and prominently display, at or near the beginning of the document, a prescribed advice about the nature of the document and the information it contains. A PDS may also include additional sections after sections 1 to 8 and other information, provided the above content requirements are not contravened.
IBR information
IBR information is deemed to be part of the PDS and the full range of PDS liability and enforcement provisions of the Corporations Act will apply to it. The IBR information must be publicly available in a document other than the PDS, and clearly distinguishable from other matters that are not incorporated. Each version of IBR information will need to include the date on which it was prepared and be retained for 7 years from the date of its preparation or amendment.
Some new IBR requirements have been imposed since the draft regulations were released. Certain prescribed statements must be included in the PDS at each place where IBR information is incorporated, and another prescribed statement (referring to the relevant PDS) must appear in the IBR information. The Regulations recognise that IBR information may relate to more than one PDS, and in this case the IBR information is not required to name each PDS.
Only one scheme per PDS
A significant change from the draft regulations is a new requirement that a PDS for a simple managed investment scheme must relate only to one simple managed investment scheme.
Hence where each investment option is a separate scheme (as is now usually the case), a separate PDS will be required for each option. However, as noted above, IBR information may be drafted in a way that relates to all the relevant schemes.
Supplementary PDS provisions do not apply
It will not be possible to amend a simple management investment scheme PDS by a supplementary PDS. The rationale behind this is that information that changes frequently or regularly can be IBR, and hence the PDS document itself should only have to be amended rarely and if there are major changes to the scheme. In that event a new PDS would be issued.
When will the new provisions apply?
The new provisions will be phased in over a two year transitional period. From 22 June 2011, if an issuer amends an existing PDS or offers a new product requiring a new PDS, the issuer will need to issue a PDS that complies with the new regime. From 22 June 2012, all PDSs for simple management investment schemes will need to comply.
For further information, please contact:
T: 61 2 8233 9537
The material contained in this publication is no more than general comment. Readers should not act on the basis of the material without taking professional advice relating to their particular circumstances.
[1] Notably, the Regulations no longer require a worked example of fees based on an initial investment of $100,000, annual contributions of $5,000, an investment return of 5% after taxes but before fees and the withdrawal of the investment after 10 years, as was proposed in the draft regulations.
