Are You Producing The Correct Type Of Product Disclosure Statement?

Last week, the Australian Securities & Investments Commission (ASIC) announced that it is extending an existing form of regulatory relief for three types of financial product: multi-funds, superannuation platforms and hedge funds. Businesses which offer these financial products will continue to be exempt from the requirement to produce shorter product disclosure statements (shorter PDSs) until (at least) June 2018.

By Dr. Drew Donnelly, Compliance Quarter

As a key tool for protecting consumers, it is essential that any business offering financial products is complying with product disclosure requirements. Today we ask: what is a standard PDS, what is a shorter PDS, which businesses are required to produce the shorter PDS, and which are exempt?

The standard PDS

Recently, we looked at new client money protections for retail clients investing in off-the-counter (OTC) derivatives. Product disclosure requirements are another form of protection for retail clients. The core purpose of a PDS is for the issuer to disclose key information to help consumers make an informed decision about purchasing a financial product.

The Corporation Act 2001 (primarily in Part 7.9), together with the accompanying Corporations Regulations 2001 set out the requirements for a standard PDS. ASIC has summarised the requirements through a set of ‘Good Disclosure Principles’.

The principles are:

• disclosure should be timely
• disclosure should be relevant and complete
• disclosure should promote product understanding
• disclosure should promote product comparison
• disclosure should highlight important information
• disclosure should have regard to consumers’ needs.

The shorter PDS

The Corporations Act 2001 provides that “the information included in the PDS must be worded in a clear, concise and effective manner” (Subsection 1013C(3)), however it does not specify how long the PDS must be. One consequence of this, is that a standard PDS can be a very long document, extending to hundreds of pages.

Such long documents are often unhelpful to retail clients who do not have the time and resources to wade through them. In light of this, new amendment regulations (which came fully into force in 2012), created a shorter PDS regime for superannuation products and simple managed investment schemes (both products commonly purchased by retail clients).

Products covered by the shorter PDS regime must produce a PDS of a maximum of 8 A4 pages as well as complying with heading and content requirements.

Compliance relief for superannuation platforms, multi-funds and hedge funds

In December 2011, then Minister for Financial Services and Superannuation, Bill Shorten announced that some products would be excluded temporarily from the shorter PDS regime in order to allow further engagement with industry and consumers. There was concern that some products were too complex to be disclosed in such a short document. These temporarily exempt products are required to produce a standard PDS and are defined as follows:

• A ‘Superannuation platform’ is a superannuation product in which:

(a) 2 or more investment strategies are available to choose from and,

(b) each of the investment strategies enables a financial product to be acquired.

• ‘multi-funds’ occur when a simple managed investment scheme is being offered as part of a collection of registered managed investment schemes, where the schemes are required to produce a standard PDS.
• hedge funds include any managed investment scheme that is marketed with the term “hedge fund” or any investment that meets a range of other technical characteristics set out in paragraph 8 of the class order (see link below).

Next steps

ASIC has committed to publicly consult on the relief or exemption of these specified products from the shorter PDS regime before 30 June 2018.

Read the re-issued ‘class order’ and contact us if you think we could be of any further assistance.