House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Employment and Workplace Relations and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP)

Chapter 3 - Collection and disclosure of information

Outline of chapter

3.1 This chapter explains amendments to the APRA Act, the Corporations Act, the FSCOD Act and the SIS Act to expand the coverage of APRA's data collection, enable the publication of data on MySuper products, and improve disclosure for superannuation, including through new requirements to publish a product dashboard and portfolio holdings.

Context of amendments

3.2 The Review identified a lack of transparency, comparability and, consequently, accountability in Australia's superannuation system. In particular, there is no standardised methodology for calculating and disclosing relevant fund or investment option information. It was also noted that members often rely inappropriately on historical investment return data which gives no information about the risk attached to those returns.

3.3 The Government has committed to improve transparency in the superannuation system through enhanced disclosure requirements and broadening APRA's ability to collect and publish information on the operation and efficiency of superannuation funds.

3.4 MySuper products are intended to set a new benchmark for superannuation in the level of transparency and comparability of key performance information. APRA will collect and publish information on the fees, costs and returns of each MySuper product.

3.5 The Review noted that portfolio disclosure in Australia is unduly opaque and does not meet global best practice. Requiring the disclosure of portfolio holdings will provide greater transparency and allow members to understand where their superannuation is invested.

Summary of new law

APRA's data collection

3.6 APRA will have the ability to collect additional data from RSE licensees. In particular, an obligation to provide relevant data will apply to related bodies corporate, custodians of an RSE licensee and other parties under a contract or arrangement with one of these entities or the RSE licensee itself. This will allow APRA to collect more accurate and complete data on the investments and costs of superannuation entities.

Publication of MySuper data

3.7 APRA will be required to publish information on the returns, fees and costs of all MySuper products quarterly. This requirement does not limit APRA from publishing other information regarding MySuper or other superannuation products.

Requirements to publish a product dashboard and other information

3.8 RSE licensees will be required to publish a product dashboard for each of the fund's MySuper and choice products on a part of their website that is accessible to the public at all times. The product dashboard will contain information on the investment return target and the number of times the target has been achieved, level of investment risk, a statement about the liquidity of the product and a measure of the average amount of fees and other costs in relation to the product.

3.9 Funds will also have to disclose the remuneration of directors and executive officers. Regulations will specify other documents to be published on a fund's website to promote transparency.

Requirement to publish portfolio holdings

3.10 RSE licensees will be required to publish information regarding their portfolio holdings on their website. The RSE licensee must publish portfolio holdings as at the reporting day, which will occur once every six months on 30 June and 31 December, within 90 days after each reporting day.

3.11 A person who acquires a financial product or enters into a custodial arrangement using the assets, or assets derived from the assets, of an RSE under a contract or arrangement will be required to notify any person with whom they are investing those assets that they will be required to provide the relevant information to the RSE licensee so that it can satisfy its obligation to publish portfolio holdings.

3.12 Any person that receives a notification must provide information sufficient to identify the financial product acquired and any other property and financial products that they know, or reasonably ought to know, will be acquired using assets, or assets derived from assets, of the RSE licensee and the value invested, so that the RSE licensee is able to comply with their obligation to publish portfolio holdings.

Comparison of key features of new law and current law

Detailed explanation of new law

APRA's data collection and publication

3.13 APRA will have an expanded role in the collection and publication of data on superannuation entities. The additional data to be published by APRA will provide members, employers, the industry, and other interested stakeholders with information to compare the performance of superannuation products. This will also enhance the accountability of trustees in meeting their heightened duties to promote the best financial interests of members that hold the MySuper product.

APRA's Secrecy obligations and determination

3.14 At present, section 57 of the APRA Act permits APRA to make a determination that data provided in a particular reporting document, which has been submitted in accordance with a reporting standard made under the FSCOD Act, is non-confidential, and can be published without breaching section 56 of the APRA Act.

3.15 APRA will now be able to make a determination on a class of reporting document required to be given to APRA under the FSCOD Act by a registered entity or a body regulated by APRA. It is also made clear that APRA can make a determination in relation to a specified part (or the whole of) a reporting document. [Schedule 3, item 4, subsection 57(1)]

3.16 Therefore, APRA's determination may cover document of a certain type, or particular information within documents of that type. Such a determination will be able to apply prospectively in relation to reporting documents yet to be received by APRA. For example, APRA may determine that information reported in specified line items of a particular reporting form is non-confidential. APRA will also be able to do this for a specific document that has been received by APRA (as is presently the case). This change will allow APRA to streamline the current determination process where APRA undertakes a single consultation process as to the confidentiality of information but is required to repeat confidentiality determinations as information is received in accordance with periodic reporting requirements. [Schedule 3, item 4, subsection 57(2)]

3.17 APRA will not be able to make a section 57 determination unless it has given interested parties a chance to make a representation on whether the document contains confidential information. [Schedule 3, item 4, subsection 57(3)]

3.18 Where APRA's determination relates to a particular document an interested party is defined as an entity or body which is required to give the information to APRA under the FSCOD Act. APRA may make a determination that information is not confidential if, taking into account representations made by the interested party, APRA considers that the benefit to the public from the disclosure outweighs any detriment to commercial interests that the disclosure may cause. [Schedule 3, item 4, paragraph 57(4)(a)]

3.19 Where APRA's determination is on a type of document then an interested party is defined as an association or other body representing the entities or bodies which are required to give the information to APRA under the FSCOD Act. Again, APRA may make a determination that information is not confidential if, taking into account representations made by these parties, APRA considers that the benefit to the public from the disclosure outweighs any detriment to commercial interests that the disclosure may cause. [Schedule 3, item 4, paragraph 57(4)(b)]

APRA's ability to collect look through data

3.20 The Review identified that an existing deficiency in the information available on superannuation entities is the costs of downstream investment vehicles being deducted from gross investment returns which may not be reported to APRA and often will not be charged as an explicit fee to members.

3.21 The diagram below is an example of the types of arrangements that the Review identified as currently obscuring the availability of transparent and comparable information. An RSE licensee that provides a mandate to an investment manager to invest assets may have an arrangement that allows the investment manager to deduct their fees from the investment return on assets. Similarly, investment vehicles such as managed investment schemes may also deduct their fees from the investment return from assets. In the diagram, the member's assets earn a return of 6.5 per cent from which the investment manager deducts a fee of 1 per cent and the managed investment scheme deducts a fee of 0.5 per cent. An investment return of 5 per cent is returned to the RSE licensee that provides it to members and charges an explicit fee of 1 per cent to members. Similarly, the RSE licensee may report costs of 1 per cent to APRA. Therefore, the full investment costs to members of 2.5 per cent may not be disclosed.

3.22 For this reason, the Review recommended that APRA be provided with the ability to collect information on a 'look-through' basis. This will ensure that the full costs of investing the assets of members are provided to APRA and, through APRA's statistical publications, to members.

3.23 APRA will be given an explicit power to make a reporting standard, requiring RSE licensees to provide investment information on their assets or assets derived from their assets that are invested by a connected person who is a related body corporate of the RSE licensee, a custodian holding the RSE licensee's superannuation assets, or a person under a contract or arrangement with the RSE licensee, related body corporate or custodian. [Schedule 3, item 29, subsection 13(4A)]

3.24 The reporting standard will be able to require information on deductions from the return on investment, the financial products or other property which the assets are invested in and the operations of the investor. [Schedule 3, item 29, paragraphs 13(4A)(a) and (b)]

3.25 For example, under such a reporting standard, RSE licensees may be required to provide information on assets and financial products invested in a managed investment scheme, PST or other trust, which has in turn invested the assets in financial products or property. A reporting standard may impose such a requirement where the investment is by a person connected with the RSE licensee. [Schedule 3, item 29, paragraphs 13(4A)(c),(d) and (e)]

3.26 As noted above, a reporting standard may require the RSE licensee to provide information in relation to assets invested by a person connected with the RSE licensee. [Schedule 3, item 29, paragraph 13(4B)(a)]

3.27 Where the assets are invested under contract or other arrangement between the RSE licensee (or a related body corporate of the RSE licensee or a custodian in relation to the relevant assets) and a person connected with the RSE licensee then the contract or arrangement has an implied term which requires the RSE licensee to notify the connected person that the assets are derived from a RSE. [Schedule 3, item 29, paragraph 13(4B)(c)]

3.28 The contract or arrangement will also have an implied term requiring the connected person to provide the RSE licensee with the required information. [Schedule 3, item 29, paragraph 13(4B)(d)]

3.29 For example, if the RSE licensee invests assets of the superannuation fund in an investment life policy issued by a related life company, which in turn invests in a managed investment scheme of which another related body corporate is responsible entity, both the life company and the responsible entity will be persons connected with the RSE licensee. Accordingly, a reporting standard may require the RSE licensee to report on the underlying investments of the managed investment scheme and the deductions on net returns imposed by the responsible entity and life company.

3.30 These requirements may apply to several contracts or arrangements that invest the assets, or assets derived from the assets, of an RSE licensee through several parties as set out in example 3.1.

Example 3.1

An RSE licensee (ABC Super) invests assets of their fund through a custodian. The custodian must invest as directed by ABC Super. The custodian, at the direction of ABC Super, purchases units in Managed Investment Scheme 1. Managed Investment Scheme 1 is not a related body corporate of ABC Super.

In this example, ABC Super must notify the custodian the assets are those of ABC Super. The custodian must, in turn, notify Managed Investment Scheme 1 that they are investing assets of ABC Super.

Information on the deductions from the investments and details on the types of financial products and other property that is invested in must be provided by each entity to the entity preceding it in the chain of investment.

Managed Investment Scheme 1 provides the custodian details of the costs it deducts from the investment return. In turn, the custodian provides this information and details of the costs it deducts from the investment return it received from Managed Investment Scheme 1 to ABC Super.

The steps involved are set out in Diagram 3.2.

3.31 'Arrangement' and 'financial product' are defined as having the same meaning as under chapter 7 of the Corporations Act as these terms are used with the same underlying concepts as the Corporations Act. [Schedule 3, items 31 and 33, section 31 ]

3.32 Custodian, pooled superannuation trust, related body corporate, registrable superannuation entity and RSE licensee are defined as having the same meaning as in the SIS Act as these terms are used with the same underlying concepts and are superannuation specific. [Schedule 3, items 32, and 34 - 37, section 31 ]

3.33 Information collected under a reporting standard that relates to entities other than the RSE licensee will also be treated as protected documents and protected information for the purposes of the APRA Act. [Schedule 3, items 1 and 2, subsection 56(1)]

3.34 The objects of the FSCOD Act are amended to explicitly acknowledge APRA's role in collecting data for the purposes of publishing information given to it by financial sector entities. [Schedule 3, item 26, paragraph 3(1)(aa)]

3.35 These amendments are not intended to prevent APRA from seeking information, to the extent it is known to the RSE licensee, about investments through entities that would not be required to provide information under these new requirements. [Schedule 3, item 26, paragraph 3(1)(aa)]

APRA's publication of superannuation data

3.36 APRA will be required to publish quarterly information in relation to MySuper fees, costs and net returns at the product level. This will provide a central source of information on MySuper products and will help inform consumers and drive competition between funds that offer MySuper products. [Schedule 3, item 44, paragraph 348A(1)(a), (b) and (c)]

3.37 APRA will also be required to publish any other information to be prescribed by the regulations. This allows flexibility to specify additional information which APRA will be required to publish. [Schedule 3, item 44, paragraph 348A(1)(d)]

3.38 APRA must not publish information that would identify the beneficiary of a regulated superannuation fund. [Schedule 3, item 44, subsection 348A(2)]

3.39 APRA will also not be able to publish information to the extent it would result in the acquisition of property without just terms, which is not permitted by paragraph 51(xxxi) of the Constitution. [Schedule 3, item 44, subsection 348A(3)]

Product dashboard and other disclosure

Product Dashboard

3.40 RSE licensees will be required to publish a product dashboard for each of the fund's MySuper and choice products. This should be made available on a part of their website that is accessible to the public at all times. The product dashboard will include key information, useful for both new and existing members. Standardised disclosure of key information will allow members to easily compare products and thus make informed choices.

3.41 Trustees of regulated superannuation funds must ensure that each product dashboard is available publicly on their website, is updated as required and contains the right information. [Schedule 3, item 8, paragraphs 1017BA(1)(a), (b), (c) and (d)]

3.42 A product dashboard for an investment option of a choice product or a MySuper product will be required to include the investment return target, the number of times the current target has been met in the last ten financial years (or for the period the product has been offered if it has been offered for less than ten financial years), the level of investment risk, a statement about the liquidity, and the average amount of fees (excluding activity fees, advice fees and insurance fees) and other costs such as embedded investment costs in relation to the MySuper product or investment option during the last quarter, expressed as a percentage of the assets of the fund attributable to the MySuper product or investment option. [Schedule 3, item 8, subsections 1017BA(2) and(3)]

3.43 It is expected that APRA will make reporting standards that will determine the methodology that must be used in calculating the information that is to be disclosed on the product dashboard.

3.44 An RSE licensee will be required to update the product dashboard on their website within 14 days of the information changing. For example, if the trustee decides to change the investment return target for an investment option it must update the product dashboard within 14 days of making this change. In regards to the amount of costs incurred in a quarter, this will have to be updated within 14 days of the end of the each quarter to reflect the costs incurred in the previous quarter. [Schedule 3, item 8, paragraphs 1017BA(1)(c) and (d)]

3.45 It is important that the way information is displayed on a product dashboard enables members to make comparisons between products. Therefore, regulations may be prescribed on how the information in the product dashboard must be displayed. [Schedule 3, item 8, paragraph 1017BA(1)(e)]

3.46 For the purposes of the product dashboard, the terms choice product, member, MySuper product, and regulated superannuation fund are defined as having the same meaning as in the SIS Act as these terms are used with the same underlying concepts and are superannuation specific. [Schedule 3, item 8, subsection 1017BA(5)]

3.47 ASIC will be able to issue a stop order if information in the product dashboard is defective. This power could be used where the product dashboard contains misleading or deceptive information, there is an omission, or it is not updated as required. In this situation ASIC may order specific conduct in respect of the product which the defective product dashboard relates to in order to remedy the situation. ASIC already has these stop order powers for other disclosure documents. [Schedule 3, item 9, paragraph 1020E(1)(c), item 10, paragraph1020E(2)(c), item 11, paragraph 1020E(7)(a) and item 12, paragraphs 1020E(11)(c)]

3.48 The product dashboard is a key reform to the superannuation disclosure regime, and to ensure that the product dashboard is published and available to members it will be an offence for a trustee, who is required to publish a product dashboard, not to do so. [Schedule 3, item 14, subsection 1021NA(1)]

3.49 It will also be an offence for a trustee to publish a product dashboard containing defective information. This will apply if the trustee knows that the information is not updated as required, contains misleading or deceptive information or there is an omission. This will ensure that all elements of the product dashboard are relevant, accurate and available to members. [Schedule 3, item 14, subsections 1021NA(2) and(3)]

3.50 Strict liability will also apply to failure to update the product dashboard as required and where there is an omission from the product dashboard. This will apply whether or not the trustee knew or did not know the information was not updated as required or there was an omission. It is important for trustees to provide the product dashboard and keep it up-to-date for the product dashboard to be useful for members. Strict liability is imposed with regard to the product dashboard disclosure requirements to reflect the benefit of these disclosures for consumers and the importance that trustees maintain a level of vigilance to ensure that the information is provided in an accurate and timely manner. The strict liability offence mirrors similar offences that apply to other important disclosures, such as a product disclosure statement. [Schedule 3, item 14, subsection 1021NA(4)]

3.51 The trustee will have a defence where it has taken reasonable steps to ensure that the dashboard was updated as required, not misleading or deceptive, and contained no omissions. This is consistent with defences available in relation to other disclosure offences. [Schedule 3, item 14, subsection 1021NA(5)]

3.52 Civil action against the trustee will be able to be taken by a person who suffers loss or damage as a result of the trustee's product dashboard not containing information as required by the 1017BA, not being updated as required, containing misleading or deceptive information, or if there is an omission. The trustee is not liable for civil action if the trustee took reasonable steps to ensure that the information is not misleading or deceptive or there would not be an omission from the information. This is consistent with the other civil liability disclosure offences in 1022B. [Schedule 3, item 15, paragraph 1022B(1)(f) and Schedule 3, item 16, paragraph 1022B(2)(f) and Schedule 3, item 18, paragraph 1022B(3)(e) and Schedule 3, item 19, subsections 1022B(7B) and (7C)]

3.53 The requirement to publish a product dashboard will not apply to investment options within a choice product if:

•

the assets under the investment option are invested only in one or more of the following:

-

a capital guaranteed life insurance policy where the contributions and accumulated earnings may not be reduced by negative investment returns or any reduction in the value of assets in which the policy is invested;

-

a life policy providing benefits based solely on the realisation of a risk, and not related to the performance of an investment; and

-

an investment account contract that is held solely for the benefit of that member, and relatives and dependants of that member - to cover legacy products such as endowment and whole of life policies.

•

the sole purpose of the investment option is the payment of a pension to members, such as an allocated pension investment option;

•

the assets of the fund invested under that investment option are only invested in another single asset, such as individual financial products offered on a platform. [Schedule 3, item 8, subsection 1017BA(4)]

3.54 The MySuper Core Provisions Bill defines a choice product as a product which is not a MySuper product. This definition is being amended to define a choice product as a class of beneficial interest in a regulated superannuation fund unless all the members of the fund who hold the class of beneficial interest in the fund are defined benefit members or the class of beneficial interest is a MySuper product. This ensures that the product dashboard will not apply to defined benefit arrangements. [Schedule 3, item 40, subsection 10(1)]

Remuneration and other information

3.55 An RSE licensee will have a new requirement to disclose the details of remuneration of each executive officer if the RSE licensee is a body corporate or each trustee if the RSE licensee is a group of individual trustees. The details of this disclosure will be prescribed by regulations. It is intended that these requirements will be modelled on the existing requirements for listed companies at section 300A of the Corporations Act. [Schedule 3, item 42, paragraph 29QB(1)(a)]

3.56 Currently a large amount of information is only available to members through request or on the member only section of the website. Therefore, regulations will be able to prescribe certain superannuation specific documents that will have to be published on the public section of the fund's website. [Schedule 3, item 42, paragraph 29QB(1)(b)]

3.57 It is intended that regulations will specify the following documents to be published:

•

The net returns of all MySuper and investment options of choice products for the past ten years and the investment return target for all MySuper and investment options of choice products;

•

The fund's trust deed(s) and any amending or supplemental deeds;

•

The fund's most recent audited financial report;

•

The fund's most recent actuarial report (if applicable);

•

The fund's product disclosure statements;

•

The fund's annual report;

•

The fund's financial services guide (if applicable);

•

Each significant event or material change notification made by the fund to any members;

•

The names of all outsourced service providers;

•

The name and a brief biography of each director or trustee, or person involved in the trusteeship of the fund;

•

Details of board meeting attendance by directors; and

•

The fund's proxy voting policies and procedures as well as voting behaviour.

3.58 ASIC will be the responsible regulator for this new provision in the SIS Act. A failure to publish up-to-date information on the fund's website at all times will be a strict liability offence carrying a penalty of 50 penalty units. A strict liability offence is necessary to ensure effective enforcement of this provisions by ASIC. Superannuation is a compulsory system of retirement savings, therefore, it is appropriate that RSE licensees do everything that they can reasonably do to ensure that there is complete transparency on the financial products members have an equitable interest in. However, recognising that this obligation will extend to a wide range of information, a lower penalty will apply compared to other disclosure-related offences. [Schedule 3, item 42, subsections 29QB(2) and (3) and Schedule 3, item 39, subparagraph 6(1)(c)(ia)]

Obligation to give consistent information

3.59 To improve comparability of superannuation products, there will be a requirement for consistency in how information is calculated. An RSE licensee will be required to give any person, other than an agency of the Commonwealth, information that is calculated in the same way as required under a reporting standard made by APRA. [Schedule 3, item 42, subsection 29QC(1)]

3.60 Regulations will be able to prescribe situations where information that is disclosed is provided to APRA under a reporting standard does not have to be calculated in the same way. This will allow for regulations to deal with any situation where APRA may require information for prudential purposes that may be misleading if it is calculated in the same way when disclosed to members.

3.61 ASIC will be the responsible regulator for this new provision in the SIS Act. Failure to provide information calculated on the same basis will be an offence of strict liability carrying a penalty of 50 penalty units. Inconsistent information provided through multiple means can cause significant damage to members of superannuation funds and inhibit informed decision-making. Superannuation is a compulsory system of retirement savings, therefore, it is appropriate that RSE licensees do everything that they can reasonably do to ensure that there is complete transparency on the financial products members have an equitable interest in. However, recognising that this obligation will extend to a wide range of information provided to many individuals, a lower penalty will apply compared to other disclosure-related offences. [Schedule 3, item 42, subsections 29QC(2) and (3) and Schedule 3, item 39, subparagraph 6(1)(c)(ia)]

Portfolio holdings

Trustees must publish details of portfolio holdings

3.62 RSE licensees will have an obligation to make publicly available the details of their portfolio holdings twice annually as at each reporting day, which will be 30 June and 31 December each year, by publishing this information on the fund's website within 90 days. [Schedule 3, item 8, section 1017BB ]

3.63 The details published must cover information sufficient to identify each financial product or other property, and the value of the RSE's investment in each financial product or other property. The regulations may prescribe the format in which the information must be published. [Schedule 3, item 8, subsections 1017BB(1) and (3)]

3.64 For example, the fund website must list each share held by the RSE, or held by another party for the ultimate benefit of the RSE, the number of shares held and the price of each share at the end of the reporting day.

3.65 The portfolio holdings information must remain on the fund website until updated with information from the next reporting day. The fund's website will, therefore, always contain details of the RSE's portfolio holdings that relate to the most recent reporting day. [Schedule 3, item 8, subsection 1017BB(2)]

3.66 The RSE licensee is not required to publish information relating to financial products or other property which is not acquired in this jurisdiction unless the RSE licensee knew, or reasonably ought to know, information sufficient to identify the financial products or other property acquired. For example, an RSE licensee may use an offshore custodian to acquire assets in the United States of America. However, the custodian will not be subject to these requirements as they are not based in Australia. However, as the custodian only invests at the direction of the RSE licensee, then the RSE licensee itself will have the knowledge of the financial products or other property acquired and it will still have to publish this information on the fund's website.

3.67 The regulations will be able to prescribe a materiality threshold for the information that must be published on an RSE licensee's website. The Government will give consideration to prescribing a threshold to strike a balance between the compliance costs and the benefits for members from portfolio holdings disclosure. In the absence of any regulations being made, the legislation requires that all portfolio holdings must be disclosed subject to the holding being acquired in Australia.

3.68 The publishing requirement extends to financial products in which 'assets derived from assets' of the RSE are invested. The concept of 'assets derived from assets' is intended to capture situations where assets are invested through intermediaries; for example, where assets are invested through fund of funds structures such as multiple levels of pooled investments, including managed investment schemes.

3.69 In other words, an RSE licensee may invest and in return acquire an interest in an entity. That entity may then in turn use the assets contributed by the RSE, or perhaps part of those assets, pooled with the assets contributed by other investors, to invest and in return acquire an interest in a third party. At the point that the pooled assets are invested by the entity in the third party they are 'assets derived from assets' of the RSE. To avoid confusion, the term is not intended to refer to derivative products, such as contracts for difference. This may, in fact, be an asset of the RSE. [Schedule 3, item 8, paragraphs 1017BB(1)(a) and (b)]

Other parties must provide relevant information to the RSE licensee

3.70 To enable an RSE licensee to obtain the required information for disclosure of their portfolio holdings, obligations will be imposed on parties to contracts and arrangements that acquire a financial product using the assets, or assets derived from the assets, of an RSE.

3.71 Specifically, where a person (the first party) enters into a contract or other arrangement with another person (the second party), to acquire a financial product using the assets, or assets derived from assets of an RSE, or to provide a custodial arrangement then the first party must notify the second party to that contract or arrangement relates to assets, or assets derived from assets, of an RSE. [Schedule 3, item 8, subsections 1017BC(1) and (2)]

3.72 The first party must also provide details of the RSE licensee to the second party. For example, the name of the RSE licensee and a mailing address to which to send the required information. [Schedule 3, item 8, paragraph 1017BC(2)(b)]

3.73 This requirement will only apply to contracts or arrangements where assets, or assets derived from assets, of an RSE are subject of the arrangement and:

•

the first party acquires a financial product from a second party;

•

there is an agent of the first party acquiring a financial product from the second party;

•

the second party provides a custodial arrangement to which the first party is a client; or

•

the first party is the provider of a custodial arrangement and the second party will acquire a financial product for the first party under that custodial arrangement. [Schedule 3, item 8, subsection 1017BC(1)]

3.74 If a financial product is acquired under the contract or arrangement, the second party will have an obligation to provide the RSE licensee with information sufficient to identify the financial product acquired and any financial products or other property that the second party knows, or reasonably ought to know, will be acquired using the assets, or assets derived from the assets, of the RSE. [Schedule 3, item 8, subsection 1017BC(3)]

3.75 If no financial product is acquired under a contract or arrangement that is a custodial arrangement then there will be no obligation on the second party to provide information, however the second party providing the custodial arrangement will then be aware that the investment are assets, or assets derived from assets, of a RSE licensee and hence will be under an obligation to provide a notice to any other party that provides it with a custodial arrangement or from whom they acquire a financial product. For example, where the arrangement is to provide a custodial arrangement then no information must be provided by the second party. However, this ensures that the second party is made aware that the assets that are subject of the arrangement are assets, or assets derived from assets, of the RSE licensee. If that second party subsequently enters into a separate arrangement, for which it would be the first party, to acquire a financial product from another party then it must provide a separate notice to that other party who would be under an obligation to provide the relevant information to the RSE licensee so that it can comply with its obligation to publish portfolio holdings. [Schedule 3, item 8, sections 1017BD and 1017BE ]

3.76 'Custodial arrangement' is defined using an existing definition in the Corporations Act. This has been generally understood to applying to platform arrangements that allow members to direct a superannuation entity to invest in a particular financial product. However, in the context of these provisions, it will capture traditional custody arrangements that are provided to RSE licensees by professional custodians as these arrangements only permit the custodian to invest assets as directed by the RSE licensee. [Schedule 3, item 8, sections 1017BC, 1017BD and 1017BE ]

3.77 In some circumstances, a professional custodian may only acquire other property on behalf of the RSE licensee. In this case, the custodian may not meet the definition of custodial arrangement in the Corporations Act. However, in this case, the custodian is acquiring the other property at the direction of the RSE licensee which means the RSE licensee should already have information regarding the other property acquired, and therefore this must be published on the RSE licensee's website.

3.78 These requirements may apply to several contracts or arrangements that invest the assets, or assets derived from the assets, of an RSE licensee through several parties as set out in example 3.2.

Example 3.2

An RSE licensee (ABC Super) invests assets of their fund through a custodian. The custodian must invest as directed by ABC Super. The custodian, at the direction of ABC Super, invests assets in a financial product provided by Managed Investment scheme 1.

Managed Investment Scheme 1 makes investments into other managed investment schemes. It is a fund of funds.

Managed Investment Scheme 1 invests in a financial product offered by Managed Investment Scheme 2 by purchasing units in that scheme.

In this example, ABC Super must notify the custodian the assets are those of ABC Super.

The custodian must then notify Managed Investment Scheme 1 that the assets invested are those of ABC Super as it is an investment in a financial product. Managed Investment Scheme 1 will have an obligation to provide information to ABC Super that is sufficient to identify its financial product, the financial products it acquires with the assets and other property that it acquires with the assets as well as the value of ABC Super's investment in each of these things.

Managed Investment Scheme 1 must subsequently notify Managed Investment Scheme 2 that it is investing assets derived from the assets of ABC Super as it is investing in another financial product.

Therefore, Managed Investment Scheme 2 will also have an obligation to provide information directly to ABC Super that is sufficient to identify its financial product, the financial products it acquires with the assets and other property that it acquires with the assets as well as the value of ABC Super's investment in each of these things.

The steps involved are set out in Diagram 3.3.

3.79 These obligations will only apply to contracts or arrangements entered into from the day of Royal Assent. [Schedule 3, item 22, section 1541 ]

3.80 Regulations will be able to prescribe certain contracts and arrangements to which the obligation to provide a notice does not apply. For example, regulations may be used to exclude contracts and arrangements where the first party will already be required to provide information on the financial product that will be acquired as they will always know, or reasonably ought to know, information sufficient to identify the financial product and the value of assets attributable to the RSE licensee that is invested in the financial product.

3.81 Parties entering into contracts or arrangements which cover assets of an RSE, or assets derived from assets, of an RSE, who have not been notified that the contract or arrangement covers such assets, or the details of the RSE licensee, will not be required to provide the necessary information. [Schedule 3, item 8, subsections 1017BC(2) and (3)]

Offences relating to publication of information

3.82 RSE licensees who fail to publish the details of their portfolio holdings on the fund's website commit an offence with a penalty of 100 penalty units or imprisonment for 2 years, or both. It is a defence to show that the RSE licensee would have published the information, but for the fact that the trustee was not provided with the required information. That is, it is a defence to show that the details of an RSE's portfolio holdings were not published because the information was not provided. [Schedule 3, item 14, subsections 1021NB(1) and (5)]

3.83 There will be a separate defence for an RSE licensee who omits information where the information would have been published except for the fact that the information was not provided because the requirement for another party to provide the relevant information did not apply because the contract or arrangements was entered into prior to the day of Royal Assent. [Schedule 3, item 22, subsection 1541(3)]

3.84 RSE licensees who knowingly publish misleading or deceptive information, or information containing omissions, commit an offence. This offence carries a penalty of 200 penalty units or imprisonment for 5 years, or both. [Schedule 3, item 14, subsection 1021NB(2)]

3.85 A corresponding strict liability offence exists for where the RSE licensee knew or did not know whether the information was misleading or deceptive or contained an omission. This offence carries a penalty of 100 penalty units or imprisonment for 2 years, or both. [Schedule 3, item 14, subsection 1021NB(3)]

3.86 A strict liability offence is necessary to ensure effective enforcement of these provisions by ASIC. Superannuation is a compulsory system of retirement savings, therefore, it is appropriate that RSE licensees do everything that they can reasonably do to ensure that there is complete transparency on the financial products members have an equitable interest in.

3.87 However, where portfolio holdings information is published that contains an omission, it is a defence to show that a trustee took reasonable steps to ensure there would not be an omission, or that necessary information to meet the requirement was not provided to the RSE licensee by other parties or that the information was omitted because it would have been misleading and deceptive and a trustee took reasonable steps to obtain information that would not have been misleading or deceptive. [Schedule 3, item 14, subsection 1021NB(6)]

3.88 An additional defence exists solely for the strict liability offence in relation to publishing misleading or deceptive information, where the RSE licensee took reasonable steps to ensure that the information published would not be misleading or deceptive. [Schedule 3, item 14, subsection 1021NB(7)]

Offences relating to requirements to provide relevant information

3.89 Parties who do not notify another party that a contract or arrangement invests assets of an RSE, or assets derived from the assets of an RSE, or who fail to notify other parties of the details of the RSE licensee commit an offence. This offence carries a penalty of 100 penalty units or imprisonment for 2 years, or both. [Schedule 3, item 14, subsection 1021NC(1)]

3.90 A party to a contract or arrangement who invests assets of an RSE, or assets derived from assets of an RSE, and who is notified by the investing party but who fails to provide the relevant information to the RSE licensee commits an offence. This offence also carries a penalty of 100 penalty units or imprisonment for 2 years, or both. [Schedule 3, item 14, subsection 1021NC(2)]

3.91 Parties commit an offence when they knowingly omit, or knowingly provide misleading or deceptive, information when either: notifying another party that a contract or arrangement invests assets, or assets derived from assets, of an RSE, or notifying another party of the details of the trustee, or who have been so notified and do not provide the relevant information to the RSE licensee. This offence carries a penalty of 200 penalty units or imprisonment for 5 years, or both. [Schedule 3, item 14 , subsection 1021NC(3)]

3.92 A corresponding strict liability offence exists for whether or not the person knew the information provided was misleading or deceptive or omitted information. This offence carries a penalty of 100 penalty units or imprisonment for 2 years, or both. [Schedule 3, item 14, subsections 1021NC(4) and (5)]

3.93 A strict liability offence is necessary to ensure effective enforcement of this provisions by ASIC. Superannuation is a compulsory system of retirement savings, therefore, it is appropriate that RSE licensees do everything that they can reasonably do to ensure that there is complete transparency on the financial products members have an equitable interest in.

3.94 Where a person has committed an offence by omitting to provide relevant information to the RSE licensee, it is a defence to show that the person took reasonable steps to ensure there would not be an omission in providing the information. In the alternative, it is a defence to show that the information was omitted because it would have been misleading or deceptive, and that the person took reasonable steps to obtain information that would not have been misleading or deceptive. [Schedule 3, item 14, subsection 1021NC(6)]

3.95 Where a person has committed an offence because that person provided misleading or deceptive information to the RSE licensee under these provisions, it is a defence to the strict liability offence only that the person took reasonable steps to ensure the information provided would not be misleading or deceptive. [Schedule 3, item 14, subsection 1021NC(7)]

Application and transitional provisions

3.96 A consultation undertaken in respect of the existing section 57 of the FSCOD Act will be valid for the purposes of APRA making a determination for the amended section 57. Representations made by interested parties also are valid for the amended section 57. [Schedule 3, item 45 ]

3.97 The requirement for RSE licensees to provide APRA with information through an implied term in contracts will apply to both new and existing contracts. The exception to this where the contract was entered into before the commencement of the Bill and the disclosure of this information would result in an acquisition of property on unjust terms. If there is an acquisition of property on unjust terms then the RSE is not required to comply with the reporting standard to the extent that it relates to this information. [Schedule 3, item 46 ]

3.98 APRA will be able to publish quarterly data on MySuper products beginning on 1 July 2013. [Schedule 3, item 47 ]

3.99 The obligation to publish a product dashboard for a MySuper product will apply from 1 July 2013. The obligation to publish a product dashboard for an investment option of a choice product will apply from 1 July 2014. The longer lead in time for choice products is due to the more complex nature of some choice products. [Schedule 3, item 22, section 1539 ]

Consequential provisions

3.100 Section 601TAA of the Corporations Act provides that a licensed trustee company must publish an up-to-date schedule of fees on their website. This section is amended to avoid any doubt that may be created by the requirement to make certain information publicly available on an RSE licensee's website that a fee schedule published by a licensed trustee company must also be publicly available on their website.

3.101 The offences applying to RSE licensees for the product dashboard and the disclosure of portfolio holdings are added to section 38A of the SIS Act which defines 'regulatory provision' for the purpose of specifying that contravention of a regulatory provision may result in a notice by the relevant regulator that removes complying fund status.