ASIC seeks comment on draft CLERP 9 Guidance

THE Australian Securities and Investments Commission is seeking comment on three guidance papers relating to the new auditor registration, audit and financial reporting and product disclosure obligations proposed under the Federal Government’s Corporate Law Economic Reform Program proposals.

ASIC’s consultation documents comprise three policy proposal papers titled:

p Auditor registration;

p Auditor and financial reporting obligations; and

p Product disclosure.

Its executive director of policy and markets regulation Malcolm Rodgers said ASIC would be administering much of the legislation from CLERP 9 from July 1 this year.

"This means that new policies and processes will need to be established by that date," he said.

"The documents ASIC has released will help us make decisions about policy and administrative processes, taking into consideration comments from industry and consumers.

"CLERP 9 strengthens the registration process for new company auditors and allows for companies, as well as individuals, to apply for registration. However, current registered company auditors will not have to re-register.

"Under CLERP 9 auditors will also be obliged to report suspected significant contraventions of the Act.

"This obligation is new and we anticipate that it will result in auditors bringing more matters to our attention."

The CLERP 9 bill requires disclosure documents, such as prospectuses, produced under Chapter 6D of the Corporations Act to be clear, concise and effective.

This mirrors the FSR regime for product disclosure statements and aims to ensure investors have sufficient information to help them make informed choices when considering the purchase of securities.

Copies of the policy proposal papers are available from www.asic.gov.au/clerp9

THE Australian Securities and Investments Commission has released the results of a surveillance project into payments of preferential remuneration by institutions to their financial advisers.

Preferential remuneration occurs where an adviser is paid a higher commission for recommending an 'in-house' product rather than one offered by a third party fund manager.

ASIC undertook the project to identify the extent to which the payment of preferential remuneration for recommending in-house products affected the quality of advice available to consumers, and whether these payments were adequately disclosed to investors.

During this project, ASIC focused on three key legal requirements regarding the selling of financial products:

p commissions and other remuneration must be clearly disclosed to consumers;

p advice given to consumers must be appropriate for the consumer; and

p there must be a clear, concise and effective record of the remuneration paid to the adviser and the advice given to the consumer

The project's findings revealed that financial advisers do not always disclose adequate information about the payment of preferential remuneration when 'in-house' products are recommended. The project uncovered deficiencies in documentation kept by advisors regarding what consumers are told about commissions paid, and what they are told about the advice they are given.

The surveillance visits for this project were conducted principally during the 2002-03 financial year, prior to the introduction of the Financial Services Reform Act.

ASIC’s executive director of Financial Services Regulation Ian Johnston said the disclosure requirements under the Financial Services Reform Act, and the associated need for more detailed record-keeping address many of the deficiencies identified during the conduct of this project, particularly in relation to the disclosure of preferential remuneration.

"Financial institutions are on notice that ASIC will be paying particular attention to the selling of their 'in-house' products and the use of their 'in-house' master trusts or wrap accounts.

ASIC expects that any payment of preferential remuneration will specifically be disclosed to the investor, and that licensees maintain clear records of how they and their advisers are complying with their legal obligations' he said.

Copies of the report are available at www.asic.gov.au.