Draft short PDS regulations released

Treasury has released draft regulations for consultation which give effect to the extension of the short PDS transitional period for certain superannuation products and simple managed investment schemes that was announced by the Treasurer, Bill Shorten, on 8 June 2011.

The draft regulations confirm the following key aspects of the transitional arrangements:

• issuers of the relevant products are not obliged to comply with the short PDS regime during the transitional period, but can continue to issue new Product Disclosure Statements and supplementary Product Disclosure Statements under the old regime
• however, once an issuer has opted into the new short PDS regime in respect of a product, they cannot opt out and
• the new short PDS regime does not apply to pure risk, defined benefit or pension products.  This means, by implication, the new short PDS regime does apply to combined defined benefit and accumulation products (as indicated by the Treasurer in the media release on 8 June 2011).

The draft regulations propose to make one change that will require further consideration. The draft regulations propose to change the wording of the statement required by Corporations Regulations 7.9.11P(4) (for superannuation products) and 7.9.11X(4) (for simple managed investment schemes) to be included with material incorporated by reference into a short PDS. The prescribed wording currently states that the material may change between the time when the person reads the PDS and ‘the day when you sign the application form’.  The draft regulations propose to change the prescribed wording to ‘the day when you acquire the product’. The deeming provision in Corporations Regulations 7.9.11P(7) (for superannuation products) and 7.9.11X(7) (for simple managed investments schemes) will be similarly amended, so material incorporated by reference is deemed to be given to a person at the time they ‘acquire the product’, rather than when they ‘sign the application form’.

Treasury is of the view that the previous wording did not adequately deal with circumstances where applications are made electronically (so the person does not sign an application form). However, the changed wording raises both practical problems (having to amend finalised short PDS to accommodate the new wording) and technical considerations (at what point does the investor ‘acquire the product’ for the purpose of determining which version of material incorporated by reference is applicable to the investor?) This issue will be raised with Treasury as part of consultation.

Until the regulations are finalised, the relevant ASIC Class Order relief continues to apply (see our previous article).