ASIC and super funds at loggerheads over RG 97

Dan Purves

By

24/02/2017

The executives responsible for running the back-office systems of superannuation funds are frustrated by the regulator’s new rules for disclosing fees and costs,  known as RG 97.

One industry expert predicted that the introduction of  the Australian Securities and Investment Commission’s (ASIC’s) regulatory guide 97 (RG 97) could lead to super funds disclosing up to an extra 50 basis points in indirect costs.

Under the incoming regime, funds will be required to provide much more detailed data about fees and other costs of particular investments every six months.

Complying with the more detailed disclosure regime is expected to be costly, as many funds will require new or improved technology and systems to cope.

Local Government Super head of investment operations Stuart Hill estimated that RG 97 compliance would raise reported indirect cost ratios across the industry by 20 to 50 basis points.

“It will probably be on the higher side of that,” Hill said.

“I totally get and understand the need for RG 97 – it had to happen – but I do get concerned we are replacing one un-level playing field with another. It is going to be very interesting to see what ASIC does with that data.”

Hill made his comments during a panel discussion at the 20th Conexus Financial Investment Operations Conference in Sydney this week. The mood of the 250 investment operations executives from some of the biggest funds in the country revealed widespread frustration with RG 97.

This is despite the regulator recently extending the deadline for compliance from January 30, 2017 to September 30, 2017.

ASIC standing firm

ASIC senior executive leader Gerard Fitzpatrick told the conference that he saw no good reason why funds should struggle to be compliant by the new deadline.

“Personally, I don’t see it as a particularly complex structure compared to other regulation,” Fitzpatrick he said.

“As with any new change, we hopefully give people sufficient guidance to implement it successfully.”

The industry representatives present disagreed.

NAB Asset Servicing head of policy services Ricky Notarangelo said many of his clients were “bemused” by the complexity of the regulation.

“It’s like reading Shakespeare – you need to get at least a third of the way through before you can even begin to understand the language,” he said.

The process of becoming RG 97 compliant is also causing headaches for some of the biggest funds, that already have extensive investment operations teams and sophisticated technology systems in place.

Cbus general manager, investments legal, Michael Guilday said the process had been a “painful” one.

Everyone on the panel agreed that more industry engagement at an earlier stage in the development of the regulations might have led to a smoother transition.

“There were too many working groups that could have done a better job of working together,” Hill said.

Notarangelo said the Australian Custodial Services Association should have been consulted earlier in the development of the new regulatory framework.

There were “always going to be screw-ups” if the right people weren’t in the room at the beginning, he said.

Fitzpatrick said ASIC would welcome more early-stage industry engagement in the future. He also hinted at future areas of focus for ASIC.

Fitzpatrick said the introduction of RG 97 would provide a consistent and accurate assessment of fees and cost and would make it easier to address other issues, such as performance.

“We consider the overarching risk management systems should include systems that foster a strong risk management culture, including measures to ensure that the RE [responsible entities] schemes operate with adequate financial resources to meet their obligations, and are well documented,” he said.

Fitzpatrick said ASIC expected funds to not only identify risks, but have clearly defined strategies in place to manage each individual risk.

How funds are meeting their obligations to perform regular stress testing and scenario analysis, particularly in relation to liquidity risk, is another current focus for the regulator.

The introduction of the Asia Regional Funds Passport (ARFP) and Corporate Collective Investment Vehicles (CCIV) is also expected to throw up new regulatory compliance challenges for funds.