Fund managers risking regulator action over unit pricing
A survey regarding unit pricing practices performed by a leading chartered accounting firm has revealed a large number of fund managers are lagging behind on the compliance procedures that need to be in place to satisfy the regulatory requirements in this area.
The Deloitte unit pricing survey found 40 per cent of respondents had not finalised their procedures to address unit pricing discretions, an obligation that has to be completed in accordance with ASIC (Australian Securities and Investments Commission) Class Order CO 05/1236 by May 1 of this year.
An additional requirement is for managed investment scheme operators to have their policies addressing unit pricing discretions made public.
In regard to this obligation, 26 per cent of participants intended to only make the policy available ‘on request’, while a further 26 per cent either did not know or were not sure how this requirement would be achieved.
Other findings showed 25 per cent of those fund managers surveyed did not conduct a review of their unit pricing practices against the Guide to Good Practice issued jointly by ASIC and APRA (Australian Prudential Regulation Authority).
Furthermore, 18 per cent of fund managers surveyed admitted they did not use benchmarks to check their unit prices prior to release.
One area of concern identified by Deloitte was the lack of rigour being used to assess the tax impact on unit prices.
The survey showed 50 per cent of participants did not regularly examine the adequacy of their unit pricing tax provisions.
“Given that tax errors have been among the prime reasons for the estimated $750 million paid in compensation for unit pricing errors in recent years, a precautionary approach is justified,” Deloitte partner, tax services, Adele Watson said.
The Deloitte Unit Pricing study surveyed 90 respondents representing in excess of 50 organisations providing unit-priced wealth management products in the Australian market. It was conducted between December 2006 and February 2007 across Sydney and Melbourne.
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