Unit pricing bungles prompt regulator guidance

The two financial services regulators — the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) — have combined resources to address the vexed unit pricing issue by jointly publishing a guide outlining what they regard as best practice.

The guide, Unit Pricing - Guide to Good Practice, was developed following a joint review of unit pricing practices by the two regulators, which noted that serious problems could arise for investors when errors in the calculation of unit prices occurred.

ASIC commissioner Professor Berna Collier said that unit pricing issues could be complex and there had been cases where compensation had been to affected unit holders.

“ASIC and APRA are committed to working with the industry to resolve these errors in the best interests of unit holders,” she said.

APRA member Steve Somogyi said that the two regulators had been encouraged by the fact that companies had been proactively identifying and reporting unit pricing problems to the regulators.

“We acknowledge that there are many thousands of unit prices calculated by industry each day and the vast majority will be correct,” he said.

Both Somogyi and Collier said the regulators were concerned to ensure that boards and senior management took seriously their responsibilities to unit holders by developing and maintaining a culture that embedded risk management within operations.

The APRA and ASIC research underlying the new guide found that when errors in unit pricing occurred they tended to be very large indeed, and that there had been instances of errors costing more than $10 million in compensation.

It suggests that to overcome these problems, financial services organisations need to give unit pricing a high profile and resources, including building an effective risk management culture.