The old ‘materiality’ measure of 30 bps for unit pricing errors was officially thrown out the window last month as APRA and ASIC released an updated ‘good practice’ guide for unit pricing, which prescribed $20 as the new level of compensation below which scheme operators need not bother writing departed members a cheque. “All stakeholders ultimately bear some cost through having to deal with small compensation amounts. We have heard these concerns and acted to ensure that the rectification of a unit pricing error is undertaken as efficiently as possible, for the benefit of all stakeholders’, APRA Deputy Chairman, Ross Jones, said.
Both regulators said they understood there were significant costs involved for scheme operators in writing cheques for very small amounts, and thought “drawing the line” at the $20 level was reasonable. The $20 minimum would only apply to payments made to exited members; those members still in the fund should expect to be compensated regardless of the amount involved, the regulators said.
At the end of that process, any net cost is to be met by the scheme operator. However, if there is a net benefit from amounts not paid to exited members, that benefit is to remain in the fund – the scheme operator must not benefit from the process. The scheme operator also remains responsible for all administrative rectification costs.
APRA and ASIC reiterated that unit pricing issues could be complex and providers needed to remain vigilant in applying robust risk management practices, as well as meeting their trustee and responsible entity obligations. “All of the evidence we have received suggests industry practices have improved since the guide was first published in 2005. We need to maintain that improvement.
The guide is, at its core, a principles based document and we look to providers to regularly monitor the application of those principles, even as the investment environment evolves”, Jones said.
APRA and ASIC said they would continue to review aspects of unit pricing practice and generally expected that product providers would follow the ‘good practices’ described in the guide. However they acknowledged that alternative practices were sometimes appropriate but expected product providers to have a reasonable and well-documented justification for adopting them.