With climate change an increasing focus for investors, APRA has flagged its intention to release new guidance for regulated entities before year-end. Meanwhile, ASIC has given its verdict on trustees’ member communications in relation to Protecting Your Superannuation and there has been movement on a number of superannuation-related bills.
Climate change: APRA proposes new guidance
APRA has advised its regulated entities of plans to issue new regulatory guidance on the financial risks and opportunities arising from climate change.
APRA intends to develop and consult on a climate change financial risk prudential practice guide (PPG) to help entities comply with their existing prudential requirements, including those found in Prudential Standard CPS 220 Risk Management. The new cross-industry PPG will set out APRA’s views on better practice and outline prudent practices in this area. It will cover areas relevant to the prudent management of climate change financial risks, including aspects of governance, strategy, risk management, metrics and disclosure. APRA will consult on the draft PPG in mid-2020 and is aiming to publish final guidance before the end of the year.
Separately, APRA will undertake a climate change financial risk vulnerability assessment, commencing with Australia’s largest authorised deposit-taking institutions (ADIs). The ADI vulnerability assessment will be designed in 2020 and executed in 2021, with other industries to follow. The vulnerability assessment will involve entities estimating the potential physical impacts of a changing climate, including extreme weather events, on their balance sheet, as well as the risks that may arise from the global transition to a low-carbon economy.
APRA will also be updating its existing prudential standard and practice guide, SPS 530/SPG530 Investment Governance, in response to industry views outlined in the post-implementation review of the superannuation prudential framework. APRA will consult on specific changes to SPS 530 and SPG 530 mid-year, in conjunction with other changes to the superannuation prudential framework as part of APRA’s response to the post-implementation review.
Protecting Your Super disclosure
ASIC has released the findings from its recent review of superannuation trustees’ communications with their members about changes introduced through the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019(PYSP).
Report 655 Review of member communications: Protecting Your Superannuation Package (PYSP) reform (REP 655) presents findings from ASIC’s review of a broad range of communications material from 12 superannuation funds with six million member accounts. The funds were chosen on the basis that—because of their relatively high number of inactive accounts—they were likely to be considerably affected by the PYSP reforms.
ASIC undertook the review because of concerns that unbalanced trustee communications could undermine the effectiveness of the PYSP Act in producing benefits for members. While ASIC found “some good member communication”, it also formed the view that some materials failed to provide sufficient context for the reforms or to adequately explain what the changes meant for members. Some communications used complex language, promoted a particular option that may not have been suitable for the member or failed to include relevant information about the member’s existing superannuation arrangements that would have been helpful.
ASIC Commissioner Danielle Press called on trustees to “take a member-centric approach to designing and delivering their PYSP communications. They must ask themselves: Will this approach help my members make decisions in their interest?”
While the communications review is not exhaustive, the findings are important to all trustees framing communications to members on PYSP and related reforms, as well as other topics more broadly. REP 655 also provides information and tips for trustees and sets out ASIC’s expectations about future communications. ASIC will continue to monitor trustee communications in relation to PYSP and related reforms and consider taking regulatory action where further issues are identified.
Superannuation bills update
Parliament has passed the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 without amendment. The Bill will implement a one-off 12-month amnesty to encourage employers to self-correct historical Superannuation Guarantee non-compliance. The amnesty will expire six months after the Bill receives Royal Assent.
A Bill has been introduced into Parliament to facilitate the exit of eligible rollover funds (ERFs) from the superannuation industry by 30 June 2021. Under amendments set out in the Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020:
- ERFs will be required to transfer the balance of all accounts less than $6,000 on 1 June 2020 to the ATO by 30 June 2020
- the balance of all remaining accounts held by ERFs must be transferred to the ATO by 30 June 2021
- ERFs will be able to voluntarily report and pay the balance of the account to the ATO from 1 June 2020 up until the day when the statement and payment is due
- Where the ATO receives an amount from an ERF, it will be able to proactively reunite the amount where the member has an active account
- superannuation funds and retirement savings account providers will be prevented from transferring new amounts to ERFs from the later of seven days after Royal Assent or 1 May 2020
- applications to operate a new ERF cannot be made from the day after Royal Assent.
The amendments are consistent with the Productivity Commission’s recommendation, in its report Superannuation: Assessing Efficiency and Competitiveness, that ERFs be wound up within three years.
The Bill has been passed by the House of Representatives. Amendments have been tabled in the Senate to facilitate the voluntary transfer of amounts to the ATO where the fund trustee reasonably believes that would be in the best interests of a member, former member or non-member spouse. At the time of writing, the Bill has not yet been considered by the Senate.
The Government has introduced into Parliament amendments to make permanent the current tax relief for merging superannuation funds, that is due to expire on 1 July 2020. The amendments, contained in the Treasury Laws Amendment (2020 Measures No.1) Bill 2020, implement a commitment made in the 2019-20 Budget. The Productivity Commission recommended making the tax relief permanent in its report
: Superannuation: Assessing Efficiency and Competitiveness.
The House of Representatives has also passed the Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019. This Bill will extend choice of fund to employees under workplace determinations or enterprise agreements made on or after 1 July 2020.
The Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 has also been passed by the House of Representatives. This Bill includes amendments to several aspects of the superannuation and related tax legislation, including in relation to:
- protecting your superannuation, unclaimed superannuation and lost members
- superannuation pensions and rollover of death benefits
- employer reporting of salary sacrificed contributions
- downsizer contributions.
Legislation to implement recommendations from the ASIC Enforcement Review Taskforce Report, introduced into Parliament in late November, has now been passed without amendment and has received Royal Assent. The Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 includes measures to:
- harmonise ASIC’s search warrant powers
- improve ASIC’s ability to access certain telecommunications information to investigate and prosecute serious offences
- strengthen ASIC’s licensing powers
- extend ASIC’s banning powers to ban individuals from managing financial services businesses.
Royal Commission implementation
As outlined in the February issue of Superfunds, Treasury has released exposure draft legislation dealing with implementation of several recommendations made in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This includes draft legislation to support APRA and ASIC to carry out their roles as co-regulators in superannuation. The proposed reforms include expanding ASIC’s role as conduct regulator while retaining APRA’s role as the prudential and member-outcomes regulator in superannuation.
APRA and ASIC have written to superannuation trustees about how regulatory oversight will operate assuming the reforms become law. The letter addresses the following issues:
- the purpose of the reforms
- details of the specific reforms proposed to strengthen ASIC’s role as conduct regulator in superannuation
- what superannuation trustees need to do if the proposed reforms are implemented
- how the reforms will impact the way that ASIC and APRA operate.
Inquiries and reviews
The Senate Economics References Committee has been given an extension of time—until 3 December—to table the report from its inquiry into the causes, extent and effects of unlawful non-payment or underpayment of employees’ remuneration—including superannuation. The Committee has extended the date for submissions to its inquiry from 14 February to 6 March.
The Government has released a discussion paper, Improving protections of employees’ wages and entitlements: further strengthening the civil compliance and enforcement framework, on reform options to help deter wage underpayments and non-compliance.
The Government has indicated it will introduce legislation to criminalise the most serious forms of deliberate worker exploitation and wage underpayments. To complement that work, the Government is also considering options to strengthen the existing civil compliance and enforcement framework in the Fair Work Act 2009, to help deter underpayments and non-compliance that do not meet the threshold of criminal conduct. The Attorney-General’s Department is seeking submissions by 3 April.
The Government is also consulting on possible interventions to streamline access to information about enduring powers of attorney (EPOA) and reduce the uncertainty regarding whether a document, as presented, can be relied upon as the basis for financial transactions.
Financial institutions, including superannuation funds, can have concerns in relation to when an EPOA can be relied upon to make a financial transaction or decision. EPOA are governed under state-based rules and there is no easily accessible, nationally consistent, source of data which organisations can use to determine if an EPOA is current and valid.
The Attorney-General’s Department is seeking submissions on a discussion paper, Enhancing protections relating to the use of Enduring Power of Attorney instruments, by 9 March.
