Issue 975
In this issue:
- Productivity Commission inquiries: initial pitch of ideas
- Delivering Better Financial Outcomes: second tranche outline
- Legacy retirement product conversions: regulations
- Miscellaneous amendment regulations
- Financial services regulatory framework re financial abuse: Committee report
- APRA Super Data Transformation: Phase 2 final response
- Minor amendments to the prudential framework: APRA response
- Reportable situations: findings from ASIC review
Productivity Commission inquiries: initial pitch of ideas
The Productivity Commission has been tasked with a set of inquiries to make Australia more productive and prosperous, across five areas:
No terms of reference have been released at this time. The Commission is seeking pitches of ‘ideas’ by close of business Wednesday 15 January, with a call for detailed submissions to be made in February-March. The final reports are due to be given to the Government in December 2025 for release sometime before the end of the 2025-26 financial year.
Delivering Better Financial Outcomes: second tranche outline
The Government has announced details of the second tranche of the Delivering Better Financial Outcomes reforms – its response to the Quality of Advice Review.
The second tranche will:
- create a new class of adviser to provide safe and simple advice to more Australians, such as choosing an insurance policy or basic questions about retirement
- modernise the best interests duty by providing legal clarity that will allow advice on single or limited scope issues if this meets the client’s needs
- remove the safe harbour steps so advisers can focus on their client’s needs
- reform statements of advice so they help consumers make informed decisions
- clarify the rules on what advice topics can be paid for through superannuation, including through collectively charged arrangements
- allow superannuation funds to provide ‘nudges’ to drive greater member engagement at key life stages.
The new class of adviser will be restricted to providing advice on products issued by prudentiallyregulated entities. They will be prevented from providing advice on more complex topics, such as establishing a selfmanaged superannuation fund or advising on a managed investment scheme, through a blacklist to be prescribed in regulations.
While the Government anticipates some licensees will choose to indirectly charge for advice offerings, licensees will now have the option of charging a direct fee for advice provided by the new class of adviser. The new class of adviser will not be permitted to charge ongoing fees or receive commissions.
The new class of adviser will also be subject to the modernised best interests duty (as for professional financial advisers). Antihawking restrictions will continue to apply, and the new class of adviser will be limited to customerinitiated engagement for new customers (so cannot coldcall customers or offer unsolicited advice).
Licensees will also be subject to additional monitoring and supervision obligations (with civil penalties attached) to ensure the new class of adviser only provides advice within their expertise and authorisation and comply with the best interests duty and other obligations.
The Government is developing exposure draft legislation for public consultation based on these announced parameters.
Legacy retirement product conversions: regulations
The Government has registered the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 to implement a 2021-22 Budget announcement about allowing individuals to exit certain ‘legacy’ retirement income products.
The Regulations apply to legacy lifetime, life expectancy and market-linked superannuation income stream products, which generally commenced prior to 20 September 2007, or commenced as a result of a conversion of an earlier legacy product that commenced prior to that date. The Regulations relax commutation restrictions so that legacy products can be exited with the resulting capital used to commence another retirement phase interest, left in an accumulation interest account, or withdrawn from superannuation entirely. The commutation must occur in full and be completed within a designated 5-year grace period beginning on 7 December (the day the Regulations commenced).
The Regulations also provide more flexible pathways to make allocations from a reserve, by providing that where a reserve supported an income stream that is ceased or commuted, and the reserve is allocated to the former recipient of that income stream, it will be exempt from both contribution caps.
The Government consulted on a draft of the regulations in September-October – see ASFA Action issue 965 for background.
Miscellaneous amendment regulations
The Government has registered the Treasury Laws Amendment (Miscellaneous and Technical Amendments No. 2) Regulations 2024 to make miscellaneous and technical amendments to regulations in the Treasury portfolio, including to laws with respect to corporations, superannuation and taxation.
Of relevance to superannuation, the regulations:
- Make a range of amendments to the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) to reflect recent reforms to rules about auditing and financial reporting of superannuation funds.
- Update requirements in the SIS Regulations about the duty of a superannuation trustee to notify the Regulator of a significant adverse event that occurs before the trustee is required to provide fund information to members.
- Amend the exemptions that apply to the prohibition in section 68A of the Superannuation Industry (Supervision) Act 1993 (SIS Act) on a trustee of a superannuation fund using goods or services to influence employers. The regulations repeal paragraph 13.18A (1)(a) of the SIS Regulations and the related sub-regulation 13.18A(2). Paragraph 13.18A (1)(a) provides an exemption to section 68A and allows the Fund to provide a business loan to an employer on a commercial arm’s length basis and on the condition that the employer be a member of the fund. According to the explanatory statement, this exemption does not align with revisions made to section 68A in 2019.
- Exclude transition to retirement (TTR) income streams from the meaning of ‘trustee-directed product’ (TDP). TDPs, as defined in regulation 9AB.2 of the SIS Regulations, are subject to the annual superannuation performance test run by APRA. A superannuation interest that supports a superannuation income stream in the retirement phase is excluded from the trustee directed product definition, and thus, also excluded from the annual superannuation performance test. The explanatory statement notes that APRA has not included TTR products when conducting the annual superannuation performance test to date. Amending the definition of TDP to exclude TTR products ensures the SIS Regulations are aligned with current practice and reflect the policy intent.
- Repeal a redundant regulation 2.36D from the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations). Regulation 2.36D relates to information about an interest in a fund that must be provided in the context of a family law superannuation split. According to the explanatory statement, the SIS Regulations were amended in 2002 so that regulation 2.36D does not apply to funds that elected to operate under the Corporations Act 2001. As all funds must operate under the Corporations Act, regulation 2.36D is now redundant.
The amendments in points 1 and 2 above were part of a consultation in January-February – the remainder of that consultation package has already been addressed via the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures Act 2024 (see ASFA Action issue 932 for background on these amendments). The amendments in points 3-5 above were part of a consultation process undertaken in September-October (see ASFA Action issue 966 for background).
Financial services regulatory framework re financial abuse: Committee report
As reported in ASFA Action issue 942, the Parliamentary Joint Committee on Corporations and Financial Services has held an inquiry into the financial services regulatory framework in relation to financial abuse.
The Committee has now tabled its report, which makes four recommendations related to superannuation:
- the Superannuation Industry (Supervision) Act 1993 should be amended to provide a mechanism so that a beneficiary who has perpetrated domestic or family abuse, including financial abuse, and domestic violence related suicide, against the superannuation account holder can be declared an invalid beneficiary of the account holder’s superannuation death benefits. [recommendation 10]
- the Government should undertake a review of the COVID-19 early release of super scheme, with a focus on the number of members who may have withdrawn superannuation savings under coercion and the retirement and other impacts on victim-survivors who accessed their superannuation as a result of financial abuse; and consider an appropriate scheme for the repayment of superannuation by individuals whose withdrawals were the direct result of financial abuse, to enable them to restore their superannuation balances. [recommendation 35]
- the Government should consider the implementation of minimum operating standards, with a view to moving to best practice standards through continuous improvement over time, to mitigate the risk of elder abuse in relation to superannuation. [recommendation 36]
- recognising the legitimate choice of Australians to have self-managed superannuation funds, the Government should undertake a review of the intersection between financial abuse and the superannuation system, particularly in relation to self-managed superannuation funds; and ensure that the review is informed by the lived experience of victim-survivors. [recommendation 9]
APRA Super Data Transformation: Phase 2 final response
APRA has issued its final response to a recent consultation phase 2 of its Superannuation Data Transformation project, which focussed on enhancing superannuation data collections covering investments, trustee licensee profile and trustee profile.
The response enhances APRA’s data collections by:
- addressing a key gap in current investment data on liquidity and valuation risk to assess investment governance of, and exposure to, these risks.
- enhancing the reporting on trustee boards for a comprehensive understanding of governance practices and effectiveness of superannuation trustees.
- completing the picture of trustee’s business operations by including product distribution arrangements.
The first reporting period under the new data collection will be 30 June 2025 for annual reporting and September 2025 for quarterly reporting, with the first submissions in respect of all new reporting due December 2025.
APRA undertook consultation on this data collection in November 2023-March 2024 and issued an initial response in September 2024 which confirmed the reporting requirements for investment costs and trustee financial statements (see ASFA Action issue 965).
Minor amendments to the prudential framework: APRA response
As reported in ASFA Action issue 963, earlier this year APRA consulted on proposed minor updates to several prudential standards applicable to ADIs, general and life insurers and registrable superannuation entities (RSEs).
The only standard proposed to be amended that was relevant to RSEs was CPS 511 Remuneration. Changes proposed to CPS 511 were to:
- include statements relating to remuneration requirements under the Financial Accountability Regime
- update references to other standards
- address minor typographical errors.
APRA has now finalised the other aspects of this consultation but has deferred the updates to CPS 511, which will now be finalised in the first half of 2025.
Reportable situations: finding from ASIC’s review and upcoming consultation
ASIC has published findings from a review of the reportable situations (breach reporting) regime following reforms in 2021.
The review covered different sectors, examining licensees who had low or no reportable situations. ASIC notes that the review revealed a number of poor practices among licensees:
- licensees were generally slow to report to ASIC. The key driver of these delays was that licensees took a long time to identify breaches in the first place and begin investigating.
- there were deficiencies in licensees’ incident management, particularly how they identified, escalated and recorded incidents.
- most licensees had gaps in how they monitored their own compliance with the regime.
- the failures to promptly identify breaches meant that licensees were very slow to rectify breaches and remediate customers.
ASIC has highlighted a number of key questions for all licensees, across four key themes:
- Are you identifying incidents and breaches?
- Are you escalating and investigating incidents and breaches comprehensively and in a timely way?
- Do you capture important information about incidents and breaches in a single register?
- Do you have the necessary arrangements in place to monitor compliance with the regime?
ASIC has also noted that ensuring that the objectives of the reportable situations regime are met remains a priority area of work in 2024-25. Commissioner Kate O’Rourke said:
“As part of this, we will consult with stakeholders on options for future granular reporting to provide even deeper insights, ahead of our fourth annual publication of reportable situations data in Q3 2025.
In addition, we will do further work next year to consider how best to ensure ASIC receives the reports that have the most intelligence value to us, while managing the burden on industry from reporting. We will also undertake a range of work on a sector-by-sector basis to monitor and uplift compliance with the regime, and consider enforcement action where necessary.”
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
