ASFA Action Issue 969
In this issue:
- Applications for relief and no-action letters: ASIC consultation
- Fund-level expenditure: APRA intensified supervision
- Operational risk financial requirement: APRA finalises SPS 114
- Material service provider register: APRA issues template for CPS 230
Applications for relief and no-action letters: ASIC consultation
ASIC is seeking industry feedback on proposed updates to Regulatory Guide RG 51 Applications for relief and Regulatory Guide RG 108 No-action letters.
The updates are intended to reflect ASIC’s current regulatory approaches to both applications for relief and no-action letters, to incorporate relevant additional guidance and amend outdated references. ASIC is not proposing to make significant changes to the factors that it considers when assessing applications.
Proposed updates to RG 51:
- consolidate separate guidance on how ASIC charges fees for applications
- combine relevant guidance on procedural fairness and rights of review
- revise content on what to include when making an application
- amend the description of ASIC’s approach to applications, in light of recent judicial decisions.
Proposed updates to RG 108:
- simplify the existing guidance on ‘what is a no-action letter’ and ‘why ASIC gives no-action letters’
- make minor changes to the factors that make it more likely ASIC will give a no-action letter
- consolidate guidance on no-action requests and class no-action requests to avoid repetition
- introduce content to highlight the absence of review rights and need to lodge an application through the ASIC Regulatory Portal and pay an application fee.
ASIC is seeking submissions by 5pm Monday 18 November.
Fund-level expenditure: APRA intensified supervision
APRA has written to all registrable superannuation entity (RSE) licensees outlining its approach for intensifying supervision of fund-level expenditure.
The letter notes that despite obligations on RSE Licensees to consider the best financial interests of their members and consistently to promote those interests, APRA has observed deficient practices and questionable expenditure in some areas. As a result, APRA will intensify its scrutiny of fund-level expenditure to hold RSE Licensees accountable to improve practices, reduce spending that is deemed to not be in members’ best financial interests and promote the financial interests of their members.
The letter provides RSE licensees with clarity about APRA’s planned activity in this area over the next 12 months, in accordance with APRA’s recently released Corporate Plan (see ASFA Action issue 962).
Across all RSE Licensees, APRA will prioritise supervisory attention on fund expenditure where member benefit is not immediately evident or may not be reasonably justified.
APRA will take a targeted approach, partly informed by SRF 332.0 Expenses data and will initially focus its supervisory efforts on the following:
- discretionary expenditure categories such as travel, entertainment and conferences
- relative and absolute size outliers, including consideration of impact to members
- particular types of payees and payments where benefit to members is not immediately apparent.
APRA’s focus on expenditure as part of the ongoing suite of supervision priorities does not mean that all reported expenditure items will be reviewed. APRA’s intent is to focus on those items of expenditure where there is potential to improve practices and outcomes across the industry. APRA’s attention will also be informed by market intelligence and matters of public interest.
APRA notes it is committed to publishing an increasing amount of data to improve transparency across the superannuation industry and on 30 October will publish the expenditure data for financial year 2022-23 on both a fund-level and aggregate basis. APRA will publish annual expenditure data on an ongoing basis and anticipates publishing financial year 2023-24 data in early 2025.
Operational risk financial requirement: APRA finalises SPS 114
APRA has registered the Superannuation (prudential standard) determination No 6 of 2024.
This instrument revokes the current version of SPS 114 Operational risk financial requirement and determines an updated version that will take effect from 1 July 2025 – the same date that CPS 230 Operational risk management commences.
The amendments to the prudential requirements in SPS 114 are aimed at ensuring that RSE licensees maintain an appropriate level of funding to address operational risks, that they are better positioned to use the financial resources to meet the operational risk financial requirement (ORFR) when needed, and that they can manage the impact of disruption and smooth operational risk related losses fairly over time and across different cohorts of beneficiaries.
According to the explanatory statement, the amendments include:
- a new an overarching requirement for an RSE licensee to maintain, manage and utilise financial resources to protect beneficiaries from losses due to operational risks that relate to the RSEs within its business operations
- minor changes to requirements for the ORFR strategy so it is expressed more broadly, rather than being primarily focussed on the ORFR target amount. Objectives for the ORFR strategy are no longer required to be identified as they are inherently included in the requirements for SPS 114
- minor changes have been made to the factors to be considered when determining the ORFR target amount and tolerance limit, including the addition of the RSE licensee’s operational risk profile and risk assessments
- changes to requirements around the use of ORFR financial resources to permit their broader use to prevent operational risk, in addition to the existing permitted uses for events that have materialised. In addition, the use of the financial resources now includes a direct link to operational risks as set out in CPS 230
- changes to the notification requirement prior to an RSE licensee making a material change to the ORFR target amount to simplify the notification requirements to APRA. An RSE licensee is no longer required to notify APRA where the financial resources have fallen below the tolerance limit or where a need is identified for the use of a material amount of the ORFR financial resources
- refinements to add clarity to aspects of the standard
The registration of the updated standard follows two rounds of consultation by APRA, in 2022-2023 and then more recently February-May this year (see ASFA Action issue 934 for background).
Material service provider register: APRA issues template for CPS 230
APRA has released a material service provider (MSP) register template to assist regulated entities – including superannuation entities – with their compliance with CPS 230 Operational risk management.
APRA finalised CPS 230 in July 2023 and the accompanying guidance CPG 230 in June this year (see ASFA Action issues 962, 951 and 907 for background). CPS 230 will commence on 1 July 2025, although there are some transition arrangements under which:
- pre-existing service provider contracts will be required to be brought into compliance by the earlier of the next renewal date or 1 July 2026
- entities that are not significant financial institutions have a 12 month extension on requirements relating to business continuity and scenario analysis.
One of the requirements of CPS 230 is that regulated entities provide a register of their MSPs to APRA annually. APRA requests that the first MSP register is submitted by 1 October 2025. When releasing the final version of CPG 230, APRA flagged that it would release a template for the MSP register.
APRA has now released its MSP template to assist entities in demonstrating the linkages between their critical operations and the MSPs they rely upon. The use of the template is APRA’s preferred method for regulated entities to submit their registers to APRA for meeting the register requirement in CPS 230.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.