ASFA Action 26 November 2024

Issue 974

In this issue:

Scams prevention: Bill referred to Senate Committee

The Scams Prevention Framework Bill 2024 has been referred to the Senate Economics Legislation Committee for inquiry and report by 30 January.

As reported in ASFA Action issue 972, the Bill creates the Scams Prevention Framework (SPF) for preventing and responding to scams impacting the Australian community. The Framework will initially apply to telecommunications, banking and certain digital platform services however the Government has noted that it could be extended to superannuation in the future.

If you have any feedback you would like ASFA to consider in relation to the Bill, please forward it to Sebastian Reinehr by close of business Friday 13 December.

Update on other Bills: cyber, security of critical infrastructure

The Cyber Security Bill 2024, the Intelligence Services and Other Legislation Amendment (Cyber Security) Bill 2024 and the Security of Critical Infrastructure and Other Legislation Amendment (Enhanced Response and Prevention) Bill 2024 have completed their passage through Parliament and are now awaiting Royal Assent. The Bills were passed by the House of Representatives with several amendments moved by the Government, then passed by the Senate without further amendment. See ASFA Action issue 968 for background on these Bills.

Improving the retirement phase of superannuation

As reported in ASFA Action issue 973, the Government has announced a number of proposed reforms to the retirement phase of superannuation, covering:

enhanced, independent consumer guidance – from the first half of 2025

changes to income stream regulations to better support innovation in retirement products – from 1 July 2026, after consultation.

new, voluntary best practice principles around retirement product design – consultation to begin in 2025

a new retirement outcomes reporting framework to improve transparency for consumers, from 2027,after consultation.

Treasury subsequently published a factsheet providing some additional detail on the proposals.

Climate-related financial disclosure: Australian sustainability standard registered

As reported in ASFA Action issue 967, the Australian Accounting Standards Board (AASB) recently finalised AASB S2 Climate-related Disclosures. This follows the recent passage of legislation prescribing mandatory sustainability reporting for large Australian businesses and financial institutions – including large registrable superannuation entities (RSEs). 

The reporting requirements will be phased in from 1 January 2025, with RSEs required to prepare sustainability reports for annual reporting periods commencing from 1 July 2026 or 2027 depending on their size.

The AASB has now registered AASB S2 as a legislative instrument.

In addition to finalising AASB S2, the AASB finalised a voluntary standard, AASB S1 General Requirements for Disclosure of Sustainability-related Financial Information – see ASFA Action issue 967 for background.

Delivering Better Financial Outcomes: new and updated ASIC guidance

ASIC has issued a package of new and updated existing regulatory guidance in response to reforms under the Treasury Laws Amendments (Delivering Better Financial Outcomes and Other Measures) Act 2024 (DBFO Act). The DBFO Act, which received Royal Assent in July, implements tranche 1 of the Government’s DBFO reforms – its response to the Quality of Advice Review.

The new guidance comprises four new information sheets:

INFO 286 FAQs: Ongoing fee arrangements and consents, which answers frequently asked questions (FAQs) for financial advisers who must get a client’s written consent to enter into or renew an ongoing fee arrangement

INFO 287 FAQs: Non-ongoing fee requests or consents, which answers FAQs for financial advisers who must get a client’s written request or consent to charge non-ongoing fees to client superannuation accounts

INFO 291 FAQs: FSGs and website disclosure information, which answers FAQs about obligations relating to Financial Services Guides (FSGs) and website disclosure information

INFO 292 FAQs: Informed consents for insurance commissions, which answers FAQs about the obligation to obtain informed consent before receiving certain insurance commissions to avoid them being conflicted remuneration.

ASIC has also updated:

Regulatory Guide RG 246 Conflicted and other banned remuneration, in response to amendments to the conflicted remuneration requirements under the DBFO Act

Regulatory Guide RG 175 AFS Licensing: Financial product advisers–Conduct and disclosure, to remove the FSG guidance in former Section C as its guidance had been replaced by INFO 291.

ASIC has also made consequential amendments to Regulatory Guide RG 126 Compensation and insurance arrangements for AFS licensees and five information sheets:

INFO 141 Dealing and providing custodial or depository service as secondary service

INFO 228 Limited AFS licensees: Advice conduct and disclosure obligations

INFO 266 FAQs: Records of Advice (ROAs)

INFO 267 Tips for giving limited advice

INFO 274 Tips for giving self-managed superannuation fund advice

ASIC has a dedicated webpage providing more information about the DBFO Act reforms and ASIC’s response.

ASIC regulatory guides to be updated in 2025

ASIC has indicated it will consult during 2025 on updates to a number of existing regulatory guides (RGs), taking into account law reform, insights from case law about the provisions and other relevant issues. These include:

RG 53 The use of past performance in promotional material

RG 168 Disclosure: Product Disclosure Statements (and other disclosure obligations)

RG 181 Licensing: Managing conflicts of interest

RG 183 Approval of financial services codes of conduct

RG 234 Advertising financial products and services (including credit): Good practice guidance.

Further details about ASIC’s upcoming releases and timing can be found in its Regulatory Developments Timetable.

Regulators’ remarks to ASFA conference: ASIC, APRA and the ATO

On 20 November, senior representatives from ASIC, APRA and the ATO addressed the ASFA 2024 Conference.

Key points from ASIC Commissioner Simone Constant’s remarks included:

Driving better retirement outcomes and member services is a strategic priority. These are inextricably linked – you cannot have good retirement outcomes without good member services. Providing good member services can come down to being transparent, being accountable, and meeting the fair expectations of your members consistently. Ensuring accountability of superannuation trustees will be a significant focus over the next year.

Death benefits – ASIC has significant concerns about the way some trustees are tracking processing times for death benefit claims and managing their processes. ASIC will publish a full report on its surveillance on death benefit claims handling early next year, but some gaps need action now. In particular, ASIC is concerned that metrics are tracked too sparsely overall to drive accountability for these important outcomes; also, the metrics trustees are using to track death benefit claims do not capture this process end-to-end, and do not reflect the real experiences of people dealing with loss. Circumstances may mean metrics and measurement are even more important when third parties undertake operations on a fund’s behalf.

Senior executives will become accountable persons under the Financial Accountability Regime from next March – an important step in helping ensure there is top-down accountability in superannuation funds. FAR accountability cannot be outsourced so those who accept accountabilities should make sure they have the tools of responsibility (including the necessary information) to meet them.

Private markets and best financial interest duty – ASIC and APRA share regulatory responsibility for private assets in superannuation and have an ongoing dialogue about valuations of funds’ unlisted assets. It is not for ASIC to lead the discussion on investment allocation, but it is for ASIC to expect that as their exposure to private markets grows, funds stay focused on their obligations to members and to the market as such significant participants in that market. That includes ensuring that they are acting in the best financial interests of members, that they adhere to all laws and standards of market conduct and integrity, that their investments, whether held directly or through fund managers, are valued appropriately, and that risk is clearly disclosed and communicated to members.

ASIC will shortly embark on a financial reporting and audit surveillance of superannuation funds, as 2023-24 was the first financial year for which funds’ financial reports were lodged with ASIC.

APRA Executive Director Carmen Beverley-Smith’s remarks included:

The way funds are run, how investment and expenditure are governed, how liquidity is managed, how funds perform, and how well members’ needs are understood and met – these all have an impact on the financial outcomes of members in retirement, but APRA continues to see significant room for improvement across many of these areas.

APRA’s priorities for superannuation, as set out in our 2024-25 Corporate Plan, aim to address gaps and weaknesses across superannuation funds’ operations, risk management frameworks and compliance with the best financial interests duty to members.

For the first time, APRA will conduct a financial system-wide stress test in 2025 with participation by banks and large superannuation funds that have significant holdings in bank debt and equity instruments and in bank deposits. The design of the system test is yet to be finalised, but unlike the bank and insurance industry stress tests APRA normally conducts, it will be less about the individual outcomes for participating entities and more about exploring the potential risks that might arise across the system in times of stress. Superannuation will feature in the stress test because APRA wants to better understand the potential impact of a super industry under stress in a system-wide shock scenario, including the sources of risk that might emerge and transmit across the financial system.

APRA will continue to drive improvements in operational resilience at a fund level, noting CPS 230 comes into force on 1 July 2025. Operational resilience frameworks and practices have been relatively under-developed in super in the past. The potential risks of cyber and fraud incidents, technology disruptions, and failures by third party providers are very real. It is also a reality that should a fund outsource a critical operation, and the service provider fails in their delivery of the service to your members, the fund will be accountable.

APRA is keenly focused on trustees’ approach to investment governance and how trustees are meeting the updated requirements that came into effect in January 2023. A survey conducted last November identified continuing issues with unlisted asset valuations. APRA is finalising a deep dive review of asset valuation and liquidity management practices for a cross section of large and mid-size trustees with material exposure to unlisted assets and expects to share those findings soon.

APRA’s intensified scrutiny of fund expenditure will initially focus on discretionary spending categories (such as travel, entertainment and conferences), relative and absolute size outliers, including consideration of impact to members, and particular types of payees and payments. Where an expenditure is reviewed, APRA will seek information that demonstrates the expense was made in the best financial interests of members, and that the fund is continuing to monitor that the expenditure is delivering benefits for members. Funds will need to identify what those member benefits are and evolve the necessary metrics to assess the outcomes for members.

All members are entitled to rely upon their superannuation trustee for assistance as they plan for a sound financial future. The Australian community is not yet sufficiently well-supported in this regard. This is critically important given the significant increase in the number of members expected to enter the retirement phase over the next decade. The joint APRA-ASIC thematic review published last year identified a lack of urgency by trustees to meet their obligations under the Retirement Income Covenant to implement strategies to support members as they transition to the retirement phase. The pulse check survey published in July this year showed progress, but not in the key area of tracking and measuring the success of strategies to improve retirement outcomes for members. APRA and ASIC will continue to push trustees to improve the support they provide to members in or approaching retirement.

ATO Deputy Commissioner Emma Rosenzweig’s remarks focused on preparing for Payday Super, and included:

While Treasury is still working on the significant legislative changes required for Payday Super, the ATO and the super industry can do a lot now to prepare for the changes that are coming.

The changes that Payday Super will require from super funds include:

- only having 3 business days to return payments to an employer that you cannot allocate to a member’s account

- SuperStream contribution error messaging will be improved to help employers understand why a contribution could not be allocated

- SuperStream will also be updated to support faster payments through the new payment platform, in anticipation of the retirement of the Bulk Electronic Clearing payment system (BECs)

- there will be enhancements to the Fund Validation Service to deal with some current irritants and support faster payments and better data through the system.

To prepare, funds can be ensuring they have good governance and assurance over their ATO reporting processes and start reviewing the business processes that will be challenged by Payday Super, especially error handling. Many manual processes will no longer be viable.

Clearing houses and gateway or payment service providers will also need to update their systems and processes to handle the volume and speed of Payday Super, including the need to resolve errors quickly to ensure employers can meet their obligation to get contributions to funds within 7 days of payday.

Employers are ultimately the ones who bear the obligation to make the right superannuation payments to funds on time, and they should have good governance over their payroll data and reporting.

The ATO recently established the Payday Super special purpose working group (of which ASFA is a member), to provide overarching advice on the end-to-end administrative solution and implementation. Several technical working groups are also being established to focus on more detailed aspects.

AFCA: updated process on dealing with further issues

The Australian Financial Complaints Authority (AFCA) has updated its processes to provide clearer guidance on dealing with further issues raised during the complaint process.

This update responds specifically to a recommendation from the independent review of AFCA undertaken in 2021, which called for clearer guidance on when further issues identified during the complaint process would revert to financial firms for consideration through internal dispute resolution. 

The update clarifies when AFCA will combine further issues with an existing complaint or where it should be the subject of a new complaint. The update also outlines when AFCA may introduce issues not specifically raised by a party.

AFCA: systemic issues insights

AFCA’s latest systemic issues insights report notes that there were five systemic issues in relation to superannuation identified and confirmed for the third and fourth quarters of the 2023-24 financial year.

These involved:

a system error relating to a fund’s self-investment platform that incorrectly allowed shares to be traded, causing consumer loss

failures to comply with the Protecting Your Super measures in relation to insurance – in particular, failure to notify members that insurance would be cancelled and failure to correctly cancel insurance.

Phasing out of cheques

The Government has released the Cheques Transition Plan, to ensure the phase out of cheques in an orderly and planned way, as part of reforms to modernise Australia’s payments system.

The Plan provides:

an overview of the consultation process

reasons underpinning the transition

a 2step timeline for ceasing issuance of cheques by 30 June 2028 and ceasing acceptance of cheques on 30 September 2029

the Government’s expectation for the financial services industry to establish an industry coordination program.

The Plan was developed through the Winding down Australia’s cheques system consultation process that concluded earlier this year and provides consumers and businesses with certainty on the key milestone dates. It forms part of the Government’s Strategic Plan for Australia’s Payments System, released in June 2023.

The Plan notes that the Commonwealth will work with state governments to reduce government cheque use ahead of the target end dates and will work towards removing legislative and regulatory barriers entrenching the use of cheques. The Commonwealth will also develop legislative amendments to meet the cheques transition timing and seek to upgrade payments systems and internal processes to reduce cheque usage.

Digital ID legislative instruments

The Government has registered a package of legislative instruments to support the Digital ID Act 2024 and the Digital ID (Transitional and Consequential Provisions) Act 2024.

Those Acts received Royal Assent in late May. These Acts strengthen and expand the Australian Government’s Digital ID System (the AGDIS) by putting in place the legislative framework to create an economy-wide Digital ID system in Australia, including an Accreditation Scheme for Digital ID service providers. The Acts will also enable the expansion of the AGDIS initially to states and territories and, in time, to private sector organisations. The Acts received Royal Assent in late May (see ASFA Action issue 949) and are due to commence by 1 December.

The six legislative instruments now registered by the Government support the operation of the Acts and also make provision for the expansion of the AGDIS to entities outside the Commonwealth so the Minister can ensure the AGDIS continues to operate safely and securely as new kinds of entities begin to participate. The package comprises the following instruments:

Digital ID Rules 2024

Digital ID (Accreditation) Data Standards 2024

Digital ID (Accreditation) Rules 2024

Digital ID (Transitional and Consequential Provisions) Rules 2024

Digital ID (Phasing-in of Participation in the Australian Government Digital ID System) Determination 2024

Digital ID (AGDIS) Data Standards 2024.

The Government is currently indicating that private sector organisations will be able to apply to join the AGDIS by December 2026.

ASFA REGULATORY WATCHLIST

ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.