Issue 787, 10 December 2020
In this issue:
- Royal Commission implementation
- Superannuation bills
- Portfolio holdings disclosure: further deferral
- Cyber resilience framework
- Proposed digital identity legislation
- COVID-19 Coronavirus: early release of super – APRA data
Royal Commission implementation
Parliament has considered the implementation of the recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. In addition to debate on the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (“No 1 Bill”), a second Bill—the Financial Sector Reform (Hayne Royal Commission Response No 2) Bill 2020 (“No 2 Bill”)—has been introduced.
As reported in ASFA Action issue 783, the No 1 Bill was introduced into Parliament in mid-November. It addresses a number of recommendations from the Royal Commission that are directly or indirectly relevant to superannuation, including:
- enforceable code provisions (recommendation 1.15)
- hawking of financial products (recommendations 3.4 and 4.1)
- claims handling and settling services (recommendation 4.8)
- trustees of registrable superannuation entities to have no other duty (recommendation 3.1)
- adjustment of APRA’s and ASIC’s roles in superannuation (recommendations 3.8, 6.3, 6.4 and 6.5)
- breach reporting and remediation (recommendations 7, 2.8, 2.9 and 7.2)
- removal of barriers to efficient co-operation and information sharing between APRA and ASIC (recommendations 6.9 and 6.11).
These measures were the subject of consultation earlier this year (see ASFA Action issue 735). The measures have a range of proposed commencement dates, with most intended to apply from the later of the day after Royal Assent or 1 January 2021.
The No 1 Bill was passed by the House of Representatives on Wednesday without amendment. It has been introduced into the Senate and is awaiting debate.
The No 2 Bill, introduced on Wednesday, contains several of the remaining measures included in the exposure drafts consulted on earlier this year (see ASFA Action issue 735 for background), however some of the amendments are different to the draft versions.
The No 2 Bill implements the following Royal Commission recommendations:
- ongoing fee arrangements (recommendation 2.1)
The provisions implementing this recommendation are slightly different to the exposure draft. Financial services providers that receive fees under an ongoing fee arrangement will be required to provide clients with a single document each year which outlines the fees that will be charged and the services the client will be entitled to in the following 12 months. Written consent will be required to be obtained before fees under an ongoing fee arrangement can be deducted from a client’s account.
- no deducting advice fees from MySuper accounts (recommendation 3.2)
This measure differs from the exposure draft by prohibiting a superannuation trustee from charging a fee under an ongoing fee arrangement (fee for personal advice paid for a period over 12 months) to a MySuper product.
- limitations on deducting advice fees from choice accounts (recommendation 3.3)
This measure largely replicates the exposure draft. Superannuation trustees can only charge advice fees to a member if the fee is in accordance with an arrangement that the member entered into, the member has consented in writing to being charged the fee, and the trustee has a copy of the written consent. These conditions will also apply to fees deducted under recommendation 3.2.
The No 2 Bill also includes amendment to implement recommendation 2.2, in relation to disclosure of lack of independence.
The No 2 Bill is proposed to commence from 1 July 2021. A 12-month transitional period for arrangements entered into before 1 July 2021 is proposed to apply for arrangements that fall under recommendations 3.2 and 3.3.
In addition, the Government has announced that it will “further strengthen oversight of financial advisers while at the same time simplifying the regulatory framework governing the provision of financial advice, helping to reduce complexity and cost for advisers”. In particular, the Government will give effect to the Royal Commission’s recommendation 2.10—establishment of a single, central disciplinary body for financial advisers—by expanding the operation of the Financial Services and Credit Panel (FSCP) within ASIC.
According to the Government:
“The FSCP currently supports ASIC in the exercise of its regulatory functions with respect to the making of banning orders against individuals for misconduct.
Expanding the role of the FSCP will leverage its extensive expertise and existing governance structures, avoiding the need to establish a new body to perform this role.
Consolidating this new function within ASIC will also avoid regulatory overlap and minimise the possibility of multiple investigations by multiple agencies into the same conduct related to the provision of financial advice.
The Government will also move the standard-making functions of the Financial Adviser Standards and Ethics Authority (FASEA) to Treasury, with the standards to be set by legislative instrument. Remaining elements of FASEA’s role, including administering the adviser examination, will be incorporated into the FSCP’s expanded mandate.
These reforms will further streamline the number of bodies involved in the oversight of financial advisers, resulting in FASEA being wound up.”
The Government will introduce legislation to implement these changes in the first half of next year.
The House of Representatives also debated the Corporations (Fees) Amendment (Hayne Royal Commission Response) Bill 2020, which was introduced at the same time as the No 1 Bill. This Bill, which is not relevant to superannuation, was passed without amendment. It has been introduced into the Senate and awaits debate.
Superannuation bills
In addition to the two Royal Commission Bills noted above, there were developments for two other superannuation-related bills,
Miscellaneous tax and superannuation amendments bill
The Treasury Laws Amendment (2020 Measures No 6) Bill 2020 has been passed by the House of Representatives without amendment. It has now been introduced into the Senate and is awaiting debate. This Bill contains a number of measures relevant to superannuation, including in relation to:
- the MySuper charging rules in relation to lifecycle products
- the impacts of a successor fund transfer (SFT) on elections regarding the provision of insurance and the no-TFN contributions tax offset
- the circumstances in which an account will be an ‘inactive low balance account’
- the non-arm’s length income rules for complying superannuation entities
- deductibility of temporary disability benefits on-paid to a person by a superannuation fund
- the operation of amendments to enable Western Australian de facto couples to access the superannuation splitting rules
- the meaning of ‘excluded salary or wages’ for Superannuation Guarantee purposes.
See ASFA Action issue 786 for background on this Bill.
Payment of ATO-held super amounts to KiwiSaver schemes
The Treasury Laws Amendment (2020 Measures No 5) Bill 2020 has been passed by the House of Representatives without amendment. It has now been introduced into the Senate and is awaiting debate. This Bill will allow ATO-held superannuation amounts to be transferred directly into an individual’s KiwiSaver account. See ASFA Action issue 783 for background on this Bill.
Portfolio holdings disclosure: further deferral
ASIC has deferred the first reporting date for superannuation funds under the portfolio holdings disclosure (PHD) regime until 31 December 2021.
The PHD regime was introduced into the Corporations Act 2001 in 2012 as part of the Stronger Super reforms. The regime will require most superannuation trustees to publish investment holdings information on their websites within 90 days of each ‘reporting day’ (being 30 June or 31 December each year), however regulations setting the form and detailed content of the PHD reporting have never been finalised.
In the absence of this detail, ASIC issued Class Order [CO 14/443] in 2014 to effectively defer the regime prior to its intended commencement date. ASIC has continued to extend that deferral via a series of amending instruments, the most recent of which specified 31 December 2020 as the first reporting day for the regime (see ASFA Action issue 725).
ASIC has now registered the ASIC Corporations (Amendment and Repeal) Instrument 2020/921 to defer the first reporting date under the PHD regime for a further 12 months, until 31 December 2021.
ASIC notes that—depending on when regulations are made—it may shorten the period of the relief by a further legislative instrument. In doing so, ASIC will take into account the fact that will need an appropriate transition time to implement the regime.
ASIC’s intention to defer the first PHD reporting date was flagged in April, as part of announcements about the impact of the COVID-19 pandemic on its regulatory activities (see ASFA Action issue 749).
Instrument 2020/921 also repeals a number of paragraphs and definitions in [CO 14/443], and also a separate class order [CO 12/416], as these have become redundant.
Cyber resilience framework
The Council of Financial Regulators (CFR) has released a Cyber Operational Resilience Intelligence-led Exercises (CORIE) framework to test and demonstrate the cyber maturity and resilience of institutions within the Australian financial services industry.
According to the CFR, the CORIE framework has been developed to aid preparation and execution of industry-wide cyber resilience exercises.
A key objective of the framework is to provide data and reporting to inform relevant Australian regulators of systemic weaknesses that may present a risk to the integrity and stability of Australian financial markets. The framework also aims to identify actions to uplift the cyber resilience of financial institutions.
Proposed digital identity legislation
The Digital Transformation Agency (DTA) is seeking the public’s views on proposed legislation that will support an expanded digital identity system in Australia.
Since 2015, the Australian Government has been developing a digital identity system with the purpose of providing individuals with a simple, safe and secure way to verify their identity online.
According to a background paper released by the DTA, the proposed legislation is intended to “establish permanent oversight and governance structures for the system, as well as enshrine in law a range of privacy and consumer protections, enabling the Digital Identity system to be used confidently across federal, state and territory governments as well as the private sector”.
Submissions on the proposed legislation can be made to the DTA until 18 December.
COVID-19 Coronavirus: early release of super – APRA data
APRA has made its thirty-second weekly publication of industry-level data from its early release initiative data collection.
The data covers applications made from inception of the early release initiative on 20 April. The data shows that from 20 April to 29 November:
- payments totalling $35.5 billion had been made, with an average payment of $7,649
- 3.4 million ‘initial’ applications had been received, with an average application amount of $7,400
- 1.4 million ‘repeat’ applications had been received, with an average application amount of $8,305
- funds were taking an average of 3.3 business days to pay an application, with 95 per cent of applications paid within five business days.
APRA has also published the thirty-first tranche of fund-level statistics from its early release data collection, revealing the number and value of the payments processed by each fund, as well as the time taken to make payments.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
