ASFA Action 14 December 2020

Issue 788, 14 December 2020 

In this issue: 

• Royal Commission implementation 

• Superannuation bills 

• APRA reporting: new version of Direct to APRA (D2A) 

• Value of default insurance: ASIC report 

• Design and distribution obligations: ASIC regulatory guide 

• Conflicted remuneration: updated ASIC guidance 

• COVID-19 Coronavirus: early release of super – APRA data 

 

Royal Commission implementation 

A bill to implement the Government’s response to several recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has now been passed by Parliament, with one significant amendment. 

As reported in ASFA Action issue 787, the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 addresses a number of Royal Commission recommendations 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 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). 

The measures have a range of proposed commencement dates, with most intended to apply from the later of the day after Royal Assent and 1 January 2021. 

One aspect of the measures extending the Australian Financial Services Licensing (AFSL) regime to cover the provision of a superannuation trustee service involves an amendment to the indemnification rules in the Superannuation Industry (Supervision) Act 1993 (SIS Act). These currently prevent a superannuation trustee or director from using trust assets to pay a penalty they incurred for liabilities arising from breach of trust in certain circumstances or the contravention of certain provisions and types of provisions under the SIS Act. 

The Bill includes an amendment that will expand this prohibition, to prevent superannuation trustees and directors from using trust assets to pay criminal, civil or administrative penalties incurred in relation to a contravention of any Commonwealth law. An amendment was made in the Senate, and later accepted by the House of Representatives, to defer the commencement of this measure. Under the Bill as passed, the expanded indemnity prohibition will apply in relation to liabilities imposed, or amounts payable under infringement notices given, on or after 1 January 2022 (rather than 1 January 2021). 

On Friday, the Government registered regulations to support some of the amendments made by the Bill: Financial Sector Reform (Hayne Royal Commission Response) (Regulation of Superannuation) Regulations 2020 (FSR Regulations). Reforms included in the Bill adjust the roles and responsibilities of superannuation industry regulators. In particular, they expand the role of ASIC to include the promotion of consumer protection and market integrity in the superannuation industry and extend the AFSL regime to cover a broader range of activities undertaken by superannuation trustees. 

The FSR Regulations: 

• repeal the current exemption for trustees of non-public offer superannuation funds from the requirement to hold an AFSL to deal in financial products (including superannuation interests). This is intended to ensure the regulation of superannuation entities by ASIC on a consistent basis and reflects that members of non-public offer funds should have the same degree of protection as members of other funds. 

These amendments are intended to commence on 1 July 2021 (assuming the Bill receives Royal Assent before 1 January). The explanatory material notes that trustees of non-public offer funds are advised to lodge their AFSL applications with ASIC on or before 30 April. 

• extend several existing, conditional exemptions for pooled superannuation trusts, so they also cover the new financial service introduced by the Bill — providing a superannuation trustee service. These amendments are intended to commence on 1 January 2021 (assuming the Bill receives Royal Assent before that date). 

As reported in ASFA Action issue 787, the Government also last Wednesday introduced into Parliament the Financial Sector Reform (Hayne Royal Commission Response No 2) Bill 2020. This Bill contains measures to implement the Government’s response to several of the Royal Commission recommendations in relation to advice. This Bill was not debated prior to Parliament rising for its Summer break. 

 

 

Superannuation bills 

Parliament concluded its sittings for 2020 on 10 December and will not sit again until 2 February. 

In addition to the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 noted above, Parliament passed two further superannuation-related bills on its last sitting day for the year, without amendment: 

• Treasury Laws Amendment (2020 Measures No 6) Bill 2020 – this miscellaneous amendment Bill includes a number of measures relevant to superannuation (see ASFA Action issue 786 for background) 

• Treasury Laws Amendment (2020 Measures No 5) Bill 2020 – 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). 

The status of other superannuation-related bills, when Parliament rose, was as follows: 

• Treasury Laws Amendment (2020 Measures No 4) Bill 2020 – this Bill includes amendments to facilitate the cessation of the Superannuation Complaints Tribunal (SCT) by 31 December. This Bill remains before the House of Representatives (see ASFA Action issues 786 and 728 for background) 

• Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 – this Bill includes an amendment extending the bring forward arrangements for non-concessional contributions to individuals under age 67, as announced in the April 2019 Budget. The Bill was passed by the House of Representatives in August without amendment, but is still awaiting consideration by the Senate, where the One Nation Party has indicated it intends to move a number of amendments (see ASFA Action issues 773, 760 and 755 for background) 

• Treasury Laws Amendment (Self Managed Superannuation Funds) Bill 2020 – this Bill will increase the number of members permitted in a self-managed superannuation fund. The Bill remains before the Senate and has not yet been debated by either House of Parliament (see ASFA Action issue 774 for background) 

• Financial Sector Reform (Hayne Royal Commission Response No 2) Bill 2020 – this Bill contains measures to implement the Government’s response to several of the Royal Commission recommendations in relation to advice. This Bill has been introduced into the House of Representatives but not yet debated (see ASFA Action issue 787 for background) 

• Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 – this Bill will facilitate the exit of eligible rollover funds (ERFs) from the superannuation industry. The Bill was passed by the House of Representatives in early February and is awaiting consideration by the Senate, where the One Nation Party has indicated it intends to move a number of amendments. The Government announced deferred commencement dates for the measures in this Bill in its July Economic and Fiscal Update and its October Budget (see ASFA Action issues 778, 766 and 736 for background). 

 

 

APRA reporting: new version of Direct to APRA (D2A) 

APRA has written to all its reporting entities regarding the release of an updated version of its D2A data submission system. 

The letter notes that version 6 of D2A contains important security updates and performance enhancements and must be downloaded and installed by reporting entities by 31 March. 

 

 

Value of default insurance: ASIC report 

ASIC has released a report on measuring the value for money that Australians receive from default insurance provided by their superannuation funds. 

Report 675 Default insurance in superannuation: Member value for money (REP 675) explores metrics that can help superannuation trustees analyse the value for money of default insurance and deliver better outcomes for members. 

In producing REP 675, ASIC considered publicly available data on default insurance offered by 20 large MySuper products. ASIC also used its compulsory information gathering powers to obtain more granular data from a sample of 11 mostly large superannuation trustees for a six-year period (FY 2013-14 to FY 201819). 

According to ASIC’s analysis of the claims data from the larger superannuation trustees, insurers estimated that superannuation members with default insurance, as a whole, will be paid up to 79 cents in claims for each dollar of insurance premiums they were charged over the six year period to FY 2018-19. 

ASIC Commissioner Danielle Press said, the findings in REP 675 “will help trustees take meaningful steps to enhance member outcomes and to meet their existing and new regulatory obligations. These include the member outcomes assessments overseen by APRA and the design and distribution obligations (DDO) overseen by ASIC, which commence in October 2021”. 

REP 675 compares some measures of value for money, with a focus on outcomes for members, across superannuation trustees and for distinct member cohorts. ASIC notes that each of the measures of value for money has its own strengths and weaknesses, and trustees will need to consider a range of indicators to measure value for members. 

 

 

Design and distribution obligations: ASIC regulatory guide 

ASIC has released new regulatory guidance on the product design and distribution obligations (DDO) regime. 

The DDO regime requires firms to design financial products to meet the needs of consumers, and to distribute their products in a more targeted manner. The regime commences on 5 October 2021. 

New Regulatory Guide RG 274 Product design and distribution obligations sets out: 

• the financial products to which the DDO regime applies 

• ASIC’s interpretation of the obligations 

• ASIC’s administration of the obligations. 

The guide was subject to consultation from late December to March this year. See ASFA Action issues 757, 754, 732, 731, 704 and 686 for background on the DDO regime. 

 

 

Conflicted remuneration: updated ASIC guidance 

ASIC has released technical updates to its Regulatory Guide 246 Conflicted and other banned remuneration to reflect recent changes to the law. 

The updates reflect the end of the grandfathering of conflicted remuneration for financial product advice from 1 January 2021. Product issuers are required to provide rebates to clients for all previously grandfathered benefits that they remain legally obliged to pay on or after 1 January 2021. 

ASIC has indicated it will continue to monitor industry’s arrangements in relation to the ban on conflicted and other banned remuneration and will consider taking action where it finds misconduct. 

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry recommended that the grandfathering of conflicted remuneration end as soon as is reasonably practicable (recommendation 2.4). The Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 commenced on 28 October 2019 and amended the Corporations Act 2001 to ban the grandfathering of conflicted remuneration paid to financial advisers from 1 January 2021. The legislation also established a framework for rebating previously grandfathered benefits to affected clients. (See ASFA Action issues 729, 723 and 719 for background.) 

 

 

COVID-19 Coronavirus: early release of super – APRA data 

APRA has made its thirty-third 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 6 December: 

• payments totalling $35.6 billion had been made, with an average payment of $7,647 

• 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 $8,298 

• 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-second 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.