Issue 833, 16 November 2021
In this issue:
- Review of Privacy Act: consultation
- Portfolio holdings disclosure: regulations
- Insurance in superannuation: final APRA prudential requirements
- Use of derivatives by superannuation funds: CFR to consider
- YFYS performance test: APRA comments on fund member behaviour
- ASIC industry funding: estimated levies and adviser levy reduction
Review of Privacy Act: consultation
The Government is consulting on reforms to the Privacy Act 1988, aimed at better empowering consumers, protecting their data and supporting the Australian economy.
The Attorney-General’s Department has released a discussion paper proposing extensive and wide-ranging reforms to the Privacy Act, including:
- expansion of the definition of ‘personal information’
- providing for greater regulatory flexibility in relation to the Australian Privacy Principles
- amendments to the requirements for privacy collection notices
- amendments to the concept of ‘consent’ and introduction of additional protections for collection, use and disclosure of personal information
- increased protections for children and vulnerable individuals
- amendments to the right to erasure of personal information
- introduction of a specific right to object to the collection, use or disclosure of personal information, including an unqualified right to object to any collection, use or disclosure of personal information by an organisation for the purpose of direct marketing
- amendments in relation to the rules around accessing and correcting personal information
- introduction of further organisational accountability requirements, targeting measures to where there is the greatest privacy risk
- strengthening the rules relating to overseas data flows
- increased regulatory and enforcement powers, including introduction of ‘tiers’ of civil penalty provisions
- potential introduction of a direct right of action by an individual (or group of individuals) whose privacy has been interfered with by an entity subject to the Privacy Act, and potential introduction of a statutory tort of privacy.
The proposed reforms will be of interest to superannuation funds given the volume of personal information they collect, use and disclose in relation to fund members.
The Attorney-General’s Department is seeking submissions on the discussion paper by close of business Monday 10 January.
The discussion paper is part of a review of the Australian privacy regulation, announced by the Government in 2019, and follows an issues paper released last October. It builds on a recently released exposure draft of the Privacy Legislation Amendment (Enhancing Online Privacy and Other Measures) Bill 2021, which will enable the creation of a binding Online Privacy code for social media services, data brokers and other large online platforms operating in Australia. Submissions on the draft Bill are due by 3 December.
Portfolio holdings disclosure: regulations
The Government has finalised regulations to support its portfolio holdings disclosure (PHD) regime for superannuation fund investments.
The PHD requirements in the Corporations Act 2001 provide that the trustees of registrable superannuation entities (RSEs) must make certain information about the RSE’s investment options publicly available on the entity’s website no later than 90 days after a specified reporting day. The Corporations Act provides for regulations to prescribe if certain information may be aggregated, and how that information should be organised.
The Government has now registered the Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021 to support the PHD regime by prescribing the manner in which information provided under the regime must be organised. In addition to these prescribed disclosures, superannuation trustees may provide supplementary information regarding the portfolio holdings of the RSE’s products in a separate public disclosure.
The Government has consulted on two draft versions of the regulations, in August and April (see ASFA Action issues 820 and 801). The final regulations differ significantly from the most recent draft. In particular, the final regulations:
- provide for greater aggregation of certain investment items
- better outline the effects of derivatives on the total portfolio holding of the investment option.
The most recent exposure draft regulations would have required a super fund to disclose the value of every unlisted asset that it held, however, the final regulations allow these asset classes to be aggregated by each type of investment.
The amendments made by these regulations apply in relation to PHD reporting days that occur on or after 31 December 2021 (ASIC deferred the first reporting day for portfolio holding disclosure to 31 December 2021 in an amendment last year to ASIC Class Order [CO 14/443]). Funds will be required to make their first PHD disclosure by 31 March 2022 (90 days after the reporting period ending 31 December 2021).
Insurance in superannuation: final APRA prudential requirements
APRA has finalised revisions to its requirements and guidance relating to insurance in superannuation.
The final revisions to Prudential Standard SPS 250 Insurance in Superannuation and the accompanying Prudential Practice Guide SPG 250 Insurance in Superannuation are aimed at ensuring better member outcomes through updated requirements for trustees to select, manage and monitor members’ insurance arrangements.
APRA has published both ‘clean’ and marked up versions of SPS 250 and SPG 250. In addition, APRA has published a response paper outlining its response to submissions received during two rounds of consultation on the revisions.
The response paper confirms that SPS 250 will require trustees to:
- strengthen arrangements to protect members from potential adverse outcomes caused by conflicted life insurance arrangements. This will include robust decision-making in the negotiation and ongoing review of insurance arrangements
- obtain an independent certification of related party insurance arrangements before entering into or materially altering an insurance arrangement, and on a triennial basis. Rather than mandating certification for priority and privilege arrangements, APRA has responded to industry concerns by enhancing the prudential framework to emphasise that trustees must be alert to any business practices or terms and conditions in insurance arrangements that may not be in the best financial interests of beneficiaries
- strengthen data management to improve analysis of member outcomes across different groups of superannuation fund members.
Further, enhanced prudential guidance in SPG 250 will facilitate easy opt-out of insurance for members, and ensure premiums do not unduly erode members’ retirement incomes.
The enhancements to SPS 250 will commence on 1 July 2022. APRA encourages trustees to reassess their insurance arrangements and strategy, risk and compliance frameworks in preparation for this date.
APRA has indicated that the completion of this work fulfils recommendations 4.14 and 4.15 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and APRA has now finalised its response to all 10 recommendations directed to it by the Royal Commission.
Use of derivatives by superannuation funds: CFR to consider
In the course of announcing the finalisation of regulations to support the portfolio holdings disclosure regime (see earlier item in this ASFA Action), the Treasurer and Minister have indicated that the use of derivatives by superannuation funds will be examined by the Council of Financial Regulators (CFR).
The joint press release from the Treasurer and Minister notes that:
“While undertaking consultation on this measure, it has become apparent that some superannuation funds have large exposures to derivatives.
Given Australia’s superannuation funds have now become a systemically important part of our financial system, it is timely to ensure policymakers and regulators have a sound understanding of the extent and nature of the use of derivatives, and any implications for the operation of our financial system that could arise from these exposures.
The Treasurer has therefore asked the Council of Financial Regulators (CFR) to prepare a report on this matter, drawing upon the information gathering powers of the Australian Prudential Regulation Authority and the input of relevant experts from across the CFR, including the Reserve Bank of Australia.”
The CFR is the co-ordinating body for Australia’s main financial regulatory agencies, with membership comprising APRA, ASIC, Treasury and the Reserve Bank of Australia. It is a non-statutory group, without regulatory or policy decision-making powers.
No timeframe has been indicated for the CFR’s report.
YFYS performance test: APRA comments on fund member behaviour
APRA has urged superannuation fund members – especially those whose MySuper products failed the recent Your Future, Your Super (YFYS) performance test – to more actively engage with their super to maximise their retirement futures.
According to APRA, data collected from the 13 MySuper products found to have failed the YFYS performance test shows that only a small proportion of members have moved their savings elsewhere, despite receiving letters notifying them that their product was officially underperforming. Fewer than 68,000 of the one million member accounts in products that failed the test have been closed — accounting for 7 per cent of total accounts in the failed products, or only 4.2 per cent ($2.2 billion) of assets.
APRA Executive Board Member Margaret Cole said while APRA is working to ensure trustees fulfil their obligation to act in the best financial interests of their members, “That’s not a reason for members to sit back and avoid taking steps to act in their own best financial interests by ensuring they are in a high performing super product… Increased transparency is a powerful tool for regulators to bring about improvements in superannuation fund performance, but members should never forget they also have the power to make decisions that will better secure their future in retirement.”
ASIC industry funding: estimated levies and adviser levy reduction
ASIC has published its 2020-21 Cost Recovery Implementation Statement (CRIS) detailing its estimated levies by industry sector and subsector.
The CRIS includes:
- an explanation of the cost recovery model, including the business process, outputs and how ASIC allocates costs to calculate the levies and fees for service
- a forecast of ASIC’s regulatory costs, with actual levies due to be published in December 2021 and invoices to be issued in January 2022
- estimates of the levies that each regulated subsector will pay. Indicative levies are a guide only, based on ASIC’s planned regulatory work and estimated levies to recover regulatory costs at the beginning of the financial year
- actual costs ASIC incurred in the previous year for each subsector and the variance between the actual costs and the estimated costs in last year’s CRIS
- an assessment of the risks associated with the industry funding model and how those risks have been managed.
ASIC released a draft of the CRIS in July 2021 (see ASFA Action issue 815), and the final CRIS summarises the feedback that was received.
The Government has registered the ASIC Supervisory Cost Recovery Levy Amendment (Levies Relief) Regulations 2021 to implement temporary and targeted relief for financial advisers by reducing the actual levies that will be charged by ASIC for licensees that provide personal advice to retail clients. The Regulations set the maximum cost of the graduated levy component per adviser to the level it was at in 2018-19. The relief was announced by the Treasurer and the Minister in late August (see ASFA Action issue 822). The levy reduction is also reflected in ASIC’s CRIS.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
