Issue 789, 18 December 2020
In this issue:
- Internal dispute resolution reporting: consultation
- Modernising business communications: consultation
- Promoting access to affordable advice for consumers: ASIC consultation – reminder
- APRA MySuper heatmap: full refresh
- Fee and cost disclosure: RG 97 industry guidance
- Member outcomes and design and distribution obligations
- Royal Commission implementation
- APRA Superannuation Data Transformation Project: draft reporting standards
- Mid-Year Economic and Fiscal Outlook 2020-21: commutation rules for certain income streams
- Miscellaneous superannuation amendments: regulations
Internal dispute resolution reporting: consultation
ASIC has released details of its updated proposals for mandatory reporting about internal dispute resolution (IDR) by financial firms, including superannuation fund trustees.
The release follows proposals outlined by ASIC in last year’s Consultation Paper CP311: Internal dispute resolution: Update to RG 165. ASIC finalised its updated IDR standards in July this year in the form of new regulatory guide RG 271 Internal dispute resolution, but carved out the IDR reporting aspects pending further consultation.
ASIC notes that while the new IDR standards set out in RG 271 will apply to complaints received by financial firms from 5 October 2021, mandatory IDR reporting will not commence on that date. ASIC is progressing with its consultation on IDR reporting requirements now, so financial firms will have some certainty, while they are updating their systems to comply with RG 271, about the information they will be required to provide to ASIC.
ASIC’s revised IDR reporting proposals take the form of an addendum to CP 311, in Attachment 1 to a media release issued on 16 December, and an updated draft dictionary issued as Attachment 2 to that media release.
If you have any feedback that you would like ASFA to consider in relation to the IDR reporting proposals, please forward it to Julia Stannard by close of business Monday 1 February.
Modernising business communications: consultation
The Government has released a consultation paper on modernising business communications with a focus on Treasury portfolio laws including the Superannuation Industry (Supervision) Act 1993 and the Corporations Act 2001.
The objective of the consultation is to obtain feedback from stakeholders that will assist the Government to:
- identify and categorise the types of business communications that would benefit from technology neutrality changes, including those technology neutrality changes that will lower current compliance costs
- develop principles to guide subsequent legislative change
- identify legislative change that may be required to give effect to these principles and improve the technology neutrality for each category of communication
- address sensitivities and risks associated with technology neutrality
- prioritise reform implementation.
If you have any feedback that you would like ASFA to consider in relation to the consultation paper, please forward it to Julia Stannard by close of business Friday 12 February.
Promoting access to affordable advice for consumers: ASIC consultation – reminder
As reported in ASFA Action issue 784, ASIC has issued Consultation paper 332 Promoting access to affordable advice for consumers (CP 332).
If you have any feedback you would like ASFA to consider in responding to CP 332, please forward it to Maggie Kaczmarska by close of business Friday 8 January.
APRA MySuper heatmap: full refresh
APRA has released a full refresh of its MySuper product heatmap, along with an Insights Paper that explains APRA’s analysis and updated frequently asked questions (FAQs).
The Insights Paper concludes that:
- Investment outcomes continue to show some “significantly underperforming” products
- while eleven products with investment concerns exited the market over the last year, others continue to underperform
- funds with net assets over $50 billion have experienced the strongest investment experience
- underperformance of some products is due to high investment fees and costs
- investing in underperforming funds has a large impact on members’ account balances.
- Trustees continue to reduce disclosed total fees and costs – with an estimated saving of $408 million per annum
- high-fee MySuper products are reducing fees and costs, but should go further
- trustees have taken action to address high MySuper fees and costs identified in the first heatmap
- high asset-based administration fees are driving high administration fees
- members with a $50,000 balance can pay more than 2.5 times higher administration fees, eroding their retirement balances.
- The impact of COVID-19 and other factors may accelerate sustainability challenges for some funds
- the uncertain outlook is expected to present challenges for some funds in delivering sustainable member outcomes
- funds must ensure they are resilient and cost efficient to deliver competitive outcomes into the future
- smaller-scaled funds with negative trends face sustainability challenges.
APRA notes that it will shortly issue notices requiring a number of trustees to provide information in relation to the underperformance of some of their MySuper products and the actions being taken to address that underperformance. Following consideration of this information, APRA will determine what further action it will take, including potential use of formal enforcement powers where appropriate.
In addition to publishing the heatmap in Excel and CSV data file formats, APRA has released an online, interactive, web-based tool to help users explore the heatmap.
APRA has also published a speech by Deputy Chair Helen Rowell providing background in relation to the refreshed heatmap.
Fee and cost disclosure: RG 97 industry guidance
As advised in ASFA Action issue 653, in late 2017 an Industry Working Group (IWG) produced guidance (Industry Guidance) in response to the revised fee and cost disclosure regime for superannuation funds and managed investment schemes – including ASIC’s Regulatory Guide RG 97. The regime was to have commenced on 30 September 2017 but was subject to a number of deferrals.
This Industry Guidance was supported by ASFA, the Australian Institute of Superannuation Trustees and the Financial Services Council.
The Industry Guidance was prepared to help funds appropriately disclose fees and costs in product disclosure statements and periodic statements. The IWG also developed fee and cost mapping tables, which provided assistance to funds in understanding what were ‘fees and costs’, as well as where such fees and costs were to be disclosed.
The Industry Guidance and the fee and cost mapping tables were subject to the subsequent review of RG 97 announced by ASIC.
The IWG has concluded that it considers the revised RG 97 and accompanying legislative instruments, most recently issued in September 2020 (see ASFA Action issue 777), are much clearer than the previous RG 97 that was effective from September 2017. For this reason, the IWG will not be issuing a new Industry Guidance document to reflect the revised RG 97, but will issue a limited series of Q&As in February 2020 covering some topics that still require interpretation.
The current IWG Industry Guidance produced in 2017 can still be used by product providers until they opt-in to the new RG 97 regime.
The IWG has also finalised the data collection template that can be used for industry funds that invest in a range of unlisted assets along with investments in traditional listed asset classes. This template will be able to be used in conjunction with the standard pooled fund template developed by Morningstar that is already widely used by fund managers. Links to both data collection templates are below.
- view the data collection template here.
- view the Morningstar pooled fund template here.
If you have any questions, feedback or concerns about the templates please contact Fiona Galbraith.
Member outcomes and design and distribution obligations
APRA and ASIC have written to registrable superannuation entity (RSE) licensees to provide guidance about the interaction of the member outcome obligations and the design and distribution obligations (DDO) regime.
The letter notes that:
- the member outcomes obligations and DDO are “transformative regulatory changes that will have a significant impact on every RSE licensee’s operations and product offerings”
- the first Business Performance Reviews (BPR) under the member outcomes obligations are due by 31 December 2020 and the first Outcomes Assessments are expected to be completed early 2021. APRA expects RSE licensees to be well progressed in completing their first BPR
- the DDO regime commences on 5 October 2021 “but significant preparation is needed by RSE licensees ahead of this date”
- APRA and ASIC are encouraging RSE licensees to consider both regimes in tandem when they look to build systems and processes, given the “opportunities to capitalise on potential synergies”.
The regulators indicate that, at a high level, both regimes require RSE licensees to:
- identify the needs of members
- determine whether their decisions about choice products and broader business operations are delivering quality outcomes for members
- make decisions that are evidence-based and to monitor and review their product offerings and operations on an ongoing basis.
The letter identifies a number of areas where the regulators consider the member outcomes and DDO regimes interact closely, namely: planning, review and adjustments, data, and insurance.
Royal Commission implementation
Legislation implementing the Government’s response to several recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services has now received Royal Assent.
As reported in ASFA Action issues 788 and 787, the originating Bill—the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020—contained a number of measures that were stated to commence on the later of the day after Royal Assent or 1 January 2020. With the Bill receiving Royal Assent on 17 December as the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, the commencement date for those measures is now fixed as 1 January 2021.
Separately, Treasury has released an exposure draft of regulations supporting one measure in the Act, which relates to making insurance claims handling a financial service. The Act creates a licensing requirement for “claimant intermediaries” – defined as a person who carries on a business of representing people to pursue insurance claims in exchange for a monetary or non-monetary benefit, or a benefit provided to another party. The draft regulations prescribe circumstances in which a person will not be considered to be a “claimant intermediary”. Treasury is seeking submissions on the draft regulations by close of business Monday 25 January.
APRA Superannuation Data Transformation Project: draft reporting standards
As reported in earlier editions of ASFA Action, APRA is undertaking a multi-year project to upgrade the breadth, depth and quality of its superannuation data collection.
APRA has provided ASFA with the following update in relation to this project:
APRA’s Superannuation Data Transformation project will be sharing updated draft reporting standards in response to requests from industry to provide these promptly so that industry can start implementation of the new reporting standards. These will be shared through industry bodies and to participants of the working groups that have been held. The updated draft reporting standards are not anticipated to change significantly before they are finalised, and so provide industry with a solid framework to begin implementation.
APRA’s Superannuation Data Transformation project will be sharing updated draft reporting standards in response to requests from industry to provide these promptly so that industry can start implementation of the new reporting standards. These will be shared through industry bodies and to participants of the working groups that have been held. The updated draft reporting standards are not anticipated to change significantly before they are finalised, and so provide industry with a solid framework to begin implementation.
If you would like to receive these, then please contact APRA at SuperDataTransformation@apra.gov.au.
(See ASFA Action issues 782, 773, 738, 736, 732 and 723 for further details about the project.)
Mid-Year Economic and Fiscal Outlook 2020-21: commutation rules for certain income streams
Yesterday the Government delivered its Mid-Year Economic and Fiscal Outlook (MYEFO) for 2020-21.
It is common for MYEFO statements to include new policy announcements – often announcements relevant to superannuation. However, given the Government’s delayed 2020-21 Budget (see ASFA Action issue 778), this year’s MYEFO contains few new announcements.
Of relevance to superannuation, MYEFO states that the Government “is amending the law to ensure that retirees who have commuted and restarted certain market-linked pension, life expectancy pension and similar products are treated appropriately under the transfer balance cap”. MYEFO notes that this will:
- enable retirees with these products who have been unable to commute amounts in excess of their transfer balance cap to undertake the necessary partial commutation
- ensure appropriate tax outcomes for these retirees given their prior inability to comply with the transfer balance cap rules.
The amendments will take effect from the date the relevant bill receives Royal Assent.
Miscellaneous superannuation amendments: regulations
The Government has registered regulations that make a number of minor and/or technical miscellaneous amendments to tax and superannuation measures.
As reported in ASFA Action issues 781 and 786, in October-November the Government consulted on a package of amendments to treasury portfolio laws – both legislation and regulations. Those relating to measures contained in legislation have now been largely implemented via the Treasury Laws Amendment (2020 Measures No 6) Act 2020 (see ASFA Action issue 786 for background on the originating bill). Some of the measures involving amendment of regulations were implemented via the Treasury Laws Amendment (Miscellaneous Amendments) Instrument 2020 but this did not include any of the superannuation-related amendments (see ASFA Action issue 786).
The Government has now registered the Treasury Laws Amendment (Miscellaneous and Technical Amendments) Regulations 2020. Of particular relevance to superannuation, these amend:
- the Superannuation Industry (Supervision) Regulations 1994, to retrospectively confirm that permanent residents of New Zealand are eligible for the Coronavirus early release of superannuation initiative in accordance with the same criteria that apply for Australian citizens, permanent residents of Australia and New Zealand citizens, consistent with the original intent and with the ATO’s administration of the initiative
- the Corporations Regulations 2001, to reflect:
- renumbering of provisions in the Family Law Act 1975impacting the superannuation splitting rules
- the passage of legislation enabling Western Australian de facto couples to access the superannuation splitting rules
- the Superannuation Guarantee (Administration) Regulations 2018, to repeal a provision that is now redundant, following the passage of measures in the Treasury Laws Amendment (2020 Measures No 6) Act 2020 that clarify the meaning of ‘excluded salary or wages’.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
