Issue 701, 19 March 2019
In this issue:
- APRA capability review: consultation
- Enforceability of financial services industry codes: consultation
- Extending AFCA’s remit to legacy complaints: consultation
- Death benefit income streams: withdrawal of ATO determination
- Transition to retirement income streams: ATO guidance
- Registered relationships: regulations remade
APRA capability review: consultation
The panel conducting the capability review of APRA has commenced taking submissions in response to the matters outlined in its terms of reference.
The final report from the Royal Commission into the Banking, Superannuation and Financial Services Industry (Royal Commission) recommended that APRA and ASIC should each be subject to at least quadrennial capability reviews, with a capability review to be undertaken for APRA as soon as reasonably practicable (recommendation 6.13, see ASFA Action issue 697).
In its initial response to the report, the Government accepted that recommendation and indicated it would undertake a capability review of APRA in 2019. On 11 February, the Government confirmed the details for the review, to be undertaken by a panel comprising of Graeme Samuel AC (chair), Diane Smith-Gander and Grant Spencer. The Treasurer, the Hon Josh Frydenberg MP, said he anticipated that, among other things, the panel would specifically consider APRA’s capability to regulate superannuation entities for the benefit of members.
Treasury has now released the terms of reference for the capability review for public consultation. These state that the objectives of the review are to:
- assess APRA’s capability to deliver upon its statutory mandate under the Australian Prudential Regulation Authority Act 1998 and relevant industry acts
- undertake a forward-looking assessment of APRA’s ability to respond to an environment of growing complexity and emerging risks for APRA’s regulated sectors
- identify recommendations to enhance APRA’s future capability, having regard to the changing operating environment and any relevant organisational initiatives which are already underway.
The terms of reference require the review panel to evaluate the extent to which a number of factors support APRA to deliver its statutory mandate. These include:
- strategy, decision-making and culture
- internal governance arrangements, resource allocation and staffing
- processes and outcomes across APRA’s core supervision, policy and resolution functions
- appropriate engagement with Australian financial sector regulators
- fit-for-purpose statutory powers.
The panel is also required to consider relevant recent reviews and reports as they relate to APRA. These include the interim and final reports of the Royal Commission, the Productivity Commission’s final reports Superannuation: Assessing Efficiency and Competitiveness and Competition in the Australian Financial System, the report from the International Monetary Fund Financial System Stability Assessment of Australia (scheduled for release in early 2019) and APRA’s own internal Enforcement Review (scheduled for completion in March 2019, see ASFA Action issue 691).
Submissions in response to the matters outlined in the terms of reference close on 10 April. The review panel will report to the Government by 30 June.
If you have any feedback you would like ASFA to consider in relation to the capability review, please forward it to Maggie Kaczmarska by close of business Wednesday, 3 April.
Enforceability of financial services industry codes: consultation
Treasury has released a consultation paper in relation to the enforceability of financial services industry codes.
The final report from the Royal Commission recommended that certain provisions of financial sector codes should be ‘enforceable code provisions’ and that ASIC should have additional powers to approve and enforce code provisions (see recommendation 1.15, see ASFA Action issue 697).
In its response to the Royal Commission, the Government agreed to take action on recommendation 1.15 and supported industry and ASIC acting on the other recommendations concerning existing industry codes.
Treasury has now released the consultation paper Enforceability of financial services industry codes, setting out a series of questions which will inform the development of legislation to enact the Government’s commitment to implement recommendation 1.15.
The consultation paper also sets out further information on the current code framework and government-mandated codes and deals with the recommendations of the ASIC Enforcement Review Taskforce and the other Royal Commission recommendations in relation to codes.
If you have any feedback you would like ASFA to consider in relation to the capability review, please forward it to Byron Addison by close of business Thursday, 4 April.
Extending AFCA’s remit to ‘legacy complaints’: consultation
The Australian Financial Complaints Authority (AFCA) has issued a consultation package regarding changes to its rules to extend its remit to consider disputes dating back to 1 January 2008 (‘legacy complaints’). This represents part of the Government’s response to the Royal Commission (see ASFA Action issues 699 and 700). The consultation package confirms that some superannuation complaints will be eligible to be considered under its expanded remit, including disability complaints.
In ASFA Action issues 699 and 700, we noted that the Government had given a direction extending AFCA’s remit to consider financial complaints dating back to 1 January 2008, providing expanded access to redress for consumers harmed by financial misconduct. This action is being taken in the context of the Royal Commission’s recommendations about establishing a compensation scheme of last resort.
The direction to AFCA, AFCA Scheme (Additional Condition) Amendment Authorisation 2019 requires AFCA to permit an eligible person to make a complaint if that complaint:
- relates to a compulsory member of the AFCA scheme who is a member of the AFCA scheme at the time the complaint is made
- is not an ‘excluded complaint’
- is not otherwise excluded by the AFCA rules (other than because of a time limit in the scheme rules)
- is made to AFCA during the period 1 July 2019 to 30 June 2020.
While the definition of ‘excluded complaint’ specifically excludes “a complaint in relation to a superannuation death benefit”, we noted that it does not exclude any other types of superannuation complaints (for example, disability complaints). (Refer ASFA Action issue 700, or the terms of the direction itself, for other important aspects of the ‘excluded complaint’ definition.)
AFCA has now released a consultation package, comprising a consultation paper, proposed change to its rules to extend its remit, and draft update to its operational guidelines. The latter confirms that some superannuation complaints will be eligible to be considered as legacy complaints under AFCA’s expanded remit.
If you have any feedback you would like ASFA to consider in relation to the consultation package, please forward it to Julia Stannard by close of business Thursday, 4 April.
AFCA has advised ASFA that it also intends to publish Frequently Asked Questions to help consumers and trustees understand its expanded remit and how it will approach legacy complaints. In the meantime, AFCA has suggested to ASFA that it may be prudent for trustees to suspend any scheduled destruction of fund records that may be relevant to legacy complaints.
Death benefit income streams: withdrawal of ATO determination
The ATO has withdrawn a determination in relation to the commutation and rollover of income streams paid on the death of a fund member, to reflect recent changes to the tax laws.
The ATO has withdrawn, with immediate effect, Taxation Determination TD 2013/13 Income tax: is a payment by a complying superannuation fund (first fund) to another complying superannuation fund of a superannuation lump sum arising from the full commutation of a superannuation income stream paid to a person as a beneficiary of a deceased member of the first fund, a ‘roll-over superannuation benefit’ for the purpose of section 306-10 of the Income Tax Assessment Act 1997?
TD 2013/13 states that a payment by one complying superannuation fund to another of a superannuation lump sum arising from the full commutation of a superannuation income stream paid to a person as a beneficiary of a deceased member of the first fund, is a ‘roll-over superannuation benefit’ for the purpose of section 306-10 of the Income Tax Assessment Act 1997 (ITAA 1997) if the person was the spouse of the deceased member at the time of death, and certain other criteria were met.
The tax laws were recently amended by the Treasury Laws Amendment (Fair and Sustainable Superannuation) Act 2016 and Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017. The effect of these changes is that from 1 July 2017, the types of superannuation benefits that are roll-over superannuation benefits under section 306-10 of the ITAA 1997 have been expanded to include superannuation death benefits unless specified in the Income Tax Assessment Regulations 1997. The amended regulation also specifies that superannuation death benefits are generally prevented from being a superannuation roll-over benefit unless they are a benefit that is paid to a dependant beneficiary, which can include a spouse or child of the deceased. In addition to this general requirement, if the dependant is a child, they must be either under 18 years of age, a financially dependent child under 25 years of age or a child with a disability described by subsection 8(1) of the Disability Services Act 1986.
As a result of these law changes, TD 2013/13 is no longer current and accordingly it has been withdrawn.
The ATO has indicated that Law Companion Ruling LCR 2017/3 Superannuation reform: Superannuation death benefits and the transfer balance cap provides the Commissioner’s view on a similar issue under the current legislative provisions.
Transition to retirement income streams: ATO guidance
The ATO has provided guidance on changes to the tax laws impacting transition to retirement income streams (TRIS) that commenced from 1 July 2017.
Guidance Note GN 2019/1 Changes to transition-to-retirement income streams notes that before 1 July 2017, all TRIS were eligible for exempt current pension income (ECPI) — a tax exemption on the earnings from assets that support a superannuation income stream. Since 1 July 2017, there have been changes to ECPI eligibility for assets supporting a TRIS.
The concept of ‘retirement phase’ is used to identify superannuation income streams that count towards the transfer balance cap, and are eligible for ECPI. A TRIS will only be in the retirement phase if certain circumstances are met. This affects all TRIS, regardless of when they were first started.
GN 2019/1 covers topics including:
- When a TRIS will be in the retirement phase
- What happens to a TRIS when the member dies
- Taxation of TRIS payments.
Registered relationships: regulations remade
The Government has remade regulations prescribing ‘registered relationships’, that were due to sunset (expire). The regulations are relevant to determining who is a ‘spouse’ under superannuation and income tax law.
The Acts Interpretation Act 1901 (the AI Act) prescribes, in section 2D, a definition of ‘de facto partner’ that may be referred to by other Commonwealth laws. In particular, paragraph 2D(a) provides that a person is the de facto partner of another person if they are in a ‘registered relationship’ with the other person under section 2E of the AI Act. Section 2E of the AI Act provides that a person is in a registered relationship with another person if that relationship is registered under a prescribed state or territory law as a prescribed kind of relationship.
The Acts Interpretation (Registered Relationships) Regulations 2008 (the 2008 Regulations) prescribe State and Territory relationship laws, and the kinds of relationships registered under those laws for the purposes of section 2E of the AI Act. The combined effect of sections 2D and 2E, and the 2008 Regulations, is to ensure that the registration of prescribed kinds of relationships under prescribed State and Territory laws will provide conclusive proof that a person is another person’s de facto partner.
The definitions of ‘spouse’ contained in the Superannuation Industry (Supervision) Act 1993 and the Income Tax Assessment Act 1997 each include relationships that are registered under a State or Territory law prescribed for the purposes of section 2E of the AI Act.
The 2008 Regulations were due to sunset on 1 April 2019 and have now been replaced by the Acts Interpretation (Registered Relationships) Regulations 2019 (the 2019 Regulations). The 2019 Regulations prescribe the State and Territory laws, and the kinds of relationships, for the purposes of section 2E of the AI Act. Minor amendments have been made to ensure their fitness for purpose and to incorporate changes which more accurately reflect the requirements of section 2E.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
