Issue 829, 19 October 2021
In this issue:
- Remuneration: finalised APRA guidance
- Distribution of superannuation products: ASIC update
- Your Future, Your Super: UAP proposes stapling exclusion
- Temporary financial advice relief measures: extension and reintroduction
- Whistleblower policies: ASIC concerns
- Transforming risk culture: APRA survey
- Financial services regulation: review of the legislative framework
Remuneration: finalised APRA guidance
APRA has written to its regulated entities to advise it has finalised guidance to assist them in implementing Prudential Standard CPS 511 Remuneration (CPS 511). The new Prudential Practice Guide CPG 511 Remuneration (CPG 511) sets out guidance and examples of better practice to assist entities in meeting their requirements under CPS 511.
In particular, CPG 511 provides entities with examples for:
- strengthening incentives for individuals to prudently manage risks they are responsible for
- applying consequences for poor risk outcomes
- improving oversight, transparency and accountability on remuneration.
CPS 511, which comes into effect from 1 January 2023, is designed to strengthen remuneration practices across all APRA-regulated entities. APRA Deputy Chair John Lonsdale said: “Effective implementation of CPS 511 will strengthen the resilience of the financial sector and rein in the kinds of poorly designed remuneration practices that have damaged community trust and prudential soundness in the past”.
See ASFA Action issue 802 for further background.
Distribution of superannuation products: ASIC update
ASIC has released updated information for employers and trustees about changes affecting the distribution of superannuation products as a result of recent law reforms.
These reforms include the product design and distribution obligations (DDO), restrictions on the unsolicited selling of financial products (hawking), and the ‘stapling’ measure and changes to the prohibition in section 68A of the Superannuation Industry Supervision Act 1993 (both part of the Your Future Your Super (YFYS) package). Section 68A forbids a trustee or its associates from using improper inducements to influence employers in their choice of default fund.
Firstly, ASIC’s Information Sheet 89, Communicating with employees about superannuation fund choice: what you can and cannot do (INFO 89) provides guidance to employers about how they can communicate to their employees about superannuation choices without breaking the law.
Secondly, ASIC has updated Information Sheet 241: Prohibition on influencing employer’s superannuation fund choice (INFO 241). This provides guidance to trustees about the prohibition on using inducements to influence employers in their choice of a default fund or to encourage employees to choose or retain membership of a fund.
ASIC recommends that trustees familiarise themselves with the guidance in both information sheets to ensure appropriate engagement with employers and employees. ASIC will conduct a thematic review this financial year on how trustees use employers to distribute superannuation products. Following the review, ASIC may consider regulatory action where misconduct causing consumer harm is identified.
ASIC Commissioner Danielle Press said:
“It is important that employers do not take steps that are inconsistent with laws designed to promote good choices by consumers about their superannuation fund.
Superannuation trustees should not encourage employers to act in a manner that is contrary to the law to promote their funds. Recent law reform has affected a variety of obligations concerning marketing and distribution of superannuation products, including via employers. Trustees should be checking if the way they seek to attract and retain employees as members is appropriate, in light of changes to the law and other relevant obligations”.
Your Future, Your Super: UAP proposes stapling exclusion
The United Australia Party (UAP) has introduced into Parliament a private member’s Bill proposing an exclusion to the stapling measure introduced as part of the Your Future, Your Super (YFYS) reforms.
Under the YFYS reforms, generally employees who do not make a choice of fund when commencing a new employment arrangement from 1 November 2021 will be ‘stapled’ to a single default account. Under stapling, employers request a notification from the Commissioner of Taxation identifying if there is a stapled fund for a new employee. The stapling requirements are contained in the Superannuation Guarantee Administration Act 1992 (SGA Act). (See ASFA Action issues 817 and 810 for background.)
Yesterday, Craig Kelly MP introduced into the House of Representatives the Superannuation Guarantee (Administration) Amendment Bill 2021. This private member’s Bill seeks to amend the SGA Act to exclude from the stapling requirements employment arrangements where an employee is employed in an occupation where the rate of death in the workplace is more than 2.5 in 100,000 per year, averaged over a five year period, as determined by the Australian Government Actuary.
In these circumstances, it will be deemed that the Commissioner of Taxation is satisfied there is no stapled fund for the employee.
Under the proposed amendments, the Australian Government Actuary will be required to publish, on 1 July each year, a list of occupations where the rate of death in the workplace is more than 2.5 in 100,000 per year, averaged over a five year period. An employee in an occupation identified by the Australian Government Actuary for this purpose will be considered not to have a stapled fund.
While there is no explanatory memorandum for this Bill, a note to the amendment states:
The intent of this section is to ensure that the stapling provisions do not apply to workers employed in dangerous occupations.
Temporary financial advice relief measures: extension and reintroduction
ASIC has made a legislative instrument further extending a relief measure that allows financial advisers to provide a record of advice rather than a statement of advice (SoA) to existing clients requiring financial advice due to the impact of the COVID-19 pandemic. ASIC has also reintroduced an expired temporary relief measure.
As reported in ASFA Action issue 799, the temporary relief in relation to records of advice was first introduced in April 2020 with effect until April 2021, but later extended to October 2021. Additional relief measures that were also introduced in April 2020 expired and were not extended.
ASIC has now registered the ASIC Corporations (Amendment) Instrument 2021/848 to:
- extend the ‘record of advice’ relief until 15 April 2022 and clarify that the client must be given information about any actual or potential conflicts of interest, commissions and remuneration at the same time or as soon as practicable after the COVID-19 advice is provided
- reintroduce, until 15 April 2022, a relief measure that allows financial advisers up to 20 business days (instead of 5 business days) to give their clients an SoA after time-critical advice has been provided. This measure was a feature of the existing relief but expired on 15 April 2021.
Whistleblower policies: ASIC concerns
ASIC has written to trustees of registrable superannuation entities (RSEs) as well CEOs of public companies and large proprietary companies, urging them to review their whistleblower policies to ensure they comply with the law.
Whistleblowers are an essential part of an organisation’s ability to detect misconduct and identify, escalate and address issues.
ASIC is concerned that the majority of whistleblower policies in a sample review during 2020 did not fully address the relevant requirements. As a result, whistleblowers may not know how they are protected, or feel unsure about how to speak up. This could lead to entities missing opportunities to identify and address potential misconduct at an early stage.
ASIC’s letter to CEOs:
- reminds entities of their obligation to have a whistleblower policy that reflects the strengthened whistleblower protection regime
- identifies where policies in its sample review fell short
- highlights what entities can do to improve their policies.
The strengthened whistleblower regime commenced on 1 July 2019 and impacted entities were required to have a whistleblower policy available to their officers and employees by 1 January 2020.
ASIC Commissioner Sean Hughes said: “We call on CEOs and RSE trustees to discuss this letter within your organisation and to think about the culture of speaking up in your workplace. If the issues we observed from our review are present in your policy, we expect you to address and correct them without delay.”
ASIC will continue to monitor compliance with the whistleblower policy requirements and the handling of whistleblower disclosures. ASIC plans to conduct a further review of whistleblower policies and will consider the full range of regulatory tools available, including enforcement action, where it identifies non-compliance.
See ASFA Action issues 732, 727, 718, 699, 654 and 649 for background on the strengthened whistleblower regime.
Transforming risk culture: APRA survey
APRA has published an Insight article detailing the key points from its recent risk culture survey pilot involving ten general insurers. APRA plans to roll the survey out to up to 60 insurance, banking and superannuation entities over the next 12 months.
The survey gauged participants’ performance against ten risk culture ‘dimensions’ — five risk behaviours and five aspects of risk culture. These were:
- risk behaviours: leadership, decision-making and challenge, communication and escalation, risk capabilities, and alignment with purpose and values
- risk architecture: risk culture assessment and board oversight, risk appetite and strategy, risk governance and controls, responsibility and accountability, and performance management and incentives.
When assessing participants’ responses, APRA found that the lowest scoring ‘dimensions’ — and therefore the areas that may warrant additional focus within organisations — were risk governance and controls, decision-making and challenge, and responsibility and accountability.
Financial services regulation: review of the legislative framework
As reported in recent ASFA Actions, the Australian Law Reform Commission is conducting a multi-year review of the legislative framework for corporations and financial services regulation. The terms of reference for the review set out three sub-topics:
- the use of definitions
- regulatory design and hierarchy of laws
- the framing or structuring of Chapter 7 of the Corporations Act 2001.
The Commission recently published two background papers:
- Complexity and legislative design – this paper explores the drivers and metrics of complexity in corporations and financial services laws in Australia and considers how complexity can be managed and reduced through legislative design. The paper also explains why complexity matters to businesses, consumers, professional advisors, parliamentary drafters, and legislators.
- Improving the navigability of legislation – this paper discusses the range of features and techniques that can be used to make legislation more navigable.
The Commission’s first interim report is due by 30 November. See ASFA Actions issues 813, 790 and 775 for background on the review.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
