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Issue 831, 2 November 2021 
In this issue: 

 

APRA Super Data Transformation project: Focus Groups 

As part of its Super Data Transformation Project APRA is forming two industry focus groups: 

The focus groups will: 

If your organisation would be interested in participating in one or both of these focus groups, please email Hans van Daatselaar by close of business Thursday 4 November. When emailing, please indicate who you are nominating for which focus group and provide their contact details, including their job title. 

 

2021-22 Budget measures: Bill introduced 

The Government has introduced into Parliament the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021. This Bill will implement several superannuation-related commitments from the May 2021 Budget (see ASFA Action issue 803).

Of relevance to superannuation, the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021 proposes amendments to:

The Government is yet to introduce legislation to implement the remaining superannuation-related measures from the Budget, including additional technical amendments to the FHSSS and relaxation of residency requirements for self-managed superannuation funds and small APRA-regulated funds, and a capacity for individuals to exit a specified range of legacy retirement products, including market-linked, life expectancy and lifetime products. 

 

Financial Accountability Regime: Bills introduced 

The Government has introduced into Parliament two Bills to implement the Financial Accountability Regime (FAR).

The Financial Accountability Regime Bill 2021 will implement several recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, which recommended the extension of the Banking Executive Accountability Regime (BEAR) to all APRA-regulated entities.

 

The FAR imposes four core sets of obligations: 

The FAR will apply to the banking industry from the later of 1 July 2022 or six months after the commencement of the Bill. The Banking Executive Accountability Regime will be repealed as the obligations under the Financial Accountability Regime apply to the banking industry. 

The FAR will apply to the superannuation and insurance industries on 1 July 2023 or 18 months after the Bill receives Royal Assent, whichever is later. 

The Government has also introduced the Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021, which includes consequential amendments and transitional matters arising from the FAR regime. 

The Government has previously undertaken consultation on a proposals paper in relation to FAR as well as two exposure draft Bills (see ASFA Action issues 823, 814, 734 and 697 for background). 

 

Compensation scheme of last resort: Bills introduced 

The Government has introduced into Parliament three Bills to implement a compensation scheme of last resort (CSLR). The CSLR forms part of the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and follows earlier recommendations by the ‘Ramsay Review’ into the external dispute resolution framework. 

Together, theFinancial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021, the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021, and the Financial Services Compensation Scheme of Last Resort Levy Bill 2021 establish the CSLR and the levy framework to fund it. 

Some key elements of the CSLR include: 

The Government has indicated it will fund the establishment of the CSLR and contribute to scheme costs in the first year, to allow it to start paying claims from 1 July 2022. In addition, Australia’s ten largest banking and insurance groups (excluding superannuation groups and health insurers) will pay a one-off levy to fund a backlog of accumulated unpaid claims (and associated AFCA unpaid fees) relating to complaints given to AFCA between 1 November 2018 up to 28 October 2021 (the day the Bills to establish the CSLR were introduced into Parliament). Going forward, the scheme will be fully industry funded through a levy on relevant financial service and credit licensees. 

 

Choice superannuation products: APRA analysis 

APRA has published analysis of the performance of choice superannuation products, ahead of releasing its first Choice Product Heatmap in late 2021. Generally, ‘choice’ products are those that members have actively chosen to join and are typically more complex and varied than default MySuper products.

As with APRA’s MySuper Product Heatmap, the Choice Product Heatmap will provide clear and comparable insights on the performance of choice products in the areas of investment returns, fees and costs, and sustainability.

APRA’s analysis of the sector identified 568 choice products within APRA-regulated superannuation funds, offering around 9,000 distinct investment options and about 43,000 investment options in total. The analysis highlights underperformance in the choice sector. In particular: 

APRA Executive Board Member Margaret Cole said the findings demonstrate the importance of exposing and addressing underperformance among choice products.

The first Choice Product Heatmap will focus on multi-sector investment options in open, accumulation products (excluding platform products), representing 40 per cent of total member benefits in the APRA-regulated choice sector. Future versions of the Heatmap will be expanded as APRA capitalises on the enhanced data set delivered through the Superannuation Data Transformation and APRA Connect programs. 

 

Trustee directed products: APRA FAQs 

APRA has published a new set of frequently asked questions (FAQs) to provide clarity to registrable superannuation entity (RSE) licensees on the introduction of trustee directed products (TDPs) into the Government’s Your Future, Your Super performance test. 

The FAQs provide guidance on: 

 

Governance and strategic planning in superannuation: APRA concerns 

APRA has published an information paperFindings from APRA’s superannuation thematic reviews. This details the findings from three reviews undertaken over the past 12 months, covering strategic and business planning, fund expenditure and unlisted asset valuation practices. Collectively, the reviews outline risks and vulnerabilities that trustees must have front of mind to drive better practices and improve outcomes for members.

The SPS 515 implementation benchmarking review examined how selected trustees were meeting the requirements of SPS 515 Strategic Planning and Member Outcomes, which took effect on 1 January 2020. The review focused particularly on business plans and business performance reviews (BPRs) and found areas of potential improvement including the need for trustees to develop: 

The expenditure thematic review examined expenditure on advertising, sponsorships and promotions by selected trustees. In particular, it considered whether expenditure was in the best interests of members, and whether trustees had applied appropriate governance and oversight to their decisions. APRA observed: 

The unlisted asset valuation thematic review was undertaken in response to heightened market vulnerability prompted by COVID-19, as well as increased member switching and the Government’s expansion of the early release of superannuation program. It examined unlisted asset valuation practices among selected trustees, with key findings including: 

APRA Member Margaret Cole said: “Overwhelmingly these reviews illustrate that robust frameworks, clear accountability and holistic approaches to business planning are essential ingredients in running what are, in most cases, multi-billion-dollar businesses with enormous fiduciary responsibilities. We expect all trustees to review their operations in light of these findings with a view to identifying any sub-standard practices and improving processes and procedures.” 

 

Investment switching by super fund executives: ASIC concerns 

ASIC has identified concerns with superannuation trustees’ management of conflicts of interest, following surveillance of personal investment switching by trustee directors and senior executives of during the time of increased market volatility arising from the COVID-19 pandemic.

ASIC notes that directors and senior executives of superannuation funds are potentially privy to price-sensitive valuation information. It undertook surveillance to examine concerns about whether fund executives were using this information for personal gain by switching investment options based on their knowledge of the timing of the revaluation of unlisted assets.

ASIC Commissioner Danielle Press indicated that the surveillance, on a sample of trustees, revealed conduct that fell below ASIC’s expectations: 

“We expected superannuation trustees to have robust conflict of interest policies that dealt adequately with investment switching, including by their directors and executives. What we found instead was often a clear failure to identify investment switching as a source of potential conflict, resulting in a lack of restrictive measures and oversight to adequately counter this risk.

This is very concerning given the level of sophistication and governance required of trustees when managing millions of dollars in assets on behalf of fund members”. 

ASIC’s key concerns with trustees’ management of conflicts of interest included failure to identify investment switching as a risk, disparity in board-level engagement, lack of restrictive measures, inadequate oversight of investment switching and lack of oversight of related parties. 

Commissioner Press said ASIC will continue to follow up with trustees about areas for improvement in their conflict management frameworks. ASIC is continuing to gather additional information and consider its next steps, and will consider appropriate regulatory action where it identifies misconduct causing consumer harm. 

 

 

ASFA REGULATORY WATCHLIST

ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations

and other regulatory announcements relevant to superannuation.

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