Issue 876, 2 November 2022
In this issue:
Quality of Advice Review – conflicted remuneration: consultation
Following the release of a proposals paper on reforms to simplify the regulatory framework around financial advice (see ASFA Action issue 866), the Quality of Advice Review has now issued a consultation paper seeking views on reform proposals in relation to conflicted remuneration.
The paper provides a high-level snapshot of the key findings from the data collected by the Review on general insurance and life insurance and puts forward a series of proposals for reform.
If you have any feedback you would like ASFA to consider in relation to the consultation paper, please forward it to Helena Gibson by close of business Wednesday 9 November.
Modernising the prudential architecture: consultation reminder
As reported in ASFA Action issue 868, APRA is consulting on a strategic initiative to modernise the prudential architecture, to make the design of the regulatory framework clearer, simpler and more adaptable.
If you have any feedback you would like ASFA to consider in relation to the consultation, please forward it to Ross Clare by close of business Friday 11 November.
ASIC’s capacity and capability to respond to reports of alleged misconduct: Parliamentary inquiries
The Parliamentary Joint Committee on Corporations and Financial Services and the Senate Economics References Committee will each conduct inquiries into ASIC’s capacity and capability to undertake proportionate investigation and enforcement action of alleged misconduct.
The Joint Committee’s inquiry is to have particular reference to:
- the potential for dispute resolution and compensation schemes to distort efficient market outcomes and regulatory action
- the balance in policy settings that deliver an efficient market but also effectively deter poor behaviour
- whether ASIC is meeting the expectations of government, business and the community with respect to regulatory action and enforcement
- the range and use of various regulatory tools and their effectiveness in contributing to good market outcomes
- the offences from which penalties can be considered and the nature of liability in these offences
- the resourcing allocated to ensure investigations and enforcement action progresses in a timely manner
- opportunities to reduce duplicative regulation.
- the effectiveness of ASIC’s enforcement measures in protecting vulnerable Australians.
The terms of reference for the Economics References Committee’s inquiry are identical except they do not include the last point.
Both inquiries are to report by June 2024. The closing date for submissions to the Economics References Committee is Friday 3 February 2023, while the Joint Committee will call for submissions “in due course”.
‘Measuring what matters’: Treasury consultation
In last week’s Budget, the Government included a paper about ‘measuring what matters’, which aims to “provide an important foundation for Australia’s efforts to lift living standards, boost intergenerational mobility and create more opportunities for more people”.
The paper notes that:
- several countries have developed ways to measure progress and well-being. While methods vary, they tend to assess similar economic, social and environmental outcomes. Some countries are experimenting with more direct processes by linking progress indicators to priority and policy setting.
- the Australian Government and state and territory governments publish many indicators in reports, agreements and dashboards. These support decision-making and accountability for particular policy areas, however Australia does not have a national framework or central set of indicators to complement the existing reporting and track overall progress.
- the OECD Framework for Measuring Well-being and Progress is well known and the inspiration for many countries’ approaches. While it is a good starting point, it has limitations in data and coverage. For this reason, other countries have identified specific objectives, policy areas and indicators to supplement the OECD.
Next year, the Government will release a new standalone Measuring What Matters Statement. This will draw on the work of the OECD but be unique to the Australian context.
Treasury is seeking views about how it can “better measure what matters”, including specific indicators that should be used, by close of business Tuesday 31 January.
Increased penalties for serious data breaches: Bill introduced
As reported in ASFA Action issue 874, the Government recently indicated it would significantly increase penalties for repeated or serious privacy breaches. The announcement followed a number of widely reported cyber-attacks and data breaches in recent weeks.
The Privacy Legislation Amendment (Enforcement and Other Measures) Bill 2022 was introduced into the House of Representatives on 26 October. The Bill proposes to:
- increase maximum penalties under the Privacy Act 1988 for serious or repeated privacy breaches to:
- $2.5 million for a person other than a body corporate
- For a body corporate, an amount not exceeding the greater of: $50 million, three times the value of any benefit obtained through the misuse of information or if the court cannot determine the value of the benefit 30 per cent of a company’s adjusted turnover in the relevant period
- provide the Australian Information Commissioner with enhanced enforcement powers to resolve privacy breaches
- strengthen the Notifiable Data Breaches scheme to ensure the Commissioner has comprehensive knowledge and understanding of information compromised in an eligible data breach to assess the risk of harm to individuals
- equip the Australian Information Commissioner and the Australian Communications and Media Authority with greater information sharing powers.
The amendments will commence on the day after the Act receives Royal Assent, however the increased penalties will not apply retrospectively – that is, they will only apply in relation to an act done, or a practice engaged in, after commencement of the amendments.
The Bill has been referred to the Senate Legal and Constitutional Affairs Committee for inquiry and report by 22 November. The Committee is seeking submissions by close of business Monday 7 November.
This Bill is in addition to a comprehensive review of the Privacy Act by the Attorney-General’s Department that will be completed this year, with recommendations expected for further reform (see ASFA Action issue 833 for background).
Annual members’ meeting notice regulations: disallowance motion unsuccessful
On 25 October the Senate voted against a motion by the independent Senator David Pocock that the Superannuation Industry (Supervision) Amendment (Annual Members’ Meetings Notices) Regulations 2022 be disallowed. Those regulations amend the disclosure requirements for registrable superannuation entities’ annual members’ meeting notices (see ASFA Action issues 870, 868, and 867 for background).
Speaking to the motion, Australian Greens Senator Waters indicated her party wants “meaningful transparency” in relation to superannuation fund expenditure and “are in discussions with the government about developing a scheme to provide this… In our minds, this would be an annual super transparency report, published by the regulator, APRA, that tables all of the relevant expenditure, including for political purposes and for profit, for all super funds, all in the one place. This would enable members to understand how their super fund rates. It would also enable institutional scrutiny from the media, NGOs and parliamentarians on expenditure by super funds and on profit-making by super funds”.
Senator Waters said that while the Greens did not support the current motion for disallowance, they “may well move or support a disallowance of these regulations before the statutory time period to do so has expired”.
Also on 25 October, the Senate supported a motion moved by Coalition Senator Bragg ordering the tabling of “any briefing notes, file notes and emails received by the Assistant Treasurer from superannuation industry representatives in relation to changes to the superannuation industry payment disclosure requirements”.
YFYS performance test faith-based exemption: Bill progresses to Senate
The Treasury Laws Amendment (2022 Measures No 3) Bill 2022 has been passed by the House of Representatives without amendment, and introduced into the Senate.
The Bill includes amendments to the Superannuation Industry (Supervision) Act 1993 to provide for a supplementary annual performance test for faith-based products – see ASFA Action issue 868 for background.
The Opposition unsuccessfully moved amendments to the Bill that would have:
- entirely removed the faith-based provisions
- effectively re-introduced disclosure requirements for superannuation funds’ annual members’ meetings that applied before the current Government ‘streamlined’ those requirements via the Superannuation Industry (Supervision) Amendment (Annual Members’ Meetings Notices) Regulations 2022 (see ASFA Action issue 868, 867 and the above item in this issue).
Breach reporting/reportable situations: ASIC insights
ASIC has released its first publication of information lodged under the reportable situations (breach reporting) regime, after substantial amendments to the regime commenced on 1 October 2021.
ASIC has reported that while over 8000 reports were made to ASIC by financial services and credit licensees under the regime between 1 October 2021 and 30 June 2022
- a much smaller proportion of licensees have reported under the regime than anticipated, suggesting that some licensees may not have in place the systems and processes required to detect and report non-compliance
- licensees are still taking too long to identify and investigate some breaches in 18 per cent of the reports received, the licensee took more than one year to identify and commence an investigation into an issue after it had first occurred
- more work needs to be done to appropriately identify and report the root cause of breaches ASIC is concerned licensees may not be adequately identifying and addressing the underlying root causes for breaches, such as by determining the underlying reasons for repeated staff negligence or error. ASIC will give further guidance to industry on this issue
- further improvements are needed to licensees’ practices towards remediating impacted customers.
Further detail is set out in ASIC’s Report 740 Insights from the reportable situations regime: October 2021 to June 2022.
ASIC Commissioner Sean Hughes said:
“This publication includes significant insights about the implementation of the reportable situations regime. The data ASIC has been receiving under this regime demonstrates how industry is monitoring and responding to non-compliance. It also highlights where compliance with the regime itself requires greater regulatory attention.’
As part of its 2022-23 priorities, ASIC is focusing on improving the operation of the reportable situations regime. We will continue to work with stakeholders to address issues that have arisen from implementation of the regime, including by providing additional guidance where needed. Greater alignment of reporting practices by licensees will facilitate the publication of more comparative data at the licensee level in coming years”.
Financial adviser registration requirement deferred
The Government has announced that it will delay a requirement for centralised registration of financial advisers from 1 January to 1 July 2023.
The Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Act 2021 (the Act) introduced a central registration requirement for financial advisers, in line with recommendation 2.10 from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. This change was implemented to give full effect to the new disciplinary system for financial advisers, allowing the cancellation of registration for serious misconduct. (See ASFA Action issues 830 and 817 for background on the Act.)
The Act had required that all financial advisers who provide personal advice to retail clients be registered by 1 January 2023. Registration was proposed to occur in two stages – a one-off registration process administered by ASIC using the Financial Advisers Register, with the second stage to commence once the Register transitions to the ATO as part of the Australian Business Registry Service.
According to the Minister for Financial Services, Stephen Jones MP, ASIC has been engaging with industry and has identified ways to improve the operation of the stage one registration process with benefits for licensees: “Delaying the requirement for financial advisers to be registered until 1 July 2023 will allow these improvements to be implemented. The registration obligation in stage one will remain with licensees.”
New APRA chair, senior appointments
The Government has appointed John Lonsdale as the next chair of APRA, replacing Wayne Byres. Mr Lonsdale has been a Deputy Chair of APRA since 2018 with responsibility for APRA’s regulation of banks, building the prudential regulator’s crisis resolution capability and strengthening its collaboration with peer regulators. Prior to joining APRA, Mr Lonsdale was a Deputy Secretary in the Australian Treasury.
Margaret Cole has become a Deputy Chair. Ms Cole, previously an APRA Member, was formerly PwC’s UK Chief Risk Officer and General Counsel and worked for the UK Financial Services Authority. Ms Cole will continue to oversee APRA’s activities in the superannuation industry.
Suzanne Smith previously APRA Executive Director with responsibility for superannuation has become an APRA Member and will be responsible for APRA’s activities in life insurance and private health insurance.
APRA has welcomed the appointments, which commenced on 31 October.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
