ASFA Action 3 September 2024

ASFA Action Issue 962, 3 September 2024

In this issue:

• Financial Accountability Regime: APRA-ASIC superannuation webinar
• CPS 230 Operational risk management: transition for non-SFIs determined
• APRA strategic priorities and corporate plan
• Engaging millennial members: ASIC Moneysmart call to action
• 2024 performance test outcomes
• ASIC derivative transaction reporting and clearing rules

 

Financial Accountability Regime: APRA-ASIC superannuation webinar 

APRA and ASIC have asked us to draw ASFA members’ attention to a webinar they are holding for superannuation entities in relation to the Financial Accountability Regime (FAR). 

The webinar will outline key activities and timeframes leading up to the commencement of the FAR for superannuation entities on 15 March 2025, and share general insights to help entities implement the FAR. 

The webinar will be held on Tuesday 17 September from 10-11am (AEST). If you are interested in attending, please register with APRA and ASIC directly via this registration link. 

The Regulators are also encouraging questions to be submitted to FAR@apra.gov.au by 12 September. 

Key materials to support the implementation of the FAR by superannuation entities is available via the APRA website. 

CPS 230 Operational risk management: transition for non-SFIs determined 

APRA has varied its cross-industry prudential standard CPS 230 Operational risk management to reflect previously announced transitional rules for regulated entities that are not significant financial institutions (SFIs) and insert definitions of the terms SFI and non-SFI. 

CPS 230 sets out minimum standards for managing operational risk, including updated requirements for business continuity and service provider management. It will replace existing cross-industry standards CPS 231 Outsourcing and CPS 232 Business Continuity Management and the corresponding superannuation standards SPS 231 and SPS 232. 

APRA issued CPS 230 in July 2023 (see ASFA Action issue 907) and formally determined it in September 2023 for commencement from 1 July 2025. In June this year, APRA finalised the accompanying prudential practice guide CPG 230 and indicated it was providing transitional relief, under which non-SFIs would have until 1 July 2026 to comply with requirements relating to business continuity and scenario analysis (see ASFA Action issue 951). 

APRA has now registered the Banking, Insurance, Life Insurance, Health Insurance and Superannuation (prudential standard) variation No. 1 of 2024. This varies the determined version of CPS 230 to: 

• insert the transitional provision in relation to non-SFIs as previously announced. An APRA-regulated entity that is a non-SFI will automatically receive the benefit of the additional transition and will continue to be subject to existing requirements in existing standards CPS 232 and SPS 232 Business Continuity Management. 

• include a definition of SFI and non-SFI in relation to APRA regulated entities that are registrable superannuation entities, as those terms are not defined elsewhere in the prudential framework. In relation to RSEs: 

• • Non-SFI means an RSE licensee that is not an SFI.  

• • SFI means an RSE licensee that either has total assets in excess of AUD $30 billion in the case of a single RSE operated by an RSE licensee, or if the RSE licensee operates more than one RSE where the combined total assets of all RSEs exceed this amount; OR is determined as such by APRA, having regard to matters such as complexity in its operations or its membership of a group. 

APRA strategic priorities and corporate plan 

APRA has published its 2024-25 corporate plan, updating its strategic priorities and also outlining its annual policy and supervision priorities. 

In relation to superannuation, APRA has detailed an extensive list of specific priorities, including: 

• Financial resilience: 

• • System-wide stress test – strengthening financial system stability by enhancing insights into risk transmission mechanisms between regulated industries and across the financial system. APRA will conduct a system stress test including a small number of large superannuation funds. This will involve a design phase in the first half of FY2024-25 and will be executed with entities in the second half of FY2024-25 (including a data collection). 

• • Crisis preparedness – ensuring trustees and APRA are ready to respond to significant crises in an orderly way. Following the commencement of CPS 900 Resolution Planning on 1 January 2024 and CPS 190 Recovery and Exit Planning on 1 January 2025, APRA will continue to embed recovery and exit planning for all registrable superannuation entity (RSE) licensees and continue to progress staged implementation of resolution planning (entity by entity basis) across all significant financial institutions (SFIs) and any non-SFIs that provide critical functions. 

• Operational resilience: 

• • Strengthening operational risk expectations to minimise the risks of entity and system disruption associated with inadequate risk frameworks, business continuity practices and management of third-party providers. APRA will finalise revisions to SPS/SPG 114 Operational Risk Financial Requirement  in the first half of FY2024-25. In terms of supervision priorities: 

• • • CPS 230 Operational Risk Management will come into effect from 1 July 2025. APRA will engage with regulated entities to prepare for the implementation of CPS 230 and thereafter implement the supervisory plan. 

• • • trustees will be required to submit a register of material service providers on an annual basis and APRA will use this information to assess risks associated with these arrangements. 

• • Cyber resilience – ensuring funds have taken steps to be resilient and minimise the likelihood and impact of cyber incidents, as well as ensuring information security controls are effective across the supply chain. APRA’s supervisory priorities including ensuring all funds meet the standards expected under CPS 234 Information Security. Where entities have significant vulnerabilities, APRA may intensify supervision, require root cause analysis, request remediation plans and consider enforcement action. In the second half of FY2024-25 APRA will undertake the next round of technology resilience data collection, involving surveying entities on several IT and cyber topics including resourcing, system health, information security capabilities and disaster recovery statistics. 

• • Governance – ensuring robust standards of governance underpinning risk management and resilience. APRA is conducting a review of cross-industry governance requirements and will issue a discussion paper in the first half of FY2024-25. APRA will consult with industry on any draft changes to the prudential framework in 2025. 

• • Risk culture – ensuring entities understand and foster a risk culture that supports effective risk management practices and behaviours and delivers sound prudential outcomes. APRA will conduct a pilot risk culture pulse survey for selected entities until early 2025. 

• • Accountability – ensuring a clear, transparent, and common understanding of accountability and that there are proportionate consequences to entities and individuals where poor outcomes occur. APRA and ASIC will release an information package later in 2024 and host a series of webinars to support superannuation entities prepare for the FAR commencement. 

• Responding to significant emerging risks: 

• • Climate and nature risk – ensuring trustees are well positioned to manage the financial risks associated with climate change; and building trustees’ awareness of the impact of nature risk on the resilience of entities, the financial system and the community. APRA will consult on amendments to CPS 220 Risk Management to more clearly embed climate risk considerations in the second half of FY2024-25. (Note – the corporate plan only references amendments to CPS 220 however presumably this will also extend to SPS 220.) APRA will release an information paper with insights from the voluntary Climate Risk Self-Assessment survey in the first half of FY2024-25. This will provide entities and other stakeholders with insight into the maturity of climate risk management to be considered as part of ongoing risk management. 

• • Retirement outcomes and superannuation transparency – effective and outcomes focused implementation of the retirement income covenant. APRA will continue its focus on holding trustees accountable for addressing underperformance with urgency – particularly where it is widespread across a product set – to improve outcomes for members. In terms of supervision priorities, APRA will: 

• • • focus on adherence to the enhanced SPS 515 Strategic Planning and Member Outcomes to promote strong member outcomes 

• • • utilise the new granular expense data set to identify trustees with outlying expenditure for certain discretionary expense categories and will intensify supervisory efforts accordingly, recognising that the use of the enforcement powers may be appropriate in certain circumstances 

• • • monitor trustees responsible for underperforming choice products to ensure they are taking steps to improve or exit them.

• In terms of data priorities, APRA will: 

• • continue to improve industry transparency with the inaugural publication of fund-level expense data 

• • finalise phase 2 of the Superannuation Data Transformation program of work by completing the current consultation on RSE Licensee, RSE Operations and Investments data with a response to submission to be released in first half of FY2024-25. 

• Addressing industry specific challenges: 

• • Investment Governance – ensuring robustness of investment governance frameworks – APRA will finalise thematic work in relation to unlisted assets, liquidity stress preparedness and the internalisation of investments. The outputs will be used to guide supervisory activities. APRA will conduct a review of trustees’ investment governance practices for a sub-set of choice products.  

• • Transitioning D2A data collections to APRA Connect – remaining D2A data collections not related to policy priorities will be transitioned to APRA Connect to enable decommissioning of legacy systems. APRA will engage in the second quarter of FY2024-25 on the migration approach. 

• • Proportionality – ensuring prudential requirements and supervisory approaches are commensurate to the systemic importance and risk profiles of regulated entities. APRA will review the asset thresholds for SFIs in the second half of FY2024-25. 

APRA has also announced some changes to its internal structure to support its updated strategic priorities. From 2 September, APRA will have two frontline supervision divisions: general insurance and banking; and life insurance, private health insurance and superannuation. 

Engaging millennial members: ASIC Moneysmart call to action 

ASIC’s Moneysmart has called on superannuation funds to increase services, transparency, and improved access to information to better engage millennial members. 

ASIC Moneysmart held a roundtable involving representatives from financial advice, research and content creators for millennials, finding that the current language and approach to superannuation is outdated and disengaging for the cohort. 

New research from ASIC’s Moneysmart revealed the concerning trend that nearly half (48%) of surveyed millennials admit they are not knowledgeable about maximising their super. Despite being the first generation to enter the workforce with compulsory superannuation from day one of their working lives, millennials are less engaged with their super compared to previous generations. The roundtable convened by ASIC identified a significant transparency gap, with panellists suggesting super funds are failing to meet the expectations of their millennial members. 

In alignment with the insights from the roundtable, ASIC’s Moneysmart is launching a consumer awareness campaign aimed at millennials. The campaign will spotlight the benefits of engaging with super early and often, demonstrating how regular contributions can compound significantly over time. 

2024 performance test outcomes 

APRA has released the results of the 2024 superannuation performance test, which evaluated the performance of 57 MySuper products and 590 trustee directed products (a subset of the choice segment). 

The annual performance test is designed to increase industry transparency and improve member outcomes by assessing the long-term performance of superannuation products against tailored benchmarks, with consequences for those that fail.  

All MySuper products passed the test in 2024 – in contrast there was one fail in 2023, five fails in 2022 and 13 in the inaugural test in 2021. 

Of the trustee directed products tested, 37 out of 192 platform products failed to meet the test benchmarks. This includes 27 products which have failed for a second time and will now be closed to new members. None of the 398 non-platform products assessed failed to meet the benchmarks. In 2023, the first year that choice products were included in the test, 76 platform and 20 non-platform trustee directed products failed the test.  

Deputy Chair Margaret Cole welcomed the overall test results, saying they demonstrate the progress being made to address underperformance. However, Ms Cole noted that APRA’s priority focus on product performance would not diminish.  

APRA plans to publish a comprehensive package of superannuation product performance metrics, data and insights in late September, as part of its ongoing scrutiny of how trustees are meeting their obligation to act in the best financial interests of their members. 

ASIC derivative transaction reporting and clearing rules 

ASIC has finalised changes to the ASIC Derivative Transaction Rules (Reporting) 2024 (2024 Reporting Rules) and the ASIC Derivative Transaction Rules (Clearing) 2015 (Clearing Rules) (together, the ASIC Rules). 

Commencing 21 October 2024, the 2024 Reporting Rules repeal and replace the current ASIC  Derivative Transaction Rules (Reporting) 2022 to align with international reporting standards, consolidate transitional provisions and exemptions within the rules and ensure that the reporting requirements are fit for purpose. 

ASIC Derivative Transaction Rules (Reporting) 2024 Amendment Instrument 2024/416 (Amendment Instrument) implements the proposed changes to the ASIC Rules set out in Consultation Paper 375 Proposed changes to the ASIC Derivative Transaction Rules (Reporting) 2024: Third consultation (CP 375) and other updates (see ASFA Action issue 934). 

Commencing 21 October 2024, the Amendment Instrument makes changes to: 

• simplify and align the exclusion of exchange traded derivatives in the ASIC Rules 

• make minor amendments to the 2024 Reporting Rules to align requirements with other major jurisdictions and correct errors and omissions; and 

• make administrative updates to the Clearing Rules including re-referencing the location of definitions in the Corporations Act 2001 which have been moved by the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023. 

Commencing 20 October 2025, the Amendment Instrument makes further changes to the 2024 Reporting Rules to: 

• substitute ‘nexus derivative’ transactions as the scope test for foreign entities and simplify the scope of foreign central counterparties’ reporting requirements; and  

• remove the alternative reporting provisions. 

ASIC has released REP 792 Response to submissions on CP 375 Proposed changes to the ASIC Derivative Transaction Rules (Reporting) 2024: Third consultation which summarises the key issues raised in submissions to CP 375 and details ASIC’s response to those issues. ASIC has indicated that feedback to CP 375 was largely supportive. 

Having now finalised the 2024 Reporting Rules policy matters ASIC will shortly: 

• make consequential changes to other related instruments to: 

• • repeal and a remake a version of ASIC Derivative Transaction  Rules (Nexus Derivatives) Class Exemption 2015 to continue its provisions under the 2024 Reporting Rules until the ‘nexus derivative’ scope test for foreign entities’ reportable transactions is uplifted to the 2024 Reporting Rules on 20 October 2025 – this will also allow foreign reporting entities to opt-in to nexus reporting prior to 20 October 2025; 

• • withdraw the ASIC Regulated Foreign Markets Determination 2023/346 and repeal ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2015/844, effective 21 October 2024, to coincide with the definitional exclusion of exchange traded derivatives under the ASIC Rules; and 

• • withdraw ASIC Prescribed Trade Repositories Determination [15-0591] and ASIC Prescribed Trade Repositories Determination [19/325], effective 20 October 2025, to coincide with the removal of the alternative reporting provisions; and 

• publish guidance materials including an updated RG 251 Derivative transaction reporting and Schedule 1 Technical Guidance. 

For more information, please refer to the Explanatory Statement and ASIC’s derivative transaction reporting webpage. 

 

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and other regulatory announcements relevant to superannuation.