Issue 835, 30 November 2021
In this issue:
- FAR and CSLR Bills referred to Parliamentary committee
- Effectiveness and capability of ASIC: FRAA review
- Retirement income covenant: Bill introduced
- Climate change financial risk: APRA guidance finalised
- Cyber resilience: APRA Insight
- AFCA statutory review: final report and Government response
- Payment of ATO-held super amounts to KiwiSaver schemes: regulations
- AUSTRAC: suspicious matter reports
FAR and CSLR Bills referred to Parliamentary committee
The package of Bills to establish the frameworks for the Financial Accountability Regime (FAR) and the financial services compensation scheme of last resort (CSLR) have been referred to a Parliamentary Committee.
The Senate Economics Legislation Committee will inquire into the Financial Accountability Regime Bill 2021, Financial Sector Reform (Hayne Royal Commission Response No. 3) Bill 2021, Financial Services Compensation Scheme of Last Resort Levy Bill 2021 and Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2021, and report by 15 February.
Submissions to the inquiry are due by 17 December. If you have any feedback you would like ASFA to consider in relation to any of the Bills, please forward it to Julian Cabarrus by close of business Wednesday 8 December.
The Bills were introduced into the House of Representatives on 28 October (see ASFA Action issue 831) and have not yet been debated in Parliament.
Effectiveness and capability of ASIC: FRAA review
The Financial Regulatory Assessment Authority (FRAA) has released for feedback the scope of its first assessment of ASIC, to be completed by the end of July 2022.
The FRAA was established in response to recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (see ASFA Action issues 811 and 807 for background) and is tasked with reviewing and reporting on the effectiveness and capability of ASIC and APRA.
The FRAA’s first review will be a targeted assessment of ASIC’s effectiveness and capability in strategic prioritisation, planning and decision making, ASIC’s surveillance function, and ASIC’s licensing function. The first review will also examine ASIC’s use of data and technology in each of these areas of focus.
The FRAA’s review will be conducted against the backdrop of the Government’s Statement of Expectations and the need for ASIC to continue supporting Australia’s economic recovery from the COVID 19 pandemic.
The FRAA is seeking feedback by close of business Friday 28 January.
Retirement income covenant: Bill introduced
The Government has introduced into Parliament a Bill containing provisions to establish the retirement income covenant (RIC) — an obligation on trustees of registrable superannuation entities (RSEs) to develop a retirement income strategy for beneficiaries who are retired or approaching retirement. The Government committed to introducing the RIC in its 2018-19 Budget.
The Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 sets out the detail of the RIC as follows:
- a new covenant will be inserted into the Superannuation Industry (Supervision) Act 1993 that requires trustees of an RSE to develop a retirement income strategy for beneficiaries who are retired or are approaching retirement
- The RIC requires trustees to have a strategy to assist beneficiaries to achieve and balance the following three objectives:
- maximising their expected retirement income
- managing expected risks to the sustainability and stability of their expected retirement income
- having flexible access to expected funds during retirement
- the RIC will include obligations to:
- take reasonable steps to gather the information necessary to inform the formulation and review of the strategy
- record the strategy in writing
- record a range of matters as part of the strategy
- make a summary of the strategy publicly available on the website of the RSE
- regularly review the strategy.
A trustee that fails to comply with the RIC may be subject to a civil penalty or, if the contravention involves dishonesty or an intention to deceive or defraud, a criminal offence.
The amendments to introduce the RIC will commence on the day after the Bill receives Royal Assent. This will enable trustees to commence taking steps to gather information to formulate the retirement income strategy. Trustees are expected to have their strategy formulated in writing and a summary publicly available from 1 July 2022. Trustees are not required to give effect to all the components of their strategy on 1 July 2022 implementation is an ongoing process that is required from 1 July 2022.
The Government has previously consulted on a position paper on the RIC, as well as an exposure draft Bill (see ASFA Action issues 826, 814, 671 and 669 for background).
Climate change financial risk: APRA guidance finalised
APRA has finalised a new prudential practice guide designed to assist regulated entities — including superannuation fund trustees — to manage the financial risks of climate change. The guide does not impose any new regulatory requirements or obligations, but will help regulated entities manage climate-related risks and opportunities within their existing risk management and governance practices.
New CPG 229 Climate Change Financial Risks covers APRA’s view of sound practice in areas such as governance, risk management, scenario analysis and disclosure of climate-related financial risks. It is designed to be flexible in allowing each institution to adopt an approach that is appropriate for its size, customer base and business strategy.
APRA consulted on a draft of CPG 229 earlier this year (see ASFA Action issue 800 for background). In response to feedback to the consultation, APRA has made minor amendments to CPG 229 related to capital adequacy, the use of climate-related targets, and disclosing key design features of scenario analysis. While additional clarity has been provided in some areas in response to requests for more prescription, APRA has endeavoured to maintain a principles-based approach to the guidance to ensure it remains flexible, applicable to a wide range of institutions, adaptable to the evolving external environment, and complementary to APRA’s existing risk management and governance requirements. APRA has published a response paper outlining the approach taken in relation to feedback on the draft of CPG 229.
APRA has encouraged regulated entities to begin using the finalised guidance immediately to enhance their management of climate change financial risks in a manner that is appropriate to their business and its particular circumstances.
APRA has also indicated that next year it intends to undertake a survey to help gauge the alignment between institutions’ management of climate change financial risks, the guidance set out in CPG 229, and the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures.
Cyber resilience: APRA Insight
APRA has published an Insight article detailing the areas where it considers the boards of its regulated entities need to take a more active role to increase their entity’s cyber resilience.
The article notes that APRA recently completed two pilot initiatives as part of its 2020-2024 Cyber Security Strategy: a technology resilience data collection, and an independent assessment of a pilot set of entities’ compliance with Prudential Standard CPS 234 Information security.
The results of the two pilots, together with the outcomes of recent supervisory activities, led APRA to conclude that boards need to play a more active role in:
- reviewing and challenging information reported by management on cyber resilience
- ensuring their entities can recover from high-impact cyber-attacks (for example, ransomware)
- ensuring information security controls are effective across the supply chain.
Ultimately, APRA expects boards to have the same level of confidence in reviewing and challenging information security issues as they do when governing other business issues.
AFCA statutory review: final report and Government response
Treasury has published the final report from its recent statutory review of the Australian Financial Complaints Authority (AFCA), along with the Government’s response.
The review considered feedback on AFCA’s operation in its establishment phase, including whether changes could be made to ensure AFCA is appropriately calibrated and operating effectively within the existing framework.
The review concluded that overall AFCA is performing well in a difficult operating environment and a changing regulatory landscape. It found that AFCA has successfully brought together the three predecessor schemes – the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT) – to produce an effective dispute resolution service for consumers and small businesses. While the review endorsed AFCA’s performance in its establishment phase, it noted that it will need to continue to develop and improve its processes as it consolidates its place in the financial system.
The review’s recommendations include:
- resolving complaints in a fair, independent, efficient and timely manner:
- AFCA should provide clearer guidance about when a further issue identified during the complaint process would revert to financial firms for consideration through internal dispute resolution
- in making its decisions, AFCA should consider what is ‘fair in all the circumstances’ having primary regard to the four factors identified in its Rules – legal principles, industry codes, good industry practice and previous decisions
- AFCA should not advocate for, nor act in a manner that otherwise advantages, one party such that the impartiality of the complaints resolution process is compromised
- AFCA should enhance the transparency of its data around timeliness of its dispute resolution. It should better manage expectations around timeframes in its communications with parties and focus on improving the timeliness of complaints that remain unresolved beyond 12 months.
- funding and fee structure: AFCA’s funding model should not disincentivise financial firms from defending complaints that they consider do not have merit. AFCA should improve the transparency of its fees for financial firms and how the fees are being used to support its activities.
- accountability: AFCA determinations should continue to not be subject to merits review, but the substance of a determination should be reviewable with respect to its application to future cases. To this end, AFCA should enhance the visibility, accessibility and independence of its existing forward looking review mechanism.
- systemic issues: Where a systemic issue has been referred to ASIC or another regulator, AFCA should cease its investigation of the systemic issue, however, AFCA should continue to resolve any relevant individual complaints. AFCA should be more transparent in its public reporting of systemic issues.
The Government’s response expresses support for each of the review’s recommendations. AFCA has also indicated its in principle support.
Payment of ATO-held super amounts to KiwiSaver schemes: regulations
The Government has made regulations to support recent legislative reform allowing ATO-held amounts of superannuation to be directly transferred to a KiwiSaver account.
Under an intergovernmental arrangement and supporting legislation (including provisions in the Superannuation Industry (Supervision) Regulations 1994), a scheme exists to allow the transfer of retirement savings between Australian complying superannuation funds and New Zealand (NZ) KiwiSaver schemes. This ‘trans-Tasman portability’ scheme only covers transfers directly between Australian superannuation funds and KiwiSaver schemes and does not apply to superannuation amounts that are held by the ATO – for example, amounts transferred to the ATO by funds under the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLM Act). As a result, NZ residents who wish to recover ATO-held amounts must first transfer them to an Australian complying fund and then request a transfer to a KiwiSaver scheme.
Amendments made by the Treasury Laws Amendment (2020 Measures No 5) Act 2020 provided for ATO-held superannuation amounts to be transferred directly into an individual’s KiwiSaver account. While that Act received Royal Assent last December, commencement of the amendments was deferred by 12 months to ensure sufficient time for corresponding legislation to be implemented in NZ and for amendment of the intergovernmental agreement (see ASFA Action issues 788 and 783 for background).
The Treasury Laws Amendment (KiwiSaver Scheme) Regulations 2021 have now been made to support the reforms. The Regulations ensure that amounts dealt with by the ATO under the SUMLM Act are treated in accordance with the intergovernmental arrangement and prescribe the further matters that must be satisfied for the ATO to pay an amount to a KiwiSaver scheme provider.
AUSTRAC: suspicious matter reports
AUSTRAC has updated its website to clarify how a reporting entity should complete a suspicious matter report (SMR) where it considers its customer may be the victim of a crime, rather than a suspected offender.
AUSTRAC has found that they commonly receive reports where an entity has listed its customer as the suspicious party, when that is not actually the case. To address this, AUSTRAC has clarified its guidance on how to complete the fields when reporting this type of SMR.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
