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Issue 689, 30 October 2018 
In this issue: 

 

Productivity Commission assessment of super industry: insurance and investment performance 

The Productivity Commission has released two supplementary papers as part of its assessment of the efficiency and competitiveness of the superannuation system. The papers follow on from the Commission’s May 2018 draft report (see ASFA Action issue 673). 

The supplementary paper on investment performance includes additional analysis of investment returns, fees and costs in the superannuation system, including by asset class. Material from the paper will inform the findings and recommendations in the Commission’s final report. 

The Commission has requested feedback on the investment performance paper, including with respect to the Commission’s benchmarking methodology, by Friday, 9 November 2018. If you have any feedback you would like ASFA to consider, please forward it to Andrew Craston by close of business Tuesday, 6 November 

In its supplementary paper on the fiscal impacts of insurance in superannuation, the Commission has concentrated on the fiscal impacts of insurance in superannuation using cameo modelling for different member cohorts. The cameo modelling suggests that the fiscal cost of insurance (based on increased Age Pension payments caused by the erosion of superannuation account balances) could be material for certain cohorts. The Commission has not attempted to estimate the total net fiscal impact of default insurance in superannuation 

A third supplementary paper, on economies of scale, is expected to be released in November. The Commission is scheduled to deliver its final report to the Government by the end of the year. 

 

 

Design and distribution obligations: consultation on regulations 

The Government has released a draft of regulations to support proposed reforms to introduce ‘design and distribution’ obligations and a product intervention power for financial services. 

The Corporations Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, which seeks to implement the reforms, remains before the House of Representatives (see ASFA Action issue 686). The reforms are intended to ensure that financial products are appropriately targeted and sold to consumers and that ASIC can intervene in the sale or distribution of a product where there is evidence of significant detriment to consumers. 

The draft regulations extend the design and distribution obligations to apply to some additional products and persons. Importantly for superannuation, the draft regulations also exclude from the obligations interests in eligible rollover funds and defined benefit interests (these exclusions were foreshadowed when the bill was introduced into Parliament). 

The draft regulations also apply the product intervention power to a number of financial products which are not currently regulated by the Corporations Act 2001 but have been identified as having resulted in, or have the potential to result in, significant consumer detriment. 

Treasury is seeking submissions by 13 November. 

 

 

AFCA update 

ASIC has asked ASFA to remind trustees of the need to update member communications about complaints by 1 November, to include the details of the Australian Financial Complaints Authority (AFCA). ASIC has also reminded any financial firms (including superannuation trustees) that have not yet become members of AFCA that they must do so as soon as possible, and updated a number of legislative instruments to refer to AFCA. 

AFCA will commence to accept complaints from 1 November. ASIC issued disclosure relief in late May that allowed financial services providers to defer updates to prescribed disclosure documents until 1 July 2019. That relief is available on the condition that the provider meets, from 1 November, a number of conditions. These include: 

ASIC has asked ASFA to remind superannuation trustees that they have complied with these conditions by 1 November. For more information, see ASIC’s media release from May, ASIC Corporations (AFCA Transition) Instrument 2018/447 and ASFA Action issue 674. 

Separately, ASIC has reminded all financial firms that were required to become members of AFCA, but have not yet done so, to complete a membership application on the AFCA website immediately. Financial firms, including trustees of APRA regulated superannuation funds and AFS licensees who provide financial services to retail clients, were required by law to join AFCA by 21 September. 

ASIC has also issued ASIC Corporations and Credit (Amendment) Instrument 2018/937 to make technical amendments to various ASIC legislative instruments arising from the passage of the legislation that established AFCA. Instrument 2018/937 amends existing instruments that include references to dispute resolution, to reflect the commencement of AFCA, and the requirement to be a member of the AFCA Scheme from 1 November 2018. The Instrument also removes references to ASIC-approved external dispute resolution schemes. The particular instruments amended relate primarily to credit licensees, rather than to Australian Financial Services licensees. 

 

 

Family law super splitting: extension to de facto couples in Western Australia 

The Commonwealth Government has announced that it will amend the Family Law Act 1975 to allow separated de facto couples in Western Australia (WA) to split their superannuation interests as part of their property settlements. Separated de facto couples in all other states and territories are already able to access the family law superannuation splitting regime. 

The Family Law Act was extended in 2008 to cover the breakdown of de facto relationships, however the amendments relied on each state having referred to the Commonwealth the constitutional power to legislate in respect of financial matters arising out of the breakdown of such relationships. 

All states have made a full referral of power for this purpose except for WA, which had sought to limit the referral of power so the Commonwealth could legislate only in relation to superannuation interests and not in relation to other matters. This limited referral of power had not been acted upon by the Commonwealth. As a result, separated de facto couples in WA were not able to access the superannuation splitting provisions in the Family Law Act. 

The Attorney-General, Christian Porter MP, has announced that the Commonwealth Government will proceed with amendments to the Family Law Act to accept the limited referral of power already passed by the WA Parliament. This will ensure that superannuation interests can be split in accordance with the Commonwealth regime. Other aspects of property division will still be kept within WA state law. 

Mr Porter said “The limited nature of the referral complicates the legislative process, but I would hope that the necessary legislative amendments can be dealt with through 2019 to allow for the super-splitting to take effect from the beginning of the following year”. 

 

 

Stronger penalties for financial sector misconduct: bill introduced 

The Government has introduced into parliament a bill to strengthen penalties for corporate and financial sector misconduct. 

The Treasury Laws Amendment (Strengthening Corporate and Financial Sector Penalties) Bill 2018 seeks to: 

The reforms implement some of the recommendations of the ASIC Enforcement Review Taskforce (see ASFA Action issues 668 and 625). The proposals were released in draft in September (see ASFA Action issue 687). 

 

 

Life insurance claims: ASIC-APRA reporting standard 

APRA has released a new reporting standard for the life insurance industry, following on from the pilot data collection and consultation which commenced in June 2017 (see ASFA Action issue 628). 

New Life Insurance Reporting Standard LRS 750.0 Claims and Disputes requires life insurers to report data on claims and disputes in a standard format. 

Announcing the release of the standard, APRA member Mr Geoff Summerhayes said: “This new standard, based on more than 18 months of engagement with industry and consumer groups, codifies life insurers’ reporting obligations and provides greater clarity around definitions and claims processes. The introduction of a legally binding reporting standard will improve the consistency and reliability of the data we receive, and guarantee it continues to be made available to regulators and consumers.” 

The first public release of data collected under LRS 750.0 is due in early 2019 with further releases due every six months. 

 

 

Effectiveness of ASIC enforceable undertakings: research 

ASIC has released a research report on the deterrent effective of enforceable undertakings on peer financial services and credit providers. 

The study was undertaken, and the report written by an UNSW Law Faculty team led by Professor Dimity Kingsford-Smith. The team was commissioned in June 2017 to undertake the pilot study in response to a recommendation of the Australian National Audit Office that ASIC should periodically assess the effectiveness of EUs. 

The qualitative component of the pilot study found that the majority of the peer providers interviewed perceive deterrence effects of EUs entered by competitors. Deterrence was motivated by factors such as avoiding the perceived penal effects of harsher sanctions and intrusion of outsiders, avoiding financial and time costs and distraction from the business and avoiding reputational damage or loss. 

ASIC intends to proceed with a scoping study on potential options for further research into the impact of EUs and other regulatory actions. ASIC will discuss with other regulators the potential to work collaboratively on future research. 

 

 

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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