Issue 681, 31 July 2018
In this issue:
- Superannuation prudential framework: APRA consultation
- Fees and costs disclosure: expert report on RG 97
- Royal Commission: background papers on superannuation
- Trust deficit in superannuation: ASIC Chair’s comments
- ASIC industry funding: reporting of business activity
Superannuation prudential framework: APRA consultation
APRA has released a third tranche of ‘short topic papers’ as part of its post-implementation review of the superannuation prudential framework introduced following the 2013 Stronger Super reforms.
As outlined in ASFA Action issues 672 and 679, the review aims to ensure the prudential and reporting standards, and related guidance, have achieved their objectives and continue to remain fit for purpose.
APRA released an overarching discussion paper and short topic papers on governance and risk management in late May and short topic papers on financial requirements, operational risk and outsourcing and investments in early July. APRA has now released:
Submissions on all the papers will be due by 26 September. APRA expects to release a final report on the superannuation post-implementation review by early 2019.
If you have any feedback you would like ASFA to consider in relation to this third tranche of consultation papers—to inform discussion at industry roundtables—please forward it to Fiona Galbraith by close of business Wednesday 8 August.
If you have feedback you would like ASFA to consider including on the submission on all three tranches of consultation papers please forward it to Fiona Galbraith by close of business Friday 7 September.
Fees and costs disclosure: expert report on RG 97
ASIC has released an external report it commissioned into its regulatory guide on fee and cost disclosure in periodic statements and product disclosure statements (PDSs) for superannuation and managed investment scheme (MIS) products, RG 97. (See ASFA Actions issues 667, 652 and 650 for background.)
The report was commissioned in November 2017 from Darren McShane. As part of his review, Mr McShane consulted widely with the industry in Australia and also looked at other jurisdictions through international benchmarking and case studies.
The report is a detailed and thorough review of the existing fee and costs disclosure regime. It makes a number of recommendations to assist consumers in making comparisons and decisions in relation to superannuation and MIS products.
ASIC has welcomed the release of the report and indicated it will release a consultation paper setting out its response to the report before the end of the calendar year. In the meantime, ASIC has advised that its facilitative approach to fees and costs disclosure will continue.
The report:
- makes specific recommendations relating to the RG 97 fee template and the fee example
- asks ASIC to consider specific modifications to RG 97 Schedule 10 for operational and transactional costs and changes to RG 97 and its instruments in relation to performance and performance-related fees
- proposes a dedicated framework be adopted for the consideration of issues that will emerge in the future
- proposes that superannuation and MIS disclosure be brought into alignment as much as possible
- makes recommendations for ongoing consultation with industry in relation to improving consistency in the way fee information is set out in fee templates and PDSs
- proposes a feasibility study into the development of a facility which provides product fee and cost information to enable consumers to make comparisons and which also provides average ‘cost of product’ figures for investment option types to be used as a reference in fee examples
- proposes a later review of platform products to make sure consumers can make sense of them after the proposed changes are implemented.
The report makes the point that its recommendations are inter-related and need to be taken as a package. If it is not considered possible to implement the recommendations as a package, the report recommends the substance of the current approach be maintained as the best fall-back.
Royal Commission: background papers on superannuation
Ahead of its hearings into superannuation, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has published a number of relevant background papers.
The papers are:
- Background Paper 22 – Superannuation (published 24 July)
- Background Paper 23 – Overview of key regulatory reforms in superannuation (Treasury) (published 24 July)
- Background Paper 24 – Submission on key policy issues (Treasury) (published 26 July)
- Background Paper 25 – Legal framework governing aspects of the Australian Superannuation System (published 26 July)
Comments can be made on the papers within four weeks of their publication date.
The Commission is scheduled to undertake two weeks of hearings focused on superannuation from 6 August.
Trust deficit in superannuation: ASIC Chair’s comments
The Chair of ASIC, James Shipton, recently delivered a significant speech addressing the trust deficit in financial services, and particularly in superannuation.
Mr Shipton:
- reminded organisations in the financial services industry that they are the custodians of other people’s money, entrusted with that money so Australians can save and invest those savings as well as manage all kinds of risks. Further, in the case of compulsory superannuation, organisations hold other people’s money in a world where consumers have no choice but to entrust that money to them. As a result, responsibilities to investors specifically, and the community more generally, are amplified.
- suggested three actions that should be taken to address the trust deficit. He stated:
- there should be a wholesale review of conflicts of interests in firms, sectors and markets to identify, manage and, if appropriate, remove every single conflict of interest
- there must be greater senior management attention to conduct issues that lead to poor consumer outcomes, including more investment in management systems and processes to capture, diagnose and remediate conduct issues earlier, quicker and more efficiently.
- organisations should refresh—or if necessary,create—their strategy for dealing with regulators and ensure their actions are consistent with that strategy.
- gave specific examples of the types of conduct that ASIC considers are contributing to the trust deficit in superannuation. These were:
- the exploitation of consumer disengagement and consumers’ knowledge and decision biases – for example, processes by funds that make it unreasonably difficult for consumers to opt out of insurance
- failures to promote informed decision-making – for example, misleading promotions that prioritise marketing over accurate disclosure of key terms
- poor financial advice about superannuation issues and options – for example, in relation to setting up a SMSF or switching superannuation products
- poor treatment of consumers in their interactions with the super system – for example, delays and difficult processes in insurance claims handling and general complaints handling
- practices that make it difficult for vulnerable consumers to access their super – for example, indigenous Australians in remote areas whom are eligible to access superannuation benefits, but are unable, or whom have significant difficulty, in doing so
- defensiveness when it comes to transparency about fund operations – for example, a resistance to disclosing investment holdings.
Mr Shipton highlighted ASIC work in relation to RG 97 (see above item) and enforcement actions in superannuation, and recent reports on SMSFs and financial advice issues in super (see ASFA Action issue 678). He noted that ASIC will shortly release a report on insurance in superannuation, and is doing further work in relation to employers and superannuation, total and permanent disablement insurance and personal advice provided by superannuation funds, and internal dispute resolution policy settings.
Finally, Mr Shipton flagged that ASIC is looking to implement an enhanced supervisory approach for superannuation. This will include more frequent on-site visits and a more intensive engagement model, where superannuation stakeholders will deal with specific ASIC staff on a more consistent and regular basis.
ASIC industry funding: reporting of business activity
ASIC has announced it will require all its regulated entities to complete a business activity statement by 27 September, under its new industry funding arrangements.
The arrangements, which commenced on 1 July 2017, require organisations regulated by ASIC to contribute toward the associated regulatory costs incurred in the previous financial year.
To enable ASIC to calculate invoices, organisations must submit or confirm pre-populated business activity metric data on the operation of their business from the previous financial year. This will be done via a new online ASIC Regulatory Portal.
ASIC indicated that a letter has been sent to each regulated entity’s registered office address, containing instructions to complete the process and a unique industry funding security key which is to be used to launch an online form.
ASIC has indicated that if an entity has not received their letter by the end of July, they should refer to related information on the ASIC website.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
