ASFA Action 4 December 2020

Issue 786, 4 December 2020 

In this issue: 

• Consumer remediation guidance: ASIC consultation 

• SuperStream: release authorities and SMSF rollovers – draft standard 

• Over the counter derivatives 

• Insurance claims handling: draft information sheet 

• Occupational classification practices in insurance in superannuation 

• Superannuation bills 

• Cyber security: APRA’s strategy 2020-2024 

• Payment Times Reporting Scheme: regulations and guidance material 

• Managing conduct risk during LIBOR transition: ASIC information sheet 

• ASIC cost recovery levy 

• APRA Insight 

• COVID-19 Coronavirus: early release of super – APRA data 

• Remission of additional Superannuation Guarantee charge: ATO guidance 

• Internal audit: draft best practice guidance 

 

 

Consumer remediation guidance: ASIC consultation 

Consumer remediation guidance: ASIC consultation 

ASIC has released Consultation paper 335: Consumer remediation: Update to RG 256 (CP 335), which seeks feedback on proposed updates to Regulatory Guide 256: Client review and remediation conducted by advice licensees (RG 256). 

RG 256 was published in 2016 and applies specifically to advice licensees providing personal advice. ASIC now considers that product neutral remediation guidance is necessary to help all licensees apply clear and consistent standards. ASIC will seek to clarify that RG 256 applies to all trustees of regulated superannuation funds (but not self-managed superannuation funds), Australian financial services licensees (AFSLs) and Australian credit licensees. 

Some of the key issues CP 335 is seeking feedback on include: 

• using a two-tiered approach to initiating a remediation 

• reviewing the relevant period for remediation 

• using beneficial assumptions 

• calculating foregone returns or interest rates on compensation payments 

• applying best endeavours in finding and automatically paying consumers, and removing the low-value compensation threshold 

• clarifying ASIC’s guidance for remediation money that cannot be returned despite best endeavours 

• settlement deeds and fair consumer outcomes. 

CP 335 is the first round of a two-part consultation process. Draft guidance will be included with the second round of consultation and be informed by feedback received in response to CP 335. 

If you have any feedback you would like ASFA to consider in relation to CP 335, please forward it to Maggie Kaczmarska by close of business Friday 12 February. 

 

 

SuperStream: release authorities and SMSF rollovers – draft standard 

The ATO is consulting on draft amendments to the SuperStream standards to incorporate electronic release authorities and self-managed superannuation fund (SMSF) rollovers. SPR 2020/D3 Superannuation Data and Payment Standards (Release Authorities, and SMSF Rollovers) Amendment 2020 amends the Superannuation Data and Payment Standards 2012 (the Standards) to: 

• require trustees of SMSFs and APRA-regulated superannuation entities to comply with the Standards in relation to release authorities issued by the Commissioner of Taxation on or after 31 March 2021 

• require trustees of SMSFs to comply with the Standards in relation to rollovers and transfers that are requested on or after 31 March 2021. 

SPR 2020/D3 also proposes a number of minor technical amendments to the Standards. 

See ASFA Action issues 770, 718, 703, 688, 680 and 668 for background on the extension of SuperStream to SMSF rollovers and release authorities. 

The ATO is seeking feedback on SPR 2020/D3 by 4 January, to be sent to: super&employmentconsultation@ato.gov.au. 

 

 

Over the counter derivatives 

As advised in ASFA Action issue 771, ASIC has added a new page to the section of its website dealing with Over the Counter Derivative (OTCD) trade reporting. 

ASIC has released Consultation Paper 334 Proposed changes to simplify the ASIC Derivative Transaction Rules (Reporting): First consultation and is requesting feedback by 1 March. 

In addition, ASIC encourages direct engagement with interested stakeholders, which may be on a one-on-one basis, and invites stakeholders to email otcd@asic.gov.au if they wish to make such arrangements. 

 

 

Insurance claims handling: draft information sheet 

ASIC has released a draft information sheet on insurance claims handling and settling, following the recent introduction into Parliament of the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020. As reported in ASFA Action issue 783, that Bill includes reforms to implement several of the Royal Commission recommendations, including amendments that will make claims handling and settling a ‘financial service’ under the Corporations Act 2001. 

ASIC notes that, on passage of the Bill, persons providing claims handling and settling services will need to be covered by an Australian Financial Services (AFS) licence, and the general conduct obligations under section 912A of the Corporations Act will apply. 

The draft information sheet also describes the obligations which will apply to superannuation trustees, as a result of the reforms. RSE licensees will need to hold an AFS licence with an authorisation to provide a ‘superannuation trustee service’ which covers all conduct associated with operating a superannuation fund, including claims handling. The substantive obligations of an AFS licensee with a claims handling authorisation will be relevant to superannuation trustees. For example, the trustee and the insurer will be required to handle claims efficiently, honestly and fairly. 

ASIC has released the information sheet in draft form now to assist industry to comply with the timeframes in the Bill. ASIC has also released a draft version of C12 Proof: Claims Handling and Settling Service Statement. Applicants seeking an AFS licence authorisation for claims handling and settling services will be required to supply this statement as part of their application. 

ASIC will issue the final information sheet and proof document, incorporating any changes to the legislation during passage of the Bill, ahead of the commencement of the reforms. 

ASIC expects to start taking applications for AFS licences, and variations to existing licences, from 1 January 2021 (subject to the Bill’s passage before the end of this year). ASIC is strongly encouraging applicants to submit their applications as soon as possible. 

The information sheet and proof document have been released in draft for information purposes only; ASIC is not seeking feedback on these materials. 

 

 

Occupational classification practices in insurance in superannuation 

ASIC has issued a media release identifying ways for trustees to improve member outcomes and better meet their legal obligations with regard to default insurance in superannuation. 

ASIC undertook a review of a sample of 21 trustees who used a high-risk occupational default and were likely to have a membership with a broad-based mix of occupations. ASIC’s review found: 

• significant variation in the sophistication of trustees’ assumptions and in the factors they took into consideration when designing their default category 

• poor disclosure by some funds, including about the relative cost of premiums in different categories and, in the case of 15 trustees, the use of a generic labels (such as ‘standard’ or ‘general’) for the most expensive category 

• the process for members to update their occupational category was generally not readily apparent or accessible. 

ASIC has identified certain areas where trustees could make improvements as: 

• better occupation data collection about individuals and cohorts so that default settings are based on appropriate statistical assumptions and are fair and reasonable 

• occupational default labels should be meaningful, promote understanding of the level of risk and associated cost of the category, and prompt action taken to address any mis-categorisation 

• clear disclosure about occupational categories, costs and whether the member is able to amend their profile easily (so appropriate premiums are charged) or may be eligible for an alternative category (which may be cheaper or provide a greater level of cover for the same premium). 

ASIC has also flagged that as part of its initiative to improve trustee practices around default insurance in superannuation it will soon communicate about measuring the value for money of default insurance delivered to members. 

 

 

Superannuation bills 

In Parliament’s second-last sitting week of the year, there were developments on a number of superannuation-related bills. 

 

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

The bill to allow separated de facto couples in Western Australia (WA) to split their superannuation interests as part of their property settlements has now been passed by both houses of Parliament. 

The Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Bill 2019 contains amendments that will enable separating de facto couples in WA to access the superannuation splitting regime set out in the Commonwealth Family Law Act 1975. (FL Act). All other aspects of property splitting for separated WA de facto couples will continue to be dealt with under WA law rather than the Commonwealth FL Act. (Separated de facto couples in all other states and territories are already able to access the family law superannuation splitting regime.) 

See ASFA Action issues 783, 729 and 689 for background in relation to this Bill. 

 

Cessation of SCT: amending bill 

As noted in ASFA Action issue 782, the Government has introduced into Parliament amendments to facilitate the cessation of the Superannuation Complaints Tribunal (SCT) by 31 December. 

The amendments are contained in the Treasury Laws Amendment (2020 Measures No 4) Bill 2020, which was referred to the Senate Economics Legislation Committee for a brief inquiry and report. The Committee reported on 26 November, recommending that the Bill be passed. 

 

Miscellaneous tax and superannuation amendments bill introduced 

On 2 December, a new omnibus amendment bill was introduced into the House of Representatives. 

The Treasury Laws Amendment (2020 Measures No 6) Bill 2020 contains a number of measures relevant to superannuation, including amendments to: 

• the Superannuation Industry (Supervision) Act 1993, to: 
  • modify the MySuper charging rules in relation to lifecycle products 
  • allow elections regarding the provision of insurance—including under the Protecting Your Superannuation and Putting Members’ Interests First (PMIF) reforms—to remain in force where a member is transferred as part of a successor fund transfer (SFT), including through a chain of SFTs 
• the Superannuation (Unclaimed Money and Lost Members) Act 1999 (SUMLM Act), to ensure that an account for a member under 25 years old is not an ‘inactive low balance account’ if the member has elected to maintain insurance cover under the PMIF reforms 

• the Income Tax Assessment Act 1997, to: 
  • correct issues in relation to the operation of the non-arm’s length income rules for complying superannuation entities 
  • confirm that a superannuation entity cannot claim a deduction for a payment to a person under an income stream because of their temporary inability to engage in gainful employment 
  • extend the circumstances in which a superannuation entity is entitled to an offset for no-TFN contributions income to cover situations where a member has been transferred under a SFT 
  • ensure superannuation benefits paid by the Commissioner of Taxation under the SUMLM Act consist of the appropriate tax free and taxable components 
• the Corporations Act 2001, to ensure eligible persons are not prevented from making a superannuation complaint to the Australian Financial Complaints Authority, by: 
  • reflecting renumbering of provisions in the Family Law Act 1975 impacting the superannuation splitting rules 
  • provide for the passage of legislation (currently before Parliament) that will enable Western Australian de facto couples to access the superannuation splitting rules 
• the Superannuation Guarantee (Administration) Act 1992, to clarify the meaning of ‘excluded salary or wages’. 

The commencement dates for the proposed amendments vary – some will apply retrospectively from the commencement of the underlying reforms to which they relate, and others will apply prospectively. 

The amendments in the Bill were the subject of a consultation that closed in mid-November (see ASFA Action issue 781). That consultation package also included amendments to a range of regulations, some of which were relevant to superannuation, including amendments to: 

• the Superannuation Industry (Supervision) Regulations 1994, to confirm that permanent residents of New Zealand are eligible for the Coronavirus early release of superannuation initiative in accordance with the same criteria that apply for Australian citizens, permanent residents of Australia and New Zealand citizens, consistent with the original intent and with the ATO’s administration of the initiative 

• the Corporations Regulations 2001, to support the amendments in the Bill regarding the family law superannuation rules 

• the Superannuation Guarantee (Administration) Regulations 2018, to support the amendments in the Bill regarding the meaning of ‘excluded salary or wages’. 

The Treasury Laws Amendment (Miscellaneous Amendments) Instrument 2020 were registered on 27 November to implement some of the amendments included in the consultation package, but did not include the superannuation-related measures. 

 

 

Cyber security: APRA’s strategy 2020-2024 

APRA has published a speech by Executive Board Member Geoff Summerhayes launching APRA’s 2020-2024 Cyber Security Strategy. 

The strategy comprises three main focus areas: 

1. establishing a baseline of cyber controls by reinforcing the embedding of non-negotiable cyber practices, facilitating better sharing of cyber information and enabling more effective incident response processes 

1. enabling boards and executives of financial institutions to oversee and direct correction of cyber exposures, by formulating sound practice guidance, and stepping up APRA’s scrutiny of cyber oversight practices 

1. rectifying weak links within the broader financial eco-system and supply chain by fostering the maturation of provider cyber-assessment and assurance and harmonising the regulation and supervision of cyber across the financial system. 

The speech notes that the Strategy aims to extend APRA’s reach beyond its regulated entities to influence the broader eco-system of suppliers and providers they rely upon. Some key points from the speech include: 

• Australia’s financial system is only as resilient to cyber-attacks as the weakest link in the chain. By working together, participants in the system can capitalise on increased connectivity to strengthen the chain, and “protect ourselves by protecting each other” 

• APRA’s cybersecurity strategy recognises that the financial system is an ecosystem of an estimated 17,000 interconnected financial entities, markets, and financial market infrastructures that provide products and services to consumers. While APRA only directly supervises around 680 of these, a cyber breach in any part of the system can have a cascading impact on the whole system 

• APRA is concerned that “very few entities” have fully dealt with the increased risks arising from the need to quickly implement remote working arrangements in light of the COVID-19 pandemic 

• APRA will “take a much more targeted approacho ensuring prudential standard CPS 234 Information Security is being fully complied with and holding boards and management accountable where it is not” 

• APRA will shortly be requesting one-off tripartite independent cyber security reviews across all its regulated industries. Starting next year, APRA will ask boards to engage an external audit firm to conduct a thorough review of their CPS 234 compliance and report back to both APRA and the board. 

 

 

Payment Times Reporting Scheme: regulations and guidance material 

As reported in ASFA Action issue 781, the Government has legislated a new regime to require large businesses—including superannuation funds—to report on their small business payment terms and times, via a public Payment Times Reports register. The Payment Times Reporting Scheme will commence on 1 January 2021, with reports to be lodged within three months of the end of each six-monthly reporting period. 

The Government has now registered the Payment Times Reporting Rules 2020. These set out the technical and administrative details on how certain provisions in the framework legislation will operate in practice. 

In addition, the Department of Industry, Science, Energy and Resources has now published a range of guidance material on the Scheme. 

 

 

Managing conduct risk during LIBOR transition: ASIC information sheet 

ASIC has published an information sheet providing guidance that Australian entities can adopt to manage conduct risk during the London Interbank Offered Rate (LIBOR) transition. 

LIBOR is expected to cease after the end of 2021. Although entities in Australia have made substantial changes to date, ASIC considers that additional effort is required to ensure an orderly transition. 

Information Sheet 252: Managing conduct risk during LIBOR transition (INFO 252) sets out ASIC’s regulatory expectations and clarifications on key transition issues. It aims to assist entities in establishing necessary arrangements to mitigate conduct risk associated with the discontinuation of LIBOR. INFO 252 sets out: 

• frameworks, practices, and recommendations on fair treatment of clients, representation of product performance, and client communication strategies 

• ASIC’s expectation of the industry, including what it considers to be best practices 

• buy-side entity specific guidance and recommendations. 

ASIC is encouraging all entities with LIBOR exposures to review INFO 252 and take reasonable steps to implement the relevant recommendations. 

 

 

ASIC cost recovery levy 

ASIC has registered legislative instruments relevant to its cost recovery levies for the 2019-20 financial year. 

The ASIC (Supervisory Cost Recovery Levy—Regulatory Costs) Instrument 2020/1074 determines ASIC’s regulatory costs and their attribution to each industry sub-sector for the 2019-20 year. This instrument specifies that ASIC’s regulatory costs for 2019-20 are $320,333,169. Of this amount, $28,815,577 has been attributed to superannuation fund trustees. 

The ASIC (Supervisory Cost Recovery Levy—Annual Determination) Instrument 2020/1073 specifies certain matters that are used in the formulae prescribed in the ASIC Supervisory Cost Recovery Levy Regulations 2017. Taken together, this instrument and Instrument 2020/1074 provide ASIC with the figures necessary to enable it to calculate the levies payable by each leviable entity for the 2019-20 financial year. 

Invoices for the 2019-20 levies will be issued by ASIC in January 2021. 

 

 

APRA Insight 

APRA has released the latest edition of its Insight Newsletter. Of particular relevance to superannuation, Insight – Issue Four 2020 includes articles on: 

• the impacts of the Coronavirus early release initiative, based on reporting by funds under APRA’s Pandemic Data Collection 

• how a skills matrix can help transform superannuation trustee board capability. 

 

 

COVID-19 Coronavirus: early release of super – APRA data 

APRA has made its thirty-first weekly publication of industry-level data from its early release initiative data collection. 

The data covers applications made from inception of the early release initiative on 20 April. The data shows that from 20 April to 22 November: 

• payments totalling $35.3 billion had been made, with an average payment of $7,650 

• 3.4 million ‘initial’ applications had been received, with an average application amount of $7,400 

• 1.4 million ‘repeat’ applications had been received, with an average application amount of $8,312 

• funds were taking an average of 3.3 business days to pay an application, with 95 per cent of applications paid within five business days. 

APRA has also published the thirtieth tranche of fund-level statistics from its early release data collection, revealing the number and value of the payments processed by each fund, as well as the time taken to make payments. 

 

 

Remission of additional Superannuation Guarantee charge: ATO guidance 

The ATO has released final guidance about its approach to the remission of penalties under the Superannuation Guarantee (SG) regime, following the one-off amnesty for disclosure of historical unpaid SG which ended on 7 September. 

In Practice Statement Law Administration PS LA 2020/4 Remission of additional superannuation guarantee charge, the ATO notes that it will “take a very strict approach to penalties where an employer could have come forward voluntarily to disclose an SG shortfall and failed to do so”. 

See ASFA Action issues 739 and 722 for background in relation to the amnesty. The ATO consulted on a draft of PS LA 2020/4 in August – refer ASFA Action issue 771. 

 

 

Internal audit: draft best practice guidance 

The Institute of Internal Auditors – Australia (IIA-Australia) has published internal audit best practice guidance for the financial services industry following recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. 

In late 2019 IIA-Australia established a committee made up of ten senior banking, superannuation, insurance and finance industry professionals to address the governance issues raised by the Royal Commission. Observers to the committee included ASIC and APRA. 

The guidance sets out what is expected of the internal audit function so that boards, audit committees and regulators’ expectations can be met. 

IIA-Australia consulted on a draft version of the guidance earlier this year (see ASFA Action issue 752). 

 

 

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