Issue 817, 6 August 2021
In this issue:
- Your Future, Your Super and member outcomes: regulations
- Royal Commission implementation: breach reporting and remediation regulations
- Royal Commission implementation: hawking regulations and proposed RG 38 updates
- Royal Commission implementation: advice Bill passed by House of Representatives
- Superannuation fund annual members’ meetings: ASIC review
- Non-arm’s length expenditure: ATO ruling
- Financial Service Royal Commission – Financial Accountability Regime (FAR) Exposure Draft Legislation: consultation – reminder
Your Future, Your Super and member outcomes: regulations
Late yesterday the Government made three sets of regulations to support the Your Future, Your Super (YFYS) reforms announced in its October 2020 Budget and the ‘member outcomes’ reforms legislated in 2019. The YFYS reforms were implemented by the Treasury Laws Amendment (Your Future, Your Super) Act 2021 (‘YFYS Act’), which was passed by Parliament in June (see ASFA Action issue 810 for background). The ‘member outcomes’ reforms were implemented by the Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 (‘Member Outcomes Act’).
Background
The YFYS reforms impose substantial new obligations on fund trustees and employers in relation to underperformance by funds, the ‘stapling’ of employees to a single default account, and the imposition of a ‘best financial interests’ duty on trustees.
The Member Outcomes Act introduced measures to increase the amount and quality of information available to fund members and other stakeholders, including the requirement for superannuation funds to hold annual members’ meetings. Other amendments in the Act strengthened the rules prohibiting the use of goods or services by a trustee to influence an employer’s decision to nominate a superannuation fund as their default fund, or to encourage their employees to nominate the fund as their chosen of fund.
All three sets of Regulations were previously released in draft in late April (see ASFA Action issue 801), however, the Government has made some amendments in finalising the Regulations. The main change relates to the performance test methodology – the administration fee component is now based on the administration fee charged by the product over the most recent financial year, benchmarked against peers.
The Government has indicated that there will be further consultation on portfolio holdings disclosure regulations in the coming weeks.
Underperformance
The YFYS Act amends the Superannuation Industry (Supervision) Act 1992 (SIS Act) to require APRA to conduct an annual performance test for ‘Part 6A products’, which include MySuper products and other products if specified in regulations. A trustee providing such products will be required to give a notice to its beneficiaries who hold a product that has failed the performance test. Where a product has failed the performance test in two consecutive years, the trustee is prohibited from accepting new beneficiaries into that product. APRA may lift the prohibition if circumstances specified in regulations are satisfied.
The Government has now made the Treasury Laws Amendment (Your Future, Your Super – Addressing Underperformance in Superannuation) Regulations 2021 to support these measures. The Regulations specify:
- when APRA must conduct the annual performance test, which products are subject to the annual performance test and the requirements for the annual performance test
- the circumstances where products are to be treated as combined, such as the application of the performance test and the triggering of the prohibition on accepting new beneficiaries into an underperforming product
- the form and content requirements for the notice a trustee is required to send to beneficiaries who hold a product that has failed the performance test
- that a registrable superannuation entity (RSE) licensee is required to make information about a failed annual performance test, in relation to a product it offers, publicly available on its website
- the circumstances where APRA may lift a prohibition on a trustee from accepting new beneficiaries into an underperforming product
- formulas as a basis for, or methods for, ranking Part 6A products, which APRA may give to the ATO to enable the implementation of the YourSuper comparison tool.
The amendments relating to the new annual performance test and supporting implementation of the comparison tool apply in relation to MySuper products on and after 1 July 2021 and in relation to other classes of beneficial interest in a regulated superannuation fund specified in the regulations on and after 1 July 2022. The comparison tool will cover MySuper products.
Accountability and member outcomes
The Government has now made the Superannuation Industry (Supervision) Amendment (Your Future, Your Super – Improving Accountability and Member Outcomes) Regulations 2021 (the Regulations) to support the member outcomes reforms noted above. The Regulations:
- prescribe the information that must be provided with a notice for an annual members’ meeting. These requirements apply in relation to an annual members’ meeting for each year of income that ends on or after the commencement of the regulations.
- remove an exception to the revised prohibition on influencing employers that allowed a trustee (or associate) to supply a good or service to an employer if the supply or offer was available to all of the employer’s employees who are members of the fund on terms that were no less than those offered to the employer.
The Regulations commence today, 6 August.
Stapling to a single default account
The reforms in the YFYS Act limit the creation of multiple superannuation accounts for employees who do not choose a superannuation fund when they start a new job. In particular, if a new employee (who has started their employment on or after 1 November 2021) has no chosen fund but has an existing ‘stapled’ fund, the amendments:
- allow the employer to comply with the choice of fund rules by making contributions to the employee’s stapled fund
- provide that the employer cannot comply with the choice of fund rules by making contributions to the employer’s chosen default fund or the fund specified under a workplace determination or an enterprise agreement.
If an employee does not have an existing stapled fund, the employer may comply with the choice of fund rules by making contributions to:
- the employer’s chosen default fund (if it meets prescribed requirements and the employee has no chosen fund); or
- the fund specified under a workplace determination or an enterprise agreement (provided the determination or agreement was made before 1 January 2021).
To determine whether a stapled fund for an employee exists, employers need to request information from the Commissioner of Taxation.
The Government has now made the Treasury Laws Amendment (Your Future, Your Super – Single Default Account) Regulations 2021 to support these reforms. The Regulations set out the requirements that a fund must meet to be a stapled fund and procedural matters relating to requests to, and responses from, the Commissioner of Taxation about stapled funds.
The Regulations commence today, 6 August.
Royal Commission implementation: breach reporting and remediation regulations
The Government has made regulations to support the breach reporting and remediation reforms implemented as part of its response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The reforms were introduced as part of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which was passed in December (‘Response Act’; see ASFA Action issue 788).
As relevant to superannuation and financial advice, the reforms amended the Corporations Act 2001 to clarify and strengthen the breach reporting regime for financial services licensees and require licensees to report serious compliance concerns about financial advisers. (Comparable reforms were also made in relation to credit licensees.)
To support these amendments, the Government has now made the Financial Sector Reform (Hayne Royal Commission Response - Breach Reporting and Remediation) Regulations 2021.
These Regulations amend the Corporations Regulations 2001 and Corporations (Fees) Regulations 2001 (and comparable regulations in relation to credit) to:
- prescribe civil penalty provisions and key requirements that are not taken to be significant (and therefore may not be reportable) under the relevant breach reporting regime if those provisions are contravened
- ensure certain breach reporting offences and civil penalty provisions are subject to an infringement notice
- make minor and technical amendments, including updating references to the Corporations Act.
The Regulations commence immediately after the commencement of the breach reporting and remediation reforms in the Response Act, on 1 October.
The Regulations were previously released in draft in March (see ASFA Action issue 796 for background).
Royal Commission implementation: hawking regulations and proposed RG 38 updates
The Government has made regulations to partially implement recommendations 3.4 (no hawking of superannuation products) and 4.1 (no hawking of insurance) of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The Financial Sector Reform (Hayne Royal Commission Response) (Hawking of Financial Products) Regulations 2021 is due to commence on 5 October and makes some amendments to the Corporations Regulations 2001, including:
- Inserting exceptions to the prohibition on hawking of financial products, and
- Repealing a number of existing exceptions to the hawking prohibition.
The Regulations were previously released in draft in January 2020 (see ASFA Action issue 735 for background).
This follows ASIC’s release of consultation paper 346 (CP 346) seeking feedback on proposals to update Regulatory Guide 38 The hawking prohibitions (RG 38) on 21 July. The updates to RG 38 reflect legislative changes to the anti-hawking regime under the Financial Sector Reform (Hayne Royal Commission Response) Act 2020, which is due to commence on 5 October (see ASFA Action issues 815 and 788 for background).
If you have any feedback you would like ASFA to consider in relation to ASIC’s proposed changes to RG 38 and/or would like to discuss with ASIC the proposed changes to RG 38, please contact Maggie Kaczmarska by close of business Tuesday 10 August.
Royal Commission implementation: advice Bill passed by House of Representatives
A Bill to strengthen the financial advice sector has been debated by Parliament.
The Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Bill 2021 was introduced as part of the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (see ASFA Action issue 811 for background).
The Bill:
- expands the role of the Financial Services and Credit Panel within ASIC to operate as the single disciplinary body for financial advisers
- creates additional penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act 2001, reflecting that the current set of sanctions are limited to banning a financial adviser
- introduces a new registration system for financial advisers to improve the accountability and transparency of the financial services sector
- transfers functions from the Financial Adviser Standards and Ethics Authority (FASEA) to the Minister responsible for administering the Corporations Act and to ASIC to streamline the regulation of financial advisers.
The Bill has been passed by the House of Representatives without amendment and awaits consideration by the Senate.
Superannuation fund annual members’ meetings: ASIC review
ASIC has released findings about superannuation funds’ annual members’ meetings. The findings are based on a surveillance of the inaugural meetings held by trustees for a selection of superannuation funds between October 2020 to March 2021.
ASIC’s surveillance looked at meetings held by 24 superannuation funds and focused on whether the trustees:
- met meeting attendance requirements by relevant directors, executive officers and service providers;
- published minutes of the meeting, including answers to members’ questions, on their funds’ websites; and
- provided a reasonable opportunity for members to ask questions and answered those questions within one month.
ASIC’s surveillance did not identity significant failures by the funds to comply with the legislated obligations that were in the scope of the review. However, ASIC has identified room for improvement in trustees’ communications to members and the ways in which they provide opportunities for members to ask questions at the meetings.
The Treasury Laws Amendment (Improving Accountability and Member Outcomes in Superannuation Measures No. 1) Act 2019 introduced the requirement for superannuation trustees to hold annual members’ meetings (see ASFA Action issue 704 for background).
Non-arm’s length expenditure : ATO ruling
As reported in ASFA Action issue 816, the ATO has finalised Law Companion Ruling LCR 2021/2: Non-arm’s length income – expenditure incurred under a non-arm’s length arrangement. This ruling clarifies recent legislative amendments in relation to non-arm’s length income and the treatment of non-arm’s length expenditure incurred by the trustee of a superannuation fund.
The ATO has now issued an erratum to the ruling, to address incorrect cross-referencing in relation to one of the descriptive examples. A consolidated version of LCR 2021/2 has been released.
Financial Service Royal Commission – Financial Accountability Regime (FAR) Exposure Draft Legislation: consultation – reminder
As reported in ASFA Action issue 814, Treasury has released a consultation package on the Financial Accountability Regime (FAR) that includes the following:
- Draft legislation and explanatory materials
- Information paper on joint administration of the FAR
- Policy paper on list of prescribed responsibilities and positions
- Questions and answers
If you have any feedback you would like ASFA to consider in relation to the consultation package, please forward it to Maggie Kaczmarska by close of business Friday 6 August.
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