Issue 827, 6 October 2021
In this issue:
- Investment governance in super: consultation on prudential standard revisions
- Royal Commission implementation: consultation on Better Advice regulations
- Climate change risk: ASFA discussion paper
- Design and Distribution Obligations (DDO): legislative instruments
- New IDR standards: legislative instrument
- Critical infrastructure reforms: Parliamentary Committee report
Investment governance in super: consultation on prudential standard revisions
APRA has released for consultation proposed revisions to its prudential standard SPS 530 Investment governance, which aims to ensure registrable superannuation entity (RSE) licensees meet their obligations to prudently select, manage and monitor investments.
The proposed revisions to SPS 530 respond to findings from APRA’s unlisted asset valuation thematic review (due to be published shortly) and its 2018-2019 post-implementation review of the superannuation prudential framework. The findings from these reviews identified stress testing, valuation and liquidity management practices as key areas for improvement. The draft updated version of SPS 530 includes enhancements in each of these key areas.
The consultation will run until 16 February 2022. If you have any feedback you would like ASFA to consider in relation to the consultation, please forward it to Andrew Craston by close of business Friday 17 December.
Royal Commission implementation: consultation on Better Advice regulations
Treasury is undertaking a short consultation on draft regulations and a draft legislative instrument to support reforms in relation to financial advisers introduced as part of the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
As reported in ASFA Action issue 817, the Financial Sector Reform (Hayne Royal Commission Response – Better Advice) Bill 2021 proposes to:
- expand the role of the Financial Services and Credit Panel within ASIC to operate as the single disciplinary body for financial advisers
- create additional penalties and sanctions for financial advisers who have breached their obligations under the Corporations Act 2001
- introduce a new registration system for advisers to improve the accountability and transparency of the financial services sector
- transfer 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 is currently before the Senate.
Treasury has released a consultation package of draft regulations and a draft legislative instrument to support key elements of the Bill. These include:
- setting the criteria for when ASIC must refer matters to the single disciplinary body
- specifying the administrative sanctions made against a financial adviser that must be included on the Financial Advisers Register
- extending the deadline to complete the financial adviser exam to 30 September 2022 for financial advisers who have attempted the exam twice before 31 December 2021
- proposing new fees for the financial adviser exam and registration of financial advisers from 1 January 2022
- outlining the registration, education and training requirements for financial advisers providing tax (financial) advice services.
It is intended the Bill, regulations and legislative instrument will come into force on 1 January 2022.
Treasury is seeking comments on the consultation package by close of business Friday 15 October.
Climate change risk: ASFA discussion paper
ASFA has released Climate change risk, a discussion paper that outlines the risks of climate change and the impact it is expected to have on the investment portfolio performance of superannuation funds.
The paper explores the reasons superannuation funds should consider climate change risk when making decisions and the importance of employing mitigation strategies to reduce the risk.
In particular, the paper asks questions including:
- whether Australian regulators have been clear enough in their expectations of organisations when dealing with client change risk
- whether there is support for the superannuation industry being accountable for net zero emissions by 2050 in terms of their investments
- how the best financial interests duty interacts with the net-zero emissions commitment
- whether there is support for disclosure of progress toward net-zero emissions through a fund’s portfolio holdings disclosure
- what role products such as green bonds will play and what other products need to be created to achieve net zero
- what other methods superannuation funds could use to reduce their exposure to climate change risk
- at what point should funds begin to engage business they are invested in
- whether funds have already begun implementing the Principles of Responsible Investment recommended three-step approach and whether it supports or stands in the way of regulators’ expectations of funds in relation to climate change risk
If you have any feedback you would like ASFA to consider in relation to the discussion paper, please forward it to Helena Gibson by close of business Friday 15 October.
Design and Distribution Obligations (DDO): legislative instruments
ASIC has registered two legislative instruments to put in place interim measures to provide certainty on the application of the DDO regime, which commenced yesterday, 5 October. These interim measures are intended to provide certainty on the application of the DDO ahead of legislative changes proposed to be made by the Government to give effect to its intended operation.
Of particular relevance, ASIC Corporations (Design and Distribution Obligations Interim Measures) Instrument 2021/784:
- amends section 761G of the Corporations Act 2001 to clarify that the retail and wholesale client definitions apply to Part 7.8A of the Act in the same way as they apply to the rest of Chapter 7 of the Act
- amends subsection 994F(4) of the Act to remove the requirement for persons who engage in retail product distribution conduct to report to persons who make target market determinations (TMDs) for products whether a complaint has been received, including where nil complaints are received. However there remains a requirement for distributors to report to issuers the number of complaints they receive, to the extent they receive any during the reporting period
- amends subsection 994F(5) of the Act to remove the requirement for distributors to report that information specified by the issuer in its target market determination has not been acquired during the reporting period (that is, where nil information is acquired), while retaining a requirement to report such information where it is acquired by distributors during the reporting period
- amends the meaning of “excluded conduct” in subsection 994A(1) to clarify that it includes giving a disclosure document under Part 6D.2 or a Product Disclosure Statement under Part 7.9 of the Act in the course of providing personal advice about a financial product
- amends regulation 7.8A.25 of the Corporations Regulations 2001 to address any uncertainty that employers remain exempt from the DDO when they provide a PDS for their default fund to employees
- exempts products from the DDO where they are within the scope only as non-cash payment facilities (aside from debit cards, credit products and stored value facilities)
ASIC Corporations (Amendment) Instrument 2021/785 amends the way in which two existing DDO instruments apply to basic deposit and general insurance products, and 31-day notice term deposits.
ASIC consulted on the legislative instruments in August (see ASFA Action issue 818 for background).
New IDR standards: legislative instrument
As reported in ASFA Action issue 823, ASIC recently published an updated version of new internal dispute resolution (IDR) standards, set out in Regulatory Guide RG 271, along with summary of changes made to RG 271 since its original publication in July 2020. The standards outlined in RG 271 took effect yesterday, 5 October.
ASIC has now registered the ASIC Corporations, Credit and Superannuation (Amendment) Instrument 2021/753. This updates ASIC Corporations, Credit and Superannuation (Internal Dispute Resolution) Instrument 2020/98 to reflect the updated version of RG 271 and formalises the specific paragraphs that are enforceable standards. In particular, it removes enforceability from four paragraphs of RG 271 that overlapped with existing legislative requirements.
ASIC has also updated the summary of changes to RG 271, to correct a typographical error in paragraph 11. This now correctly stipulates that a financial firm must record all complaints received from 5 October 2021.
Critical infrastructure reforms: Parliamentary Committee report
The Parliamentary Joint Committee on Intelligence and Security has released its report into the Security Legislation Amendment (Critical Infrastructure) Bill 2020. As reported in recent ASFA Actions, the Bill will amend and build on the existing regulatory regime created by the Security of Critical Infrastructure Act 2018 (the Act) to enhance security and resilience of critical infrastructure assets. This will include introducing the concept of a ‘critical superannuation asset’.
The Committee has made 14 recommendations in relation to the Bill, including proposing a split in the current proposed framework into two amended Bills:
- one Bill, for rapid passage, to expand the critical infrastructure sectors covered by the Act, introduce government assistance measures to be used as a last resort in crisis scenarios as well as mandatory reporting obligations
- a second Bill, for further consultation, including declarations of systems of national significance, enhanced cyber-security obligations and positive security obligations which are to be defined in delegated legislation.
The report states that the Committee is conscious of the regulatory cost and uncertainty the proposed reforms represent for businesses in the context of an already fragile economy impacted by the COVID-19 pandemic. However, it also considers that elements of the reforms — such as government assistance mechanisms, mandatory notification requirements and related measures — are urgent. It considers that the Bill should be split to allow these elements to be legislated swiftly, while the other measures — such as the positive security obligation — can be introduced later after further consultation with industry and other stakeholders.
See ASFA Action issues 800, 790, 783 and 771 for background in relation to the critical infrastructure reforms.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.