Issue 732, 7 January 2020
In this issue:
- Royal Commission implementation – compensation scheme of last resort
- APRA superannuation data transformation project
- Royal Commission implementation – regulator co-ordination and information sharing
- Design and distribution obligations
- Royal Commission implementation: APRA executive accountability statements
- Whistleblower policies
- Social security treatment of income streams: life tables
Royal Commission implementation – compensation scheme of last resort
The Government has released a discussion paper on establishing a compensation scheme of last resort (CSLR) for the financial services industry.
In 2017, the ‘Ramsay Review’ of the financial system external dispute resolution and complaints framework made a number of recommendations regarding the establishment of a CSLR (see ASFA Action issues 656 and 631). The principal recommendations involved establishing a CSLR that was:
- limited to those areas of the financial sector where there is clear evidence of recurrent problems with uncompensated losses
- initially restricted to financial advice failures where a financial adviser has provided personal and/or general advice on ‘relevant financial products’ (including superannuation products), but scalable so it can later be expanded to other types of financial services where evidence of significant problems of uncompensated losses emerges
- subject to specific design features, including that it would operate prospectively and only apply to unpaid external dispute resolution determinations, court judgments and tribunal awards which are made after the CSLR is established.
The Government deferred its response to the Ramsay Review recommendations pending the conclusion of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
In its final report, the Royal Commission recommended that the Government implement a CSLR adopting the key recommendations made by the Ramsay Review (recommendation 7.1, see ASFA Action issue 697). In its response, the Government agreed to establish an industry-funded, forward-looking CSLR.
Treasury has now released a discussion paper to further explore and seek views on four aspects of the CSLR:
- coverage, beyond personal advice
- funding arrangements
- compensation to be paid
- managing scheme evolution.
If you have any feedback on the consultation paper that you would like ASFA to consider, please forward it to Julia Stannard by close of business, Wednesday 29 January.
APRA superannuation data transformation project
APRA has released the next tranche of topic papers for its superannuation data transformation project, dealing with performance and member accounts.
As reported in ASFA Action issue 727, APRA’s multi-year project will upgrade the breadth, depth and quality of its superannuation data collection. APRA is releasing a series of topic papers as part of phase 1 of the project.
The latest releases are:
- Topic Paper 2: Performance – this paper considers an expansion of data collection to facilitate the assessment of member outcomes and performance for choice products, investment menu and investment options
- Topic Paper 3: Member Accounts – this paper considers the collection of data to provide more granular information on member demographics data.
The release of these topic papers follows the publication in November of an initial Discussion Paper and Topic Paper 1 (RSE Structure and Profile) with submissions closing on 17 January.
To accompany the new topic papers, APRA has also released:
If you have any feedback on the topic papers and/or draft reporting standards that you would like ASFA to consider, please forward it to Fiona Galbraith by close of business, Friday 31 January.
Royal Commission implementation – regulator coordination and information sharing
The Government has released for consultation draft legislation imposing specific obligations on ASIC and APRA in relation to co-operation and information sharing.
The proposed legislation will oblige ASIC and APRA to:
- co-operate with one another
- share information to the maximum extent practicable
- notify the other whenever it forms the belief that a breach of the law for which the other regulator has enforcement responsibility has occurred.
These new obligations will implement recommendation 6.9 from the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (see ASFA Action issue 697). The obligations are intended to enable the regulators to support each other in discharging their regulatory functions effectively and ensure that there are no unnecessary barriers to their sharing information. They are supplemented by the release of an updated Memorandum of Understanding between APRA and ASIC (see ASFA Action issue 729), which implements recommendation 6.10 from the Royal Commission.
The exposure draft legislation will also implement recommendation 6.11 from the Royal Commission, by making amendments to formalise the meeting procedures which apply to ASIC, bringing them in line with those that apply to APRA.
Treasury is seeking feedback on the exposure draft legislation by close of business Friday, 24 January.
Design and distribution obligations
ASIC has released for consultation a draft of guidance for the new financial product design and distribution obligations (DDO) that come into effect in April 2021. The DDO regime requires financial product firms to develop products that meet the needs of the consumers in their intended target market.
The DDO regime was introduced by the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019 and Corporations Amendment (Design and Distribution Obligations) Regulations 2019 (see ASFA Action issues 731, 704 and 686). The regime does not apply to MySuper or defined benefit interests, or to interests in eligible rollover funds. Certain conduct of employers complying with their Superannuation Guarantee obligations is also exempt. The DDO regime will, however, apply to choice superannuation products.
ASIC’s proposed approach to its DDO guidance is outlined in Consultation Paper 325 Design and Distribution Obligations, which includes draft Regulatory Guide Product design and distribution obligations.
ASIC has indicated that—consistent with the legislation and international practice—the draft guidance is principles-based but also incorporates working examples. This approach reflects Parliamentary intent that firms are best placed to apply the regime in the circumstances of their product offerings and distribution processes. The approach also reflects the obligations are focussed on taking ‘reasonable steps’ and apply broadly across the financial services industry.
ASIC is seeking comments on the consultation paper and draft regulatory guide by Wednesday, 11 March.
Royal Commission implementation: APRA executive accountability statements
APRA has published a paper outlining its governance arrangements, along with accountability statements for its senior executives, in response to a recommendation from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The paper, Governance and Senior Executive Accountabilities, describes APRA’s internal governance and accountability arrangements and is supported by individual accountability statements for senior executive roles and an accountability map.
The release of this material responds to recommendation 6.12 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry: that “each of APRA and ASIC should internally formulate and apply to its own management accountability principles” of the kind established by the Banking Executive Accountability Regime. APRA accepted the recommendation and committed to meeting it by 31 December 2019.
Whistleblower policies
ASIC has issued a reminder that public companies, large proprietary companies, and corporate trustees of superannuation entities regulated by APRA were required to have a whistleblower policy available to their officers and employees by 1 January 2020.
The Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019 amended the whistleblower protections in the Corporations Act 2001 so a single, strengthened whistleblower protection regime covers the corporate, financial and credit sectors – including superannuation funds. It also brings the whistleblower laws in other financial system statutes into the Corporations Act 2001 and inserts a comprehensive regime into the tax legislation for the protection of individuals who report breaches of the tax laws or misconduct. As part of the reforms, public companies, large proprietary companies, and proprietary companies that are trustees of RSEs were required to implement a whistleblower policy and make it available to their officers and employees by 1 January 2020.
ASIC has previously published two information sheets on whistleblower rights and protections and how ASIC will handle whistleblower reports, as well as Regulatory Guide 270 Whistleblower policies to help impacted companies establish policies that support and protect whistleblowers. (see ASFA Action issue 727 for background).
Social security treatment of income streams: life tables
The Government has repealed and replaced a recent legislative instrument specifying new life tables to be used when calculating certain values in relation to an asset-tested lifetime income stream for social security purposes, to correct an error.
In ASFA Action issue 731, we reported that the Government had registered the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 (2019 Amendment Determination No 1) to specify that the Australian Life Tables 2015-17 are to be used when calculating the surrender value and death benefit value for an asset-tested lifetime income stream where a person’s assessment day is on or after 1 January 2020.
The Government has now registered the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 (No 2) to repeal and replace the earlier instrument, which reportedly contained a drafting error. According to the explanatory material, the replacement is in the same terms as the earlier instrument, with the drafting error corrected.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
