Issue 598, 8 April 2016
In this issue:
- Robo-advice: ASIC consultation
- Governance and culture: APRA’s focus areas
- Generic financial calculators: ASIC relief
Robo-advice: ASIC consultation
ASIC has recently released a consultation paper and a draft regulatory guide on regulating digital financial product advice (robo-advice): Consultation Paper 254 Regulating digital financial advice and draft Regulatory Guide 000 Providing digital financial product advice to retail clients.
The draft regulatory guide brings together some of the issues that those providing, or intending to provide, digital advice to retail clients need to consider when operating in Australia—from the licensing stage through to the actual provision of advice.
ASIC is also seeking feedback on issues that are unique to digital advice businesses, in particular:
- the organisational competence obligation that applies in a digital advice context
- the ways in which digital advice licensees should monitor and test their algorithms.
If you have any feedback that you would like ASFA to consider including in a submission to ASIC, please forward it to Glen McCrea by close of business Friday 22 April 2016.
Governance and culture: APRA’s focus areas
On 5 April 2016 the APRA deputy chairman, Helen Rowell, gave a speech on governance and culture in superannuation and highlighted some of the current areas of industry practice that APRA is, or will be, focusing on over 2016. Some of the key points included:
- governance and culture:
- APRA will be taking a closer look at director appointment and board performance assessment processes, including board size, tenure limits and the objectivity of processes used to assess skills both gaps and board performance
- APRA is also undertaking a thematic review of related party arrangements.
- strategic and business planning:
- net contribution flows remain positive at an industry level, however for the year of income ending June 2015, 45 per cent of APRA regulated funds had a net outflow ratio exceeding 100 per cent and more than 20 per cent of funds experienced a decline in net assets
- being cash flow negative or having declining net assets has significant implications for the future strategy and viability of any fund, yet this critical issue is not receiving sufficient attention
- regardless of any government initiatives that may be provided, trustees should be considering the retirement products and options to be provided to their members—these will become an increasingly important part of their business models into the future
- trustees should be undertaking in-depth analysis of the detailed information now reported to APRA, to better understand the nature of their membership and to recognise the implications for their overall strategy and business operations
- some small funds are able to operate efficiently and effectively and have sound strategies and niche positioning that should position them well for the future. However, trustees of all funds should review their strategy in the context of emerging trends, to ensure they will be able to meet their member best interest obligations into the future—even if that means considering a merger or transfer to another fund.
- investments:
- APRA does not always observe the expected patterns in the investment data that is reported, and conversely some unexpected variations have been noted. Trustees should satisfy themselves that their allocations are appropriate to their circumstances and, in particular, that the investment strategy is consistent with the characteristics of the fund or product, and is ‘true to label’
- in setting investment strategy and assessing investment performance, the superannuation industry continues to place too much focus on short-term peer comparisons. Trustees need to ensure they are applying adequate critical thinking in setting their investment strategy.
- costs and transparency:
- at face value, the data reported to APRA suggests that there is scope for industry fees and costs to come down
- however, to better understand the range and nature of fees and costs—and hence the scope for any such reductions—there needs to be far greater transparency about the underlying costs associated with running a superannuation fund, and improvements in the consistency and comparability of the information that is being reported or disclosed.
Generic financial calculators: ASIC relief
ASIC has issued a new legislative instrument to preserve the effect of relief given to providers of generic financial calculators from obligations in the Corporations Act 2001 regarding Australian financial services licensing, conduct and disclosure.
That relief, previously given via Class Order [CO 05/1122] Relief for providers of generic financial calculators, expired on 1 April 2016.
On 30 March 2016, ASIC registered ASIC Corporations (Repeal) Instrument 2016/230 and ASIC Corporations (Generic Calculators) Instrument 2016/207, which repeal and replace [CO 05/1122] and continue relief for providers of generic financial calculators, where the provider takes reasonable steps to meet a number of conditions as outlined in Instrument 2016/230.