Issue 682, 8 August 2018
In this issue:
- Royal Commission: superannuation hearings
- ASIC: additional funding to combat misconduct in financial services
- AFCA: membership application process now open
- Superannuation Consumers’ Centre
- APRA: replacement of D2A data reporting system
- Productivity Commission: competition in the financial system
Royal Commission: superannuation hearings
The Royal Commission into misconduct in the banking, superannuation and financial services industry is currently holding its fifth round of hearings, in relation to superannuation.
The ASFA team is closely monitoring the proceedings of the Royal Commission and is preparing a brief factual account of each day’s hearings that have a superannuation focus. These reports can be accessed on the ASFA website, via this link.
ASIC: additional funding to combat misconduct in financial services
The Government has announced a significant expansion of ASIC’s resources and powers to combat misconduct in the financial services industry, including increased supervision of the superannuation sector.
The package announced by the Government is intended to bolster ASIC’s enforcement capabilities and enable it to undertake new regulatory activities and investigations, so as to better deliver on its mandate of combatting misconduct in corporations and in the financial services industry.
The Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP, said the additional funding, totalling $70.1 million:
- follows a decision by ASIC’s new Chairman, James Shipton, to re-focus ASIC’s strategic direction on proactive enforcement and increase onsite supervisory approaches
- builds on the government’s commitment to “ensure ASIC is fit for purpose and can pursue and prosecute those who do the wrong thing”.
The package of measures includes:
- $26.2 million to accelerate and increase the intensity of ASIC’s enforcement activities and enhance its capacity to pursue actions for serious misconduct against well-funded litigants, through the Enforcement Special Account
- $9.4 million to boost supervision of the superannuation sector by strengthening audit and enforcement action to improve transparency and outcomes for superannuation members
- $8 million to implement a new supervisory approach in respect of Australia’s five largest financial institutions (the big four banks and AMP) by, for the first time, embedding dedicated staff within these institutions to monitor governance and compliance actions
- $6.8 million to establish a dedicated taskforce which will conduct a proactive, targeted and thematic review into corporate governance to identify and pursue failings in large listed companies, including deploying staff to conduct new on-site surveillance and investigations
- $6.6 million to implement the Government’s reforms to whistleblower protection laws, so ASIC can better receive, assess, triage and address whistleblower disclosures about misconduct
- $6 million to promote Australia as a world leader in the development and adoption of regulatory technology solutions for the financial services industry.
The remaining funds will be directed towards improving consumer access to the Financial Advisers Register; enhancing ASIC’s enforcement work on the unfair contract term protections for small businesses; and ensuring compliance by licensees and financial advisers with the Future of Financial Advice laws.
AFCA: membership application process now open
The Australian Financial Complaints Authority (AFCA) has launched an online membership application process for superannuation fund trustees.
AFCA is the new external dispute resolution body for the financial services industry, and will begin hearing new complaints from 1 November 2018 (the Superannuation Complaints Tribunal will continue for a period to deal with existing superannuation complaints). All ‘financial firms’, including superannuation trustees, are required to become members of AFCA by 21 September 2018.
AFCA has requested ASFA to provide you with the following information:
How to apply for AFCA membership
- From Tuesday 7 August 2018, superannuation entities can lodge an online application for membership of AFCA via this link.
- There is $350 membership fee which is payable by VISA, Mastercard or AMEX (AMEX incurs a 1.75 per cent surcharge). This fee will be deducted from their superannuation levy invoice when they are sent out in October 2018.
- Upon acceptance of the membership application, superannuation entities will receive a confirmation email advising them of their member number and where to access their membership certificate.
For more information about the application process please email: membership@afca.org.au or call 1300 56 55 62.
AFCA Membership webcast
We will shortly be circulating an invitation to participate in an AFCA Membership webcast on the afternoon of Tuesday 28 August. Details on the content and how to register will be included in the invitation.
For more information about AFCA’s proposed interim funding arrangements for superannuation trustees, refer ASFA Action issue 678.
Superannuation Consumers’ Centre
The Superannuation Consumers’ Centre (SCC) has announced that it has received $2.5 million in funding from regulatory action that will allow it to become fully operational for the first time.
The SCC was formed in 2013 as a not-for-profit to advance and protect the interests of low and middle income consumers of the superannuation system. The SCC seeks to:
- reduce the confusion and anxiety experienced by consumers of the superannuation system
- increase engagement to ensure people get maximum value from superannuation
- increase economic security of Australians of retirement age
- increase the life choices and living standard of people of retirement age.
The funding provided to the SCC is sourced from recent regulatory action undertaken by ASIC. In particular, ASIC recently agreed to enforceable undertakings with ANZ and CBA which involved the organisations each paying $1.25M toward funding the SCC.
APRA: replacement of D2A data reporting system
APRA has recently written to its regulated entities regarding its plans to replace the D2A (Direct to APRA) data reporting system with a new data collection solution. APRA has also published its response to submissions made by industry in relation to the proposed replacement of D2A.
APRA has indicated that it will shortly issue a request for tender seeking a software provider to deliver the new data collection tool.
Refer ASFA Action issue 662 for background on the replacement of D2A.
Productivity Commission: competition in the financial system
The Productivity Commission has released the report from its inquiry into competition in the Australian financial system
The report focuses primarily on the authorised deposit-taking (ADI) and non-ADI lending sector and does not include any findings or recommendations specifically in relation to superannuation or retirement incomes. It does, however, make a number of findings in relation to the regulatory settings for the financial system.
Some of the Commission’s key observations and findings include:
- the Australian economy has generally benefited from having a financial system that is strong, innovative and profitable. There have been past periods of strong price competition, and technological innovation has given consumers speed and convenience in many financial services, and a range of other non-price benefits
- however, the larger financial institutions—particularly but not only in banking—have the ability to exercise market power over their competitors and consumers. Many of the highly profitable financial institutions have achieved that state with persistently opaque pricing; conflicted advice and remuneration arrangements; layers of public policy and regulatory requirements that support larger incumbents; and a lack of easily accessible information, inducing unaware customers to maintain loyalty to unsuitable products.
- poor advice and complex information supports persistent attachment to high margin products that boost institutional profits, with product features that may well be of no benefit. What often is passed off as competition is “more accurately described as persistent marketing and brand activity designed to promote a blizzard of barely differentiated products and ‘white labels’”
- for this situation to persist as it has, channels for the provision of information and advice (including regulator information flow, adviser effort and broker activity) must be failing
- forced structural separation is not likely to prove an effective regulatory response to competition concerns in the financial system, specifically not in either home loan or wealth management markets
- APRA is not well placed to balance the cost to competitive behaviour in its regulatory actions. Although the legislation that requires APRA to give weight to competition is valuable, its remit quite reasonably must favour system stability – even where its actions could impose a significant cost to competition.
Some noteworthy recommendations include:
- expanding ASIC’s regulatory sandbox – the Government, in consultation with ASIC, should expand the scope of products eligible for testing under ASIC’s regulatory sandbox, beyond the proposed enhanced regulatory sandbox, to include prudentially regulated fintechs that want to hold household deposits and issue or provide other financial products or services. At the same time, ASIC should take a more handson approach to approving and supporting fintechs in testing their products or services, particularly to help with judgments on whether and how products may harm consumers. ASIC should also consider requests from existing institutions to access the sandbox on a case-by-case basis. An ongoing program of regulatory improvement in support of the sandbox should be a standing item for the Commonwealth Treasury’s legislative program.
- understanding the effects of integration – the Australian Competition and Consumer Commission (ACCC) should undertake 5-yearly market studies on the effect of vertical and horizontal integration on competition in the financial system. The first of these studies should commence in 2019 and include establishing a robust evidence base of integration activity in the financial system.
- rename general advice to improve consumer understanding – general advice, as defined in the Corporations Act 2001 (Cth), is a misleading term and should be renamed. Any replacement must ensure that the term ‘advice’ can only be used in association with ‘personal advice’ – that is, advice that takes into consideration personal circumstances. Consumer testing of alternative terminology is required to ensure that misinterpretation and excessive reliance on this type of information is minimised. Including time for consumer testing and a transition period to enable industry training and adjustment, a new term should be in effect by mid2020
- statements of expectations for regulators – updated Statements of Expectations (SOEs) for regulators, as agreed in the response by the Australian Government to the Murray Financial System Inquiry, should be published as a matter of priority. They should be written in clear language and updated at regular intervals thereafter. Regulators should publish Statements of Intent (SOI) within three months of receiving the SOEs. In their annual reports, the financial regulators should provide information on the actions they have taken in line with their SOI and outcomes on performance measures
- ASIC to publish data – The financial regulators already collect large amounts of data, which is a valuable public resource. Subject to privacy requirements, much more such data should be made publicly available. As a first step towards improving the availability of data, ASIC should publish a list of the datasets collected and used in its research projects and reports and release any non-sensitive datasets
- competition champion for the financial system – To address gaps in the regulatory architecture related to lack of effective consideration of competitive outcomes in financial markets, the ACCC should be given a mandate to champion competition in the financial system, including in decisions taken by regulators that have or may have the outcome of restricting competition. To minimise cost and disruption, this role should be implemented in substantial part through the Council of Financial Regulators (CFR) by making the ACCC a permanent member of the CFR.
The SOE for each financial regulator member of the CFR should state that the ACCC is to be given the opportunity to advise the CFR on regulator actions that may have material effects on competition, before they are implemented.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
