The past month was another hectic one for the industry, with the Government and regulators continuing to make important announcements about the reprioritisation of regulatory measures in light of the COVID-19 pandemic. There are, however, signs of some business as usual resuming in the regulatory space. This rules and regs highlights the most significant developments as at 31 May.
The COVID-19 response
Coronavirus early release of super
In early May, a Parliamentary committee established to inquire into the Government’s response to the COVID-19 pandemic heard evidence about some fraudulent claims having been made under the new Coronavirus early release of super initiative. The ATO released a statement indicating that its systems “were not hacked”, however a “small number of people appear to have had personal details unlawfully used in a bid to defraud the program”. The ATO noted that the matter is currently under investigation by the AFP and for operational reasons it would not comment further at this stage.
While the ATO confirmed that its “online systems have not been compromised”, it temporarily paused production and delivery of electronic files in order to review its systems and processes. This led to a revised process, whereby funds would receive daily electronic files one day later than previously. The ATO will also send a second ‘additional information file’ when required, containing determinations where the ATO recommends that funds further strengthen verification processes with the member over and above existing verification processes.
Throughout May, APRA has published weekly statistics from its early release initiative (ERI) data collection, at both an industry-wide and fund level. The latest data published at the end of May— covering applications up to 17 May—showed that:
- 1.41 million applications had been made, for a total of $10.6 billion in payments
- the average payment has been $7,510
- a total of 1.59 million applications had been received
- payments to eligible members have taken an average of 3.3 business days after receipt of the application from the ATO, with 94 per cent made within five business days.
APRA has highlighted a number of reasons why payments may take longer than five business days, in addition to concerns about possible fraud. These include incomplete information provided by the ATO, application errors by members that require clarification, verification of mismatches between member information provided by the ATO and that held by the fund, and additional processing required for defined benefits members.
ASIC has updated its superannuation frequently asked questions (FAQs) to address:
- whether trustees must issue an exit statement to members who have a zero balance due to accessing the COVID-19 early release initiative (new FAQ 1A)
- its expectations of trustees in communicating to members who have a zero or low balance due to accessing the COVID-19 early release initiative (new FAQ 1B).
The ATO has also continued to update its questions and answers in relation to the early release initiative, most recently through the release of CRT Alert 027/2020.
In late May, the ATO and APRA jointly advised trustees about a suspension of SuperMatch – an ATO service that provides information to help funds consolidate accounts for their members. This followed the ATO and APRA receiving information that raised concerns about potentially fraudulent online account creation within some superannuation funds, with implications for access to SuperMatch. It is understood this is of particular concern given the high volume of claims being made under the Coronavirus early release initiative. Preliminary enquiries have highlighted that some funds’ online account creation controls “were not sufficiently strong to prevent potentially fraudulent online account creation”. As a result, “SuperMatch has been disconnected to all funds until such time as the superannuation industry can work with the ATO to provide increased certainty that they have mitigated the risk of weak online account creation controls”.
Deferral of Royal Commission measures
The Government has announced a six-month deferral to the implementation of commitments associated with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as a result of the significant impacts of the COVID-19 pandemic.
Under the updated timetable, measures that the Government had indicated would be introduced into Parliament by 30 June 2020 will now be introduced by December 2020, while those originally scheduled for introduction by December 2020 will now be introduced by 30 June 2021. The Government will also extend by six months the commencement dates contained in Royal Commission related exposure draft legislation issued prior to the pandemic. (See rules and regs September 2019 for the Government’s original implementation timetable and February 2020 for details of the recent consultations).
Retirement Income Review: report date extended
The Government has extended the reporting timeframe for its Retirement Income Review. The Review, announced in September 2019, is designed to establish a fact base to improve understanding of how the system currently operates and the outcomes it is delivering to Australians.
The Review was due to deliver its report to the Government by June 2020. Media reports in late May indicated this had been extended to “no later than 24 July” and ASFA has confirmed this with the Review secretariat.
Deferral of retirement income framework legislation
The Government has deferred the introduction of its proposed retirement income covenant, which would have required fund trustees to offer a ‘comprehensive income product for retirement’ (CIPR). The covenant was previously intended to commence on 1 July 2020, as part of a ‘retirement income framework’ to be implemented in response to a recommendation by the Financial System Inquiry (FSI).
Introduction of the retirement income covenant will now be deferred “to allow continued consultation and legislative drafting to take place following the Coronavirus crisis” and “allow drafting of this measure to be informed by the Retirement Income Review”. The revised date for the covenant will be determined following further consultation.
The Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator the Hon Jane Hume, has noted there is “nothing stopping funds and their trustees from developing retirement income strategies now and we’d encourage them to do so.”
Deferral of design and distribution obligations
In early May, ASIC announced its intention to defer the commencement date of the design and distribution obligations (DDO) for six months, to allow industry participants to focus on immediate priorities and the needs of their customers during the COVID-19 pandemic.
In late May ASIC registered the ASIC Corporations (Deferral of Design and Distribution Obligations) Instrument 2020/486 to give effect to this deferral. As a result, industry participants will now only be required to comply with the DDO regime from 5 October 2021.
ASIC has updated its FAQs about current superannuation regulatory issues that have arisen from the COVID-19 pandemic. The new FAQs address:
- whether trustees must issue an exit statement to members who have a zero balance due to accessing the COVID-19 early release initiative (new FAQ 1A)
- ASIC’s expectations of trustees in communicating to members who have a zero or low balance due to accessing the COVID-19 early release initiative (new FAQ 1B)
- what ASIC expects of trustees in communicating to their members about the impact of COVID-19 on their insurance inside superannuation (new FAQ 1C)
- whether ASIC will be amending the transitional arrangements for Regulatory Guide RG 97 on disclosure of fees and costs (new FAQ 2E).
Modern Slavery Act reporting deferral and guidance
To support reporting entities impacted by the COVID-19 pandemic to meet their obligations under the Modern Slavery Act 2018, the Government has extended by three months the reporting deadline for entities whose reporting periods end on or before 30 June 2020.
The Act requires certain large businesses and entities—including many superannuation funds—to submit modern slavery statements to the Australian Border Force within six months after the end of their reporting periods. Under the extension announced by the Government, statements for the financial year ending 30 June 2020 will now be due by 31 March 2021 instead of 31 December 2020.
AML/CTF customer identification rules
AUSTRAC has amended the anti-money laundering and counter-terrorism financing (AML/CTF) rules to provide greater legal certainty for reporting entities around alternative identity proofing processes during the COVID-19 pandemic. This follows a recent rule change and guidance specifically in relation to satisfying customer identification obligations in relation to the Coronavirus early release initiative (see last month’s rules and regs).
Under new rules inserted by the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 2):
- a reporting entity will be permitted to rely, in accordance with its risk-based systems and controls, on alternative identity proofing processes to establish the identity of their customer in circumstances where that customer possesses, but cannot produce or provide, relevant identity documents “because of COVID-19 Pandemic measures”. This could include acceptance of multiple types of secondary identification documentation, or self-attestation from a customer that information provided in relation to their identity is true and correct
- where a reporting entity is required to verify information based on an original document or a certified copy or extract but cannot do so because of “COVID-19 Pandemic measures”, it will be permitted to rely, in accordance with its risk-based systems and controls, on copies of documents (such as scanned versions or photographs).
“COVID-19 Pandemic measures” is defined to mean any measures implemented or recommended by an Australian government body, reasonable measures adopted by a reporting entity, or reasonable measures adopted by a person, to prevent the spread of COVID-19.
Validity of electronic signatures and meetings
The Government has registered the Corporations (Coronavirus Economic Response) Determination (No. 1) 2020 to provide certainty to companies and boards about how they can meet certain obligations under the Corporations Act 2001. The Determination:
- ensures that companies and other entities that are required to or wish to hold a meeting, such as an annual general meeting, may do so using technology rather than face-to-face meetings
- enables a quorum, votes, notices and the asking of questions at the meeting to be facilitated electronically, and allows for information required for the meeting to be circulated and accessed electronically
- gives certainty that when company officers sign a document electronically, the document has been validly executed.
The amendments are not specific to superannuation but will be relevant to the way in which superannuation trustee companies manage their general obligations under the Corporations Act. The amendments apply from 6 May and will cease to have effect in six months.
In an encouraging sign that the Government and the regulators are starting to look beyond COVID-19 to a resumption of normal business, there were a number of developments during May unrelated —or at least, not directly related—to the pandemic.
Putting Members’ Interests First: APRA FAQs about successor fund transfers
APRA has updated its FAQs regarding the Treasury Laws Amendment (Putting Members’ Interests First) Act 2019 (PMIF Act) to include some additional information about the status of elections made prior to a successor fund transfer (SFT) and the PMIF transitional provisions.
APRA has previously indicated that it will pursue amendments to the Superannuation Industry (Supervision) Act 1993 (SIS Act) to ensure the Government’s original policy intent is achieved in a number of areas identified by industry. In mid-May, APRA updated this note to advise that it will seek legislative change to provide that:
- elections regarding the provision of insurance under sections 68AAA, 68AAB and 68AAC of the SIS Act remain valid following a SFT
- the application and transition provisions of the PMIF Act apply such that members who were not required to make an election under the Act (such as members who provided an election before 1 November 2019 or members under 25 prior to 1 April 2020) are not required to elect following an SFT.
APRA has also added a new FAQ indicating it intends to take a facilitative approach to breaches where a registrable superannuation entity (RSE) licensee has not sought or obtained from a member an insurance opt-in election, on the basis that:
- the member had previously provided an insurance opt-in election to the transferring RSE licensee, or
- the member was captured by the application and transition provisions of the PMIF Act.
Tax relief for merging funds: bill passed
Long-awaited amendments to make permanent the current tax relief for merging superannuation funds have now become law, with the passage of the Treasury Laws Amendment (2020 Measures No.1) Act 2020.
The amendments—announced in the April 2019 Budget—extend relief that would otherwise have expired on 1 July 2020 and give effect to a recommendation by the Productivity Commission in its report: Superannuation: assessing efficiency and competitiveness.
Contribution acceptance and bring forward rule changes: regulations and amending bill
The Government has made regulations and introduced an amending bill into Parliament to implement its April 2019 Budget announcement about making the superannuation contribution rules more flexible for older Australians
Currently, the Income Tax Assessment Act 1997 allows people under 65 to make up to three years of non-concessional contributions under ‘bring-forward’ arrangements. The Treasury Laws Amendment (More Flexible Superannuation) Bill 2020, introduced into Parliament in mid-May, contains an amendment extending the bring forward arrangements to individuals under age 67, with effect from 1 July 2020.
On 29 May the Government registered the Superannuation Legislation Amendment (2020 Measures No. 1) Regulations 2020. These amend the Superannuation Industry (Supervision) Regulations 1994 and the Retirement Savings Account Regulations 1997, to increase the:
- age at which the work test starts to apply for voluntary concessional and non-concessional contributions from age 65 to age 67
- cut-off age at which individuals can receive voluntary superannuation contributions from their spouse, from age 70 to age 75.
The changes to the contributions acceptance rules will apply for the 2020-21 and later financial years.
AML/CTF identity verification and family and domestic violence
AUSTRAC has amended the AML/CTF rules to provide clarity around how reporting entities can complete identity verification processes where a customer is experiencing family and domestic violence (FDV).
The AML/CTF Rules sets out existing processes for reporting entities to follow in limited and exceptional circumstances where a customer is unable to provide satisfactory evidence of their identity. These processes were recently amended to outline alternative identity proofing processes where the ability to use standard processes is impacted due to the COVID-19 pandemic (see above). AUSTRAC has now registered the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 3) to make it make it clear that a reporting entity can use these alternative identity proofing processes when their customer is experiencing or has experienced FDV.
Family law superannuation interest rate determination
In late May the Australian Government Actuary made the Family Law (Superannuation) (Interest Rate for Adjustment Period) Determination 2020. This sets the interest rate for adjusting the superannuation entitlements of separated and divorced spouses under splitting orders and agreements made under the Family Law Act 1975, for the financial year beginning on 1 July 2020.
Financial institution supervisory levies: amending bills
The Government has introduced into Parliament a package of bills to amend the framework for the financial institutions supervisory levy – commonly referred to as the APRA levy. The package includes the:
- Australian Prudential Regulation Authority Amendment (APRA Industry Funding) Bill 2020. This amends the Australian Prudential Regulation Authority Act 1998 to ensure the Commonwealth can recover the costs of a wider range of activities that are funded by the Commonwealth and recoverable through the financial institution supervisory levy framework
- Superannuation Supervisory Levy Imposition Amendment Bill 2020 and the Retirement Savings Account Providers Supervisory Levy Imposition Amendment Bill 2020. These amend the existing levy imposition Acts for superannuation funds and retirement savings accounts, to increase the statutory upper limit on the amount of levies APRA can collect from entities and amend how the upper limit is indexed.
The introduction of the bills follows consultation last year on the design and operation of the supervisory levy.
Fintech regulatory sandbox
In late May the Government made the Corporations (FinTech Sandbox Australian Financial Services Licence Exemption) Regulations 2020. These approve conditional exemptions from the Australian financial services licence regime (AFSL) to make it easier for fintech businesses to trial new products, under the ‘enhanced regulatory sandbox’. The exemptions allow for testing of financial services relating to certain financial products—including superannuation products—for up to 24 months without an AFSL.
APRA Insight: mythbusting fund mergers
APRA’s latest Insight publication includes a feature article on the ‘myths and misconceptions’ about superannuation fund mergers. The article addresses topics including:
- satisfying the ‘equivalent rights’ test
- weighing up the costs and benefits of a merger
- selection of a merger partner.
The article notes that:
“APRA takes a facilitative approach to mergers and urges trustees to approach APRA early to discuss their merger plans – to work together to address any perceived barriers. Given the diversity of fund structures and product offerings across the APRA regulated population of funds, APRA’s view is that there is a merger partner for all funds – it’s just a matter of finding the right one.”
The APRA Insight also includes articles on APRA’s preparation and response to the COVID-19 pandemic and APRA’s recent organisation restructure.
Parliamentary sitting schedule updated
The sitting schedule for Parliament has been updated to include a number of new sitting days, after the remainder of the Autumn sittings, and all of the Winter sittings, were initially cancelled as a result of the COVID-19 pandemic. Having sat on 8 April and in mid-May, both houses of Parliament will now sit on 10-12 and 15-18 June, before resuming for a full schedule from 4 August.