The hectic reform agenda from 2019 has flowed into 2020, and there is no end in sight. The Government is forging ahead with implementation of the Royal Commission reforms, and there have been major regulatory releases from the regulators including the APRA MySuper heatmaps and reports from ASIC on insurance and advice.

Royal Commission implementation

The Government has progressed with its response to a number of recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Some of the key developments are outlined below.

Consultation on exposure draft legislation

Treasury has released an extensive package of consultation materials dealing with implementation of several recommendations made in the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Of potential relevance for superannuation, the consultation package includes draft legislation addressing:

Submissions on the consultation package close on 28 February.

Financial Accountability Regime – extending BEAR to RSE licensees

Treasury has released a proposals paper on extending the Banking Executive Accountability Regime (BEAR) to all APRA regulated entities, with the expanded regime to be known as the Financial Accountability Regime (FAR). The paper outlines the Government’s proposed model to implement several recommendations from the Royal Commission, and also how BEAR may be extended to solely ASIC regulated entities – a further commitment made by the Government.

The proposed FAR will have a stronger penalty framework for corporate and finanbncial misconduct. It will include, for example, individuals being subject to civil penalties for breaches of their accountability obligations.

Submissions close on 14 February. While the Government has not yet determined an implementation timeframe, it plans to consult and introduce legislation to implement FAR by the end of 2020.

Compensation scheme of last resort

Treasury 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 recommended introducing a CSLR initially limited to financial advice failures, and this was endorsed by the Royal Commission. The Government has committed to introducing a broader CSLR, and the discussion paper seeks views on:

  • coverage of the CSLR, beyond personal advice
  • funding arrangements
  • compensation to be paid
  • managing scheme evolution.

Submissions close on 7 February.

Regulator coordination and information sharing

The Government has consulted on 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, and notify the other whenever it forms the belief that a breach of the law for which the other regulator has enforcement responsibility has occurred. Submissions closed on 24 January.

Making insurance claims handling a financial service

The Government has consulted on draft legislation and regulations to remove the exclusion of insurance claims handling and settlement services from the definition of a ‘financial service’ in the Corporations Act 2001. Submissions closed on 10 January.

The explanatory material indicates that the regulation of handling and settling an insurance claim by registrable superannuation entity licensees will be addressed separately, as part of the Government’s response to the Royal Commission recommendations related to superannuation regulators. Consultation on that legislation will take place in early 2020.

APRA executive accountability statements

APRA has published a paper outlining its governance arrangements, along with accountability statements for its senior executives. 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.

APRA update – heatmaps and more

MySuper heatmaps

APRA has published its first heatmap providing assessments of the performance of every MySuper superannuation product, along with an information paper outlining some of the key insights from the data and frequently asked questions.

According to APRA, the heatmap will provide additional transparency on the outcomes being delivered by all trustees providing MySuper products. It is designed to lift industry practices and enhance member outcomes by publicly identifying which MySuper products are underperforming and the areas where improvement is needed.

The heatmap uses a graduating colour scheme to provide insights into MySuper products across three areas: investment performance, fees and costs, and sustainability of member outcomes.

Deputy Chair Helen Rowell said APRA expects all trustees to use the heatmap to reflect on the drivers of their current performance and identify where they can do better. APRA intends to refresh the heatmap at least annually but will update the heatmap in the first half 2020 to help trustees and other stakeholders assess any early improvements being made.

APRA superannuation data transformation project

APRA has released the next tranche of topic papers for its multi-phase superannuation data transformation 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.

APRA has also released related draft reporting standards SRS 611.0 Member Accounts, SRS 705.0 Components of Net Return, and SRS 705.1 Investment Performance and Objectives. Submissions on the papers and draft standards close on 14 February.

ASIC update

Insurance in super code implementation: ASIC review

ASIC has released Report 646 Insurance in superannuation: Industry implementation of the Voluntary Code of Practice, commenting on industry’s implementation of the Insurance in Superannuation Voluntary Code of Practice.

The report observes that while some improvements in practices are being introduced as a result of adoption of the Code by a significant number of trustees, further work needs to be done to achieve the high industry standards consumers expect. ASIC has identified a number of inconsistencies in implementation of the Code, some relating to fundamental aspects such as which members are covered by the Code, the controls around balance erosion, and calculation of timeframes for claims processes. ASIC is also concerned that trustees need to have better defined policies and processes for those with unique needs.

Financial advice by superannuation funds: ASIC report

ASIC has released Report 639 Financial advice by superannuation funds, which examines the ways in which funds provide financial advice to members and the overall quality of the personal financial advice provided.

Overall, ASIC found that the quality of personal advice provided to members was generally appropriate. However, ASIC detected failures to comply fully with the best interests duty and related obligations. The report provides a number of tips for trustees to improve the quality of advice provided to members.

Fee and cost disclosure

ASIC has advised ASFA it will be amending its recent legislative instruments in relation to fee and cost disclosure to align with its updated version of Regulatory Guide RG 97. While RG 97 applies ASIC’s new requirements to product disclosure statements (PDSs) ‘issued’ from 30 September 2020, ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 and ASIC Corporations (Amendment) Instrument 2019/1071 refer to PDSs ‘given’ on or after that date.

Design and distribution obligations

ASIC is consulting on the new financial product design and distribution obligations (DDO). Consultation Paper 325 Design and Distribution Obligations includes a draft new Regulatory Guide Product design and distribution obligations.

The DDO regime commences in April 2021 and will require financial product firms to develop products that meet the needs of the consumers in their intended target market. ASIC’s draft guidance is principles-based but also incorporates working examples. ASIC is seeking comments on the consultation paper and draft regulatory guide by 11 March.

Legislative developments

New and proposed bills

Since the last rules and regs there has been a range of legislative developments – over and above the Royal Commission related measures noted above.

The Government announced it will introduce legislation to facilitate the exit of eligible rollover funds (ERFs) from the superannuation industry by 30 June 2021. The amending legislation—to be introduced early this year—will:

  • permit ERF trustees to voluntarily transfer any amount to the ATO
  • require ERFs to transfer all accounts below $6,000 by 30 June 2020
  • require ERFs to transfer any remaining accounts still residing in an ERF to the ATO by 30 June 2021.

The Government has introduced the Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 into Parliament. This omnibus amending bill is relevant to several aspects of the superannuation and related tax legislation, including:

  • the Protecting Your Superannuation and unclaimed superannuation and lost members rules
  • taxation of superannuation pensions and rolled-over death benefits
  • employer reporting of salary sacrificed contributions under single touch payroll
  • superannuation downsizer contributions.

New regulations and instruments

The Corporations Amendment (Design and Distribution Obligations) Regulations 2019 support the new design and distribution obligations (DDO) in relation to financial products. The Regulations alter the products and persons in relation to which the DDO regime applies, extend the DDO to additional persons and products and exclude certain persons and products from its operation. Of particular relevance for superannuation, the Regulations exclude from the DDO regime interests in eligible rollover funds and defined benefit interests and exempt an employer complying with certain Superannuation Guarantee obligations from the DDO regime.

The Superannuation (Unclaimed Money and Lost Members) Regulations 2019 and Superannuation (Unclaimed Money and Lost Members) and Other Laws (Repeal and Consequential Amendments) Regulations 2019 repeal and replace existing regulations in relation to unclaimed superannuation and lost members that were due to sunset (expire) on 1 April and update references in other regulations.

The Treasury Laws Amendment (Miscellaneous Amendments) Regulations 2019 make a range of minor and technical amendments relevant to the tax treatment of superannuation income streams – including the application of the transfer balance cap rules in specific scenarios.

The Government has registered a number of legislative instruments in relation to the social security treatment of income streams. The Social Security Legislation Amendment (2019 Measures No. 1) Determination 2019 allows an income support recipient to retain the asset‑test exemption for their income stream where it is transferred to a new regulated fund due to the closure of the original fund (or sub-fund). The Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 amended existing instruments to require the use of the Australian Life Tables 2015-17 when calculating the surrender value and death benefit value for an asset-tested income stream where a person’s assessment day is on or after 1 January 2020. The Determination was almost immediately repealed and replaced by the Social Security (Value of Asset-tested Income Streams (Lifetime)) Amendment Determination 2019 (No 2), to correct an error.

Consumer advocacy body for super: expressions of interest

Treasury has called for expressions of interest in relation to the Government’s 2019-20 Budget commitment to establish a consumer advocacy body for superannuation.

The creation of a consumer advocacy body was recommended by the Productivity Commission in its report Superannuation: Assessing Efficiency and Competitiveness.

It is intended that the advocacy body will become the voice of consumers in policy discussions and support access to information to educate and assist consumers, including vulnerable consumers, to navigate the superannuation system. The advocacy body will be required to leverage current financial literacy initiatives, such as MoneySmart.

The call for expressions of interest is the first step in the process to inform Treasury’s advice to Government about options to establish the advocacy body.