The last month has seen a host of regulatory developments, with Parliament resuming after the election, the outcomes of APRA’s capability becoming public, and several important releases from the regulators.
Protecting your super and ‘putting members’ interests first’
As the industry continues to work through the implications of the Government’s ‘protecting your super’ (PYS) reforms, there are further changes ahead, particularly for insurance.
The PYS reforms, which commenced on 1 July, impose a fee cap on low-balance accounts, prohibit exit fees, limit the provision of insurance on inactive accounts and require the transfer of inactive low-balance accounts to the ATO for reunification with active accounts.
The Government has indicated to APRA that it will amend the PYS legislation in response to matters raised by the industry. APRA has stated that the Government will amend the legislation to allow for the aggregation of a members’ interests in one or more products held within a superannuation account, and to ensure the rights of members under fixed term insurance cover are not affected. While these amendments were not made before the PYS legislation took effect on 1 July, APRA has indicated that it supports trustees proceeding on the basis that the amendments will become law in due course.
ASIC has made ASIC Corporations (Amendment) Instrument 2019/599, amending its Class Order 14/1252—which prescribes fee and cost disclosure rules for superannuation funds—to reflect the ban on exit fees under the PYS reforms.
Separately, the Government has re-introduced into Parliament amendments to progress aspects of its insurance reforms that were removed from the PYS package earlier this year. The Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 seeks to prevent trustees from providing insurance on an opt-out basis to:
- members who are under 25 years old and begin to hold a new product on or after 1 October 2019, or
- members (regardless of age) who hold a product on 1 October 2019 which has not had a balance of $6,000 or more since 1 July 2019.
At the time of writing, the Bill was still before the House of Representatives, awaiting debate. The Senate Economics Legislation Committee has considered the Bill and recommended that it be passed, but that its commencement be deferred from 1 October to 1 December.
APRA capability review
The report from the capability review of APRA has been released, along with the Government’s response and APRA’s action plan. The review was undertaken as part of the Government’s response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry and a previous recommendation of the Productivity Commission.
The review panel found that APRA is an ‘impressive and forceful’ regulator in matters of traditional financial risk but recommended a number of changes to ensure APRA is well positioned to respond to an environment of growing complexity and emerging risks.
In response, the Government has indicated it will:
- ensure APRA has sufficient powers and flexibility to prevent inappropriate directors and senior executives from being appointed or re-appointed to regulated entities, as part of extending the Banking Executive Accountability Regime
- outline its expectations for APRA on superannuation
- consider changes to APRA’s regulatory framework, including a review of penalties
- streamline and improve APRA’s accountability arrangements.
APRA is already implementing a number of the recommendations within its direct control and has outlined a plan to implement the remainder. Of particular relevance to superannuation, these include creating a new Superannuation Division and building on its recent work in relation to member outcomes. APRA will also enhance its regulatory and supervisory approach around issues of governance, culture and accountability and implement its revised approach to enforcement.
Updates from APRA
Since the last rules and regs, APRA has:
- Commenced consultation on new prudential requirements for its regulated entities—including superannuation funds—in relation to remuneration. The requirements outlined in proposed new prudential standard CPS 511 Remuneration reforms address a number of recommendations from the Royal Commission and are intended to better align the remuneration frameworks of regulated entities with the long-term interests of entities and their stakeholders. Submissions close on 23 October. APRA intends to release the final prudential standard before the end of 2019, with a view to it taking effect in 2021 following appropriate transitional arrangements.
- Finalised guidance on implementing its requirements on managing information security risks, including cyber-crime. Prudential Practice Guide CPG 234 Information Securitywill help regulated entities embed and comply with APRA’s new cross-industry prudential standard, CPS 234 Information Security, which came into effect on 1 July.
- Released a new series of frequently asked questions in relation to the new obligation on registrable superannuation entity licensees to undertake member outcomes assessments.
Updates from ASIC
ASIC recently published some important guidance for trustees and their associates in relation to the prohibition on influencing employer’s choice of a default superannuation fund for their employees.
The scope of the prohibition, in section 68A of the Superannuation Industry (Supervision) Act 1993 (SIS Act), was expanded earlier this year. Section 68A now generally prohibits a trustee or its associate from engaging in particular conduct if it would reasonably be expected to influence an employer to choose a default fund for employees or encourage employees to choose or retain membership of a fund.
New ASIC Information sheet 241 Prohibition on influencing employers’ superannuation fund choice: section 68A of the SIS Act explains the prohibition, the background to its recent amendment, the exemptions, and the penalties for non-compliance.
Updates from the ATO
The ATO recently published some guidance for superannuation funds on the taxation implications where compensation payments are received from financial institutions and insurance providers. The guidance covers situations where a fund had entered into a legal contract or agreement with a financial services or insurance provider, paid the fees or premiums from fund assets, allocated the cost to the members, and the:
- financial service or advice was not provided
- advice was deficient, or
- insurance premiums were overcharged.
The ATO has also released a draft guideline for large APRA regulated superannuation funds that provide a pension tax bonus to members. PCG 2019/D2 ATO compliance approach for large APRA-regulated superannuation funds in respect of pension tax bonuses not included in members’ opening account balances on commencement of a pension provides a transitional compliance approach where funds are facing practical difficulties in complying with legislative requirements. Submissions close on 14 August.
Superannuation guarantee: amending bills reintroduced
The Government has re-introduced into Parliament two bills containing amendments to the superannuation guarantee (SG) regime that were not passed prior to the recent federal election.
The Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2019 will implement a partial opt-out from SG coverage for eligible individuals with multiple employers, by allowing them to apply to the ATO for an SG exemption certificate. A certificate can only be issued if the ATO is satisfied the individual is likely to exceed their concessional contributions cap without the partial opt-out, and a number of other conditions are satisfied. The opt-out will apply for SG quarters commencing on or after 1 July 2018 and was first announced in the 2018-19 Budget.
The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 proposes amendments to prevent contributions made as part of salary sacrifice arrangement from counting toward the discharge of an employer’s SG obligations. The Bill also specifically includes salary and wages sacrificed to superannuation in the base for calculating an employer’s SG obligations, ensuring that SG must be paid on the pre-salary sacrifice base. The amendments apply in relation to working out an employer’s SG shortfall for quarters beginning on or after 1 July 2020.