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Superannuation monthly update – December 2020 & January 2021

09 February 2021

#Superannuation, Funds Management & Financial Services

Published by:

Michael O'Connor

Superannuation monthly update – December 2020 & January 2021

Regulator updates

ASIC Regulatory Guide RG 274 Product design and distribution obligations (11 December 2020)

ASIC released its finalised Regulatory Guide (RG 274) outlining its interpretation of the Product Design and Distribution Obligations (DDO Rules), which is due to commence in October 2021, and its expectations for compliance and general approach to administering the obligations.

RG 274 outlines:

  • coverage of the product design and distribution obligations
  • product governance arrangements
  • target market determination requirements
  • distribution requirements
  • ASIC’s administration of the DDO Rules.

Our thoughts

If you would like to learn more, click here to watch our previous webinar on the DDO Rules or contact us for a discussion.

ASIC Report 675 Default insurance in superannuation: Member value for money (14 December 2020)

ASIC released its review on the default occupational categories for group insurance and made recommendations as to how trustees may improve member outcomes to better meet their legal obligations, in light of the new Member Outcome rules and DDO Rules.

ASIC’s observations and recommendations include:

  • during the 2020 financial year, group insurance premiums payable by MySuper members were approximately $4.1 billion compared to $4.0 billion in administration and investment expenses 
  • there is significant variation in the sophistication of trustees’ assumptions and in the factors they take into consideration when designing their default categories
  • there were poor disclosure practices by some trustees, including about the relative cost of premiums in different categories and the use of generic labels to categorise some members. The process for members to update their occupational categories was also generally not readily apparent or accessible
  • the retention and analysis of certain insurance data from some trustees is challenging for trustees, especially those whose policies are more complex
  • trustees should collect and analyse data to monitor and review member outcomes, and:
    • assess whether members’ needs are being met and are receiving value for money
    • identify where risks of low-value outcomes (or member harm) may be emerging
    • understand what outcomes each cohort of their membership is receiving from a group insurance arrangement and why these outcomes may differ across cohorts.
  • trustees should proactively consider how they can refine the design and pricing of default insurance (including the terms and conditions) by:
    • analysing and taking action to better meet members’ needs and reduce the risk of low-value insurance
    • periodically reflect on whether different arrangements with their insurer or a different insurer could deliver better value for money in a way that is sustainable over time, and/or provide insurance that better meets members’ needs.

Our thoughts

As we shared in our presentation on the DDO Rules here, trustees (and not the insurers) are responsible for compliance. Given the relative value of premiums payable by members (and for some members, an insured benefit may exceed an account balance), this is clearly an issue in ASIC’s focus.

Member outcomes and product design and distribution obligations (15 December 2020)

APRA and ASIC issued a joint letter to trustees regarding the Member Outcomes obligations and the DDO Rules, to assist them to better understand how the Member Outcomes obligations and the DDO Rules interact. The regulators noted that:

  • the first Member Outcomes Business Performance Reviews (BPR) were due by 31 December 2020 and the first Outcomes Assessments are expected to be completed early 2021
  • the DDO Rules commence on 5 October 2021 and significant preparation is needed
  • at a high level, both regimes require trustees to:
  • identify the needs of members
  • determine whether their decisions about choice products and broader business operations are delivering quality outcomes for members
  • make decisions that are evidence-based and to monitor and review their product offerings and operations on an ongoing basis.

ATO Law Companion Ruling LCR 2020/3 – the superannuation fund for foreign residents withholding tax exemption and sovereign immunity (16 December 2020)

The Ruling addresses Schedules 3 and 4 of the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019, which limit the withholding tax exemption for superannuation funds for foreign residents and codify and limit the scope of the sovereign immunity tax exemption.

ACCC delivers clarification on market power competition and consumer questions for superannuation (16 December 2020)

The Australian Competition and Consumer Commission (ACCC) provided the Senate Standing Committee on Economics (Committee) a clarification on the following question:

“Where we have super funds that allow you to buy their products in a competitive environment from your super but they won't allow you to buy other people's like products, so there's no choice. Would that be considered a competition issue?”

In response to this question, the ACCC stated that while it has yet to reach a conclusion on whether any specific fund identified by the Committee has a substantial degree of market power, the superannuation industry has a relatively low market concentration of industry assets. In providing its response to the Committee, the ACCC stated that it considers market concentration as part of its overall assessment, and where there is low market concentration, it is unlikely that any one particular business has market power.

Our thoughts

The federal government voiced a concern that funds were limiting members’ choice of external products and whether such a limitation could be classified as a competition issue by ACCC. This qualified response from the ACCC response suggests that they do not believe any particular superannuation fund wields enough market power to fall into the category of misusing control on members’ choice of external products.

ASIC seeks further feedback on internal dispute resolution data reporting requirements (16 December 2020)

ASIC is seeking further feedback on proposed requirements for internal dispute resolution data reporting and follows ASIC’s earlier consultation through Consultation Paper 311 Internal dispute resolution: Update to RG 165 (CP 311) which was published on 15 March 2019.

The feedback relates to last year’s published Regulatory Guide RG 271 Internal dispute resolution (set to commence October 2021) (RG 271) which outlines what financial firms must do in respect of internal dispute resolutions systems that meet ASICs requirements. ASIC states that it has taken into account the feedback it received to CP 311 and reached preliminary positions on a number of issues related to data reporting. Further, ASIC has also developed an updated draft data dictionary and is seeking feedback on the dictionary and any aspect of their proposed data reporting approach.

ASIC also seeks specific feedback on the following questions:

  1. Will the draft data dictionary be practical for the industry to implement? If not, why not?
  2. If your financial firm has multiple business units or brands under the one licence, would you prefer to report the complaints data separately or as one single file?
  3. The data dictionary captures multi-dimensional data by allowing each complaint to have one product or service, up to three issues and up to three outcomes. Where there are multiple issues and outcomes, this is captured using in-cell lists rather than multiple rows or columns. Is this approach appropriate?
  4. Do you support quarterly reporting of IDR data? If not, what are the additional costs of reporting data on a quarterly, rather than a half-yearly, basis?
  5. Do you support the two proposed additional data elements that would capture consumer vulnerability flags and the channel via which the complaint was received? If not, why not?
  6. When we publish the IDR data, how can we best contextualise the data of individual firms? Are there any existing metrics of size and sector that would be appropriate for this purpose?
  7. Which IDR data elements do you think will be most useful for firms to benchmark their IDR performance against competitors?

Submissions are due by 12 February 2021.

Modernising Business Communications – Improving the Technology Neutrality of Treasury Portfolio Laws (18 December 2020)

The government released a consultation paper (Paper) seeking stakeholder feedback on regulatory impediments to modernising business communications. The purpose of the consultation is to investigate shortfalls in legal frameworks that don’t meet the needs with how businesses wish to communicate with each other.

The government is proposing to adopt technology neutrality in how businesses meet legal requirements to provide written information to their customers, shareholders and other stakeholders unless policy objectives are best achieved by limiting technology choice.

Where a default method is not specified in the law, it is intended that any technology may be used to communicate in writing, provided that the sending and storing of such information is suitable.

This will allow for entities to choose a default means of providing “in writing” communications that are appropriate to their circumstances and will allow recipients to receive information in other formats (such as paper) where digital formats are not practical.

In considering how to achieve technology neutrality, one option is to remove exemptions in the Electronic Transactions Regulations 2020 in respect of business communications.

The Paper provides a useful example of the possible shortfalls in question by including a superannuation case study. SIS Regulation 6.17A requires that binding death benefit nominations must, among other things, be signed by the member. As the SIS Regulations are exempted from Commonwealth electronic transactions laws, binding death benefit nominations cannot be made electronically. Changes to the law may enable such nominations to be made electronically.

Submissions are due by 28 February 2021.

APRA’s 2019-20 self-assessment report against the government’s Regulator Performance Framework. (18 December 2020)

APRA’s report contains its assessment against the six key performance indicators (KPIs) set out within the government’s Regulator Performance Framework (Framework), including:

  • KPI 1 – regulators do not unnecessarily impede the efficient operation of regulated entities
  • KPI 2 – communication with regulated entities is clear, targeted and effective
  • KPI 3 – actions undertaken by regulators are proportionate to the regulatory risk being managed
  • KPI 4 – compliance and monitoring approaches are streamlined and coordinated
  • KPI 5 – regulators are open and transparent in their dealings with regulated entities
  • KPI 6 – regulators actively contribute to the continuous improvement of regulatory frameworks.

Overall, APRA considers it has met all six KPIs set out in the Framework and opportunities for improvement have been identified for KPI 1, KPI 2 and KPI 4. These, together with APRA’s actions to progress the identified areas for improvement, are summarised in the report.

APRA announces APRA Connect will go live in 2021 (18 December 2020)

APRA Connect will go live at the end of September 2021 and will progressively replace the Direct to APRA data collection infrastructure.

The following summary has been outlined by APRA about the implementation:

  • APRA Connect will go live at the end of September 2021 with a progressive cutover of regulatory data reporting to the new solution over the coming years
  • all entities will be responsible for maintaining entity information, such as contact details, responsible persons and related parties (including Banking Executive Accountability Regime reporting for authorised deposit-taking institutions) on APRA Connect
  • the timing of regulatory data reporting commencing in APRA Connect will vary for each industry. APRA will progressively start new collections in APRA Connect in line with industry consultations
  • the first regulatory data collections to be introduced in APRA Connect at the September 2021 go live will be the Private Health Insurance Reform (HRS 605.0) and Superannuation Data Transformation collections
  • all entities who submit Form 701 for intermediated insurance business will be required to use APRA Connect. The first submission will be due in APRA Connect from January 2022. Lodgement by email, fax or mail will not be accepted once APRA Connect is implemented
  • direct to APRA (D2A) will continue to be used for most existing collections. This means that dual reporting systems will be in place for the medium term and any resubmissions for D2A-submitted returns must be made through D2A
  • returns will be exclusively available on one system or the other and no new collections will be introduced to D2A.

Once all data reporting has moved to APRA Connect, the D2A system will retire.

APRA targets underperformers with a first full refresh of MySuper Product Heatmap (18 December 2020)

APRA increased scrutiny of underperforming superannuation funds with the publication of the first full refresh of its MySuper Product Heatmap (Heatmap) since it was first published last December.

APRA also released a paper outlining key insights from the updated Heatmap and its impact in improving member outcomes which shows that, in the 12 months since the first Heatmap was published:

  • 11 of the MySuper products that underperformed the investment benchmarks have exited the industry
  • 71% of MySuper members (10 million members) are paying less in total fees and costs
  • an estimated $408 million saving in total fees and costs has been achieved.

APRA is now reviewing whether, in relation to 10 MySuper products, eight trustees may have failed in their obligations to members of these products, including possible breaches of SIS. The regulator is now in the process of determining what action it will take on these 10 products.

Australian Taxation Office – superannuation remittance and recovery processing schedule for SuperStream (14 January 2021)

The ATO published its remittance and recovery schedule for SuperStream. The following dates should be noted by funds:

January 2021
February 2021

SG Remittance, SG Recovery 

USM Remittance – 13 January

LISA Remittance – 19 January

USM Remittance – 20 January

SHA Remittance – 22 January

Co-Cons Recovery – 26 January

USM Remittance – 27 January

SG Remittance – 28 January

LISA Recovery – 28 January


USM Remittance – 3 February

Co-Cons Remittance – 9 February

USM Remittance – 10 February

SG Remittance, SG Recovery – 16 February

USM Remittance – 17 February

SHA Remittance – 19 February

LISA Remittance – 23 February

USM Remittance – 24 February

LISA Recovery, SG Remittance – 25 February

APRA draft Prudential Standard SPS 250 Insurance in Superannuation and draft Prudential Practice Guide SPG 250 Insurance in Superannuation (20 January 2021)

APRA released, for consultation, draft changes to the Prudential Standard SPS 250 Insurance in Superannuation (SPS 250) and Prudential Practice Guide SPG 250 Insurance in Superannuation which focus on two recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Banking Royal Commission):

  • independent certification of related party insurance arrangements
  • rules for status attribution for a beneficiary are fair and reasonable.       

The proposed changes also require trustees to provide an easy opt-out of insurance by superannuation fund members, and further measures to stop members’ retirement income being inappropriately eroded.

Submissions are due by 5 March 2021.

Legislation

Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Act 2020 (Cth) (14 December 2020)

The Family Law Amendment (Western Australia De Facto Superannuation Splitting and Bankruptcy) Act 2020 received Royal Assent on 14 December 2020. The Act:

  • amends section 10L(2)(b)(I) of the Family Law Act 1975 (Cth) (FLA) to allow Western Australian de facto couples to participate in private arbitration concerning their superannuation proceedings, in the same circumstances as their counterparts in other states and territories
  • extends Part VIIIC of the FLA to all Western Australian de facto relationships (including those with proceedings on foot) without the need for both parties to opt-in to the new superannuation splitting regime as originally proposed in the Bill
  • expressly prevents de facto couples who have final property orders in place or who have a financial agreement under Part 5A of the Family Court Act 1997 (WA) upon the Act’s commencement, from applying for superannuation splitting orders under Part VIIIC of the FLA.

ASIC Corporations (Amendment and Repeal) Instrument 2020/921 (8 December 2020)

ASIC extended the superannuation fund portfolio holdings disclosure relief outlined in ASIC Class Order 14/443 to 31 December 2021.

Our thoughts

It should be noted that while the relief is set to 31 December 2021, ASIC has flagged that depending upon when the regulations for portfolio holdings disclosure requirements have been created, ASIC may shorten the period of relief.

Financial Reforms No. 2 Bill introduced: Fees and conflict of interest protections (9 December 2020)

The Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 (Bill) was introduced into the House of Representatives to implement further recommendations of the Banking Royal Commission, including:

  • ongoing fee arrangements under FOFA
  • amending the Corporations Act to require financial services providers that receive fees (fee recipients) under an ongoing fee arrangement to:
    • provide clients with a single document each year which outlines the fees that will be charged and the services which the client will be entitled to in the following 12 months and which seeks annual renewal from clients for all ongoing fee arrangements
    • obtain written consent before fees under an ongoing fee arrangement can be deducted from a client's account.

The Bill will further amend:

  • the Corporations Act to require a financial services licensee or authorised representative to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client
  • SIS to provide greater protection for members against paying fees for no service. The amendments increase the visibility of advice fees for all superannuation products and prohibit the charging of ongoing advice fees from MySuper products.

The Bill is intended to apply from 1 July 2021, with a 12-month transitional period commencing 1 July 2021 for arrangements entered into before this date.

Treasury Laws Amendment (Miscellaneous and Technical Amendments) Regulations 2020 (10 December 2020)

The Regulations retrospectively ensure that permanent residents of New Zealand are eligible for the early release of their superannuation on compassionate grounds relating to COVID-19 under the same policy settings that apply for Australian citizens, permanent residents of Australia and New Zealand citizens.

Registration of Financial Sector Reform (Hayne Royal Commission Response) (Regulation of Superannuation) Regulations 2020 (11 December 2020)

The Regulations repeal the exemption for trustees of non-public offer superannuation funds from the requirement to hold an AFSL to deal in financial products (including superannuation interests). Trustees of non-public offer funds are advised to lodge their AFSL applications with ASIC on or before 30 April 2021.

ASIC Corporations (AFCA Regulatory Requirement) Instrument 2021/0002 (5 January 2021)

Legislative instrument ASIC Corporations (AFCA Regulatory Requirement) Instrument 2021/0002 (Instrument) was issued by ASIC on 5 January 2021, requiring AFCA to update its Complaint Resolution Scheme Rules (Rules). 

The Rules change follows the judgment of the NSW Supreme Court in DH Flinders Pty Limited v Australian Financial Complaints Authority [2020] NSWSC 1690. This case related to AFCA’s jurisdiction to consider a complaint against an AFSL licensee in relation to the conduct of its corporate authorised representative, specifically where the conduct of the representative was without or outside authority.

The judgment highlighted that AFCA’s Rules needed to be clearer to ensure that they reflected the same obligations and liabilities for licensees as set out in the Corporations Act.

At ASIC’s direction, the Rules now clearly reflect the same statutory liability for licensees regarding their authorised representatives as set out in the Corporations Act and the National Consumer Credit Protection Act.

The updated AFCA Rules apply to complaints received by AFCA from 13 January 2021 onwards. 

Complaints received before 13 January 2021 will be handled by AFCA under the previous Rules. As the vast majority of complaints AFCA considers are between parties with a direct relationship, these complaints are not impacted by the Rules change.

AFCA is currently reviewing a very small number of complaints received before 13 January 2021, which are potentially impacted by the judgment and is in contact with those complainants and financial firms to discuss the specifics of their complaint.

For the small number of complaints which may be outside AFCA’s Rules, AFCA will be encouraging the financial firms involved to consent to AFCA considering the complaint to achieve an early resolution and avoid the prospect of a potential court or other action by the complainant.

Superannuation Amendment (PSSAP Trust Deed – Membership) Instrument 2020 (6 January 2021)

The Superannuation Amendment (PSSAP Trust Deed – Membership) Instrument 2020 (Instrument) makes amendments that consider the reforms made by the Superannuation Amendment (PSSAP Membership) Act 2020 (Cth) which:

  • ensure that non-Commonwealth designated employers are not required by the Public Sector Superannuation Accumulation Plan (PSSAP) Trust Deed or Rules to make contributions to PSSAP in respect of an eligible PSSAP member or an eligible Commonwealth Superannuation Scheme (CSS)/Public Sector Superannuation Scheme (PSS) member or former member
  • ensure that certain benefits under the PSSAP rights are available to the new member categories, including by allowing Commonwealth Superannuation Corporation (CSC) to take out policies for death and invalidity insurance and income protection insurance to offer to eligible PSSAP members and eligible CSS/PSS members or former members
  • enable an eligible PSSAP member or an eligible CSS/PSS member or former member to apply to CSC for payment of their benefit on the grounds of permanent incapacity
  • enable the PSSAP to better align with the broader superannuation framework and simplify the rules relating to the procurement and provision of death and invalidity and income protection insurance by CSC.

The amendments commence from 8 March 2021.

Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) (17 December 2020)

The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth) (Act) received Royal Assent on 17 December 2020.

The Act contains measures including:

  • allowing provisions in financial services industry codes to be enforceable, with breaches attracting civil penalties, ensuring better adherence by industry and certainty for consumers
  • making the handling and settlement of insurance claims a "financial service", which will require insurers to behave honestly, efficiently and fairly and comply with other licensing obligations to improve claims-handling practices
  • prohibiting superannuation fund trustees from having a duty to act in the interests of another person, other than those arising from their duties as trustee of a registrable superannuation entity
  • strengthening the unsolicited selling (anti-hawking) provisions, including for superannuation and insurance products
  • extending ASIC’s role in covering consumer protection and market integrity regulation, meaning that it will share the general administration of, or co-regulate, the SIS consumer protection and member outcomes provisions
  • amending the SIS breach reporting regime to align the 30-day timing requirement for reporting under that regime with the extension of ASIC’s role
  • extending the AFSL regime to cover the provision of a superannuation trustee service while also amending the existing SIS indemnification prohibitions to prevent trustees and directors from using trust assets to pay a criminal, civil or administrative penalty incurred in relation to a contravention of a Commonwealth law
  • clarifying and strengthening the Corporations Act breach reporting regime, including:
    • investigations into whether a significant breach has occurred or will occur if the investigation continues for more than 30 days, and the outcomes of those investigations
    • conduct that constitutes gross negligence or serious fraud
    • conduct that amounts to misleading or deceptive conduct under the financial services law
    • serious compliance concerns about individual financial advisers operating under another licence.
  • requiring lodgement of breach reports with ASIC within 30 days after the licensee first becomes aware, or is reckless with respect to whether there are reasonable grounds to believe, a reportable situation has arisen.

Our thoughts

The Act provides significant changes, including:

  • trustees and directors will not only be prevented from seeking indemnity from superannuation fund assets in respect of SIS civil penalty orders, but will also be prevented from seeking indemnity out of fund assets from criminal, civil or administrative penalties arising from a contravention of any Commonwealth law
  • trustees and directors will not only be prevented from seeking indemnity from a fund in respect of infringement notices under SIS, but in respect of such types of notices (however described) under any Commonwealth law.

Therefore, the Act appears to:

  • remove any limitation on the prohibitions contained in the SIS Indemnification Rules to merely SIS-related penalties
  • widen (or at least makes it clear that) the types of liabilities for which trustees and directors are precluded from seeking indemnity out of the superannuation fund’s assets by extending the liabilities to all types of penalties and fines imposed according to almost any order or regulatory instrument under any Commonwealth law.

Therefore, uncertainty arises because the proposed law prohibits indemnification out of fund assets in relation to very broad concepts, being “an administrative penalty” and “an amount payable under an infringement notice (however described) given under a law of the Commonwealth (including this Act)”. The inclusion of these words gives rise to the following uncertainties:

  • “administrative penalties” appear to be any form of penalty arising under legislation
  • there is uncertainty as to what an infringement notice is and what could be considered to be an infringement notice (due to the inclusion of the words ‘(however described)’)
  • for what reasons a trustee or director may be served with an infringement notice or anything that may resemble an infringement notice.

In other words, it appears that trustees and directors will be personally liable for loss arising due to something the law cannot adequately describe, even where trustees may have acted with care, skill and diligence.

Trustees will need to consider how the indemnity rules under state trustee laws interact with these new SIS proscriptions.

Cases and other developments

Shimshon v MLC Nominees Pty Ltd [2020] VSC 640

The Supreme Court of Victoria rejected a possible class action against a superannuation fund trustee because it was invalidly commenced under the Supreme Court Act.

The claim alleged MLC Nominees and others breached their duties in the transition of accrued default amounts into a newly established MySuper product thereby incurring a loss which included higher fees. The case provides a useful context of when a member accrues a right associated with a particular event that has occurred.

The Court agrees with the defendant’s submission stated:

“what consistently emerges from these authorities is the emphasis on a fund member’s interest being contingent upon particular events occurring in the future, such that the fund member otherwise has no present or immediate right to payment. A fund member, on the basis of the analysis preferred in the cases, cannot be said—prior to the occurrence of a contingency event—to have an interest in an identifiable portion of the superannuation fund.”

Our thoughts

The Court’s comments provide a useful indicator for trustees of when a member’s interest arises.  That is, a member’s account is firstly an allocation of that member’s entitlement to a share of the trust assets in accordance with the governing rules. This provides a legitimate expectation to an interest in trust property or what is more clearly defined in the SIS Regulations as a member’s “benefits in the fund”. This expectation of a benefit set to accrue at a later date does not, however, produce an immediate right of payment if that member has yet to be eligible for that benefit.

CPSU v UniSuper Ltd [2020] VSC 825 (8 December 2020)

A claim by the Community Public Sector Union (CPSU) claiming it had standing and the right to nominate and appoint a director of Unisuper Ltd (USL) was rejected by the Victorian Supreme Court.

The CPSU predominantly sought relief against USL requesting a determination by the Supreme Court on what are the rights or interests of the members of the UniSuper Scheme (who are also members of the CPSU) or of the CPSU, to nominate and have appointed a director of USL under USL’s Constitution.

The claim arose due from questions as to the meaning and effect of Rule 34(2)(e) of the USL Constitution which states that:

 “…Power to appoint Directors

(2) The Directors appointed under this Rule shall be appointed as follows:

(e) two of the persons appointed Directors shall be nominated by national unions who represent a significant number of members of the Scheme…”

The questions that arose were:

  • whether CPSU was a “national union”
  • and, if so, whether it was a “significant” national union
  • if it was significant, whether CPSU had a right to nominate one of two directors under the Rule (given the existence of the National Tertiary Education Union which was a significant national union).

The term “national union” was not defined in the USL Constitution and the Court held that the CPSU was not a national union after considering whether the CPSU represented members in each state and territory. Further, if it was to be considered a national union, the CPSU did not represent a significant number of UniSuper Scheme members.

Further, the Court did not agree that, had the CPSU been a significant national union, the Rule would have required or entitled the CPSU to nominate and have appointed one director. All that was required was that two directors were nominated and appointed, meaning that one union could nominate.

Our thoughts

A number of interesting points arise from this case:

  • while the Court had already determined the CPSU’s lack of standing, it is important to note the use of the Court’s application of principles of interpretation to determine the overall meaning of Rule 34(2)(e). In each respect of the words to be interpreted, the Court applied the ordinary meaning of the words themselves and looked to the purpose of the words in the context of Rule 34
  • CPSU argued that “mutually-known objective background circumstances” should determine the Rule 34(2)(e) “no matter how clear the ordinary meaning of the words to construed is said to be”. However, this was not accepted by the Court in the context of this case. In other words, the words have their plain meaning
  • the USL Constitution provides rights for both shareholders and non-shareholders to nominate directors, and (as it did here) this creates difficulty from time-to-time as the identity of those parties who may be eligible to nominate may be unclear. What may appear to be obvious or clear terminology (words such as “employer” and “national union”) may in some cases create ambiguities or potentially give rise to unintended parties asserting certain rights. 

In this case, the Court did not seem to consider USL’s board renewal policy, however, it may be that such a policy would not have been of benefit to the questions put to the Court. In this case, it appears that such questions are likely to only be constitutional in nature and it is doubtful that a trustee would willingly allow a non-shareholding party to assert rights under a trustee policy by attempting to clarify terms contained in a constitution.

ASIC proceedings against Squirrel Superannuation Services for misleading marketing (5 January 2021)

On 23 December 2020, ASIC commenced civil penalty proceedings in the Federal Court against Squirrel Superannuation Services Pty Ltd (Squirrel) for false or misleading representations.

ASIC alleges Squirrel made misleading representations via a brochure stating that:

  • “residential property in metropolitan locations doubles in value every 7-10 years and generates a rental return of around 4 – 5% per annum”
  • using a deposit from an SMSF to purchase residential investment property could obtain certain average returns
  • there is a ‘remarkable’ difference in returns between investing in a regular superannuation fund (7%) and using an SMSF that purchased residential property (14%)
  • the costs of managing an investment property through an SMSF are ‘surprisingly low’ compared with using a financial planner to select a series of managed investment funds
  • SMSFs are a key part of the superannuation sector and represent approximately 26% of total assets held. There are now over 591,000 SMSFs holding an estimated total value of assets.

ASIC is seeking declarations, financial penalties and cost orders against Squirrel under sections 12DA(1), 12DB(1)(e) and 12DF(1) of the ASIC Act. 

The date for the first case management hearing is yet to be scheduled by the Court.

Authors: Luke Hooper & Michael O’Connor

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Michael O'Connor

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