09 February 2021
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:
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:
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:
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.
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:
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:
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:
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:
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):
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.
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:
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.
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:
The Bill will further amend:
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  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:
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:
The Act provides significant changes, including:
Therefore, the Act appears to:
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:
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.
Shimshon v MLC Nominees Pty Ltd  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.”
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  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:
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.
A number of interesting points arise from this case:
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:
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
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.