09 March 2020
ASIC Report 655 - A review of member communications: Protecting Your Superannuation Package reform (12 February 2020)
The Australian Securities and Investment Commission (ASIC) released the findings from its recent review of superannuation trustees’ communications with their members about changes introduced through the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 (Cth) (PYSP).
ASIC’s key findings were as follows:
The PYSP communications project adopted by the funds was a considerably large and complicated task, involving short deadlines. Explaining the various mechanics of PYSP’s insurance rules was always going to be an enormous task, and given the different types of notices (and election requirements) that were to be given to different member cohorts before and after June 30 raises a question as to whether point four above is a fair assessment as this is a legal (as well as logical) requirement for a member’s nine, 12 or 15 month inactivity notice, but not necessarily a requirement for earlier disclosures on this subject. In some cases, it appears that trustees and their administrators did not have the time to provide further bespoke information in the earlier disclosures, and it is arguable that personalising earlier disclosures that were more general in nature could have taken away the impact that the personal information was meant to have in the nine, 12 or 15 month inactivity notices.
ASIC and APRA response: Law reform: Superannuation regulator roles (14 February 2020)
ASIC and the Australian Prudential Regulation Authority (APRA) released a joint letter to trustees in response to Treasury’s draft Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2020 Measures)) Bill 2020 and Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators) (Regulation of Superannuation) Regulations 2020 which aim to:
What specific reforms are proposed to strengthen ASIC’s role as conduct regulator in superannuation?
Broadly, the proposed reforms increase ASIC’s consumer protection powers by:
What do trustees need to do?
If the proposed reforms are implemented, most trustees should not have to take additional steps to comply with the new regime. Trustees of non-public offer funds that do not hold an existing Australian Financial Services License (AFSL) will be required to obtain an AFSL (subject to a streamlined application process). ASIC will be writing to the 15 affected non-public offer trustees to provide more information about how to get the licence and the authorisations they need.
What does this mean for ASIC and APRA?
The regulators will continue to enhance their regulatory co-operation and approach to regulatory activities, guided by high-level statements introduced in SIS which reflect that APRA will be responsible for prudential regulation and member outcomes (including licensing and supervision of Registrable Superannuation Entities licensees) and ASIC will be responsible for protecting consumers from harm, market integrity, disclosure and record keeping.
In addition, ASIC and APRA recognise that:
The APRA Dual Reporting Framework will continue. Trustees will be able to continue to report breaches to both regulators by submitting one report to APRA, provided the information reported to APRA meets the breach reporting requirements in the Corporations Act. This will be further supported by extending the timeframes under the SIS Act for trustees to report breaches from 10 business days to 30 calendar days in order to align with the Corporations Act requirements.
APRA letter to all APRA-regulated entities: Understanding and managing the financial risks of climate change (24 February 2020)
APRA wrote to all APRA-regulated entities, detailing its proposed actions to ensure that these entities are actively seeking to understand and manage the financial risks of climate change in the same manner as they would other economic and operational risks. Given the diversity of business models and activities within the regulated sector, APRA has not been prescriptive as to how entities should manage such risk.
APRA states that it continues to encourage the adoption of voluntary frameworks to assist entities with assessing, managing and disclosing their financial risks associated with climate change, and will continue to focus on the financial risks of climate change by conducting deeper supervisory assessments of each entity that participated in APRA’s 2018 climate change survey, which are due to be completed in mid-2020.
Development of climate change financial risk guidance
APRA intends to develop and consult on a climate change financial risk prudential practice guide (PPG) which is not intended to establish new obligations, but rather will be designed to assist entities in complying with their existing prudential requirements. APRA will consult on the draft PPG in mid-2020 and will seek to publish final guidance before the end of the year.
Climate change financial risk vulnerability assessment
APRA will be seeking to undertake a climate change financial risk vulnerability assessment. The assessment will begin with Australia’s largest banks. The vulnerability assessment will be designed in 2020 and executed in 2021, with other industries to follow. This timing also aligns with the expected release of international peer regulator guidance on scenario analysis for the banking sector.
Update of environmental, social and governance investment prudential guidance
In response to industry views outlined in the post-implementation review of the superannuation prudential framework (post-implementation review), APRA also intends to update Prudential Practice Guide SPG 530 Investment Governance (SPG 530) which also governs environmental, social and governance considerations.
APRA will consult on specific changes to Prudential Standard SPS 530 Investment Governance and SPG 530 around the middle of the year, in conjunction with other changes to the superannuation prudential framework as part of APRA’s response to the post-implementation review.
It would be fair to say that climate change and superannuation is going to have a heightened focus, this year. I am hoping that the focus will look at the role that the sole purpose test plays in superannuation because this key stone rule seems to be missing from much of the current debate.
APRA is looking at the risks of climate change to portfolios, whereas much commentary seems to point to how trustees should actively involve themselves in the climate debate. It is clear that APRA is looking at climate change through the lens of the sole purpose test as, we assume, all trustees do.
Financial Sector Reform (Hayne Royal Commission Response—Stronger Regulators (2019 Measures)) Act 2020 (Royal Assent 17 February 2020)
The Act (among other things) amends the Corporations Act so that:
Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 (introduced 6 February 2020)
The Bill proposes to amend the Superannuation (Unclaimed Money and Lost Members) Act 1999 (Cth) (SUMLM Act) and SIS so that eligible rollover funds (ERF) will no longer play a role in the management or consolidation of lost or low member that would otherwise be required to be transferred to the Australian Tax Office (ATO) under the PYSP regime.
ERFs will be required to transfer low balance accounts to the ATO by 30 June 2020 and all remaining accounts by 30 June 2021.
Treasury Laws Amendment (2020 Measures No. 1) Bill 2020 (introduced 12 February 2020)
The Bill proposes to provide permanent capital gains tax relief for merging superannuation funds (current relief is due to be repealed on 1 July 2022).
Treasury Laws Amendment (2019 Measures No. 3) Bill 2019 (introduced into the Senate 12 February 2020 after third reading agreed to in the House of Representatives)
The Bill proposes to:
This amendment applies to contraventions happening on or after the commencement of the proposed amendment
Amendments to PYSP was always inevitable, but in saying that:
Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019 (introduced into the Senate 12 February 2019 after third reading agreed to in the House of Representatives)
The Bill reintroduces proposed amendments to section 32C of the Superannuation Guarantee (Administration) Act 1992 (Cth) to ensure that employees under workplace determinations or enterprise agreements have an opportunity to choose a superannuation fund. Employers will, therefore, need to provide these employees with a standard choice form.
The measure applies to new workplace determinations and enterprise agreements made on or after 1 July 2020 but not to workplace determinations and enterprise agreements that were in place before this time.
Commonwealth Registers Bill 2019 and Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 (12 February 2020)
The package of Bills, introduced under the National Business Simplification Initiative aims to consolidate 35 business registers currently governed by ASIC and the Australian Business Register into a single platform, overseen by a Commonwealth-appointed Registrar.
Further, the Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019 proposes to introduce Director Identification Numbers (DINs) that will be a unique identifier, allowing traceability of a director’s relationship across companies. All company directors will be required to apply to the Registrar for a DIN and current directors will be required to apply for a DIN within 28 days of the Bill’s enactment.
Transitional provisions apply so that, generally:
There were no cases or other recent developments of interest, this month.
Author: Luke Hooper
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.