02 March 2021
APRA's 2021 supervision and policy priorities (1 February 2021)
APRA released its policy and supervision priorities for the coming year. In line with APRA’s 2020-2024 Corporate Plan, a key focus is to further “enhance the resilience and crisis readiness of Australia’s financial system”. The regulator has outlined that it intends to meet this focus by delivering policies developed in the following areas over the next 12 to 18 months:
APRA’s has also developed similar goals for improving its supervisory role in 2021. The APRA’s 2021 Supervision Priorities report included:
APRA’s ‘Year in Review – Safeguarding Australia financial wellbeing’ (5 February 2021)
The review outlines APRA’s view on the financial environment and details its key activities for the year. It also contains metrics for APRA’s regulated industries and supplements APRA’s annual report and financial statements which are submitted to the Australian Government after the end of each financial year (to June 30).
The review concludes that Australian financial systems remain “fundamentally sound after one of the most challenging and testing years many industries have ever faced”. The report also acknowledges that for 2021 the environment ahead remains highly uncertain. By resetting its priorities during the pandemic, APRA has assisted the industry by providing a range of regulatory concessions while not weakening the fundamental strength of the financial system. The report outlines:
Inquiry into the prudential regulation of investment in Australia’s export industries (17 February 2021)
The Joint Standing Committee on Trade and Investment Growth will inquire into and report on the opportunities and challenges for Australia’s export industries in particular examining how changes in prudential standards in banking, insurance and superannuation have impacted the industry. The relevance for superannuation trustees is the standing committee’s terms of reference 2 and 3:
The Committee invites submissions addressing the terms of reference by Wednesday, 31 March 2021.
Open consultation – ATO’s updated list of open consultations for public feedback (18 February 2021)
The ATO has updated its current consultations relevant to superannuation funds, including:
AFCA review: Terms of reference (22 February 2021)
The Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 requires the Minister to establish an independent review of the operation of AFCA. The Act also requires the Minister to table the review report in Parliament within 15 sitting days after receiving the report. The Treasury will be undertaking the review and the final report will be handed to the Minister for Superannuation, Financial Services and the Digital Economy by no later than 30 June 2021.
The terms of reference provide the following guidance for submissions:
ASIC Consultation Paper CP 334 Proposed changes to simplify the ASIC Derivative Transaction Rules (Reporting): First consultation closing date extended (22 February 2021)
In response to a number of requests from stakeholders, ASIC decided to extend the closing date for feedback on the ASIC Consultation Paper ‘CP 334 Proposed changes to simplify the ASIC Derivative Transaction Rules (Reporting): First consultation’ by two weeks to 15 March 2021.
The consultation focuses on proposals to amend the derivative transaction rules made under section 901A of the Corporations Act, including:
Interested parties can submit responses to the consultation by 26 March 2021.
Your Future, Your Super changes: Bill introduced (17 February 2021)
The Treasury Laws Amendment (Your Future, Your Super) Bill 2021 was introduced into the Parliament targeting three areas:
We set out the significant changes proposed to each of these areas below.
Single default accounts
On or after 1 July 2021, in the absence of a new employee choosing a superannuation fund, an employer must determine whether that new employee has a “stapled fund” and, if a stapled fund exists, contributions should be paid into that stapled fund instead of paying into the employer’s chosen default superannuation fund.
Underperformance in superannuation
The Bill proposes a new ‘Annual Performance Assessment’, requiring APRA to action annual performance tests each year for MySuper products and other products set out by the yet to be drafted regulations. Under the rules, if a fund fails the annual performance assessment, the trustee must notify all members and if it fails the assessments in two consecutive years, the trustee will be prohibited from accepting any new beneficiaries into the fund’s product.
Best financial interests duty
The Bill proposes to amend the SIS best interests covenant by requiring trustees to act in the ‘best financial interests’ of beneficiaries, noting that while this has always been a requirement, the Explanatory Memorandum provides great detail as to what activities may fall outside of that scope. Further, the proposed amendments place a reverse onus of proof so that a trustee will need to show evidence that the expenditure and investments have been made in the best financial interests of beneficiaries if civil proceedings are brought against it.
The Bill has been referred to the Senate Economics Legislation Committee, with a report due by 22 April 2021.
Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 (25 February 2021)
The Bill passed both Houses of Parliament and awaits Royal Assent. Once enacted, the Act will amend the Corporations Act to require a financial services licensee or authorised representative to provide written disclosures in respect of any lack of independence while also amending SIS to bolster protections for superannuation members against ‘fee for no services’.
While the Financial Services Royal Commission recommended prohibiting the deduction of advice fees to MySuper products altogether, the proposed amendments will only prohibit ‘ongoing’ advice fees from being deducted from MySuper accounts “by allowing non-ongoing client authorised fees”.
The government argues this compromise will allow members to access one-off financial advice, with fees charged to their superannuation account while ensuring that additional fees are not charged to members for services already provided.
Westpac Securities Administration Ltd v Australian Securities and Investments Commission  HCA 3 (3 February 2021)
By a unanimous decision handed down on 3 February 2021, the High Court of Australia dismissed an appeal by Westpac which sought to overturn a ruling of the Full Federal Court that it had provided ‘personal advice’ to existing customers in contravention of the conditions of its AFSL (read our full discussion here).
The key question for the High Court to determine was whether the financial product advice Westpac gave members over the phone was ‘personal advice’ within the meaning of section 766(3)(b) of the Corporations Act because “the advice was given or directed to the member in circumstances where a reasonable person might expect Westpac to have considered one or more of the member’s objectives, financial situation and needs.”
The High Court held that the advice given to the 14 members during the telephone calls was ‘personal advice’ within the meaning of section 766B(3) because:
Knowledge of the member’s financial situation
In the case of the 14 members, each received a ‘personal communication’ which “specifically related to the member’s personal financial situation in relation to his or her superannuation”.
The Court confirmed that in order to provide personal advice, an adviser does not need to have a comprehensive understanding of the member’s financial situation. Personal advice only requires that the adviser has considered, or a reasonable person might expect the adviser to have considered, one or more of the definition’s three requirements – a person’s objectives, financial situation, or needs.
Some issues arise here:
General disclaimers are only as good as the actions taken under them
The joint majority considered that the verbal disclaimers provided to members were not sufficient to render the financial product advice as general advice. This is because immediately after the disclaimer was made, the Westpac representative elicited the member’s objectives from them and used social proofing techniques to confirm the validity of those objectives.
For example, one adviser confirmed to a member that saving on fees and manageability are “two main reasons our clients do like to bring their super together” and that doing so “does make a lot of sense from a management point of view, for sure”.
Gordon J held that “the significance of the general advice warning must be assessed in light of all the circumstances. [It] was given only once, at the beginning of the telephone conversation. Members were subsequently asked directly about their personal objectives. [They] were not encouraged to seek personal advice before deciding whether to accept the rollover service.”
AFSL holders should be aware that having an established practice of providing general disclaimers will not necessarily protect them from being found to have provided personal advice. The High Court’s decision demonstrates that when determining whether financial product advice is to be classified as general or personal in nature, all circumstances will be taken into account. In other words, the facts will speak for themselves.
No fees charged can still be considered personal advice
The High Court made clear the fact that the superannuation roll-over service offered free of charge by Westpac was, “at best neutral in relation to the reasonable expectations of a member” in circumstances where Westpac had a pre-existing relationship with the member and the rollover served Westpac’s interest.
In other words, a reasonable person might expect that where a finance service provider is acting in its own interests, a fee for the provision of personal advice is less likely to be required. Of relevance was the fact that the members had already paid fees to Westpac for financial services related to superannuation.
However, it may be argued that the definitions of ‘financial product advice’, ‘personal advice’ and ‘general advice’ are not characterised or differentiated by whether a fee or cost is charged – the Act is silent on that and there is no ambiguity in the text. Both forms of financial product advice are predicated on the intentions of a provider (or what could reasonably be considered as being such intentions) and not whether the client paid for such advice.
ATO impact statement on Commissioner of Taxation v Douglas case (11 February 2021)
The ATO has issued an Impact Statement on the case of Commissioner of Taxation V Douglas  FCAFC 220 which examined three test cases on the question of when an invalidity payment will be classified as either a superannuation lump sum or superannuation income stream benefit. The invalidity payments were initially paid from pensions to individuals under the Military Superannuation and Benefits Scheme (MSB Scheme) or the Defence Force Retirement and Dead Benefits Scheme (DFRDB Scheme).
The court held that two out of the three cases were to be classified as superannuation lump sum payments. In accepting the decision, the Commissioner acknowledged the rules of the MSB Scheme (MSB rules) under which the invalidity benefits were paid do not satisfy the pension standards in the SISR. To satisfy the relevant standard in sub-regulation 1.06(2) of the SISR, the MSB rules had to ensure:
In each respect, the court found the MSB rules nor the DFRDB Scheme ensured benefits were paid annually and, therefore, under proper construction of the SISR, the payment could not be classified as a superannuation income stream but a lump sum payment.
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 article is accurate at the date it is received or that it will continue to be accurate in the future.