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Superannuation monthly update – July 2020

03 August 2020

#Superannuation, Funds Management & Financial Services, #COVID-19

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Superannuation monthly update – July 2020

Regulator updates

APRA frequently asked questions: Pandemic Data Collection (July 2020)

APRA has published the following set of frequently asked questions on Pandemic Data Collection (PDC) requirements in response to COVID-19. [1]

General

  1. Are any superannuation entities not required to report this collection?
  2. Will data that is commercial sensitive (e.g. Fraud data) be published at the Registerable Superannuation Entity (RSE) level?
  3. For the monthly collection, will all three months within the June 2020 quarter be reported at once?
  4. When is the reporting of the pandemic collection due?
  5. How long will the PDC continue for?
  6. What is the purpose of the PDC?
  7. Is there a character limit in the free text fields within D2A?

Monthly reporting (SRF 921.0)

Reporting forms and instructions can be found on the Reporting requirements for superannuation page.

  1. For income protection insurance claims, is the monthly benefit or the value of the claim at duration to be reported?
  2. Is ‘claim duration’ the time between receipt of claim and payment or the time between receipt of claim and claim determination?
  3. For Life and TPD insurance, does the value of the claims to be reported in item 3 ‘Insurance claims’ on SRF 921.0 include the account balance of the member?
  4. Are false claims on Early Release Initiative (ERI) payments where the member was found to be ineligible required to be reported in the fraud section on SRF 921.0?
  5. Does ‘insurance claims finalised’ in SRF 921.0 refer to the finalisation of the claim by the insurer or by the RSE licensee?

Quarterly reporting (SRF 921.1) – Foreign currency exposure and hedging

  1. Our fund’s foreign assets are invested in a managed investment trust and are hedged by the manager. We do not currently use derivative financial instruments to hedge against foreign currency movements but our underlying investment manager does. How should I report this in the template?
  2. Should I report notional principal of our foreign exchange (FX) hedging program under Items 1.1, 1.2 and 1.3 and the unrealised gains/(losses) under Item 1.4?

Quarterly reporting (SRF 921.1) – Investment by investments option

  1. How should I report our RSE’s MySuper product given that its underlying investments are managed by our external fund managers under mandates? For example the underlying investments are held in both pooled investments and in direct investments - should I report the whole value of MySuper under internally managed (column 7)?
  2. Should I include Defined Benefit (DB) assets in the ‘Investments by investments Option’ section
  3. I have > 30 days notice accounts in my cash assets. Where do I report them in terms of liquidity?
  4. Our liquidity stress testing is performed periodically but does not coincide with the period requested for in the collection. What data could I submit to APRA? Also, we perform a number of scenarios for our liquidity stress testing. Does APRA have a specific scenario it expects to be reported on?
  5. Can I aggregate reporting into a single line item for certain products?
  6. When is an investment considered illiquid?
  7. If a RSE has not been able to compile investment information by the due date is prior period data acceptable until the reference period is available?
  8. Is reporting in Item 3 ‘Investments by investment option’ on SRF 921.1 required to be done on a look through basis?
  9. How is cash defined e.g. are term deposits cash?
  10. How are platforms supposed to report Item 3 ‘Investments by investment option’ and item 4 ‘Member switching’ on SRF 921.1?

Quarterly reporting (SRF 921.1) – Member switching

  1. I have a lifecycle product, can I report switching at the lifestage level instead of the product (i.e. whole of lifecycle) level?

Quarterly reporting (SRF 921.1) – ERI payment demographics

  1. Should demographics be provided for all members?
  2. Is the ‘Members’ benefit bracket (after ERI payment has been made) in item 5 ‘ERI payment demographics’ on SRF 921.1 the bracket the member account is in after the ERI payment or the bracket the member account is in at the end of the quarter?

Insurance cancellation (SRF 921.2)

  1. What does an insurance cancellation refer to?

APRA reminder to trustees about business performance reviews and outcomes assessments (23 July 2020)

APRA reminded trustees of the impending compliance timeframes in respect of the following obligations:

  • the trustee’s annual business performance review, under APRA Prudential Standard SPS 515 Strategic Planning and Member Outcomes
  • the annual outcomes assessment and subsequent publication of the summary, under section 52(9) of the SIS Act.

Business performance review

The first business performance review is to be completed by 31 December 2020 (and can be completed at any time during this year, noting each subsequent review will follow an annual cycle).

APRA states that it will continue to focus on how trustees have and are continuing to respond to the COVID-19 pandemic, while heavily implying that some trustees should be considering their funds’ sustainability and potential merger activity.

Outcomes assessment

The first annual outcomes assessment is to be completed by the end of February 2021, with the results published within the following 28 days.

APRA states that as there is no prescribed methodology for choice products, it will seek to understand trustees’ methodologies for undertaking the assessment, including trustees’ selection of peer groups for comparison purposes for choice products, and the benchmarks used in undertaking its outcomes assessment.

APRA also asks that trustees particularly consider the following aspects:

  • MySuper products – does the relevant MySuper product meet the brief? In other words, are they simple, cost effective and well-designed products containing the basic features required by most members?
  • Choice products – where can trustees simplify and consolidate? In other words, are trustees overwhelming members with too many choice investment options that could otherwise be streamlined?

ASIC frequently asked questions: COVID-19 – Information for superannuation trustees (27 July 2020)

ASIC has updated the following COVID-19 frequently asked question:

  • 1C. What does ASIC expect of trustees in communicating to their members about the impact of COVID-19 on their insurance inside superannuation?
  • 2E. Has ASIC amended the transitional arrangements in RG 97 instrument ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070?
  • 3A. Am I able to apply to ASIC for relief? How does that work?[2] 

Legislation

ASIC Corporations (Amendment and Repeal) Instrument 2020/579 (22 July 2020)

The instrument:

  • extends the application of ASIC Class Order [CO 14/1252] and delays the commencement of ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 until 30 September 2022
  • amends ASIC Class Order [14/1252] requiring the issuers of collective investment vehicles (for example, managed investment schemes) to include certain transactional and operational costs in periodic statements
  • makes further amendments to the ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, including to certain templates
  • makes minor amendments to ASIC Class Order [CO 12/415] in respect of modifications to ASIC notice requirements for certain product disclosure statements
  • amends ASIC Class Order [CO 13/763] in respect of certain fee and cost disclosure requirements relating to IDPSs
  • repeals certain ASIC instruments that became redundant due to the expiry of the relevant relief periods that were related to those instruments.

Accordingly, ASIC Regulatory Guide RG 97 – Disclosing fees and costs in PDSs and periodic statements – has been amended.

ASIC Corporations, Credit and Superannuation (Internal Dispute Resolution) Instrument 2020/98 (30 July 2020)

The Instrument is made under section 101(1)(b) of the SIS Act, and makes and approves the standards and requirements mentioned in the ASIC Regulatory Guide 271 Internal Dispute Resolution, as follows:

  • the definition of “complaint”
  • the outsourcing of internal dispute resolution (IDR) processes
  • the contents of an IDR response
  • maximum timeframes for an IDR response
  • the role of customer advocates
  • the links between IDR and AFCA
  • how to manage systemic issues
  • enabling complaints
  • resourcing
  • policy and procedure; and data collection, analysis and internal reporting.

Our thoughts

These requirements apply from 5 October 2021.

Cases and other recent developments

O'Donnell v Commonwealth and Ors Federal Court of Australia | VID482/2020 (22 July 2020)

A holder of exchange-traded Australian Government bonds has claimed (among other things) that Commonwealth officials misled and deceived investors by failing to adequately disclose climate risks in the relevant Information Statements, when offering the bonds. The holder is therefore seeking declarations that the Commonwealth breached its duty of disclosure and section 12DA(1) of the ASIC Act by failing to disclose any information about Australia’s climate change risks.

If this case proceeds, it will likely cause some product issuers to consider the degree to which they disclose various risks in their disclosure documentation. Reading between the lines, it appears that there may be other agendas at play, here, as well. However, it does raise the question as to how granular should risk disclosure be, and specifically:

  • should product issuers simply disclose the immediate and obvious risks relating to their products (i.e. those that directly cause a change to the product’s value)? or
  • should product issuers disclose those indirect and downstream events that may lead to other risks that subsequently impact the product (for example climate change, terrorism, and pandemics that create an event that ultimately impacts the relevant market, leading to a change to the product’s value)?

If the requirement was to disclose those indirect and downstream events, it is likely that many disclosure documents would become quite unwieldy (similar to some managed fund prospectuses). This might lead to the question of whether such disclosure is meaningful and, therefore, beneficial to a retail investor who may simply want to understand the impacts that direct risks, such as credit and interest rate risk have (in this case), on the investment.

We will have to wait and see.

Author: Luke Hooper

[1] https://www.apra.gov.au/frequently-asked-questions-pandemic-data-collection
[2] https://asic.gov.au/regulatory-resources/superannuation-funds/covid-19-information-for-superannuation-trustees/#onec

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.

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