Regulatory updates
Effectiveness and capability review of APRA (3 November 2022)
As part of the first Financial Regulator Assessment Authority review, Treasury released a consultation paper regarding the effectiveness and capability of APRA. The consultation paper invites trustees to respond to the following questions:
- are APRA’s supervisory priorities clearly communicated by APRA staff to the regulated population and external stakeholders?
- does APRA clearly communicate and implement its supervision activities, and are supervision activities appropriately targeted?
- how effective is APRA’s supervision in achieving APRA’s objectives? Are there any gaps in APRA’s supervisory activities in superannuation?
- to what extent does APRA have the appropriate organisational capabilities (including, people, data, technology, and systems) for detecting prudential risks, prioritising issues, and conducting its supervisory activities to achieve the right outcomes?
- what steps has APRA taken to effectively reduce the regulatory impost of its supervisory activities? How could APRA improve?
- how has APRA’s supervisory activities and the nature of its relationship with stakeholders changed following recent independent inquiries and reviews?
- how well is APRA’s resolution function communicated to and understood by the regulated population?
- how well has APRA prepared industry for the introduction of APRA’s resolution framework?
- how effective is APRA’s resolution function in promoting appropriate outcomes for members?
Submissions are due to Treasury by 15 December 2022.
ASIC statement: Enforcement priorities for 2023 (3 November 2022)
ASIC announced its 2023 enforcement priorities as follows:
- enforcement action targeting poor design, pricing and distribution of financial products
- misleading conduct in relation to sustainable finance, including greenwashing
- misconduct involving high-risk products, including crypto assets
- combating and disrupting investment scams
- protecting financially vulnerable consumers
- misleading and deceptive conduct relating to investment products
- misconduct in the superannuation sector
- failures by providers of general insurance
- misconduct that involves misinformation through social media
- governance and directors’ duties failures
- manipulation in energy and commodities derivatives markets.
Minister for Financial Services: 'Transforming super, wealth and advice' (8 November 2022)
The Minister for Financial Services, while addressing the AFR Wealth and Super Summit, stated that the Government will soon act to remove unintended consequences of the ‘Your Future, Your Super’ laws and also consider legislating an objective of super.
Transfer planning in superannuation: Proposed enhancements (10 November 2022)
APRA outlined new measures to enhance planning by trustees in the event they need to transfer members out of or into their fund. These proposed measures include:
- updating requirements in Prudential Standard SPS 515 Strategic Planning and Member Outcomes, to ensure trustees are appropriately prepared to transfer, or receive, members
- introducing new requirements relating to the transfer of MySuper product assets in the event of cancellation of an authority to offer a MySuper product
- updating transfer planning guidance to replace existing Prudential Practice Guide SPG 227 Successor Fund Transfers and Wind-ups (SPG 227).
APRA invites trustees to make submissions on the proposed measures by answering the following questions:
- transfer preparedness:
- APRA proposes that all trustees must regularly consider and plan for future circumstances that may necessitate a transfer of members into, and out of, the trustees’ business operations. Do you agree? If not, please provide views
- what are the minimum preparatory steps that a licensee trustee should take to be prepared for a transfer of members?
- how would a trustee look to balance being adequately prepared for a future transfer of members without incurring undue costs?
- trigger frameworks:
- what performance indicators do trustees use to identify where a transfer of members is required? Of these, which indicators would be of most concern?
- trustee decision-making:
- what guidelines would support a licensee trustee to ensure that appropriate due diligence is undertaken without resulting in undue cost and delays?
- in what circumstances would a licensee trustee conclude that remediation of the fund's business operations to improve member outcomes is not appropriate, necessitating a transfer of members?
- do you have any comments on the proposed requirements relating to the transfer of MySuper assets?
- barriers to transfers:
- what are the most significant barriers to a transfer of members, and how can the impact of these be reduced so that transfers are timely, orderly and less costly?
- execution phase guidance:
- what additional guidance for transferring and receiving trustees would assist timely, well-executed transfers?
- consultation questions:
- which parts of SPG 227 are particularly important to retain?
- has APRA sufficiently identified the critical components of the execution phase? If not, what is missing or inaccurate?
- post-transfer and winding up activities:
- what challenges have transferring or receiving trustees experienced, following a successor fund transfer (either partial or involving the whole fund)?
- to what extent do trustees currently undertake post-implementation reviews (or similar exercises) to support effective integration into the receiving trustee’s business operations?
Submissions are due to APRA by 10 March 2023.
APRA statement: Strengthening financial resilience in superannuation (14 November 2022)
APRA released a discussion paper that proposes to replace the existing Prudential Standard SPS 114 Operational Risk Financial Requirement.
APRA is seeking feedback, from trustees, to the following questions:
- Baseline+ model:
- what changes, if any, would enhance the proposed scope of permitted use for the baseline component and for the operational risk component?
- what legal or practical restrictions may impede trustees from implementing or complying with the proposed Baseline+ model?
- are there any likely unintended consequences of the model or individual proposed requirements?
- baseline component:
- will trustees likely have sufficient capability to calculate the proposed baseline component, and what methodology would be used?
- what is the likely level of the baseline component?
- how often should the baseline amount be reviewed and why?
- what are your views on providing a basic calculation option, with the amount held linked to member numbers? Are there any other methods that would be more efficient or better targeted?
- should APRA set a minimum amount for the baseline component or would this lead to unintended consequences?
- operational risk component:
- would trustees have the capability to determine an appropriate target amount for the operational risk component?
- what controls may be necessary to address the risk that the target amount is not efficient or not prudent (too high or too low)?
- how should a maximum timeframe for the replenishment of the operational risk component to its target amount be set?
Submissions are due to APRA by 17 March 2023.
APRA consultation: Draft Prudential Practice Guide SPG 530 Investment Governance (17 November 2022)
APRA released draft Prudential Practice Guide SPG 530 Investment Governance (SPG 530) seeking trustees’ feedback on the proposed updates. The draft SPG 530 sets out principles and examples in line with the recently updated Prudential Standard SPS 530 Investment Governance (SPS 530), which is set to take effect on 1 January 2023.
Submissions are due to APRA by 17 March 2023.
APRA quarterly statistics (22 November 2022)
APRA published its quarterly superannuation statistics that included the following summary, as at 30 September 2022:
Legislative updates
Prudential Standard 530 Investment Governance (22 November 2022)
APRA announced that a revised version of SPS 530 is set to commence on 1 January 2023. The proposed SPS 530 builds on existing APRA guidance, covering stress testing, liquidity management, and valuations as follows:
- stress testing:
- the trustee must have a board-approved stress testing program that incorporates appropriate adverse stress scenarios covering a range of factors that can create extraordinary losses or make the control of risk within the accepted tolerance level in the investment strategy difficult.
- liquidity and cash flow management:
- the liquidity management plan must now also outline:
- the roles and responsibilities of those involved in the management and oversight of liquidity risk
- the information, including key metrics, that must be reported to the board.
- liquidity stress testing must be incorporated as part of the comprehensive investment stress testing program required.
- valuation governance framework:
- trustees must have an adequate valuation governance framework in order to identify and manage the valuation risk of investments, and which outlines:
- the roles and responsibilities of individuals for the oversight and management of valuation processes and procedures
- the key metrics and information that must be reported to the board
- the valuation methodology employed for each asset class (and sub-asset class and instrument/holding vehicle type where relevant)
- the circumstances under which independent external valuations are to be obtained
- the frequency of valuation of investments having regard to prevailing considerations and matters concerning the ongoing appropriateness of the asset valuation
- the circumstances in which interim valuations are to be made, to ensure the approach taken is consistent and transparent
- the triggers that would require an interim valuation of investments
- a review process to ensure that the valuation policy remains effective
- the validation of valuation outputs, including any back-testing procedures
- the circumstances as to when to accept, reject or reassess valuations of investments to ensure that a trustee’s valuations remain appropriate.
Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 (Cth) (28 November 2022)
The Bill has been passed by Parliament and awaits assent. The Bill will amend the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to apply to superannuation entities. These include:
- financial reporting requirements require trustees to:
- prepare and lodge financial reports for an entity for each financial year and half-year with ASIC
- make publicly available the financial and directors’ reports for an entity for a financial year and the associated auditor’s report on the entity’s website
- include details on how to access the financial and directors’ reports for an entity for a financial year and the relevant auditor’s report with the notice to the annual members’ meeting
- provide financial reports for a financial year and half-year to members upon request.
- auditing requirements require trustees to appoint an individual auditor to conduct an audit or review of the entity and for the auditor to:
- prepare an auditor’s report for an audit or review of an entity’s financial report for a financial year and half-year
- report suspected contraventions
- meet auditor independence and rotation requirements
- prepare, lodge and publish auditor transparency reports, if required.
Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 (Cth) (28 November 2022)
The Bill has been passed by Parliament and awaits assent. The Bill will reduce the eligibility age of members making downsizer contributions from 60 to 55.
Treasury Laws Amendment (2022 Measures No. 3) Bill 2022 (Cth) (28 November 2022)
The Bill has been passed by Parliament and awaits assent. The Bill will not provide a supplementary annual performance test for faith-based superannuation products, which was previously proposed in earlier drafts. The Government has stated it will consider treating faith-based superannuation products as part of the broader review of the ‘Your Future, Your Super’ reforms.
Crimes Amendment (Penalty Unit) Bill 2022 (Cth) (28 November 2022)
The Bill has been passed by Parliament and awaits assent. The Bill will amend the Crimes Act 1914 (Cth) by increasing a Commonwealth penalty unit from $222 to $275. The amendment will take effect from 1 January 2023, which would mean a 19.3% increase in all relevant civil penalty provisions for trustees.
Cases and other recent developments
Application of MLC Investments Limited [2022] NSWSC 1541 (10 November 2022)
The NSW Supreme Court handed down its second decision on section 249E of the Crimes Act 1900 (NSW), in Application of MLC Investments Limited [2022] NSWSC 1541 (MLC Case). The MLC Case has important implications for trustees considering successor fund transfers, which we considered in our recent article, ‘Section 249E strikes again raising questions as to successor fund transfers in NSW’.
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 article is accurate at the date it is received or that it will continue to be accurate in the future.
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