APRA begins roll-out of new Supervision Risk and Intensity Model (6 October 2020)
APRA is launching a new model for assessing risks faced by banks, insurers and superannuation trustees.
The new Supervision and Intensity Model (SRI Model), which is expected to be fully completed by July 2021, replaces the Probability and Impact Rating System (PAIRS) and the Supervisory Oversight and Response System (SOARS) systems that APRA has used since 2002.
The SRI Model focuses on risk identification, assessment, response and rectification, and has three core components that trustees should take note of:
- tiering system – an entity’s tier reflects the potential impact that entity failure, imprudent behaviour or operational disruptions could have on the Australian community’s financial stability, economic activity and welfare. An entity’s tiering is critical in determining the level of routine supervisory attention that is required to ensure adequate identification of risks and follow up of actions
- risk assessment – within a given tier, different entities will operate with different levels of risk. The assessment and rating of key risk categories provide a consistent approach for assessing an entity’s overall risk profile. While the categories provide a level of consistency across entities and industries, the SRI model does incorporate industry nuances and provides flexibility for capturing emerging risks
- staging – the outcome of the ratings in the risk assessment will be an overall supervisory stage for the entity. This staging will impact APRA’s overall supervision strategies and actions and require supervisors to consider the appropriate use of APRA’s powers and tools.
Super death benefit rollovers: ATO reporting clarification (8 October 2020)
The ATO has stated that, where a successor fund (in a successor fund transfer) does not claim any deductions for any death and disability insurance offered to a dependant beneficiary as part of the beneficiary’s new (transferred) pension interest in the successor fund, section 307-290 of the Income Tax Assessment Act 1997 will not apply to any lump sums paid from that interest.
APRA's Annual Report 2019/20 flags key performance measures (13 October 2020)
APRA has outlined its keys priorities in the last 12 months and moving forward. These include delivering four outcomes:
- maintaining financial system resilience
- improving outcomes for superannuation members
- transforming governance, culture, remuneration and accountability in regulated financial institutions
- improving cyber resilience across the financial system.
Further, due to the scale of impact of COVID-19, APRA has had to reset and reshape its priorities, including redeploying its resources to focus heavily on operational, and then financial, resilience.
ASIC’s Annual Report 2019/2020 – superannuation industry (13 October 2020)
ASIC’s annual report summarises its focus on the superannuation industry with particular attention paid to the Insurance in Superannuation Voluntary Code of Practice (Code). ASIC also stated that over 70% of trustees have adopted the Code in part or in full.
APRA warns trustees to comply controlling stake requirements (15 October 2020)
APRA stated that not all trustees may be complying with the requirements under section 29HD of SIS when there is a change in the controlling stake in the trustee.
Accordingly, APRA’s focus has been on:
- the interaction of the ownership definitions that relate to a ‘stake’ under the Financial Sector (shareholdings) Act 1998
- ensuring a person applies for the required approval when a change of ownership occurs within a trustee or corporate group and that all relevant applicants are appropriately identified
- improving the controlling stake approval process.
APRA, for example, noted that some trustee directors hold shares in the trustee, meaning that whenever there is a change in director, it may trigger the controlling stake requirement.
With the amalgamation of some shareholders in both industry and retail funds, it is worth noting that changes in the controlling stake of trustees, and therefore, compliance with the SIS requirements, may arise more than we commonly think. Clearly, this will also be an issue with successor fund transfers, meaning that some planning may be required to obtain all necessary APRA approvals before some funds merge.
APRA Superannuation Data Transformation Phase 1 – Expenses, Asset Allocation, Insurance Arrangements and Fees and Costs – Frequently asked questions (27 October 2020)
APRA has released a series of frequently asked questions and worked examples regarding Phase 1 of its Superannuation Data Transformation project. The questions cover:
- fees and costs
- asset allocation.
Submissions regarding the Superannuation Data Transformation project are due by 13 November 2020.
Treasury Laws Amendment (Measures for a later sitting) Bill 2020: Minor and Technical Amendments (21 October 2020)
Treasury has provided draft legislation and regulations for consultation. The draft legislation proposes to:
- amend the SIS Regulations to ensure that permanent New Zealand residents are eligible for the early release of their superannuation under the COVID-19 condition of release
- a super fund that is a successor fund will be able to claim a tax offset for no-TFN tax previously paid by the original fund in any of the previous three financial years
- amend section 29VA of SIS (MySuper charging rules) so that trustees may charge a greater number of differentiated investment fees to different subclasses of MySuper members, where the trustee can stream different gains and losses
- enable PYSP and PMIF insurance elections given by members to one fund to be relied upon by a successor fund trustee in the event of a successor fund transfer
- amend the Superannuation Unclaimed Money and Lost Member Act 1999 so that a member aged under 25, who makes an election to maintain insurance cover under section 68AAB of SIS, will not be considered to have an inactive low balance account
- clarify the taxation of unclaimed money payments
- amend and clarify certain family law and superannuation complaints provisions to enable eligible persons to file complaints through the Australian Financial Complaints Authority (AFCA)
- clarify that a trustee cannot claim a deduction for payment to a person under an income stream because of that person’s temporary incapacity to engage in gainful employment.
Submissions are due to Treasury by 17 November 2020.
Cases and other recent developments
2020 Federal Budget: “Your Future, Your Super” (6 October 2020)
In delivering the 2020 Federal Budget, the government announced that it intends to achieve the following outcomes:
- superannuation stapling – the government proposes legislation to ensure new superannuation accounts are not automatically created every time a person starts a new job and that a person’s existing superannuation account will follow him or her throughout that person’s employment
- empowering members – the government proposes to develop a “YourSuper” comparison tool to provide members with clear and simple information from a reliable source to help them choose high performing funds. The comparison tool will:
- display a quarterly-updated table of MySuper products ranked by fees and investment returns, with products that have not met the new higher performance standard clearly highlighted as underperforming
- show a member’s current superannuation accounts and allow the member to consolidate accounts if there is more than one
- be based on information that superannuation funds report to APRA and will be developed in consultation with Treasury.
- holding funds to account for underperformance – new requirements will be introduced that require superannuation products to meet an annual performance test. If the product fails the test, they will be required to inform their members and refer those members to the new YourSuper comparison tool
- increasing transparency and accountability – the government proposes to introduce new obligations that will increase trustee accountably so that funds are focused on taking actions that are in members’ best financial interests. The government also proposes to introduce obligations so that trustees provide more information about their funds’ operations in its annual members meeting.
It is clear that the government is focused on the financial performance of funds, whilst seeking to mitigate the erosion of member retirement savings that results from members holding multiple accounts and losing inactive account balances to fees. What will be interesting to see is how the law and guidance surrounding best interests, financial interests and the sole purpose test unfolds.
Treasury Laws Amendment (2020 Measures No 4) Bill 2020 (28 October 2020)
The Bill was introduced into the House of Representatives and proposes to amend the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) (AFCA Act):
- to assist in the closure of the SCT and to efficiently facilitate any transitional arrangements associated with moving the handling of superannuation complaints from the SCT to AFCA
- to insert a provision dealing with the transfer of records and documents from the SCT to ASIC
- to include a power for the Federal Court to remit cases back to AFCA, where ordinarily, these would be remitted to the SCT
- to introduce a rule-making power to the AFCA Act to allow the Minister to prescribe matters of a transitional nature.
Author: 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.