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Superannuation monthly update – September 2021

08 October 2021

#Superannuation, Funds Management & Financial Services

Published by:

Michael O'Connor

Superannuation monthly update – September 2021

Regulator updates

Review of occupational exclusions in default insurance offered through MySuper products (2 September 2021)

Treasury is seeking consultation into determining the appropriateness of occupational exclusions in MySuper default insurance products, and is seeking comment on the following issues:

  • occupational exclusions that affect automatic acceptance of default cover, which can impede new MySuper members from obtaining default cover
  • occupational exclusions that are applied when individuals change jobs, which can lead to the loss of default cover.

Treasury has provided the following potential options:

  • option 1 – no change
  • option 2 – strengthen disclosure of occupational exclusions
  • option 3 – members retain their insurance coverage when they change occupations
  • option 4 – ban occupational exclusions.

Treasury has submitted the following questions for feedback:

  • what is the prevalence of occupational exclusions on default life and TPD insurance offerings within MySuper products?
    • how widespread are occupational exclusions affecting automatic acceptance when a member first becomes a MySuper member?
    • how widespread are occupational exclusions that affect existing default cover when a member changes occupation?
  • do trustees have access to data to understand their members’ occupations and tailor the cover accordingly?
    • what should trustees and insurers do to better capture and assess the changing occupations of their members?
  • is there scope to strengthen standardised disclosures or improve communication to members to assist them to understand their insurance cover, particularly when occupation exclusions apply?
    • would option 2 adequately address the problem?
  • are there benefits of occupational exclusions that would justify some funds maintaining them?
    • what are the costs of occupational exclusions, and should funds be required to remove them?
  • what would be the implications on pricing, benefit design/default levels of cover and claims rates under options 3 and 4?
    • how would these implications be addressed?
    • how do the costs and benefits compare between options 3 and 4?
  • if option 4 was adopted, what responses should be made available to trustees and insurers and why?
    • what would be the appropriate implementation mechanism, necessary transition periods and consequences for non-compliance (if applicable)?

Submissions are due by 14 October 2021.

ASIC release findings on trustee preparedness for new internal dispute resolution requirements (2 September 2021)

ASIC has identified weaknesses in some trustees’ preparedness to comply with the new internal dispute resolution requirements, including:

  • noting that 29 per cent of trustees surveyed had not briefed their boards on their new obligations
  • focusing on the expanded definition of ‘complaint’
  • considering barriers or risks across their businesses or in outsourcing arrangements and taking steps to address these issues
  • trustee preparedness for systemic issue identification, ownership and reporting is not as advanced as ASIC had expected
  • how trustees should consider how to integrate data from each system to provide a holistic view of complaints handling and support the identification of systemic issues.

ASIC Regulatory Guide RG 78 Breach reporting by AFS licensees and credit licensees) (7 September 2021)

ASIC released Regulatory Guide ‘RG 78 Breach reporting by AFS licensees and credit licensees’, providing guidance on the new breach reporting obligations that took effect on 1 October 2021.ASIC released Regulatory Guide ‘RG 78 Breach reporting by AFS licensees and credit licensees’, providing guidance on the new breach reporting obligations that took effect on 1 October 2021.

Government appoints inaugural members to the Financial Regulator Assessment Authority (10 September 2021)

The Government has selected its inaugural members to the Financial Regulator Assessment Authority (FRAA), appointing Nicholas Moore, Gina Cass-Gottlieb and Craig Drummond. As mentioned in our May update, FRAA will be charged with assessing both the effectiveness and capability of APRA and ASIC.

ASIC publishes information on licencing and professional registration activities (15 September 2021)

ASIC published ‘Licensing and professional registration activities: 2021 update (Report 700)’ outlining key issues, new and proposed changes to licensing processes and statistics of applications for the 2021 Financial Year. In addition to providing information on the increase of applications from the previous year (1,346 to 1,883), the report also recognises the inclusion of new licencing requirements, including authorisations to deal in superannuation and to provide a superannuation trustee service. To date, ASIC has made 57 changes to public trustees catering for the changes since 1 July 2021.

 ASIC Regulatory Guide 38 The hawking prohibition (23 September 2021)

ASIC has amended and published ‘Regulatory Guide 38 The hawking prohibition’ in response to the changes to the hawking laws introduced by the Financial Sector Reform (Hayne Royal Commission Response) Act 2020.

ATO deferral of member reporting obligations update (21 September 2021)

The ATO updated its guidance for trustees requesting a deferral of member reporting obligations where it is fair and reasonable. The guidance provides useful links, including a Super Fund Reporting Deferral Request Template and references to what is considered fair and reasonable via the ATO’s Practice Statement Law Administration PS LA2011/15.

APRA letter to trustees: Prudential Standard SPS 250 Insurance in Superannuation (21 September 2021)

APRA wrote to all trustees outlining its intention to remove mandating independent certification of ‘priority and privilege’ insurance in APRA Prudential Standard SPS 250 Insurance in Superannuation which is set to take effect on 1 July 2022.

Priority and privilege in an insurance arrangement can be described as any arrangement whereby an insurer may be afforded an advantage such that member interests may not have been prioritised and/or where licensee trustee may be prevented from acting independently in relation to the insurance arrangements for the members of the fund. Some examples would include exclusive tender rights, excessively long contracts and limited data sharing by the incumbent insurer.

The original intention of the required independent certification of priority and privilege was to respond to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services, which recommended priority and privilege be given to insurers to set up favourable arrangements that would be in the best financial interest of its members. However, APRA has acknowledged that such independent certification for priority and privilege may have unintended consequences due to the concepts being complex and ambiguous.

APRA determines Superannuation Data Transformation reporting standards (20 September 2021)

APRA determined the reporting standards developed under the first phase of its Superannuation Data Transformation project. The reporting standards are:

  • Reporting Standard SRS 101.0 – Definitions for Superannuation Data Collections
  • Reporting Standard SRS 251.0 – Insurance
  • Reporting Standard SRS 332.0 – Expenses
  • Reporting Standard SRS 550.0 – Asset Allocation
  • Reporting Standard SRS 605.0 – RSE Structure
  • Reporting Standard SRS 606.0 – RSE Profile
  • Reporting Standard SRS 611.0 – Member Accounts
  • Reporting Standard SRS 705.0 – Components of net return
  • Reporting Standard SRS 705.1 – Investment Performance and Objectives
  • Reporting Standard SRS 706.0 – Fees and Costs.

APRA policy priorities: Interim update (24 September 2021)

APRA updated its policy priorities for the fourth quarter of 2021, including standards for insurance in super and investment governance, ahead of a more comprehensive review of other key standards next year to ensure a sharper focus on the best financial interests duty. APRA also noted it plans to release its final guidance on managing the financial risks of climate change. The following table was also provided.


Proposed amendments to APRA Prudential Standard SPS 430 Investment Governance (29 September 2021)

APRA released a proposed revised version of APRA Prudential Standard SPS 530 Investment Governance (SPS 530) for consultation. APRA proposes that the SPS 530 amendments will take effect from 1 January 2023.

These proposed amendments cover stress testing, valuations, and liquidity management, as follows:

1. Stress testing

The amendments propose that a trustee must complete their comprehensive stress testing program at least annually and include at a minimum:

  • detail on the roles and responsibilities of individuals involved in the design, implementation, review, reporting and oversight of stress testing
  • articulation of the methodology, objectives, assumptions used and frequency of stress testing, as well as the review of the metrics and methodology employed
  • identification of circumstances that may lead to the need for ad-hoc stress testing, including triggers
  • processes to ensure the data used in stress testing is reliable.

2. Valuation

The proposed amendments include further requirements to enhance trustees’ valuation governance practices, specifically:

  • trustees must establish a valuation governance framework to identify and manage valuation risk, with a board-approved valuation policy
  • the valuation policy must:
    • outline the roles and responsibilities of the board and other individuals (where relevant) for the oversight and management of valuation processes and procedures
    • outline the circumstances under which valuations of a trustee’s investments are accepted, rejected or reassessed
    • identify the circumstances and triggers under which an interim valuation is undertaken outside of the regular frequency of valuations determined by the trustee.
  • when determining the frequency of valuations, a trustee must consider factors which may affect the ongoing appropriateness of a valuation, including market volatility, change in material investment return drivers and member equity considerations.

3. Liquidity management

The amendments propose that a trustee’s liquidity management plan must:

  • identify personnel responsible for the management and oversight of liquidity risk
  • include liquidity stress testing as part of their comprehensive stress testing program
  • outline key metrics to be reported to and periodically reviewed by the board, relevant board committees and senior management.

Submissions are due to APRA by 16 February 2022.

Legislation

ASIC Regulatory Guide RG 271 Internal Dispute Resolution (2 September 2021)

ASIC released Regulatory Guide (RG 271) Internal Dispute Resolution which, as of 5 October 2021, enforces new requirements on a trustee’s internal dispute resolutions. Unlike other ASIC Regulatory Guides, RG 271 provides enforceable requirements. We summarise trustees’ legal obligations below.

Expanded definition of ‘complaint’

Previously, expressions of dissatisfaction against staff or the organisation itself were excluded under the definition of complaint but are now included. Furthermore, social media posts on trustees’ social media channels are also defined as a complaint.

Timeframe to provide an IDR response

An ‘IDR response’ is a written communication from a financial firm to the complainant, informing them on all of the following:

  • the final outcome of their complaint at IDR (either confirmation of actions taken by the firm to fully resolve the complaint or reasons for rejection or partial rejection of the complaint
  • their right to take the complaint to AFCA if they are not satisfied with the IDR response
  • the contact details for AFCA.

The time for trustees to respond to complaints includes:

If there is no reasonable opportunity for the trustee to provide an IDR response within the timeframe, the trustee must send an ‘IDR delay notification’ that provides reasons for delay and the right to complain to AFCA.

Outsourcing the IDR process

Firms that outsource their IDR process must

  • have measures in place to ensure that due skill and care is taken in choosing suitable service providers
  • monitor the ongoing performance of service providers
  • appropriately deal with any actions by service providers that breach service level agreements or fall short of their obligations under this regulatory guide.

Insurance in superannuation complaints

A complainant may lodge a complaint about insurance in superannuation with the insurer or the trustee. Trustees, insurers and administrators must have arrangements in place to ensure the maximum IDR timeframe is complied with regardless of the initial lodgement point. Time starts to run from the date the complaint is first lodged with either one of the parties.

Manage systemic issues

Boards must set clear accountabilities for complaints handling functions, including the management of systemic issues identified through consumer complaints. If a trustee provides reports to the board and/or executive committees, the reports must include metrics and analysis of consumer complaints, including systemic issues identified through those complaints.

Accessibility

The IDR process must be easy to understand and use, including by people with disabilities or language difficulties.

Resourcing

The IDR process must be resourced so that it operates fairly, effectively and efficiently. Therefore, the financial firm must regularly review whether the IDR process is adequately resourced.

Staff members

Staffing numbers must be sufficient to deal with complaints in a fair and effective manner within maximum IDR timeframes. This includes resourcing the IDR function to deal with intermittent spikes in complaint volumes.

Availability of complaints policy

Complaint management documentation is a key component of a financial firm’s IDR process. Firms must have a publicly available, readily accessible complaints policy and an internal complaint management procedure. Firms must provide material that explains their IDR process free of charge to complainant.

Records and reports

Financial firms must provide reports about complaints data regularly to senior management and the firm’s board (or equivalent).

Firms must record all complaints that they receive. They must have an effective system for recording information about complaints. The system must enable firms to keep track of the progress of each complaint.

The Treasury Laws Amendment (2021 Measures No 6) Act 2021 (13 September 2021)

The Act amends the Family Law Act 1975 (Cth) and Taxation Administration Act 1953 (Cth) to improve the visibility of superannuation assets in family law proceedings. Changes include leveraging information held by the ATO to facilitate the identification of superannuation assets.

Treasury Laws Amendment (Measures for a later sitting) Bill 2021: Retirement income covenant (27 September 2021)

Treasury released proposed legislation proposing new covenants that require trustees to prepare a retirement income strategy to assist beneficiaries achieve and balance the following objectives:

  • maximising expected retirement income
  • managing expected risks to the sustainability and stability of beneficiaries’ expected retirement income
  • having flexible access to expected funds during retirement.

This includes obligations to:

  • take reasonable steps to gather the information necessary to inform the formulation and review of the strategy
  • record the strategy in writing
  • record a range of matters as part of the strategy
  • make a summary of the strategy publicly available on the fund’s website.

Submissions are due by 15 October 2021.

Cases

Colonial First State liable for misleading superannuation members (6 September 2021)

The Federal Court has made declarations that Colonial First State Investments Limited (CFSIL), as trustee of the Colonial FirstChoice Fund, made false or misleading representations to members in relation to MySuper.

The Court declared that on at least 12,978 occasions, CFSIL made misleading representations regarding investment directions which may have encouraged members not to move to a MySuper product. The misleading deceptive conduct included CFSIL telling members that legislative changes required them to obtain an investment direction to stay in the FirstChoice Fund when that was not the case.

CFSIL also failed to tell members that if it did not receive an investment direction from the member, it was required to transfer the member's contributions to a MySuper product.

A penalty hearing has been listed for 12 October 2021.

Federal Court publishes reasons for civil penalties imposed on Westpac (9 September 2021)

On 23 August 2021, the Federal Court ordered Westpac Bank subsidiaries Westpac Securities Administration Limited (Westpac Securities) and BT Funds Management Limited (BT Funds) to pay a combined penalty of $10.5 million for failing to act in their clients' best interests.

The Court has now provided reasons for the penalty order, stating the contravening conduct was very serious and involved a deliberate and carefully planned campaign in relation to a product of particular importance to Westpac’s members. The Court noted the importance of superannuation products and “the inherent nature of superannuation as a complex investment for the long term is such that, what may seem a reasonably minor matter at the time of a decision, may have a very significant effect on a person’s financial welfare in the long term.”

APRA publishes additional FAQs on the Superannuation Data Transformation Phase 1 reporting standards (15, 23 & 27 September 2021)

APRA published additional FAQs and worked examples, providing further guidance to trustees on the reporting standards for the Phase 1 Superannuation Transformation Project.

The FAQs cover:

  • General Phase 1 Reporting Standards
  • SRS 251.0 Insurance
  • SRS 332.0 Expenses
  • SRS 550.0 Asset allocation
  • SRS 605.0 Structure
  • SRS 606.0 Profile
  • SRS 611.0 Member Accounts
  • SRS 705.0 Components of net return
  • SRS 705.1 Investment performance and Objectives

SRS 706.0 Fees and Cost disclosed.

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 newsletter is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Michael O'Connor

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