The hectic reform agenda from 2019 has flowed into 2020, and there is no end in sight. The Government is forging ahead with implementation of the Royal Commission reforms, and there have been major regulatory releases from the regulators including the APRA MySuper heatmaps and reports from ASIC on insurance and advice.
Royal Commission implementation
The Government has progressed with its response to a number of recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Some of the key developments are outlined below.
Consultation on exposure draft legislation
Treasury has an extensive package of dealing with implementation of several recommendations made in the of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Of potential relevance for superannuation, the consultation package includes draft legislation addressing:
- 鈥� enforceability of financial services industry codes
- 鈥� ongoing fee arrangements and disclosure of lack of independence
- 鈥� trustees of registrable superannuation entities to hold no other role or office
- 鈥� advice fees in superannuation
- 鈥� no hawking of superannuation and insurance products
- 鈥� adjustment of superannuation regulator roles
- 鈥� limiting avoidance of life insurance contracts for unintentional misrepresentation or non-disclosure
- 鈥� strengthening breach reporting requirements for Australian financial services licensees
- 鈥� establishing the Financial Regulator Assessment Authority
- 鈥� providing ASIC with powers to give directions to financial services and credit licensees consistent with the recommendations of the ASIC Enforcement Review Taskforce.
Submissions on the consultation package close on 28听February.
Financial Accountability Regime 鈥� extending BEAR to RSE licensees
Treasury has a on extending the Banking Executive Accountability Regime (BEAR) to all APRA regulated entities, with the expanded regime to be known as the Financial Accountability Regime (FAR). The paper outlines the Government鈥檚 proposed model to implement several recommendations from the Royal Commission, and also how BEAR may be extended to solely ASIC regulated entities 鈥� a further commitment made by the Government.
The proposed FAR will have a stronger penalty framework for corporate and finanbncial misconduct. It will include, for example, individuals being subject to civil penalties for breaches of their accountability obligations.
Submissions close on 14听February. While the Government has not yet determined an implementation timeframe, it plans to consult and introduce legislation to implement FAR by the end of 2020.
Compensation scheme of last resort
Treasury has a on establishing a compensation scheme of last resort (CSLR) for the financial services industry.
In 2017 the 鈥楻amsay Review鈥� of the financial system external dispute resolution and complaints framework recommended introducing a CSLR initially limited to financial advice failures, and this was endorsed by the Royal Commission. The Government has committed to introducing a broader CSLR, and the discussion paper seeks views on:
- coverage of the CSLR, beyond personal advice
- funding arrangements
- compensation to be paid
- managing scheme evolution.
Submissions close on 7听February.
Regulator coordination and information sharing
The Government has consulted on imposing specific obligations on ASIC and APRA in relation to co-operation and information sharing.
The proposed legislation will oblige ASIC and APRA to co-operate with one another, share information to the maximum extent practicable, and notify the other whenever it forms the belief that a breach of the law for which the other regulator has enforcement responsibility has occurred. Submissions closed on 24听January.
Making insurance claims handling a financial service
The Government has consulted on and regulations to remove the exclusion of insurance claims handling and settlement services from the definition of a 鈥榝inancial service鈥� in the Corporations Act 2001. Submissions closed on 10听January.
The explanatory material indicates that the regulation of handling and settling an insurance claim by registrable superannuation entity licensees will be addressed separately, as part of the Government鈥檚 response to the Royal Commission recommendations related to superannuation regulators. Consultation on that legislation will take place in early 2020.
APRA executive accountability statements
has published a paper outlining its governance arrangements, along with accountability statements for its senior exec
utives. The paper, , describes APRA鈥檚 internal governance and accountability arrangements and is supported by individual accountability statements for senior executive roles and an accountability map.
APRA update 鈥� heatmaps and more
MySuper heatmaps
has published its first providing assessments of the performance of every MySuper superannuation product, along with an outlining some of the key insights from the data and .
According to APRA, the heatmap will provide additional transparency on the outcomes being delivered by all trustees providing MySuper products. It is designed to lift industry practices and enhance member outcomes by publicly identifying which MySuper products are underperforming and the areas where improvement is needed.
The heatmap uses a graduating colour scheme to provide insights into MySuper products across three areas: investment performance, fees and costs, and sustainability of member outcomes.
Deputy Chair Helen Rowell said APRA expects all trustees to use the heatmap to reflect on the drivers of their current performance and identify where they can do better. APRA intends to refresh the heatmap at least annually but will update the heatmap in the first half 2020 to help trustees and other stakeholders assess any early improvements being made.
APRA superannuation data transformation project
APRA has the next tranche of topic papers for its multi-phase superannuation data transformation project. The latest releases are:
- 鈥� this paper considers an expansion of data collection to facilitate the assessment of member outcomes and performance for choice products, investment menu and investment options
- 鈥� this paper considers the collection of data to provide more granular information on member demographics data.
APRA has also released related draft reporting standards , , and . Submissions on the papers and draft standards close on 14 February.
ASIC update
Insurance in super code implementation: ASIC review
has released , commenting on industry鈥檚 implementation of the Insurance in Superannuation Voluntary Code of Practice.
The report observes that while some improvements in practices are being introduced as a result of adoption of the Code by a significant number of trustees, further work needs to be done to achieve the high industry standards consumers expect. ASIC has identified a number of inconsistencies in implementation of the Code, some relating to fundamental aspects such as which members are covered by the Code, the controls around balance erosion, and calculation of timeframes for claims processes. ASIC is also concerned that trustees need to have better defined policies and processes for those with unique needs.
Financial advice by superannuation funds: ASIC report
has released , which examines the ways in which funds provide financial advice to members and the overall quality of the personal financial advice provided.
Overall, ASIC found that the quality of personal advice provided to members was generally appropriate. However, ASIC detected failures to comply fully with the best interests duty and related obligations. The report provides a number of tips for trustees to improve the quality of advice provided to members.
Fee and cost disclosure
ASIC has advised ASFA it will be amending its recent legislative instruments in relation to fee and cost disclosure to align with its updated version of Regulatory Guide RG 97. While RG 97 applies ASIC鈥檚 new requirements to product disclosure statements (PDSs) 鈥榠ssued鈥� from 30听September听2020, and refer to PDSs 鈥榞iven鈥� on or after that date.
Design and distribution obligations
is consulting on the new financial product design and distribution obligations (DDO). includes a draft new Regulatory Guide Product design and distribution obligations.
The DDO regime commences in April听2021 and will require financial product firms to develop products that meet the needs of the consumers in their intended target market. ASIC鈥檚 draft guidance is principles-based but also incorporates working examples. ASIC is seeking commen
ts on the consultation paper and draft regulatory guide by 11听March.
Legislative developments
New and proposed bills
Since the last rules and regs there has been a range of legislative developments 鈥� over and above the Royal Commission related measures noted above.
The Government it will introduce legislation to facilitate the exit of eligible rollover funds (ERFs) from the superannuation industry by 30听June听2021. The amending legislation鈥攖o be introduced early this year鈥攚ill:
- permit ERF trustees to voluntarily transfer any amount to the ATO
- require ERFs to transfer all accounts below $6,000 by 30听June听2020
- require ERFs to transfer any remaining accounts still residing in an ERF to the ATO by 30听June听2021.
The Government has introduced the into Parliament. This omnibus amending bill is relevant to several aspects of the superannuation and related tax legislation, including:
- the Protecting Your Superannuation and unclaimed superannuation and lost members rules
- taxation of superannuation pensions and rolled-over death benefits
- employer reporting of salary sacrificed contributions under single touch payroll
- superannuation downsizer contributions.
New regulations and instruments
The support the new design and distribution obligations (DDO) in relation to financial products. The Regulations alter the products and persons in relation to which the DDO regime applies, extend the DDO to additional persons and products and exclude certain persons and products from its operation. Of particular relevance for superannuation, the Regulations exclude from the DDO regime interests in eligible rollover funds and defined benefit interests and exempt an employer complying with certain Superannuation Guarantee obligations from the DDO regime.
The and repeal and replace existing regulations in relation to unclaimed superannuation and lost members that were due to sunset (expire) on 1听April and update references in other regulations.
The make a range of minor and technical amendments relevant to the tax treatment of superannuation income streams 鈥� including the application of the transfer balance cap rules in specific scenarios.
The Government has registered a number of legislative instruments in relation to the social security treatment of income streams. The allows an income support recipient to retain the asset鈥憈est exemption for their income stream where it is transferred to a new regulated fund due to the closure of the original fund (or sub-fund). The amended existing instruments to require the use of the Australian Life Tables 2015-17 when calculating the surrender value and death benefit value for an asset-tested income stream where a person鈥檚 assessment day is on or after 1听January听2020. The Determination was almost immediately repealed and replaced by the , to correct an error.
Consumer advocacy body for super: expressions of interest
Treasury has called for in relation to the Government鈥檚 2019-20 Budget commitment to establish a consumer advocacy body for superannuation.
The creation of a consumer advocacy body was recommended by the Productivity Commission in its report .
It is intended that the advocacy body will become the voice of consumers in policy discussions and support access to information to educate and assist consumers, including vulnerable consumers, to navigate the superannuation system. The advocacy body will be required to leverage current financial literacy initiatives, such as MoneySmart.
The call for expressions of interest is the first step in the process to inform Treasury’s advice to Government about options to establish the advocacy body.
