By Mark Bland, Partner and Geoffrey McCarthy, Special Counsel
This fortnightly update is designed to help superannuation trustees track and manage regulatory change. We look ahead to forthcoming developments, look back at recent changes and then consider the impact on trustees. This edition’s spotlight is on how AFCA publications show its approach to resolving superannuation disputes.
- 1 July – Eligible Australian and New Zealand citizens and permanent residents can apply to access second tranche of up to $10,000 of their super.
- 30 June – APRA published its first update to the Heatmap to reflect changes in superannuation fees and costs in the six months since the Heatmap was launched.
- 26 June – APRA supervisory levy amounts for FY20/21 determined.
13 July- Public Hearing – Hearing for Parliamentary Joint Committee on Corporations and Financial Services on Litigation funding and the regulation of the class action industry
31 July – ASIC to publish a new regulatory guide, Regulatory Guide 271 Internal dispute resolution, outlining updated IDR standards and requirements in July 2020.
7 July Auditing and Assurance Standards board issues Auditing Standard ASA 2020-2 amendments to Australian Auditing Standards
2 July – AFCA publishes information on complaints it received in 2019-2020 AFCA receives more than 80,000 complaints
1 July – Feedback and submissions were due on the Legislative Instrument on the one-off 3-month extension to meet CPD requirements. FASEA Consultation – three month Continuing Professional Development relief
1 July – The value of a Commonwealth Penalty unit increased to $222 Notice of Indexation of the Penalty Unit Amount
1 July – Members could apply for 2nd COVID-19 hardship access to $10,000 of super COVID-19 Early access to super
1 July – Trustees must now comply with prudential standard ‘CPS 234 Information Security’ in respect of all of their information assets that are managed by third parties. APRA will consider requests for a six-month extension on a case-by-case basis. Prudential Standard CPS 234 Information Security
30 June – Last day for eligible temporary residents, and eligible Australian and New Zealand citizens and permanent residents to apply to access first tranche of up to $10,000 of their super. COVID-19 Early access to super
30 June – End of reporting period for most funds under the Modern Slavery Act
30 June – House of Reps Standing Committee of Economics Review of the Four Major Banks and other Financial Institutions hearing on financial advice, appearing are AFA, FPA, MFAA, FBAA, FASEA, AMP, IOOF, IFS, AFG and SFAA. Review of the Four Major Banks and other Financial Institutions
30 June – APRA published its first update to the Heatmap to reflect changes in superannuation fees and costs in the six months since the Heatmap was launched. MySuper Product Heatmap
29 June – Amendment to stamping fee exemption registered Corporations Amendment (Stamping Fee Exemption) Regulations 2020
26 June – The Treasurer determined the APRA supervisory levy amounts for FY20/21, which for superannuation funds that are not PSTs or SAFs, comprises a component of 0.3 basis points of the value of fund assets subject to a maximum of $600,000, and an unrestricted component of 0.3154 basis points of fund assets. Australian Prudential Regulation Authority Supervisory Levies Determination 2020
25 June – Transitional rules for internal dispute resolution, including ASIC’s approval of the definition of ‘complaint’ were to cease but have been extended to 4 October 2021. ASIC Corporations, Superannuation and Credit (Amendment) Instrument 2020/99
25 June The Tax Practitioners Board (TPB) and Financial Planning Association of Australia (FPA) have signed a MOU to facilitate information exchange on issues including misconduct by registered tax practitioners; intelligence, operational matters and de-identified data trends; and continuing professional education opportunities. Tax Practitioners Board and Financial Planning Association sign new MOU
On the horizon spotlight – AFCA’s approach to Superannuation
The Australian Financial Complaints Authority published on 2 July 2020 statistics about complaints it received in the year from 1 July 2019. AFCA deals with a broad range of complaints from superannuation fund members and other clients. It received 80,546 complaints between 1 July 2019 and 30 June 2020 which is a 13.7% increase in monthly complaints compared to the prevision financial year. Nine percent of complaints were about superannuation, although not all of these were complaints about trustees.
AFCA says that it resolved 78% of cases, with a majority being settled in 60 days or less. 73% of complaints were settled by agreement or in favour of the complainant, with banks being the most complained about financial institution. This underlines that AFCA sees itself as promoting fairness between clients, who will generally tend to have less information, bargaining power and means of seeking redress and financial firms.
AFCA noted that there were complaints relating to COVID-19 pandemic but acknowledged that it saw less complaints relating to COVID-19 than it anticipated due to the proactive response taken by financial firms. There were 791 COVID-19 complaints about superannuation (16%), a majority of which related to early access of super.
For superannuation AFCA provided the following figures:
- Delay in claim handling 1,260
- Incorrect fees/costs 753
- Service quality 648
- Account administration error 570
- Denial of claim 556.
Since its commencement in November 2018, AFCA have published indications of their approach.
AFCA is conducting a project on fairness. It aims to be fair in its own processes, as well as seeking to consider fairness in determining complaints. In relation to disputes involving decisions of a superannuation trustee, AFCA considers what a fair and reasonable trustee would do. AFCA says the purpose of the Fairness Project is to provide a certainty about how AFCA assesses what is fair in a way that is clearly understood by all stakeholders.
AFCA are working in partnership with the University of Melbourne on an environmental scan and literature review that clearly establishes the extent of the fairness jurisdiction held by both AFCA and Ombudsman schemes internationally. This work is to be used to develop a fairness standard focused on fair treatment, fair dealing, fair service and fair remediation across the lifecycle of the relationship between financial firms and their customers.
AFCA says that it is developing “a framework and fairness tool to clearly articulate our decision making jurisdiction and ensure our decision making process is clear and robustly supports the exercise of our jurisdiction by ensuring procedural fairness, consistency, transparency and fair engagement by the parties in the resolution of disputes.”
At this stage AFCA has been consulting but considering COVID-19 has deferred the publication of a consultation paper.
AFCA has also published documents setting out how the AFCA Approach to various kinds of decision.
The AFCA Approach to superannuation death benefit complaints notes that subject to the requirements of a fund’s governing rules and legislative requirements, in allocating a superannuation death benefit among the member’s dependants, preference is given to those dependants who might have expected to continue to receive financial support from the member. AFCA’s guidance applies when the trustee has discretion about to whom to distribute.
AFCA gives an example to illustrate that they may give little weight to nominations of dependents from long before the death where circumstances have changed. Regard may be had to a will as well as non-binding nominations, as an indicator of the deceased intent but only so far as is consistent with the purpose of superannuation death benefits.
As between those who were dependent on the deceased, benefits should be proportionate to the extent of financial dependency. AFCA looks at financial dependency at the time of death and reasonable expectations of support rather than what might be fair having regard to what has occurred in the past. Benefits are not to be provided to adult children without an expectation of future support to right a wrong that they didn’t get the support from the deceased that may have been fair in the past. A distribution may be made to dependents who were not financially dependent at the time of death if there no dependents were financially dependent. Distribution to the estate would only be appropriate if there are no dependents.
The AFCA Approach to superannuation fees and charges notes that it would generally be unfair or unreasonable for a trustee not to refund a fee or charge if something of value was not provided for each fee or charge debited to a superannuation product. AFCA will determine if a decision not to refund a fee or charge is fair and reasonable. This applies whether the deduction was from the member’s account or from investment returns before allocation.
AFCA will not consider if the amount of a fee was too high so long as these tests are met.
AFCA also says it applies these conditions even if a payment such as a trailing commission or other conflicted remuneration was lawfully paid and then bundled into a product fee. For advice fees before 1 July 2013, the fact that a service was not provided, if it was available, and there was no obligation on the trustee or its agent to provide it, would not be a basis to find the fee should not have been paid. There needs to be sufficient and meaningful disclosure and no misleading communication about the fee or charge if a decision not to refund it is made. If a fee or charge could be removed if a member elected, affected members would need to able to find that information.
The AFCA Approach to misleading conduct includes a recognition that compensation will be reduced if the complainant has not taken reasonable care. AFCA will give more weight to written information but will take into account other information put to it.
Impact on Trustees
The volume of superannuation related complaints, and the high success rate of complaints to AFCA generally reinforce the importance of having adequate internal dispute resolution arrangements and looking objectively at complaints with a particular eye to treating complainants fairly.
A trustee considering to whom to provide death benefits should seek evidence about who were the dependents and the extent of any financial dependency at the time of death and the reasonable expectation that the dependent would have received support from the deceased if they had not died.
A trustee responding to a complaint about a fee or charge will need to provide AFCA with information to support:
- that the fee or charge falls within one of the fee types that can be debited from a superannuation account;
- that the fee or charge can be charged under the fund rules and law at the time;
- when and how the complainant was made aware of the fee or charge;
- what the fee or charge represented;
- how the fee or charge was calculated; and
- whether a service was provided for the fee or charge.
Record keeping particularly to show adequacy of disclosure and that for fees and charges from 1 July 2013 was for something of value that was given, such as an advice service was provided may be crucial to support a refusal to refund a fee.