By Mark Bland, Partner and Geoffrey McCarthy, Special Counsel

Mills Oakley has developed this fortnightly update to help trustees of regulated superannuation funds 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 also includes a spotlight on forthcoming breach reporting reforms. Breach reporting to ASIC will be particularly important for trustees with the entirety of their operations falling under the new financial service of  “provides superannuation trustee service”.

Key developments

• 14 May – Legislation passed to indefinitely extend the CGT exemption on fund mergers that was to expire on 30 June 2020
• 11 May – APRA commenced publishing fund specific information on COVID-19 Early Access to Superannuation applications and processing times
• 6 May – AUSTRAC publishes amendments to AML/CTF rules to facilitate identity proofing where COVID-19 Pandemic measures are in place

Looking ahead

Commonwealth Parliament will now be sitting from 10 to 18 June.

Parliament may consider legislation to give a extension to the timing requirements to meet FASEA exam and degree requirements and possibly legislation to allow people aged 65 and 66 year to make bring forward non concessional c contributions and to revise supervisory levies for APRA regulated trustees and other institutions  Financial Institution Supervisory Levy amendments.

Looking back

14 May – Legislation to give a extension to the timing requirements to meet FASEA exam and degree requirements delayed in Parliament. Link to Bill page

14 May – Legislation to indefinitely extend the CGT exemption on fund mergers that was to expire on 30 June 2020 passes Parliament. Link to Bill page

14 May – Standing Committee, Economics hearing – appearances from Industry Super Australia in relation to COVID-19 early release projections and generic calculators and Members Equity.

13 May – Payment Times Reporting Bill 2020 introduced which would require some businesses to publicly disclose information about the time they take to pay invoices. Link to Bill page .

13 May – Inquiry into class action litigation funding referred to the Parliamentary Joint Committee on Corporations and Financial Services for inquiry and report by 7 December 2020, in particular whether the present level of regulation applying to the class action industry is impacting fair and equitable outcomes for plaintiffs. Trustees are increasingly impacted by the class action industry, both as members of the class and as shareholders of defendants. Trustee directors may also be directors of defendants.  Link to Inquiry page

13 May – Government introduces Bills to revise supervisory levies for APRA regulated trustees and other institutions to increase limits, expand the range of funded activities and change indexation rules. Link to Australian Prudential Regulation Authority Amendment (APRA Industry Funding) Bill 2020 page: Link to Superannuation Supervisory Levy Imposition Amendment Bill 2020 page

13 May – Government introduces a Bill to the House of Representatives to allow individuals aged 65 and 66 to make up to three years of non-concessional s Changes to contribution rules. Link to Bill page

11 May – APRA publishes fund specific performance information concerning COVID-19 Early release of super. Link to APRA data

6 May – AUSTRAC publishes amendments to AML/CTF rules to facilitate identity proofing where COVID-19 Pandemic measures are in place. Link to AUSTRAC Instrument. These measure are in addition to the relief given on 9 April for payment of benefits under the COVID-19 Early release of super scheme.

4 May – First industry-level data related to benefits paid to members through the Government’s COVID-19 temporary early release of superannuation scheme released

1 May – COVID-19 Pension changes to deeming rates commence. Link to Act

On the horizon spotlight – Strengthening breach reporting

Australian Treasury consulted for four weeks from 31 January 2020 about draft provisions that would significantly increase breach reporting obligations on trustees and other financial services providers.

The provisions reflect recommendations of the Hayne Royal Commission.  In relation to breach reporting and they are intended to address concerns that licensees have not reported breaches while they are being investigated: in some cases over several years.  The greater objectivity and certainty in the provisions should make them much more readily enforceable by ASIC, who is likely to put focus on these obligations.

For breaches or other reportable situations arising from 1 April 2021, a new set of tests would determine if an AFS licensee must report to ASIC.  The Government has announced commencement dates in Bills to implement Royal Commission recommendations will be deferred 6 months.  So the proposal is now for the amendments to commence on 1 January 2021, but this does not necessarily imply deferral of the 1 April 2021 date for compliance.

Reportable situations would include breaches of core provisions that result or are likely to result in loss or damage to clients.  This would include members of a superannuation fund where the Australian Financial Services licence covers the new financial service of providing a superannuation trustee service under separate amendments consulted on at the same time relating to Super Regulator Roles).  Those amendments are now expected to commence on 1 January 2021.

The amendments would mean a breach reporting obligation is triggered when an investigation is commenced into a possible breach of a core provision.

Once the reporting requirement is triggered the AFS licensee generally would have 30 days to report rather than 10 business days as applies currently.  The AFS licensee would have to report investigation outcomes within 10 days.

ASIC would be required to publish every year a report about the breach reports with information about the relevant licensees who have made breach reports to ASIC directly or via lodgement with APRA.

The draft provision also would create additional obligations relating to persons providing personal advice.  AFS licensees may have to report on other licensees and their representative if they have reason to suspect significant breaches where the other licensee or representative has provided personal advice to retail clients.

Impact on Trustees

Strengthening breach reporting

ASIC breach reporting will become particularly important for trustees with the entirety of their operations falling under the new financial service of  “provides superannuation trustee service”.

Trustees will need to ensure that they have systems and policies that will result in prompt reporting if it is objectively required.  Trustees who seek to rely on lack of awareness of circumstances may expect that this may prompt questions about whether the lack of awareness is indicative of inadequate systems and competency of relevant officers and staff.

As investigations will be required to be reported, it would be expected that trustees will be monitored to ensure that investigations are conducted effectively and promptly and the outcomes reported to ASIC.

Trustees will need to review their systems to ensure that if there is reason to suspect that any of their superannuation products have been issued or terminated or are being used through new contributions or withdrawals as a result of personal advice that was given in significant breach of a core provision, the trustee considers their breach reporting obligations in respect of the provider of the personal advice.

The provision for ASIC publishing information about breach reporting may be intended to incentivise compliance with the underlying core provisions and be a source of market information that could influence clients and potential clients and a range of further stakeholders.

Trustees will need to take care in framing breach reports despite the short timeframes because of the annual public reporting by ASIC depending on what ASIC will indicate that will be published about breach reports because of the potential liability and reputational implications.

Trustees that provide personal advice will need to meet additional standards on checking, reporting, investigation and remediation, and should therefore carefully review their systems in light of the proposed new breach reporting provisions.