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 the regulators’ approach to the superannuation industry during the COVID-19 pandemic and areas of current Parliamentary scrutiny of the regulators.
24 August – The Senate is scheduled to consider Senator Patrick’s amendment to the Treasury Laws Amendment (Your Superannuation, Your Choice) Bill 2019. The Bill would ensure that workplace determinations and enterprise agreements entered from 1 July 2020 do not preclude employee choice about which fund their SGC contributions are paid into, except for unfunded public sector schemes. The amendment would require an APRA review on the effect on defined benefit schemes.
25 August – The Treasury Laws (More Flexible Superannuation) Bill 2020 is scheduled to be considered by the House and Senate. The Bill will allow persons aged 65 or 66 to use the bring forward non concessional cap.
25 August – The Senate is scheduled to consider the Payment Times Reporting Bill which would require enterprises with an annual total income of over $100 million to publicly report on their payment terms and practices in respect of a small business supplier.
10 September – The House of Representative Standing Committee on Economics will recommence hearings on the Review of Banks and other Financial Institutions, focussing on the superannuation sector. At that hearing the Committee will hear from Industry Super Holdings, ISPT Pty Ltd, Future Super, Verve Super, Mine Super, Hostplus, AMP and CBUS.
21 August – ASIC made ASIC Corporations (Litigation Funding Schemes) Instrument 2020/787 to provide the relief immediately needed in relation to litigation funding schemes on the schemes becoming subject to the managed investment scheme and financial product disclosure provisions of the Corporations Act. As discussed in 20-192MR ASIC manages transition to new regulatory regime for litigation funding schemes the relief applies to:
- the obligation to give a PDS to ‘passive’ members of open registered schemes that are litigation funding schemes – on the condition the PDS is available on the scheme operator’s website and referred to in advertising material;
- the obligation to regularly value scheme property;
- the statutory withdrawal procedures for members who withdraw from a class action under court rules;
- the requirement to disclose detailed fees and costs information and information about labour standards or environmental, social or ethical considerations.
ASIC has also issued a no-action position in relation to the obligation under Chapter 2C of the Corporations Act to set up and maintain a register of members of a registered litigation funding scheme.
21 August – The Legal Services Council issued Legal Profession Uniform General Amendment (Litigation Funding Schemes) Rule 2020 under the Legal Profession Uniform Law. This urgent amendment to the Legal Profession Uniform General Rules 2015 was to ensure that law practices in NSW and Victoria do not breach s 258 of the Legal Profession Uniform Law by promoting or operating a litigation funding scheme or providing legal services in relation to a litigation funding scheme or the responsible entity for the scheme if any associate of the law practice has an interest in the scheme or the responsible entity for the scheme. The rule amendment sunsets on 21 August 2021.
21 August – APRA published FAQs on the Heatmap for MySuper products. The updated heatmap will be published in December 2020. Data for the heatmap must be submitted by 29 October 2020. Data about fees and costs will be based on information in PDSs on 1 October 2020. This means that if an entity chooses to opt in to ASIC’s latest fee and cost disclosure rules under ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 which is possible from 30 September 2020, the figures produced under those rules may be used.
On the horizon spotlight – APRA and ASIC approach to COVID-19
The approach of APRA and ASIC to regulation including in relation to superannuation has evolved during the COVID-19 pandemic. Recently both regulators have provided a summary of their approach to Parliamentary Committees.
APRA Chair Wayne Byres summarised APRA’s approach in the context of COVID-19 in his Opening Statement to the House of Representatives Standing Committee on Economics on 5 August 2020. He said that APRA has had to completely overhaul its plans. APRA significantly adjusted operations to give primacy to managing the impact of the economic and social crisis created by COVID-19. Financial safety and resilience have become APRA’s primary focus, as they pivoted from the broad and ambitious agenda that they outlined in December 2019 to one that is focused on ensuring the financial system remains financially and operationally sound in very trying circumstances.
APRA said it had reduced operational burden on the industry by postponing a range of activities – most notably, suspending all policy initiatives until 30 September this year – and granting additional time to satisfy some supervisory requirements. This includes:
- APRA having announced in March 2020 the temporary suspension of its program to replace APRA’s Direct to APRA (D2A) data collection tool with APRA Connect.
- In April 2020 APRA and ASIC issued guidance to help trustees manage the financial and operational challenges associated with COVID-19, while continuing to meet their obligations to look after members’ best interests.
- Also in April, APRA wrote to applicants for new superannuation licences to advise that it was temporarily suspending issuing new licences for at least six months in response to the economic uncertainty created by COVID-19.
- APRA also delayed start dates for CPS 226 Margining and Risk Mitigation for Non-Centrally Cleared Derivatives concerning phase-in of initial margin requirements and for CPS 234 Information Security in relation to the third-party arrangements transition provision on a case by case basis. On 10 August, APRA announced recommencement of its prudential policy program and issuing of new licence.
In terms of recommencing its activities, APRA indicated that:
- It would resume in 2020 a process of public consultation for the cross-industry prudential standard for remuneration and the prudential standard for insurance in superannuation, and updated guidance on the sole purpose test.
- It will restart consultation on a limited number of its data collections, including the recommencement of its Superannuation Data Transformation project.
- APRA’s policy program for 2021 will be reviewed in light of the current environment, and with a view to continuing to support the financial sector as it responds to the impact of COVID-19.
- The recommencement of assessing and issuing new superannuation licences will occur in two phases, with phase one starting in September 2020 and phase two in March 2021. New licences issued during phase one will be issued to applicants that are branches or subsidiaries of foreign entities with significant financial resources and a strong operational track record in a similar business which may have limited application to superannuation.
- APRA will also accept new licence applications from any entity from September 2020.
- From March 2021, APRA envisages new licences may be issued to any entity that meets the relevant prudential requirements.
During the pandemic:
- APRA redeployed significant resources to ensure it understood the impact of the sharp downturn in investment markets and the expansion of the early release scheme on superannuation funds’ ongoing viability and delivery of appropriate member outcomes.
- In April, APRA published expectations on the release of benefits under the COVID-19 temporary early access to superannuation provisions.
- In May, APRA commenced publishing data on COVID-19 early release applications.
- In June, APRA published that it was required additional COVID-19 Pandemic Data Collection and in July APRA published FAQs on this.
In June 2020, ASIC published its Interim Corporate Plan, which sets out five priorities to tackle the challenges presented by COVID-19:
- protecting consumers from harm at a time of heightened vulnerability;
- maintaining financial system resilience and stability;
- supporting Australian businesses to respond to the effects of COVID-19;
- continuing to identify, disrupt and take enforcement action against the most harmful conduct; and
- continuing to build our organisational capacity in challenging times.
ASIC’s key superannuation initiatives during the COVID-19 pandemic include:
- In its Parliamentary Joint Committee on Corporations and Financial Services Opening statement on 15 July 2020, ASIC focussed on its consumer education role through MoneySmart, and maintaining the fairness, strength and efficiency of Australia’s equity and capital markets.
- Apart from the April 2020 joint letter with APRA, ASIC has published FAQs concerning Early access to superannuation scheme and changes to minimum drawdown rates, recalibration of regulatory priorities due to COVID-19 and applications for relief.
- ASIC provided a temporary no-action position on ‘intra-fund advice’ about early access to superannuation by individuals financially affected by COVID-19.
- ASIC says it will defer the first reporting date for portfolio holding disclosure which is currently 31 December 2020.
- ASIC has delayed its report into insurance in super and now intends to publish by December 2020.
- ASIC is deferring its review of compliance with changes to fee and cost disclosure for superannuation in accordance with RG 97 and consultation about platform fees. ASIC allowed for PDSs to follow current fee and disclosure requirements if given before 30 September 2022, unless the Trustee elects to opt in before that.
Issues raised by Parliamentary Committee members
Trustees can identify potential areas for further scrutiny or policy change that can be gleaned from discussions in Parliamentary Committees including the House of Representative Standing Committee on Economics on the annual reports of each APRA and ASIC.
Some of the questions may again arise in the upcoming hearing of the Committee focussing on the superannuation sector on 10 September 2020. At that hearing the Committee will hear from Industry Super Holdings, ISPT Pty Ltd, Future Super, Verve Super, Mine Super, Hostplus, AMP and CBUS.
Some of the questions put to APRA at the most recent public hearing on 5 August 2020 concerned:
- Whether a person have a joint account with their partner in an APRA regulated fund to achieve a similar effect to a SMSF.
- Valuation of unlisted assets and compliance with current accounting standards.
- Whether a Trustee liable for paying out a fraudulent early access withdrawal if they followed reasonable procedures.
- How choice products can be presented in APRA heat maps to promote fair comparison.
- The importance of independence when there is a rotation of auditors and valuers.
- Investigation into abuse of opportunities for arbitrage from moving out of investment options with unlisted assets before the valuation of unlisted assets has caught up with market falls that have already been reflected in listed assets.
- Assessment of Industry Super Australia estimates that the cost of COVID-19 early release for not-for-profit funds will be about $2.6 billion in investment returns.
- Information about the number of APRA staff that formerly worked in Industry Super, retail super or both sectors.
Some of the questions for ASIC at the most recent public hearing on 5 August 2020 were about:
- Has ASIC ever taken action against anyone besides BT for misleading conduct arising from efforts to game search results and Google Adwords.
- Whether intrafund advice can be properly provided given its limited scope in accordance with personal advice and FASEA obligations.
- Whether remediation processes are proceeding in a timely manner, and what may be holding them up (eg tax issues).
- Has ASIC been monitoring how many people have taken out all their superannuation as a result of COVID-19 early release.
- Information about the number of ASIC staff that formerly worked in Industry Super, retail super or both sectors.
- Regulation of proxy advisers including specifically advisors to super funds.
At the Parliamentary Joint Committee on Corporations and Financial Services on 15 July 2020, ASIC was also asked questions about superannuation such as:
- Payment of fines out of member’s funds such as reserves.
- Fee increases that are expressed as being to cover costs of meeting new laws.
- Compliance risks connected to COVID-19 early release.
- Use of assumptions in superannuation calculators.
Reponses by ASIC to PJC questions on notice have also been published. These include responses about the appropriateness of Trustees seeking attestations from licensee that advisers have provided advice for which an advice fee was paid. Also included are ISA changes to its estimates concerning the effect of COVID-19 early release of superannuation, and other questions concerning the implementation of the early release policy.