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 fees and costs disclosure to members and APRA.
21 September – Monthly Pandemic Data Collection report due for submission to APRA via D2A. Frequently asked questions – Pandemic Data Collection
30 September – The updated Fees and Costs Disclosure requirements under ASIC RG 97 Disclosing fees and costs in PDSs and periodic statements can apply on an opt-in basis to any PDS given after 30 September 2020.
30 September – ASIC plans to publish regulatory guidance on product design and distribution obligations as inserted into the Corporations Act by Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019. The product design and distribution obligations seek to bring accountability for issuers and distributors to ensure that the design, marketing and distribution of financial and credit products meets consumer needs. Issuers and distributors must comply with these obligations from 5 October 2021.
30 September – ASIC will consult on proposals to extend the application of remediation policy in Regulatory Guide 256 Client review and remediation conducted by advice licensees beyond financial advice. ASIC’s focus is to promote greater transparency on the progress and outcomes of remediation, and provide best practice guidance for designing and conducting consumer-centred remediation.
30 September – ASIC will commence the second phase of targeted consultation on IDR data collection and reporting building on the feedback that industry and consumer stakeholders provided in response to Consultation Paper 311 Internal dispute resolution: Update to RG 165. ASIC has already published an updated guide, Regulatory Guide 271 Internal Dispute Resolution.
30 September – APRA indicated that it would review continued need for Pandemic Data Collection, and if the pandemic has abated, then cease this reporting requirement, see APRA FAQs.
15 September – APRA announces it has signed an updated MOU with ACCC. The new MOU is less prescriptive and provides a general framework for each regulator to inform, consult and collaborate with and engage the other.
14 September – AUSTRAC makes Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 4) to extend to 31 December 2020, exemptions for COVID-19 Early release of super
10 September – House of Representatives Economics Committee public hearing on the superannuation sector. Witnesses were Industry Super Holdings, ISPT, Mine Super, Hostplus, AMP and Cbus.
9 September – ASIC provides an overview of the recent changes to the fees and costs disclosure regime for superannuation and managed investment product issuers.
On the horizon spotlight – Fee and Costs Disclosure
Both ASIC and APRA have recently published on requirements for disclosure of fees and costs highlighting the likelihood of increased regulatory focus.
ASIC Senior Executive for Superannuation Jane Eccleston’s article on fees and costs disclosure summarised the process ASIC has followed to the publication of the revised Regulatory Guide 97 Disclosing fees and costs in PDSs and periodic statements.
In 2019 APRA launched a multi-year project to upgrade the breadth, depth and quality of its superannuation data collection to enhance industry transparency and accountability. On Friday 28 August APRA released the final consultation package for Phase 1 inviting submissions including topic papers, draft reporting standards and data collection templates covering fees and costs (with submissions due 13 November 2020).
ASIC made changes to the fee and cost disclosure requirements by ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 in November 2019 and minor amendments were made in July 2020.
Trustees must comply with the new requirements for fee and cost disclosure in PDSs issued on or after 30 September 2022 but may elect to comply for a PDS given on or after 30 September 2020.
For periodic statements the new requirements apply to periods commencing on or after 1 July 2021. Trustees can opt in to applying the requirements for periodic statement for periods that commence on or after 1 July 2020 or in relation to exit statements for exits on or after 1 July 2020.
The new requirements make changes to the presentation of fees and costs which will require changes in design of the relevant documents. However, generally, the requirements do not change what information must be collected and included in the disclosures but rather the fee or cost category in which the information is disclosed in some cases.
The new requirements do no longer include requirements for disclosure of implicit market costs, borrowing costs and property operating costs.
Trustees do not have to comply with the requirement to provide a significant event notice to the extent ASIC’s instrument directly results in a change or event.
The significance of ASIC’s article does not lie in any change of policy, but rather it is indicative that with the new requirements, ASIC may take a more active stance in surveillance and enforcement.
APRA Phase 1 Consultation and Fees and Costs
APRA recognises the challenges for data submitters during the COVID-19 pandemic and is taking a flexible approach to consultation, including being open to meetings and roundtables.
Each proposal is supported by draft reporting standards and topic papers.
Further APRA is seeking voluntary submission of data on a best endeavours basis in relation to the reporting period of 30 June 2020 by the same due dates to assist in understanding the effect of its proposals. APRA proposes to publish the data to assist Trustees in meeting their strategic planning and outcomes assessment under SPS 515.
APRA has published tables of the key changes for each topic. In relation to fees and costs disclosure, APRA proposes to continue to base disclosures to it on what is disclosed in the relevant PDS. The disclosures will indicate whether the PDS is prepared on the basis of the 2017 or 2020 version of RG 97.
The requirements are proposed to extend to all choice products and options – not just MySuper.
Generally, the returns are to be related to the position on 30 June each year. However, under paragraph 10 of the consultation draft Reporting Standard 706.0:
“Where any information required by this Reporting Standard that was reported to APRA on the most recent reporting day is changed such that the Product Disclosure Statement (PDS) is required by law to be updated, the RSE licensee must provide the information required by SRF 706.0 within 28 calendar days after the updated PDS takes effect.”
APRA proposes that the fees and costs disclosures to it are treated as non-confidential.
Impact on Trustees
ASIC’s article stated:
What you need to do now
Superannuation trustees should:
- update existing system builds to ensure that you will be able to meet the new requirements for fees and costs disclosure in PDSs and periodic statements in time
- review your calculation methodologies, due diligence processes and governance arrangements for collecting and compiling fees and costs information
- consider your arrangements with service providers, people offering investment opportunities and interposed vehicles and how the data is necessary for your products.”
This appears to indicate ASIC will have an increased appetite to check compliance with the fee and cost disclosure requirements, and noting ASIC’s why not litigate stance, Trustees that are not complying may face court action.
In light of APRA’s new data collection proposals and the increased breadth and depth of information gathering, particularly in relation to fees and costs, and its relevance to APRA in its more general member outcomes objectives, APRA is likely to take a significant interest in any apparent deficiencies. The regulators have indicated they will cooperate and this is likely to be given some priority as they will have aligned objectives in promoting a high standard of integrity in the disclosure of fees and costs in PDS, and therefore returns to APRA.
The increasing transparency of fees and costs information sought by APRA’s in its publications may facilitate better comparison and competition. It may also provide further encouragement to the industry in making complaints about potential under disclosure by competitors.
Apart from regulatory actions, inclusion of incorrect information in a PDS may expose Trustees to civil action from members. ASIC’s changes in its instrument and to RG 97 should not result in a change to the overall level of disclosed fees and costs, although there are significant changes to presentation. This may lead to before and after comparisons that fuel complaints of previous non-disclosure. Accordingly, Trustees should ensure that even if they are not opting in to the newer ASIC requirements until 2022, they are fully taking into account and disclosing fees and costs appropriately now.
As the disclosed fees and costs flow through to the product dashboard, and member statements, there seems to be scope for members to raise complaints if there is an under disclosure of fees or costs.
Further, while APRA is currently requesting data on a best endeavours basis by 13 November 2020 and this data may be based on the 2017 requirements, submissions which show an overall level of fees and costs that is lower than will be disclosed in later periods when the new disclosure and reporting requirements to APRA come into force may raise questions. APRA’s expectation that the information will feed into member outcomes assessment, which is a key priority for APRA, indicates this information will be taken seriously even if it is to support a consultation process.
In light of this, Trustees should move now to ensure they are substantively collecting and disclosing fees and costs as required by ASIC and reflect the outcomes correctly in their next PDS rollover. Trustees should now seek to resolve any remaining uncertainties, as given the very long process which has led to the new requirements, it is not likely they will be materially changed for some time. To this end, it would be prudent for Trustees to be looking to continue to improve their estimations of fees and costs by reviewing if they have clear, reliable and streamlined processes for the provision of information by reporting by service providers and investment funds in which they invest concerning fees and costs that are subject to disclosure.
Also, as fees and costs will be regarded as a significant aspect to be considered in assessing member outcomes, and APRA will look to the data disclosed under the Reporting Standard, Trustees should consider APRA’s consultation proposals and provide submissions in some form and also consider if it is practicable to provide the requested test data. Given the already constrained resourcing experienced by trustees and service providers related to COVID-19 and the additional pandemic data APRA is already seeking, it would be understandable that some Trustees may elect not to provide submissions or test data. This may increase the risk that unintended burdens arise from APRA’s data collection reforms, and the level of preparedness of those trustees for when the requirements become mandatory.