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 the proposed new financial services of providing a “superannuation trustee service” will be particularly important for trustees.

Key developments

• 27 May – APRA published articles on super consolidation APRA Insights
• 22 May – Government announces deferral of retirement incomes covenant pending further consultation
• 19 May – ASIC publishes article warning Trustees about poor practices relating to consolidation of super Finding and consolidating ‘lost’ superannuation
• 15 May – APRA updates FAQs clarify that it will take a facilitative approach to not requiring elections from members after a SFT, if the transitional provisions applied or the member had elected Putting Members’ Interests First frequently asked questions

Looking ahead

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

Parliament may consider legislation to give an 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.

Submissions close on Parliamentary Joint Committee Inquiry into litigation funding and the regulation of the class action industry are due on 11 June 2020.

Looking back

28 May   Regulations made to allow an expanded FinTech sandbox which allows new providers to avoid having an AFS licence for two years for various financial services including distributing superannuation products.  Instrument

28 May – APRA and ASIC appear before the Senate Select Committee on COVID-19. APRA said it primarily redirected it supervisory resources to collect additional information and monitor the liquidity of superannuation funds during a period of extreme volatility including information supporting implementation of the Government’s superannuation early release scheme. APRA said it had been discovered that third parties had stolen people’s identities and logged into a super fund, using the online portal to then search for other funds held in the same name. SuperMatch had been suspended as a result. The fraud had been identified early, and there was no evidence money had been lost through it. ASIC noted said people were impersonating government officials and offering to help with early release of superannuation or merging superannuation accounts.

28 May – APRA and ASIC presented at ASFA seminar indicating regulatory priorities.  APRA emphasised its continuing focus on trustees strategic planning and member outcomes, and continues to ask trustees of tail performing funds to justify their continuation.  ASIC has had a focus on member communications being accurate and balanced, including about insurance implications and early access.

27 May – AFCA announces that it has received 610 COVID-19 related superannuation complaints since March, mostly about delays in early release of superannuation AFCA Media Release

27 May – APRA published Insights Issue 2 with articles on super consolidation and how APRA is changing and responding to COVID-19 APRA Insights.  APRA has sought to dispel myths about barriers to mergers including what they see as misplaced concern about changes to features affecting member rights.  APRA has explained changes in its internal operations with all hands on deck addressing the implications of the pandemic.

25 May – Government announces temporary changes to exclude liability for failure to comply with continuous disclosure in the absence of knowledge, recklessness or negligence Temporary changes to continuous disclosure provisions for companies and  officers and Instrument 

25 May  – FASEA announce May 2020 exam results and that in total 30% of the FAR have now passed FASEA releases April Exam Results

22 May – ASIC defers Design and Distribution obligations from 5 April 2021 to 5 October 2021 ASIC Corporations (Deferral of Design and Distribution Obligations) Instrument 2020/486

22 May – Government announces deferral of retirement incomes covenant pending further consultation Deferral of retirement income framework legislation.  The proposed covenant would require trustees to formulate, review regularly and give effect to a retirement income strategy to assist members to meet their retirement income objectives.

22 May  – Treasurer announces the Government will seek to remove the exemption for litigation funding schemes from the AFS licensing and managed investment scheme provisions Litigation funders to be regulated under Corporations Act

21 May  – ATO gives updated guidance about deferral of reporting and payment obligations for unclaimed superannuation money for 31 December 2019 to 31 October 2020 Deferral of USM reporting and payment obligations

21 May – Treasurer announces the existing exemption from the ban on conflicted remuneration for stamping fees with by removed for listed investment companies and trusts Government Response to Treasury Consultation on Stamping Fee Exemption

20 May  – Amendment to AML/CTF rules for customer identification where in limited and exceptional circumstances a customer can’t provide satisfactory identity evidence in the usual manner to explicitly cover family and domestic violence  Amending Instrument

19 May – ASIC publishes article warning Trustees about poor practices relating to consolidation of super Finding and consolidating ‘lost’ superannuation . asic says trustees should have good oversight practices over third-party use of their SuperMatch2 authorisation. ASIC notes restrictions and changes to access to the facility applied by ATO.  ASIC is looking at trustees and others to make sure that consumers are provided with clear and balanced information about consolidation and avoid techniques that influence a member to take a certain course of action, particularly if it isn’t clear that the outcomes are in the member’s best interests.

15 May – APRA updates FAQs clarify that it will take a facilitative approach to not requiring elections from members after a SFT, if the transitional provisions applied or the member had elected Putting Members’ Interests First frequently asked questions

13 May – Inquiry into class actions 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 Litigation funding and the regulation of the class action industry

On the horizon spotlight – New financial service Acting as superannuation trustee

Australian Treasury consulted for four weeks from 31 January 2020 about draft provisions that would amend the Corporations Act 2001 to significantly extend regulation of superannuation trustees under the Australian financial services (AFS) licence provisions of the Corporations Act.

The provisions are drawn from the Hayne Royal Commission recommendations to adjust the role of ASIC.  Under existing provisions most trustees are required to have an AFS licence to issue superannuation products.  Under the proposed new provisions all trustees operating a registrable superannuation entity will require an AFS licence authorising them to do so “to provide a superannuation trustee service”.

The draft Explanatory Memorandum states:

“Expanding the coverage of the AFSL regime enables ASIC to enforce conduct and consumer protection obligations across a broader range of superannuation trustee activities. It also provides ASIC with access to its full suite of enforcement tools, which strengthens its ability to deter trustee misconduct through court-based enforcement activities and to ensure fair remediation of consumers.”

The provisions were proposed to apply from the commencement of the amending provisions on 1 July 2020.  The Government has announced a deferral in the commencement date of legislation to implement Royal Commission recommendations by 6 months so that the provisions are now expected to apply from 1 January 2021.

As part of the implementation of the proposal amendments will be made to remove the exemption from AFS licensing for dealing by non public offer trustees. However, an exemption will remain for trustees of pooled superannuation trusts unless used for investment of assets of a regulated superannuation fund that has net asset lower than $10 million (or $5 million if its reasonably expected to reach $10 million within 3 months).

Most trustees will not need to apply for a licence variation from ASIC.  If before the commencement the trustee was an RSE licensee and authorised under its AFS licence to deal in a superannuation product, then it is taken to be authorised to provide a superannuation trustee service under its AFS licence.

All superannuation trustees’ operations will be regulated by ASIC including those regulated by APRA. AFS licensee obligations including doing all things necessary to ensure that the financial services is provided honestly, efficiently and fairly will apply.  ASIC is likely to focus on fairness and the impact of trustee actions on particular members.  The consumer protection provisions of the ASIC Act will also apply.

ASIC can effectively put a trustee out of business by revoking their licence, although it must consult with APRA before doing so.

Impact on Trustees

Trustees will need to watch carefully ASIC’s administration of its new powers including by issue of regulatory guidance and through enforcement, whether alone or jointly with APRA.

All of a trustee’s operations will be assessed through the lens of the general obligations under the AFS licensing regime, including the ethical obligation to act efficiently, honestly and fairly. ASIC is primarily issues-driven and focused on conduct in relation to the relationship between superannuation trustees and their individual members.

Trustees will need to identify and appoint new responsible managers across the broad scope of activities that cover the new financial service of providing a superannuation trustee service. RMs will need to be appointed for all of the trustee’s operations, e.g. investments, insurance, complaints handling etc. The responsible managers will require initial and ongoing training on the application of financial services laws to the trustee’s role generally and their specific area.

ASIC is likely to be adopting a robust view of its new regulatory role, although working collaboratively with APRA.  The Joint Letter from ASIC and APRA of 14 February 2020 says, “APRA and ASIC are committed to working together to achieve better outcomes for members and reducing regulatory burden to the extent feasible. APRA and ASIC recognise that this involves effectively harnessing each agency’s different approach to regulation and supervision, while minimising duplication of regulatory effort.”