All boards of RSE licensees, including employer-sponsored superannuation funds, will be required to have a minimum one-third independent directors and an independent chair on the board under draft legislation released by the Treasury for consultation today. Coinciding with this announcement, APRA has indicated it will use its power to make prudential standards to include further detail and supplement the independence provisions in the draft legislation released by the Treasury.
The changes will be made by repealing Part 9 of the Superannuation Industry (Supervision) Act 1993 (Cth) (which currently provides various rules for the equal representation of employers and members of employer sponsored funds) and inserting a new Part 9 to take effect from 1 July 2016. Existing RSE licensees will have three years to transition to the new arrangements. In addition, Treasury has indicated it will separately require, from 1 July 2019, RSE licensees will need to report whether their board is comprised of a majority of independent directors and, if not, provide an explanation why. These changes will be implemented through changes to the Corporations Regulations 2001 (Cth).
A director will be "independent" for the purposes of this legislation if:
- they do not have a substantial holding in the RSE licensee or a related entity;
- are not directly associated with a person who has a substantial holding in the RSE licensee;
- do not have a material relationship with the RSE licensee (including through their employer); and
- have not, in the last 3 years, been an executive officer or director of a body that has a material relationship with the RSE licensee.
A "substantial holding" is defined to have the same meaning as under the Corporations Act 2001 (Cth) which provides a person has a substantial holding if, together with their associates, that person has a relevant interest in 5% or more of the voting shares in the body. The concept of a "relevant interest" is broader than ownership, and extends to the power to control the exercise of a right to vote in the securities or the exercise of a power to dispose, or control the power to dispose, of the securities.
Non-compliance with the new Part 9 is not an offence, however non-compliance enlivens APRA's new power to direct the RSE licensee to comply with the Part. Non-compliance with the APRA direction is a strict liability offence, which attracts a fine of 100 penalty units. As of 31 July 2015 a penalty unit will increase to $180 (up from $170).
While APRA has not yet revealed its own draft prudential standards, it has indicated that it will amend Prudential Standard SPS 510 Governance to align the superannuation governance requirements to those required of the insurance industry in Prudential Standard CPS 510 Governance, and also introduce a new prudential standard, Prudential Standard SPS 512 Governance Transition. Specifically, the amendments to SPS 510 will be by:
- including a definition of "material relationship", which will include material professional advisers, consultants or suppliers;
- clarifying independence issues that arise from conglomerate groups;
- requiring that the majority of both the Audit Committee and Remuneration Committee, and the chairs of those committees, be independent directors;
- expanding the requirements of director appointment and removal processes; and
- insisting on RSE licensees conducting regulator assessments of the independence of each director.
New prudential standard SPS 512 Governance Transition will require the RSE licensee to formulate and implement a transition plan to support the effective functioning of the board during the transition period and the orderly and timely adoption of the changes required to meet the new requirements. Significantly, the transition plan required by SPS 512 must be implemented by 1 July 2016, in line with the expected commencement of the draft legislation. APRA has indicated the transition plan must include:
- a list of current directors and whether they can be considered independent under the new definition;
- when the term of each current director expires;
- the board's target for the number of directors on the bard, and thus the target number of independent directors;
- the board's plans for each director throughout, and at the end of, the transition period, including whether any directors will be replaced and, if so, when this will occur;
- key milestones throughout the transition period to facilitate timely transition to the new requirements; and
- identification of any impediment to compliance with the independence requirements.
Ultimately these developments are the culmination of a process that began in late 2013 with the release of the discussion paper Better regulation and governance, enhanced transparency and improved competition in superannuation, on which Corrs has previously reported. We will continue to monitor these significant developments and are able to assist you in drafting submissions to each consultation. The Treasury consultation period closes on 23 July 2015, with the APRA consultation period closing shortly thereafter on 31 July 2015. Please contact any member of our team if you would like any additional information.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
|Most awarded firm and Australian deal of
Australasian Legal Business Awards
|Employer of Choice for
Equal Opportunity for Women
in the Workplace (EOWA)