Regulator updates

Sustainability of Life Insurance in Superannuation (9 March 2021)

APRA wrote to insurers and trustees, urging them to address concerning trends and practices in the provision of group insurance to superannuation members after noting significant deterioration in group life insurance claims experience in 2019 and 2020.

APRA expects insurers and trustees to take steps to ensure that insurance offerings and benefits are sustainably designed and priced, provide appropriate value for members, and adequately reflect the underlying risks and expected experience. Specifically:

  • trustees should maintain clear insurance strategies and scheme design for default insurance that reflects their members' needs. In particular, APRA expects such strategies and arrangements to be thoroughly and carefully considered by trustees and appropriately balance the needs of members and the cost of insurance
  • trustees should maintain, and make available to insurers, high quality and sufficiently granular data to support a thorough understanding of fund membership and sound insurance benefit design. Where data and records are incomplete or inadequate, APRA expects these issues to be escalated and addressed
  • tender practices should support sustainable insurance benefit design and pricing. New data that becomes available during the tender process should be provided to all participants, with sufficient time for the impact of any changes to be assessed.

ASIC Chair address to Senate Committee (19 March 2021)

ASIC Chair James Shipton made a statement to the Parliamentary Joint Committee on Corporations and Financial Services outlining ASIC's current focus on:

  • ensuring consistent reporting and monitoring of audit findings and actions through key governance committees, including the Audit Committee, the Executive Risk Committee and the Commission's Risk Committee
  • establishing an Executive Integrity Committee, which has begun monthly meetings and includes oversight of ASIC's obligation to notify the Australian Commission for Law Enforcement Integrity of corruption issues involving ASIC's law enforcement activities
  • building a centralised incident and breach reporting register for ASIC's key obligations that will be available for all staff to use
  • finalising ASIC's review of potential procurement breaches and developing a mitigation strategy to address identified issues and risks
  • developing new policies relating to ASIC expenses, including approval and sign-off processes.

New appointee to APRA announced (19 March 2021)

The Federal Government appointed Ms Margaret Cole as a full-time member of APRA for five years, commencing 1 July 2021.

Ms Cole will join the APRA Executive Board alongside the Chair, Mr Wayne Byres, and the Deputy Chairs, Mr John Lonsdale and Ms Helen Rowell.

ASIC's review of how superannuation trustees supported their members during COVID-19 (23 March 2021)

During 2020, ASIC took a number of actions to check on the support provided by trustees to their members during COVID-19 (Review), including reviewing how trustees communicated pandemic-related issues to members and the provision of intra-fund advice.

ASIC found that trustees were quick to resolve any issues ASIC raised about their public COVID-19 communications. ASIC also found that intra-fund advice provided during this time was consistent with previous assessments of the quality of intra-fund advice provided by trustees.

Trustee website communications

Between March and July 2020, ASIC reviewed 51 superannuation fund websites that at the time of the review were collectively responsible for approximately 94% of the assets under management in the APRA-regulated superannuation industry.

The surveillance looked at how trustees presented information on the impacts of COVID-19 on superannuation, including:

  • information about the temporary early release of superannuation (ERS) scheme
  • the impact of ERS on retirement balances, through projection tools and calculators
  • insurance held through superannuation
  • temporary changes to minimum drawdown rates
  • investment performance
  • scams and fraudulent behaviour.

Most of the websites had a dedicated COVID-19 webpage that was prominent and easy to access from the homepage.

While most websites contained accurate information about legislative and economic changes, many lacked detail about how members' insurance might be affected if they chose to access their super early, or if their employment status changed because of COVID-19. Several websites had inaccurate or incomplete information about insurance eligibility in superannuation if an ERS payment resulted in a low account balance.

ASIC also identified projection tools on 14 websites that could have discouraged members from applying for the ERS because the tools used assumptions that exaggerated the long-term impact of withdrawal. ASIC expected trustees to ensure that these tools presented estimated impacts adjusted for inflation, adopted appropriate standards and assumptions, and clearly disclosed the assumptions and variables used in the modelling and that the figures disclosed are merely estimates.

Overall, funds' communications approach and information on the ERS, drawdown and investments did not raise concerns. However, ASIC assessed the risk to be greater in relation to information on projection tools and insurance in superannuation. There was limited information about scams on fund websites.

Intra-fund advice

In 2020, ASIC reviewed intra-fund advice on the ERS and on insurance.

ASIC did not find any evidence of trustees inappropriately using intra-fund advice to discourage members from applying for the ERS.

As part of the Review, ASIC requested samples of insurance-related intra-fund advice. Of the 18 files collected, eight were assessed as complying with the best interests' duty and related obligations. The remaining files were assessed as non-compliant because of issues with procedures and record keeping. ASIC did not find any serious consumer detriment and the compliance rate was similar to the compliance rate identified in ASIC's December 2019 Report 639 Financial advice by superannuation funds.

ASIC's expectations

ASIC and APRA outlined their expectations for trustees in relation to the challenges of the COVID-19 pandemic in a joint letter issued on 1 April 2020. Trustees can also refer to ASIC's COVID-19 FAQs for more information.

ASIC also previously highlighted how trustees can provide good member communications in Report 655 Review of member communications: Protecting Your Superannuation Package (PYSP) reforms.

APRA completes first phase of its Superannuation Data Transformation (25 March 2021)

APRA released the response paper and final reporting standards for Phase 1 of its multi-year Superannuation Data Transformation (SDT), which aims to support improved member outcomes by increasing the breadth, depth and quality of APRA's superannuation data collection.

Launched in November 2019, the first phase of the SDT (Breadth) addressed the most urgent gaps in the data reported to APRA by trustees, including expanding the data collection to include all products and investment options, and collecting improved data on insurance arrangement, expenses, member demographics and asset allocation classifications.

Following several months of industry consultation, APRA released a response paper and 10 finalised new reporting standards covering superannuation fund structure and profile, performance, member demographics, expense management, asset allocation, insurance arrangements, fees and costs. The reporting framework has also been updated to facilitate legislative amendments proposed in the Treasury Laws Amendment (Your Future Your Super) Bill 2021.


Financial Sector Reform (Hayne Royal Commission Response No. 2) Act 2021 (2 March 2021)

The Act received Royal Assent and will amend the Corporations Act to require a financial services licensee or authorised representative to provide written disclosures in respect of any lack of independence while also amending SIS to bolster protections for superannuation members against "fees for no service".

Treasury Laws Amendment (Income Tax Assessment Repeal and Consequential Amendments) Regulations 2021 (4 March 2021)

The Regulations:

  • repeal and replace the sun-setting Income Tax Assessment 1997 Regulations with the Income Tax Assessment (1997 Act) Regulations 2021
  • make consequential amendments to the SIS Regulations and the Retirement Savings Accounts Regulations 1997, and would make some minor updates that are required because of the sun-setting and remaking of the 1997 Regulations.

Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers (2020 Measures)) Regulations 2021: Breach reporting (10 March 2021)

Treasury is seeking submissions on the draft regulations that support the breach reporting rules in Schedule 11 of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 (Cth). Schedule 11 to the Act implements the Government's response to recommendations 1.6, 2.8 and 7.2 of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry by:

  • clarifying and strengthening the Corporations Act's breach reporting regime for financial services licensees
  • introducing a comparable breach reporting regime for credit licensees
  • requiring financial services licensees and credit licensees to report serious compliance concerns about financial advisers and mortgage brokers respectively.

The draft regulations propose to amend the Corporations Regulations 2001, the National Consumer Credit Protection Regulations 2010, the Corporations (Fees) Regulations 2001 and the National Consumer Credit Protection (Fees) Regulations 2010 to:

  • prescribe civil penalty provisions that are not taken to be significant (and therefore may not be reportable) under the relevant breach reporting regime if those provisions are contravened
  • ensure certain breach reporting offences and civil penalty provisions are subject to an infringement notice
  • make minor and technical amendments, including updating references to the Corporations Act.

Submissions are due by 9 April 2021.

The Treasury Laws Amendment (Reuniting More Superannuation) Bill 2020 assented (22 March 2021)

The Act received Royal Assent and will amend SIS and the Superannuation (Unclaimed Money and Lost Members) Act 1999 (Cth) to:

  • facilitate the closure of eligible rollover funds by 30 June 2021
  • enable the Commissioner of Taxation to reunite amounts he or she receives from eligible rollover funds with a member's active account.

ASIC Corporations (Consent to Deductions-Ongoing Fee Arrangements) Instrument 2021/124 (24 March 2021)

The Instrument prescribes the requirements for consenting to deductions or arranging for deductions from an account under an ongoing fee arrangement. The written consent requirements in the Instrument must be met before the ongoing fees are deducted from that account.

The Instrument commences on 1 July 2021.

ASIC Corporations (Disclosure of Lack of Independence) Instrument 2021/125 (23 March 2021

The Instrument prescribes the requirements for the disclosure of lack of independence that an AFS licensee or authorised representative must provide to their clients.

The Instrument commences on 1 July 2021.

The ASIC Superannuation (Consent to Pass on Costs of Providing Advice) Instrument 2021/126 (24 March 2021)

The Instrument sets out the requirements of a fund member's written consent that superannuation fund trustees must obtain before directly or indirectly passing the cost of providing financial product advice in relation to the member on to their superannuation account(s) under a non-ongoing fee arrangement.

The Instrument commences on 1 July 2021.

Extended Application Period 2021 Draft Corporations (Director Identification Numbers-Transitional Application Period) Instrument 2021 and Corporations (Transitional) Director Identification Number Extended Application Period 2021 (29 March 2021)

As part of the Modernising Business Registers (MBR) Program, Treasury is seeking public consultation on the transitional periods that directors will have to apply for a director ID during the early stages of the director ID regime.

To ensure that the director ID system will provide a robust, reliable, and consistent user experience, it must be tested before the full population of directors are on board with the system.

To ensure directors are not disadvantaged or in breach of the law, legislative instruments that remove the need for directors to apply for a director ID in these early stages have been drafted. The legislative instruments also allow directors appointed under the Corporations Act to obtain a director ID between 31 October 2021 and 30 November 2022. This timeframe will apply for both existing directors who were appointed prior to the commencement of the director ID regime and directors appointed during the testing phase.

Submissions are due by 16 April 2021.


ASIC commences civil penalty proceedings against REST for misleading and deceptive representations to members (2 March 2021)

ASIC commenced civil penalty proceedings against Retail Employees Superannuation Pty Ltd, as trustee of Retail Employees Superannuation Trust (REST) for false or misleading representations made about the ability of members to transfer their superannuation out of the fund.

Specifically, ASIC alleges the trustee made representations to members who made, or were considering to make, full balance transfers to another fund that:

  • if they remained employed by a standard-employer sponsor who made contributions to the fund and that employer continued to make contributions, they were required to keep a minimum balance of $5,000 in their account with the fund
  • if they remained employed by a standard-employer sponsor but the employer was willing to contribute to another fund, members needed an employer declaration stating either the date the employer stopped making contributions to the fund or confirming the member's "choice of fund rights" in order to leave the fund
  • if members were no longer employed by a standard-employer sponsor, they needed to obtain a separation certificate or confirmation of their termination date from their employer and provide this to the trustee before they were able to transfer the full balance of their fund account to another super account.

Our comments

Assuming the allegations are true and correct, this raises important issues around the interaction between choice of super laws, rollover laws, the quality of disclosure and information provided to members and how that is distributed via print and verbally.

The SIS Regulations enable trustees to refuse to enable partial rollovers if the partial rollover would leave an account balance below what is now $6,000, but previously $5,000.

ASIC takes action against Statewide Super regarding insurance cover (4 March 2021)

ASIC commenced proceedings against Statewide Superannuation Pty Ltd for false or misleading representations made about the insurance cover held by members of the Statewide Superannuation Trust.

Specifically, ASIC alleges the trustee:

  • sent annual statements and warning letters to approximately 12,500 members, representing they held insurance cover at a time when they did not
  • deducted monthly insurance premiums (worth a total of approximately $1.5 million) from superannuation accounts of certain members when those members did not have a cover.

Further, ASIC alleges that the trustee breached its obligation to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly, by failing to take the appropriate action within the relevant timeframe, including:

  • failing to maintain and implement adequate policies for the executive authorisation or consideration of changes to be made to or within the fund's administration system, and the testing of changes prior to their implementation
  • failing, when the trustee became aware of instances of mischarging conduct to inform those members of the overcharging, prevent further overcharging of those members, and prevent the issue of subsequent misrepresentations to those and other members
  • failing to lodge a written report with ASIC in respect of such matters.

Our comments

Assuming the allegations are true and correct, it sounds as if much of the "visible" harm was a result of administration error. However, the question that arises is how this went unnoticed for an extended period of time.

More significant may be the issue around trustee action or inaction once the error became known, as this goes to the heart of trustee governance and risk management frameworks.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.