Regulator updates

APRA frequently asked questions – Your Future, Your Super performance test (3 November 2021)

APRA released two new frequently asked questions (FAQs) regarding general guidance on the Your Future, Your Super performance test.

The answers to the new FAQs state:

  • APRA's intention to publish the performance test values as part of its MySuper product heatmap, due to be released in December 2021
  • the benchmark representative administration fees and expenses (RAFE) used for the 2020-21 performance test was 0.3286%.

APRA and the RBA combined statement on climate change (4 November 2021

The RBA and APRA have published a combined statement for trustees on effective decision-making, outlining the importance of a full consideration of risk, including the potential impact of physical, transition and liability climate risks.

The statement in particular addresses:

  • integrating climate-related risks into financial stability monitoring and micro-supervision
  • analysing the effect of climate-related risks on the macroeconomy and financial stability
  • building awareness and intellectual capacity and encouraging knowledge sharing
  • integrating sustainability factors into own operations.

ASIC Information Sheet 266 FAQs: Records of Advice (5 November 2021)

ASIC released Information Sheet 266 (INFO 266) containing FAQs to help financial advisers better understand their obligations when providing personal advice to retail clients. INFO 266 includes the following FAQs:

  • what is a Record of Advice (ROA)?
  • when can I use an ROA instead of giving a client a Statement of Advice (SOA)?
  • does an ROA need to be in writing?
  • what information do I need to include in an ROA?
  • what information do I need to give clients about potential conflicts of interest?
  • do I need to give the ROA to my client?
  • what are the record-keeping obligations for ROAs?
  • when giving further advice, when will a client's relevant circumstances be 'significantly different'?
  • when giving further advice, when will there be a significant difference in the basis of the advice?
  • can I give my client further advice if I last gave my client an SOA six years ago?
  • i've changed licensees and want to give my existing clients further advice. Can I rely on a previous SOA I gave my clients while authorised by my old licensee, or do I need to provide clients a new SOA under my new licensee?
  • a colleague has suggested I draft SOAs that include a broad range of topics so I can give ROAs for further advice on these advice topics (provided the client's relevant circumstances are not significantly different from their last SOA). Is that okay?
  • how does ASIC consider an ROA when conducting advice file reviews?

ASIC Consultation paper 350 Consumer remediation: Further consultation (CP 350) (17 November 2021)

ASIC released a draft updated and expanded regulatory guide to consult how Australian Financial Services licensees should conduct remediations to return money owed to consumers and to seek feedback on the questions contained in CP 350 and its draft consumer remediation regulatory guide.

The consultation sought is in respect of ASIC's proposed regulatory guide, which addresses:

  • when remediation is required
  • key principles for conducting a remediation
  • investigating the nature and extent of the misconduct
  • determining and delivering appropriate outcomes
  • other remediation outcomes to consider
  • resourcing, governance and accountability
  • engaging with external organisations
  • interaction with licensing obligations and other laws.

Submissions are due by 11 February 2022.

ASIC Consultation Paper 351 Superannuation forecasts: Update to relief and guidance (CP 351) (18 November 2021)

ASIC's consultation paper proposes to amend ASIC Corporations (Generic Calculators) Instrument 2016/207(ASIC Instrument 2016/207) and ASIC Class Order [CO 11/1227] Relief for providers of retirement to clearly outline requirements for superannuation calculators and retirement estimates.

ASIC is seeking consultation from trustees on:

  • a single instrument of relief for superannuation calculators and retirement estimates
  • adopting a common framework for setting economic and financial assumptions
  • proposal to update guidance on superannuation forecasts that includes:
    • key aspects of relief for superannuation forecasts
    • presentation and disclosure of superannuation forecasts
    • default assumptions in superannuation forecasts
    • when and how to give retirement estimates.

Submissions are due on 28 January 2022.

APRA seeks answers on superannuation trustee financial resilience (19 November 2021)

APRA has released a discussion paper titled 'Strengthening Financial Resilience in Superannuation' and is seeking information from trustees on their plans to maintain the financial resilience needed to protect members' best financial interests. In particular, the request focuses on the use of the operational risk financial reserves, other reserving practices and other contingencies, including trustee's protection through insurance. APRA has also noted applications by trustees before the courts relating to charging trustee fees.

Submissions are due by 11 March 2022.

APRA statement: Improving cyber resilience (23 November 2021)

APRA has released a statement reinforcing its view that APRA-regulated entities need to strengthen their ability to oversee cyber resilience. The statement stems from two pilots and supervisory activities conducted by APRA, which led to the conclusion that entities need to play a more active role in:

  • reviewing and challenging information reported by management on cyber resilience
  • ensuring their entities can recover from high-impact cyber-attacks (e.g. ransomware)
  • ensuring information security controls are effective across the supply chain.

Treasury review of the Australian Financial Complaints Authority (24 November 2021)

Treasury released its final report (Report) on AFCA's operation since its establishment, and whether further enhancements should be made to ensure the external dispute resolution scheme is appropriately calibrated and operating effectively.

The Report provides the following recommendations:

  • recommendation 1: AFCA should provide clearer guidance on the circumstances under which a further issue identified during the complaint process would revert to financial firms for consideration through internal dispute resolution
  • recommendation 2: In making its decisions, AFCA should consider what is "fair in all the circumstances" with regard to the four factors identified in its rules – legal principles, industry codes, good industry practice and previous decisions
  • recommendation 3: AFCA should not advocate for, nor act in a manner that otherwise advantages, one party such that the impartiality of the complaints resolution process is compromised
  • recommendation 4: AFCA should address poor conduct by paid advocates affecting the efficiency of the scheme, such as by amending its rules to allow it to exclude certain paid advocates from involvement in the complaints process
  • recommendation 5:AFCA should:
    • continue to publish data on its timeliness and start publishing data on the full range of complaints it resolves, including those that extend beyond 12 months
    • better manage expectations around timeframes in its communications with parties to a complaint
    • focus on improving the timeliness of complaints that remain unresolved beyond 12 months.
  • recommendation 6: AFCA should exclude complaints from sophisticated or professional investors, unless there is evidence that they have been incorrectly or inappropriately classified
  • recommendation 7: AFCA's funding model should not disincentivise financial firms from defending complaints that they consider do not have merit and should better take into account the circumstances of small financial firms
  • recommendation 8: AFCA should improve the transparency of its fees for financial firms and how the fees are being used to support AFCA's activities
  • recommendation 9: AFCA determinations should continue to not be subject to merits review, but the substance of a determination should be reviewable with respect to its application to future cases. To this end, AFCA should enhance the visibility, accessibility and independence of its existing forward-looking review mechanism. AFCA should also amend its operational guidelines to remove the requirement for an applicant to demonstrate an error of law to access the formal forward-looking review mechanism. Applicants should be able to access it if they are able to demonstrate that the AFCA determination adopts an approach that could have a significant impact across a class of consumers, businesses or transactions
  • recommendation 10: Complaints about AFCA's service should remain the responsibility of the independent assessor. AFCA should improve the independent assessor's visibility as part of its communications with parties to a complaint
  • recommendation 11: AFCA should ensure consultation is undertaken on each approach document before final publication
  • recommendation 12: Where a systemic issue has been referred to ASIC or another regulator, AFCA should cease its investigation on the issue. ASIC and other regulators should advise AFCA of the outcomes of the referrals they receive. However, AFCA should continue to resolve any relevant individual complaints
  • recommendation 13: AFCA should be more transparent in its public reporting of systemic issues, including on a de-identified basis as appropriate. This would encompass factors such as the industry to which the systemic issues relate, the nature of the complaints, the number of affected consumers, the total value of remediation and reporting to the regulators
  • recommendation 14: The National Consumer Credit Protection Act 2009 should be amended to no longer require authorised credit representatives to be members of AFCA.

APRA finalises prudential guidance on managing the financial risks of climate change (26 November 2021)

APRA published Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229) after the initial draft was released in April this year.

CPG 229 is designed to assist banks, insurers and superannuation trustees in managing the financial risks of climate change and imposes no new regulatory requirements or obligations. Instead, it will assist APRA-regulated entities in managing climate-related risks and opportunities within their existing risk management and governance practices.

APRA has made minor amendments to CPG 229 related to capital adequacy, the use of climate-related targets, and disclosing key design features of scenario analysis.

Financial Regulator Assessment Authority reviews the effectiveness and capability of ASIC (29 November 2021)

The Federal Government announced the Financial Regulator Assessment Authority's (FRAA) first review of the effectiveness and capability of ASIC.

The FRAA is tasked with reviewing and reporting on the effectiveness and capability of ASIC and APRA.

The FRAA's first review will be a targeted assessment of ASIC's effectiveness and capability in strategic prioritisation, planning and decision-making, and its surveillance and licensing functions. The first review will also examine ASIC's use of data and technology in each of these focus areas.

The FRAA's review will be conducted against the backdrop of the Government's Statement of Expectations and the need for ASIC to continue supporting Australia's economic recovery from the COVID-19 pandemic.

The FRAA will provide its report to the Federal Government by the end of July 2022.


Corporations Amendment (Portfolio Holdings Disclosure) Regulations 2021 (11 November 2021)

The Regulations require trustees to report their holdings by 31 March 2022.

Chapter 7 of the Corporations Act requires trustees to make certain information about their funds' investment options publicly available on the entity's website no later than 90 days after the first reporting date of 31 December 2021.

The Regulations support the portfolio holdings disclosure regime by prescribing how information provided under the regime must be organised.

Requirements to disclose commercially sensitive valuations for particular individual assets have been removed from the final version of the Regulations. Instead, the collective value of these assets for each asset type will be disclosed. The assets that do not require individual valuation disclosure include:

  • cash
  • externally or internally managed fixed income
  • externally managed unlisted equity
  • externally managed unlisted property
  • externally managed infrastructure
  • externally managed unlisted alternatives.

APRA finalises Prudential Standard 250 Insurance in Superannuation (12 November 2021)

After a two-year industry consultation, APRA has finalised Prudential Standard 250 Insurance in Superannuation (SPS 250).

SPS 250 will require trustees to:

  • strengthen arrangements to protect members from potential adverse outcomes caused by conflicted life insurance arrangements. This will include robust decision-making in the negotiation and ongoing review of insurance arrangements
  • obtain an independent certification of related party insurance arrangements before entering into, or materially altering, an insurance arrangement, and on a triennial basis. Rather than mandating certification for priority and privilege arrangements, APRA has responded to industry concerns by enhancing the prudential framework to emphasise that trustees must be alert to any business practices or terms and conditions in insurance arrangements that may not be in the best financial interests of beneficiaries
  • strengthen data management to improve analysis of member outcomes across different groups of superannuation fund members.

The enhancements to SPS 250 will commence on 1 July 2022.

Cases and other recent developments

APRA agrees to accept a court enforceable undertaking from AMP Super (16 November 2021)

APRA has agreed to accept a court enforceable undertaking (CEU) from AMP Superannuation Limited and N.M. Superannuation Proprietary Limited (collectively, AMP Super) pledging to rectify governance and risk management deficiencies.

Under the terms of the CEU, AMP Super has committed to:

  • identify and address the root causes of the potential breaches and issues with input from an independent expert
  • remediate members who have been affected by aspects of the conduct dealt with by the CEU (noting that AMP Super has already remediated members in some cases)
  • continue to enhance its governance controls, risk management and processes for acting in members' best interests.

ASIC launches multiple legal actions against Westpac (30 November 2021)

ASIC has commenced six civil penalty proceedings against Westpac in the Federal Court. Each the result of an individual ASIC investigation, the proceedings allege widespread compliance failures across multiple Westpac businesses.

The matter, specifically relating to superannuation, involved Westpac subsidiary BT Funds Management charging members insurance premiums that included commission payments, despite commissions having been banned under the Future of Financial Advice reforms. The alleged contraventions include:

  • BT Funds Management represented that the insurance fees had been properly deducted from members accounts when in fact, the insurance fees that were deducted included commissions that were not permitted
  • members were paying commissions to financial advisers through their premiums even though they had elected to have the financial adviser component removed from their account.

BT Funds is remediating over $12 million to more than 8,000 affected members who were incorrectly charged.

ASIC and Westpac will submit to the court that the combined penalties of $100 million for the superannuation matter and the other five proceedings are appropriate.

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.