ASIC updates the fees and costs disclosure regime (9 September 2020)
ASIC reminded trustees that they can choose to opt-in to the new fees and costs regime for periodic and exit statements (which commenced from 1 July 2020) and for product disclosure statements (PDS) from 30 September 2020. To opt-in, the trustee must make a written record that includes the date of election and the PDS or product to which the election applies.
A key deadline is the requirement that periodic and exit statements with reporting periods commencing on 1 July 2021 must comply with the new requirements, meaning that the new requirements for exit statements will be triggered for exits on or after 1 July 2021.
ASIC will continue to develop its proposals on disclosure by platforms.
We discussed these new rules in our April newsletter here. In short, ASIC Corporations (Amendment) Instrument 2019/1071 and ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 were registered, amending and then repealing ASIC Class Order [CO 14/1252].
However, COVID-19 resulted in ASIC Corporations (Amendment and Repeal) Instrument 2020/579 being introduced to:
- extend the application of ASIC Class Order [CO 14/1252] and delay the commencement of ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 until 30 September 2022
- further amend the ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070, including changes to specific templates.
Treasury Laws Amendment (Release of Superannuation on Compassionate Grounds) Regulations (No. 3) 2020 (3 September 2020)
The regulations extend the deadline by which applications must be made for COVID-19-related early release from superannuation accounts, to 31 December 2020.
Parliamentary Contributory Superannuation (Early Release Payments) Amendment Regulations 2020 (3 September 2020)
The regulations extend the deadline by which applications must be made for COVID-19-related early release from the Parliamentary Contributory Superannuation Scheme, to 31 December 2020.
Superannuation Amendment (PSSAP Membership) Bill 2020 (7 September 2020)
The Bill enables certain current and former Commonwealth employees and statutory office holders to continue to be or to become contributory members of the Public Sector Superannuation Accumulation Plan if they are currently not eligible to do so.
Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment Instrument 2020 (No. 4) (14 September 2020)
The Instrument extends the AML/CTF Rules' exemption from the applicable customer identification procedure when trustees make payments under the early release of superannuation scheme, until 31 December 2020.
ASIC Corporations (Amendment) Instrument 2020/853 (22 September 2020)
The Instrument amends ASIC Corporations (Disclosure of Fees and Costs) Instrument 2019/1070 (Fees and Costs Instrument) by requiring trustees who charge an asset-based administration fee or a combination of asset-based and flat administration fees and costs (Administration Fees) to provide different disclosure in the example of annual fees and costs example that applies to representative members (i.e. those with an account balance of $50,000).
The amendments apply once trustees provide disclosure according to the Fees and Costs Instrument (which, for most trustees will be 30 September 2022).
This is the second amendment made to the Fees and Costs Instrument (the first was COVID-19-related) and it is foreseeable that further amendments will be made over time.
A question that arises is whether the amendments create a degree of confusion for the reader.
In our experience, trustees with Administration Fees that are a combination of asset-based and flat fees simply calculate the value of those combined fee types on the representative member account balance and provide one number - it makes for clear and common sense disclosure. In other words, if a trustee charges Administration Fees of $1.50 per week and 0.60%, the trustee discloses the Administration Fee (in the example) as $378. However, the amendments will mean that the trustee will need to disclose the Administration Fees as:
"For every $50,000 you have in the superannuation product, you will be charged or have deducted from your investment $78 in administration fees and costs, plus $300 regardless of your balance."
Splitting the numbers is acceptable because the example requires the final aggregated total of fees and costs to be typed in bold font.
However, the words ". regardless of your balance" raises concerns. The language makes it appear that the dollar amount, based on the asset-based fee, is charged regardless of the account balance, when in fact, a fixed percentage rate is applied regardless of the account balance. In other words, instead of the member (in our example) being charged Administration Fees of $78 plus "$300 regardless of account balance", the member is actually charged "$78 regardless of account balance" and "only $300 if the member's account balance is exactly $50,000". The dollar value of the asset-based fee increases if the member's account balance exceeds $50,000 and reduces if the account balance is less than $50,000. This raises the question as to whether the words ". regardless of your balance" is potentially misleading.
It is also odd that this new disclosure requirement is not included in the example's investment fee component, where fees and costs are traditionally asset-based. If the representative member example is to be amended to state that the dollar value of the administration fee changes, depending upon a member's account balance (and this appears to be the intent), then it makes sense that the investment and transaction fees and costs values should also include a similar statement.
The currently-prescribed language and format seemed to be incredibly clear - but this amendment complicates it. If it is the case that some trustees were not applying their values correctly, that shouldn't be an issue with the disclosure requirements.
Cases and other recent developments
Australian Securities and Investments Commission v MLC Nominees Pty Ltd  FCA 1306 (11 September 2020)
The Federal Court has ordered two entities in NAB's wealth management division (NULIS Nominees (Australia) Limited (NULIS) and MLC Nominees Pty Ltd (MLC Nominees)) to pay a total $57.5 million penalty after the court found the trustees had made false and misleading representations to superannuation members about their entitlement to charge plan service fees and members' obligations to pay the fees.
The court also made declarations that MLC Nominees and NULIS failed to ensure that their financial services were provided efficiently, honestly and fairly.
The court's orders and declarations were made following its findings that:
- between 8 September 2012 and 30 June 2016, MLC Nominees misled members in the MasterKey Product and deducted approximately $33.6 million in Plan Service Fees from approximately 220,000 members of MasterKey Business Super (MKBS) and MasterKey Personal Super (MKPS), divisions of the MasterKey Product, who did not have a plan adviser
- between 8 September 2012 and 30 September 2018, MLC Nominees and NULIS misled members and deducted approximately $71.9 million Plan Service Fees from approximately 457,000 MKPS members linked to plan advisers where plan advisers were not required to provide services and members did not receive services or any services they could not otherwise obtain for free.
Review of the Legislative Framework for Corporations and Financial Services Regulation (11 September 2020)
The Australian Law Reform Commission (ALRC) has been asked to inquire into the potential simplification of Australian financial services law (Inquiry).
The Inquiry is part of the government's response to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry released in February 2019. The ALRC is not tasked with recommending policy changes regarding the content of obligations on financial service providers. Rather, the ALRC is to consider whether, and if so what, changes could be made to the Australian financial services law to simplify and rationalise the law.
Three sub-topics are specifically outlined, each of which is to be the subject of an interim report by the ALRC before the release of the consolidated Final Report:
- a first interim report focusing on the appropriate use of definitions in corporations and financial services legislation, which is due by 30 November 2021
- a second interim report focusing on regulatory design and the hierarchy of primary law provisions, regulations, class orders, and standards, which is due by 30 September 2022
- a third interim report focusing on potential reframing or restructuring of Chapter 7 of the Corporations Act, which is due by 25 August 2023
- a consolidated final report is due by 30 November 2023.
We envisage the findings in these reports will be highly anticipated.
Proposed changes to AFCA Rules - the transfer of remaining SCT complaints to AFCA(21 September 2020)
AFCA is seeking consultation in respect of proposed AFCA Rule changes resulting from the SCT ceasing operations after 31 December 2020. AFCA needs to amend its Rules to ensure there are appropriate arrangements in place to address the following possible events:
- any remaining complaints currently with the SCT are unable to be finalised before the SCT ceasing operations, or
- any matters that are before the Federal Court on appeal from the SCT are not finalised prior to SCT ceasing operations and require remittal back to be determined again, or finalised per the Court's directions.
The proposed changes will allow AFCA to consider these complaints and will not otherwise affect what complaints it can consider. Accordingly, AFCA is seeking consultation from interested parties.
Further, AFCA proposes to make two minor technical changes to the Rules to:
- clarify which Australian Bureau of Statistics reports are used to index AFCA's monetary limits
- to correct a reference to legislation.
Following consultation, the proposed amendments to the Rules will be submitted to ASIC for review and approval, which may result in further changes. It is anticipated that the relevant amendments to the Rules will be released by January 2021.
Submissions are due to AFCA by 16 October 2020.
The AFCA Approach to delayed insurance claims in superannuation (21 September 2020)
This document sets out how AFCA approaches complaints about delays in handling insurance claims held through superannuation. It forms part of a broader suite of guidance on how AFCA resolves superannuation complaints and includes case studies.
The document can be downloaded here.
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.