Regulatory updates

ASIC Regulatory Guide 276 Superannuation forecasts: Calculators and retirement estimates (5 July 2022)

ASIC released Regulatory Guide RG 276 Superannuation forecasts: Calculators and retirement estimates (RG 276) outlining its interpretation of ASIC Corporations (Superannuation Calculators and Retirement Estimates) Instrument 2022/603 (Instrument 2022/603)Instrument 2022/603 provides conditional AFS licensing relief for trustees who provide retirement estimates and superannuation calculators. RG 276 provides guidance as to how trustees can meet the requirements of Instrument 2022/603, including:

  • how the Instrument 2022/603 relief applies
  • how to present and disclosure forecasts
  • the requirements involved in making default assumptions in forecasts.

APRA statement: Strengthening transparency on remuneration and bank disclosures (6 July 2022)

APRA released a statement outlining that it has launched, for consultation, proposed amendments to Prudential Standard CPS 511 Remuneration (CPS 511). The key amendments to CPS 511 include:

  • APRA-regulated institutions being required to publicly disclose information on how their remuneration arrangements are designed, and how risk is factored into remuneration outcomes for key executives
  • large and complex financial institutions being required to disclose how they have placed a material weight on non-financial metrics (such as risk management and conduct) and remuneration outcomes for the Chief Executive Officer, other key executives and material risk-takers
  • APRA publishing centralised statistics to provide greater comparability of remuneration outcomes across APRA-regulated entities, supported by reporting requirements that are proportionate to their size and complexity.

The proposed remuneration disclosure and reporting requirements will take effect after the implementation of CPS 511 in 2023 for large entities and 2024 for smaller entities.

It is proposed that the amendments will take effect from 1 July 2023.

Review the operation of the Your Future, Your Super laws (7 July 2022)

The federal government released a statement outlining that it intends to review the operation of the Your Future, Your Super laws (YFYS Laws). The statement confirms that Treasury will be tasked to review the operation of the YFYS Laws in light of concerns from trustees that the performance test may be discouraging certain investment decisions. The review will also consider concerns relating to the regulatory complexity of the best financial interests duty in SIS. 

Further details are yet to be released.

Prudential Standard SPS 530 Investment Governance (20 July 2022)

APRA released a revised version of Prudential Standard SPS 530 Investment Governance (SPS 530), set to commence on 1 January 2023. The proposed enhancements build on existing APRA guidance, covering stress testing, liquidity management, and valuations as follows:

  • stress testing:
    • the trustee must have a board-approved stress testing program that incorporates appropriate adverse stress scenarios covering a range of factors that can create extraordinary losses or make the control of risk within the accepted tolerance level in the investment strategy difficult.
  • liquidity and cash flow management:
    • the liquidity management plan must now also outline:
      • the roles and responsibilities of those involved in the management and oversight of liquidity risk
      • the information, including key metrics, that must be reported to the board.
    • liquidity stress testing must be incorporated as part of the comprehensive investment stress testing program required.
  • valuation governance framework:
    • trustees must have an adequate valuation governance framework in order to identify and manage the valuation risk of investments and, at a minimum, which outlines:
      • the roles and responsibilities of persons for the oversight and management of valuation processes and procedures
      • the key metrics and information that must be reported to the Board,
      • the valuation methodology employed for each asset class (and sub-asset class and instrument/holding vehicle type where relevant)
      • the circumstances under which independent external valuations are to be obtained
      • the frequency of valuation of investments having regard to prevailing considerations and matters concerning the ongoing appropriateness of the asset valuation
      • the circumstances in which interim valuations are to be made, to ensure the approach taken is consistent and transparent
      • the triggers that would require an interim valuation of investments
      • a review process to ensure that the valuation policy remains effective
      • the validation of valuation outputs, including any back-testing procedures
      • the circumstances as to when to accept, reject or reassess valuations of investments to ensure that a trustee’s valuations remain appropriate.

AFCA statement: Complaint statistics (26 July 2022)

AFCA released a statement detailing the number of complaints it has received over the last 12 months. The statement outlines that there were a total of 72,358 complaints over the last financial year, which is a 3% increase compared to the previous financial year.

ATO statement: Financial hardship requests (27 July 2022)

The ATO published a webpage detailing the requirements that trustees must meet before releasing superannuation benefits due to financial hardship. The webpage outlines that before trustees release superannuation benefits for members, due to financial hardship, they must be satisfied that a member has either:

  • been receiving relevant government income support payments for a continuous period of 26 weeks and was receiving that support at the time they applied to the trustees and can't meet reasonable and immediate family living expenses, or
  • been receiving relevant government income support payments for a cumulative period of 39 weeks since reaching preservation age and was not gainfully employed on a full-time or part-time basis at the time of applying to the trustees.

APRA consults on new prudential standard to strengthen operational resilience (28 July 2022)

APRA is consulting on a new prudential standard designed to strengthen the management of operational risk in the APRA-regulated industries, including the superannuation industry. Accordingly, APRA proposes to introduce a new cross-industry Prudential Standard CPS 230 Operational Risk Management (CPS 230), which will set out minimum standards for managing operational risk, including updated requirements for business continuity and service provider management.

The proposed CPS 230 includes requirements for regulated entities to:

  • maintain effective internal controls for operational risk, commensurate with the size, business mix and complexity of the activities they undertake
  • be prepared and ready to ensure continued delivery of critical operations during periods of disruption
  • effectively manage the risks associated with the use of service providers.

The proposed CPS 230 will incorporate updated requirements for service provider management (currently outsourcing) and business continuity management that are currently contained in prudential standards SPS 231 and SPS 232. These standards will be replaced by the new CPS 230.

APRA expects to release the final CPS 230 early next year, before the new standard comes into force from 1 January 2024.

Submissions are due to APRA by 21 October 2022.

ATO statement: Superannuation issues (28 July 2022)

The ATO updated its webpage ‘Advice under development – superannuation issues’. The webpage now states new ‘expected completion’ dates for certain tax rulings and practice statements, including:

  • Taxation Ruling TR 2013/5: An addendum is expected to be completed by September 2022, which will reflect recent superannuation legislative updates
  • Practice Statement PS LA 2021/D3: Expected to be published in late 2022, which will provide guidelines on the Commissioner’s discretions relating to superannuation benefits received in breach of legislative requirements
  • Taxation Ruling TR 2010/1: The updated version of TR 2010/1 is expected to be completed by early 2023, which will include an explanation between the non-arms length income provisions and the rules concerning superannuation contributions
  • statements relating to the ordinary meaning of the term 'employee':
    • SGR 2005/2 Superannuation guarantee: Work arranged by intermediaries
    • SGR 2005/1 Superannuation guarantee: Who is an employee?
    • TR 2005/16 Income tax: Pay As You Go – withholding from payments to employees
    • TR 2013/1 Income tax: The identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties
    • SGR 2009/1 Superannuation guarantee: Payments made to sportspersons
    • ATO Interpretive Decision ATO ID 2014/28 Superannuation Guarantee Status of the Worker: Pizza delivery drivers as employees.

The updated rulings related to the term ‘employee’ are expected to be completed  by October 2022.

Legislative updates

Treasury Laws Amendment (Measures for a later sitting) Bill 2022: Faith-based products (Cth) (20 July 2022)

Treasury has released, for consultation, draft legislation that proposes to provide religious exemptions to the YFYS Laws’ performance test for trustees issuing faith-based superannuation products. Under the draft legislation:

  • APRA may determine that a product is a faith-based product if a trustee provides APRA with a valid application. Such application must contain:
    • certification from the trustee(s) that the product uses a faith-based investment strategy and that this is disclosed in its regulated disclosures
    • one or more indices that APRA could use to assess the product’s performance
    • any other information prescribed by the regulations or legislative instrument.
  • if a faith-based product fails the original performance test, APRA must assess the product against the supplementary performance test. The trustee of the faith-based product only experiences the consequences of a failed performance test if it fails the supplementary performance test. Faith-based products that pass the original performance test are not subjected to the supplementary test
  • trustees must apply to APRA between 1 February of the prior financial year and 31 January of the financial year for APRA to determine a product as having faith-based status for that financial year
  • Trustees of a faith-based product have an ongoing obligation to notify APRA of any new information that may impact a product’s faith-based status. APRA may revoke a determination that a product is a faith-based product in certain circumstances.

Submissions are due to Treasury by 16 August 2022.

Treasury Laws Amendment (Measures for a later sitting) Bill 2022: Taxation of military superannuation benefits (Cth) (25 July 2022)

Treasury has released, for consultation, draft legislation that proposes to amend various taxation laws to confirm the tax treatment of certain defined benefit pensions following the Full Federal Court decision in Commissioner of Taxation v Douglas [2020] FCAFC 220 (Douglas).

In Douglas, certain invalidity pensions paid under the Military Superannuation and Benefits Scheme (MSB Scheme) or the Defence Force Retirement and Dead Benefits Scheme (DFRDB Scheme) were found to be ‘lump sum payments’. The Bill will ensure other schemes are not impacted by the Douglas decision and members under the MSB Scheme and DFRDB Scheme are eligible for a non-refundable tax offset to ensure they do not pay additional income tax or Medicare levy, because of the Douglas decision.

Submissions are due to Treasury by 5 August 2022.

Treasury Laws Amendment (2022 Measures No. 1) Bill 2022 (Cth) (3 August 2022)

The Bill has passed both Houses of Parliament and now awaits royal assent. The Bill amends the AFCA Act to facilitate the closure and any transitional arrangements associated with AFCA replacing the SCT. The Bill also proposes to legislate the transfer of records and documents from the SCT to ASIC for the remittal of matters on appeal by the Federal Court.

Cases and other recent developments

ASIC issues civil penalty proceedings against wholesale licensee Lanterne Fund Services for risk and compliance failures (7 July 2022)

ASIC commenced civil penalty proceedings against Lanterne Fund Services Pty Ltd (Lanterne), alleging multiple failures to meet its various AFSL obligations under section 912A of the Corporations Act, including a failure to comply with the following organisational competence requirements under the legislation:.

  • have adequate risk management systems
  • have adequate resources (including financial, technological, and human resources) to provide the financial services and carry out supervisory arrangements
  • maintain the competence to provide its financial services
  • ensure that its representatives were adequately trained
  • take steps to ensure that its representatives comply with the financial services laws
  • do all things necessary to ensure that the financial services were provided efficiently, honestly, and fairly.

ASIC statement: Banned individual Nizi Bhandari charged with unlicensed advice and dishonesty offences (12 July 2022)

ASIC released a statement that it has charged Nizi Bhandari with engaging in dishonest conduct while carrying on a financial services business and providing unlicensed personal financial product advice. 

Between November 2017 and December 2020, Mr Bhandari was an authorised representative of The Australian Dealer Group Pty Ltd (ADG).

ASIC alleges that, between January 2019 and March 2020, Mr Bhandari:

  • provided seven consumers with personal financial product advice that neither he nor ADG was authorised to provide
  • encouraged 15 consumers to tell their superannuation funds that they were not working, had permanently retired, or were working less than 10 hours per week to enable them to access their superannuation when they were not entitled to
  • told 15 consumers that they could access their superannuation based on having reached preservation age when he knew that those consumers also had to be retired or working less than 10 hours per week in order to have such access
  • told three consumers to ask their employer to pay their employer superannuation contributions into a superannuation account other than the consumer’s super account to prevent the administrator of that super fund from becoming aware that the consumer had made a false statement about their work status
  • told one consumer that he would describe the consumer as retired to the superannuation fund to enable the consumer to withdraw his superannuation, when he knew the consumer was still working
  • told one consumer that the consumer was ‘technically’ retired when he knew that the consumer had not retired.

ASIC statement: ASIC’s first DDO stop orders to prevent offer of financial products to consumers (28 July 2022)

ASIC released a statement detailing recent ‘interim stop orders’ that it placed on three financial firms in response to deficiencies in the target market determinations (TMD) for their products. These actions are ASIC’s first use of the stop order powers under the design and distribution obligations (DDOs), which took effect on 5 October 2021.

The interim stop orders prevent Responsible Entity Services Limited (RES) and two companies in the UGC Global Group (UGC) from issuing relevant managed investment scheme interests or shares to retail investors. DDOs require the distribution of financial products to occur in a manner that would likely be consistent with the likely objective financial situation and needs of the specified target markets outlined within the relevant TMD. In this case, ASIC believed that the financial firms did not appropriately identify the consumers they intended to target or did not have a TMD, which meant the products may have otherwise been marketed and sold to retail investors for whom they were not appropriate or too risky.