Welcome to the first issue of the KHQ Super Alert for 2024 which is a bumper edition of an unprecedented 31 news items! The Government was certainly busy in late December and January, kicking off various projects for the superannuation industry. For comparison, the first edition of the 2023 Super Alert had a mere 8 items. We look forward to keeping you up to date each week with all the regulatory news of 2024.
ASIC – Enforcement priorities for 2024
On 1 February 2024, ASIC published a speech delivered by its Deputy Chair, Sarah Court which sets outs ASIC’s enforcement priorities for the superannuation industry in 2024. ASIC’s key focus areas are:
- member service failures: addressing ‘services that are too often slow, unresponsive, and not member focused’ (especially in death benefit claims handling which is being reviewed closely by ASIC);
- greenwashing: ‘all are allegations about firms engaging in misleading and deceptive conduct…[g]oing forward [ASIC’s] focus will be on net zero statements and targets made without merit; the use of terms like ‘carbon neutral’, ‘clean’ or ‘green’ that are not founded on reasonable grounds; and the use of inaccurate labelling or vague terms in sustainability-related funds’; and
- failures to protect superannuation balances: this is to ensure that ‘superannuation savings are not being eroded by unnecessary or inappropriate fees and charges, and that the products in which they are investing are designed to maximise retirement outcomes and sufficiently balance risk’.
Click here for details.
APRA – Priorities for 2024
On 1 February 2024, APRA published a speech delivered by its Deputy Chair, Margaret Cole in relation to APRA’s priorities for 2024. The ‘key challenges’ APRA is seeking to address include:
- ‘improving practices in retirement income’ as previous reviews found ‘there was variability in the quality of approach taken and a lack of urgency in embracing the intent of the covenant’;
- ‘prioritising the industry’s preparations for the implementation of the Financial Accountability Regime which comes into effect for superannuation and insurance in March next year’;
- taking ‘action against entities with significant deficiencies in their information security and cyber controls’; and
- the implementation of CPS 230 (Operational Risk Management) in particular because ‘the days of trustees pointing the finger at a service provider for failures or breaches’ are over and trustee boards will become ‘ultimately accountable’ for their organisation’s operational risk management.
Click here for details.
Federal Court – Decision relating to calculation basis for defined benefits
On 1 February 2024, the Federal Court handed down its judgment in Muffet v Qantas Superannuation Limited [2024] FCA 39 concerning the appeal of an AFCA determination relating to the calculation of defined benefits. The member complained that ‘he had been financially disadvantaged by [the trustee’s] calculation’ of his defined benefit because the trustee calculated an annual period based on 52 weeks (which equates to 364 days) instead of 365 (or 366 days in a leap year).
AFCA determined that the trustee’s decision was fair and reasonable because the relevant trust deed did not specify how annual remuneration was to be calculated and it therefore fell to the trustee ‘to adopt a method…that is fair and reasonable’. The Federal Court affirmed AFCA’s determination as it was ‘not satisfied that AFCA’s determination was legally unreasonable or otherwise affected by error’ .
Click here for details.
Federal Court – AFCA failure to consider complaint about trustee ‘conduct’ and lack of procedural fairness in TPD decision
On 1 February 2024, the Federal Court handed down its judgment in Rauchle v Q-Super Board (No 2) [2024] FCA 42. The case concerned the appeal of an AFCA determination that had confirmed a trustee’s decision that a member was not totally and permanently disabled. The member had complained to AFCA about both the trustee’s ultimate ‘decision’ and the trustee’s ‘conduct’ in coming to its ultimate decision, both being within the expanded legislative definition of what can be a trustee ‘decision’ and therefore the subject of a complaint to AFCA. The ‘conduct’ complaint was that the trustee did not give the member procedural fairness in arriving at its ultimate decision. The Court found that AFCA’s written determination did not on its face appear to address the conduct complaint and the Court remitted the complaint to AFCA for proper consideration.
The decision nevertheless re-affirms previous case law that, in determining a complaint that is about a trustee’s ‘decision’, AFCA’s ultimate focus should be on whether the effect of the decision was fair and reasonable, regardless of the fairness of the ‘process’ leading to the decision.
Click here for details.
APRA – Annual superannuation bulletin released
On 31 January 2024, APRA released its annual superannuation bulletin for the financial year ending 30 June 2023, which provides an overview of the superannuation industry with information on ‘funds and membership profile, key financial performance metrics, financial position, fees and expenses’. Some key statistics include there being:
- $3.6 trillion in total superannuation assets;
- $995.3 billion of total assets in MySuper products; and
- $133.6 billion of contributions to MySuper products in the 2022/23 financial year.
The statistics also show that the average account balance for funds with more than six members is $111,380 and for MySuper members is $63,976.
Click here for details.
APRA – Interim superannuation supervision and policy priorities for 2024
On 31 January 2024, APRA released an ‘interim’ update relating to its supervision and policies priorities for the next 6 months. As part of its policy priorities, APRA will:
- ‘release an information package in early 2024 and host a series of webinars to support the insurance and superannuation entities prepare for the FAR commencement’ (FAR will come into effect from March 2025 for superannuation trustees);
- ‘engage with superannuation trustees to drive an uplift in industry approaches’ to meeting the expectations of Prudential Standard CPS 190 Recovery and Exit Planning and Prudential Standard CPS 900 Resolution Planning which come into effect on 1 January 2025;
- ‘review [each trustee’s] self-assessments against requirements in Prudential Standard SPS 530 Investment Governance’; and
- ‘maintain a focus on ensuring that trustees responsible for underperforming choice products are taking steps to improve or exit them’.
Click here for details.
Federal Register of Legislation – First CSLR levy period prescribed
On 31 January 2024, the Financial Services Compensation Scheme of Last Resort Levy (First Levy Period) Determination 2024 was registered on the Federal Register of Legislation to determine that the first levy period under the Financial Services Compensation Scheme of Last Resort Levy Act 2023 (Cth) is specified to start on 2 April 2024. This means that the scheme operator can begin to make payments to eligible consumers from this date.
The costs for the first levy period (2 April 2024 to 30 June 2024) will be funded by the Government and in subsequent periods will be funded by the financial services industry (see our Super Alert of 7 July 2023 for further information about the CSLR Acts).
Click here for details.
Treasury – Various changes proposed to superannuation laws
On 30 January 2024, Treasury released an exposure draft Bill and regulations which set out miscellaneous amendments to be made to Treasury laws in 2024. According to the associated explanatory documents, the following amendments are proposed in relation to superannuation:
- ‘editorial amendments to provisions relating to superannuation entity auditing requirements in the Corporations Act’;
- amendments to ‘sections 68AAB and 68AAC of the SIS Act to ensure all members of regulated superannuation funds can automatically maintain their insurance following a successor fund transfer’;
- moving provisions relating to actuaries and auditors out of the SIS Regulations and into the SIS Act (ie, parts of regulation 9.03); and
- clarifying ‘requirements under the SIS Act in relation to what information trustees of superannuation entities are required to give, and to whom this information is required to be given’.
The consultation period for this exposure draft legislation closes on 12 February 2024.
Click here for details.
Legislation – Minor amendments to AML/CTF Rules
On 25 January 2024, the Anti-Money Laundering and Counter-Terrorism Financing Rules Amendment (Chapter 1 Amendments) Instrument 2024 was registered on the Federal Register of Legislation. The purpose of this Instrument is to update ‘each reference to the Statutory Declarations Regulations 2018 in Part 1.2 of the AML/CTF Rules with a reference to the Statutory Declarations Regulations 2023, which commenced on 1 January 2024’ (see our news item below in relation to the registration of those regulations).
Click here for details.
ASIC – Financial adviser exams
On 24 January 2024, ASIC confirmed that, for the next financial adviser exam scheduled for 26 March 2024, ASIC will be implementing the Government’s amendments to the exam format and eligibility criteria.
Click here, here and here for details.
NSW Supreme Court – mental capacity to execute death benefit nomination
On 22 January 2024, the NSW Supreme Court handed down its judgement in van Camp v Bellahealth Pty Ltd [2024] NSWSC 7. Henry J decided that a deceased SMSF member had sufficient mental capacity to validly execute, on the day of his death, a valid binding death benefit nomination (BDBN) in favour of his de facto partner rather than his estate.
The case turned largely on the application of existing case law on mental capacity to the extensive evidence about the deceased’s mental state from the deceased’s de facto partner and the deceased’s treating doctors and legal and financial advisers and evidence from other medical and taxation experts.
However, it is notable that Henry J rejected a submission that in order to have sufficient capacity the deceased must have been able to comprehend, weigh up and discriminate between the different options available to him for disposing of his superannuation. Her Honour said that it was sufficient if the deceased had the capacity to understand the general nature and effect of the BDBN, which itself was not complex and was straightforward in it terms, namely that it would have the effect of compelling the fund trustee to pay the deceased’s superannuation to the deceased’s de facto partner.
The Court also rejected an allegation of unconscionable conduct against the de facto partner in relation to procuring the execution of the BDBN.
Click here for details.
ASIC – renewal of managed investment scheme class orders
On 19 January 2024, ASIC announced that it is proposing to remake a number of class orders relating to managed investment schemes that are due to sunset on 1 April 2024. The class orders, among other things, relate to periodic statement relief for listed schemes, land holding requirements for primary production schemes and other asset holding requirements for responsible entities and custodial and depository services.
The consultation period closes on 16 February 2024.
Click here for details.
ASIC – financial advisers need to register by 16 February
On 18 January 2024, issued a media release urging financial services licensees to ensure that their advisers providing personal advice to retail clients are appropriately registered with ASIC by the extended due date of 16 February 2024. ASIC has said that a significant number of financial advisers are still not registered and ASIC will not further extend the deadline. Advisers who provide personal advice to retail clients without being registered after 16 February, together with their authorising AFS licensee(s), will be in breach of the law and face potential regulatory action.
On 16 January 2024, the Corporations (Relevant Providers—Education and Training Standards) Amendment (2024 Measures No. 1) Determination 2024 was registered on the Federal Register of Legislation. (Between 14 December 2023 and 10 January 2024, Treasury made available the exposure draft version of this determination for public consultation).
Click here for the ASIC release and here for the ASIC deadline extension.
ALRC – Report on reducing complexity in corporations and financial services legislation
On 18 January 2024, the Australian Law Reform Commission Final Report, ’Confronting Complexity: Reforming Corporations and Financial Services Legislation’ was tabled in Federal Parliament. The report makes numerous recommendations intended to simplify and clarify corporations and financial services legislation in order to lower costs for consumers and industry, improve productivity and make compliance requirements and enforcement consequences clearer.
The recommendations include ‘ending the use of almost invisible notional amendments that make the law deeply inaccessible’.
Click here for details.
Federal Register of Legislation – Superannuation accounting standards
On 17 January 2024, ‘The Australian Accounting Standards Board (AASB) has issued an updated version of its standard AASB 1056 Superannuation Entities. This new version has the status of a legislative instrument, reflecting recent amendments to the financial reporting obligations on superannuation funds and ensuring that, where necessary, it takes precedence over the other AASB Standards.’
Click here for details.
APRA – Consultation on proposed minor changes to superannuation prudential framework
On 17 January 2024, APRA released a letter to RSE licensees and auditors, consulting on minor amendments to the superannuation prudential framework. The proposed changes follow financial reporting and auditing reforms for superannuation set out in Treasury Laws Amendment (2022 Measures No. 4) Act 2023.
APRA proposes minor changes to:
- Prudential Standard SPS 310 Audit and Related Matters (SPS 310);
- Prudential Standard SPS 510 Governance (SPS 510);
- Prudential Standard SPS 520 Fit and Proper (SPS 520); and
- Prudential Practice Guide SPG 520 Fit and Proper (SPG 520),
and proposes to ‘retire’ Prudential Practice Guide SPG 310 Audit and Related Matters.
The consultation period closes on 28 February 2024.
Click here for details.
Treasury – Exposure draft legislation on climate-related financial disclosure
On 12 January 2024, Treasury released exposure draft legislation and an explanatory memorandum on climate-related financial disclosure, together with the Government’s ‘Policy position statement’.
The exposure draft legislation seeks to amend the Corporations Act 2001 and the Australian Securities and Investment Commission Act 2001 to introduce mandatory requirements for various entities (which will include superannuation fund trustees) to disclose their climate-related risks and opportunities.
According to the exposure draft explanatory statement, the amendments require entities to prepare a ‘sustainability report’ for each financial year ‘in addition to financial statements, notes to financial statements and a director declaration which form part of an annual financial report’.
It is proposed that entities subject to mandatory climate-related financial disclosure would be phased in three groups, over a four-year period commencing with the reporting period starting 1 July 2024.
The consultation period for this exposure draft legislation closes on 9 February 2024.
Click here and here for details.
Legislation – Financial Services Compensation Scheme of Last Resort – levy determination
On 3 January 2024, the Financial Services Compensation Scheme of Last Resort Levy (Collection) (Initial Estimate of Unpaid Claims and Fees) Determination 2024 (Determination) was registered on the Federal Register of Legislation.
According to the explanatory memorandum to the Determination, the principal legislation provides that ‘the Compensation Scheme of Last Resort (CSLR) operator … may determine an initial estimate of unpaid claims, and the Australian Financial Complaints Authority’s (AFCA) unpaid fees, related to complaints provided to AFCA before the accumulation recovery day.’
Accordingly, the purpose of the Determination is to determine that initial estimate. The Determination states that the estimate is just under $241 million.
Click here for details.
Fair Work Commission – Modern Award Superannuation Clause Review
On 22 December 2023, the Fair Work Commission published a decision: Variation on the Commission’s Own Motion — Modern Award Superannuation Clause Review [2023] FWCFB 264.
The Decision states by way of background that ‘[c]hanges to superannuation laws in relation to stapled superannuation funds and underperforming superannuation products commenced in 2021 [which] has meant that the superannuation clauses in modern awards may, in some respects, no longer reflect current superannuation requirements’. The matter ‘was commenced on the Commission’s own motion to conduct a review of superannuation clauses in all modern awards so that they better reflect current superannuation law requirements’.
Some variations were proposed to modern award superannuation clauses, but the drafting was not finally determined as further submissions from relevant parties were called for.
Click here for details.
Federal Court – Insurer’s duty of utmost good faith
On 21 December 2023, the decision of the Federal Court in Australian Securities and Investments Commission v Zurich Australia Limited (No 2) [2023] FCA 1641 was handed down. It involved an income protection and life insurance policy (Policy), originally issued by OnePath Life Ltd (OnePath). As a result of commercial arrangements, Zurich Australia Ltd (Zurich) was ultimately substituted for OnePath in the proceeding.
The proceeding related to the insurer’s handling of an insured’s claim for income protection payments and the insurer’s avoidance of cover under the Policy due to the insured’s fraudulent non-disclosure of prior medical issues.
The case did not actually directly concern the insured’s benefits under the Policy or the insurer’s subsequent avoidance of the Policy; rather, it involved ASIC taking action against Zurich for the insurer’s handing of the claim. ASIC sought declarations that the insurer had breached its duty of utmost good faith implied into the Policy by section 13(1) of the Insurance Contracts Act 1984 (Cth).
ASIC conceded that Zurich had formed a reasonable conclusion that the insured had fraudulently not disclosed some facts in her insurance application form. However, ASIC alleged that the insurer had breached its duty of utmost good faith in the way that it went about reaching its decision that the insured had fraudulently omitted information from her health disclosures. That is, ASIC limited its case to one concerning the manner or process adopted by the insurer in reaching its decision, and alleged three contraventions. Jackman J ultimately found against ASIC on all three counts.
Click here and here for details.
Legislation – ASIC Instrument on disclosure and reporting consistency
On 20 December 2023, the ASIC Superannuation (Disclosure and Reporting Consistency Obligations) Instrument 2023/941 was registered on the Federal Register of Legislation.
According to the explanatory statement, the purpose of the Instrument is ‘to continue relief from compliance with subsection 29QC(1) of the SIS Act previously provided under CO14/541 until 1 January 2026’. ‘Since 13 June 2014, ASIC has granted the exemption from compliance with subsection 29QC(1) because of uncertainty about how to achieve consistency between the disclosure requirements in the primary legislation and the data that is required to be reported under APRA’s reporting standards.’
See also ASIC Superannuation (Repeal) Instrument 2023/942 which was registered on the same day, repealing the previous relief in CO14/541.
Click here, here and here for details.
Government – Super Consumers Australia to receive consumer advocate funding
On 20 December 2023, The Hon Stephen Jones MP, Assistant Treasurer and Minister for Financial Services, announced that Super Consumers Australia has been chosen as the recipient of funding which was announced in the 2023-24 Federal Budget to support a consumer advocate in the superannuation industry.
The media release states that ‘[t]he grant provides $5 million over 5 years from 2023–24, funded from the Superannuation Supervisory Levy, which is administered by [APRA]. Funding over 5 years will provide Super Consumers Australia with certainty and enable it to focus on driving better consumer outcomes’.
Click here for details.
ASIC – Updated breach reporting regulatory guide released
On 19 December 2023, ASIC released an updated version of Regulatory Guide 78: Breach reporting by AFS licensees and credit licensees (RG 78). According to ASIC, RG 78 has been updated to reflect the changes made to the breach reporting regime by ASIC Corporations and Credit (Amendment) Instrument 2023/589. See our Super Alert of 20 October 2023 for further information about the changes made by this Instrument last year.
ASIC has also made related updates to:
- INFO 229 Limited AFS licensees: Complying with your licensing obligations; and
- INFO 259 Complying with the notify, investigate and remediate obligations.
Click here and here for details.
ASIC – Highlighting focus areas for 31 December 2023 reporting
On 19 December 2023, ASIC issued a media release highlighting its areas of concern for entities preparing full and half-year financial reports. ASIC has prepared a report (Report 774: Annual financial reporting and audit surveillance report 2022-23) which summarises the issues it has identified. For example, ASIC has advised that ‘[d]irectors should ensure there are adequate resources, skills and expertise applied to promote quality in the reporting process so that assumptions underlying estimates and assessments for financial reporting purposes are reasonable and supportable’.
Following changes made to the Corporations Act last year, these financial reporting requirements in Chapter 2M will now extend to superannuation trustees (see our Super Alert of 30 June 2023) and accordingly trustees should review ASIC’s recent findings.
Click here for details.
Federal Court – AFCA determination upheld in relation to insurer’s responsibility to pay compensation
On 18 December 2023, the Federal Court handed down its decision in Resolution Life Australasia Ltd v Teagle [2023] FCA 1607. In our Super Alert of 20 October 2023 we discussed the earlier decision in this proceeding where the Federal Court did not grant an application to stay the operation of an AFCA determination pending the hearing of the appeal.
In this latest judgment, the Federal Court rejected the insurer’s appeal of the AFCA determination and also ordered the insurer to pay AFCA’s costs. The original AFCA complaint related to a TPD benefit decline by the insurer (on the basis that an exclusion applied) and the relevant superannuation trustee agreed with the insurer’s decision. The complaint was commenced against the trustee but AFCA ultimately joined the insurer to the complaint too.
Although AFCA determined that the insurer’s (and trustee’s) decision to decline to pay the benefit was fair and reasonable, it ‘was not satisfied that [the insurer’s] decision not to compensate [the member] is, in its operation in relation to him, fair and reasonable in all the circumstances’. This is because AFCA found that the insurer had failed to explain to the member that he was able to have any exclusions on his insurance reviewed after three years. AFCA determined that the insurer should compensate the member for an amount which was equal to the TPD benefit. The Federal Court ultimately upheld this determination and rejected all seven grounds of appeal put forward by the insurer.
Click here for details.
ASIC – Regulatory costs for 2022-23 released
On 15 December 2023, ASIC published the ‘annual dashboard of regulatory costs for 2022-23’ which groups ASIC’s regulatory costs by sectors and subsectors. The relevant sector for trustees is the ‘investment management, superannuation and related services sector’ and ‘superannuation trustees’ is a subsector. ASIC has advised that the invoices for these levies will be issued between January and March 2024.
Click here for details.
ATO – Draft determination relating to tax deductions for advice fees
On 13 December 2023, the ATO released draft taxation determination TD 2023/D4
Income tax: deductions for financial advice fees paid by individuals who are not carrying on a business for public consultation. The determination sets out the ATO’s view about ‘when an individual may be entitled to a deduction under…the Income Tax Assessment Act 1997…for fees paid for financial advice [and] outlines the requirements that need to be satisfied for an individual to claim a deduction for financial advice fees’. The determination ‘does not consider circumstances where fees for financial advice are paid from a superannuation fund’.
The consultation period closes on 2 February 2024 (today).
Click here for details.
ATO – Guidance released relating to tax credits for adviser service fees
On 13 December 2023, the ATO issued a notification to trustees ‘of certain matters relevant to claims for reduced input tax credits (RITCs) in respect of adviser services fees’. It focuses on ‘arrangements where a member or investor engages a financial adviser to provide them with personal advice…[not] arrangements where [trustees] engage an adviser to provide non-ongoing, simple advice to its members, where a fee is collectively charged to all members (referred to as intra-fund advice)’.
The ATO’s view is that in these circumstances, trustees ‘are not eligible to claim RITCs for the adviser services fees, as [trustees] are not the recipient of a supply for which the fees are consideration’.
Click here for details.
Treasury – Superannuation matters in mid-year Budget papers
On 13 December 2023, Treasury released the Mid-Year Economic and Fiscal Outlook 2023-24. The following key superannuation matters are referred to:
- adviser fees: ‘[t]he Government will address the high cost of advice…[and] provide a clear legal basis for superannuation trustees to pay advice fees agreed between a member and their financial adviser from the member’s superannuation account and prescribe that such fees are a tax-deductible expense of the fund retrospectively from 2019–20’;
- transfer balance cap in SFTs: ‘[t]he Government will amend legislation to ensure the superannuation transfer balance cap of individuals with a capped defined benefit income stream is not adversely impacted in the event of a merger or successor fund transfer’ (instead of ‘the original income stream being treated as ceasing and a new one beginning’) – this change will apply retrospectively from 1 July 2017; and
- access to offenders’ superannuation: ‘[t]he Government will enable victims and survivors of child sexual abuse to seek access, via a court order, to additional personal or salary sacrifice superannuation contributions made by the offender…[t]he measure would only apply to identifiable additional superannuation contributions starting from 2002–03, and would not apply to mandatory employer contributions or contributions to a defined benefit interest…[with precedence] given to the resolution of family law and bankruptcy proceedings’.
Click here for details.
Legislation – Regulations registered to implement electronic execution of statutory declarations
On 7 December 2023, the Statutory Declarations Regulations 2023 were registered on the Federal Register of Legislation. According to the Explanatory Statement, the regulations ‘repeal and replace’ the 2018 version of the regulations and give effect to the amendments made to the Statutory Declarations Act 1959 (Cth) by the Statutory Declarations Amendment Act 2023 (Cth). See our Super Alert of 10 November 2023 for further information about that Act.
Click here for details.
Productivity Commission – Superannuation death benefits to charities proposal
On 30 November 2023, the Productivity Commission released a draft report titled ‘Future foundations for giving’. One information request relates to allowing ‘people to nominate their superannuation death benefit to a charity’. The following information is sought by the Commission:
- ‘potential design of a mechanism to enable people to direct a portion of their superannuation death benefit to nominated charities, including the roles and responsibilities of parties such as trustees and estate executors’;
- ‘benefits, costs, risks, necessary safeguards, and potential unintended consequences of policy options enabling a person to direct their superannuation death benefit to nominated charities’; and
- ‘factors, such as family or financial circumstances, that would contribute to a person deciding whether to take up the option to direct their superannuation death benefit to nominated charities’.
Submissions to the Productivity Commission about this report close on 9 February 2024.
Click here for details.
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