Welcome to the latest issue of the KHQ Super Alert. This week the first tranche of Quality of Advice reforms passed Parliament, APRA issued the final updates to SPS 515 and AFCA published its updated rules and guidelines.
Parliament – First Quality of Advice Bill passes Parliament
On 4 July 2024, the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 was passed by both Houses of Parliament. As referred to in our Super Alert of 5 April 2024, the Bill implements the initial recommendations from the Quality of Advice Review and makes other technical amendments to Treasury laws.
A handful of amendments were made by the Senate prior to the final passage of the Bill. These predominantly relate to section 99FA (Cost of financial product advice – fees charged to member concerned). The supplementary Explanatory Memorandum explains that the ‘amendments will no longer replicate existing obligations on trustees which require that:
- the financial product advice is wholly or partly about the member’s interest in the fund; and
- the amount charged does not exceed the cost of providing financial product advice about the member’s interest in the fund’.
In an associated media release, the Assistant Treasurer announced that the ‘second tranche of reforms…will be developed over the second half of the year…[and] includes the government’s commitment to reform statements of advice, modernise the best interests duty and remove the safe harbour steps, and increase the provision of advice by financial institutions’.
Click here and here for details.
APRA – Updates to SPS 515 finalised
On 4 July 2024, APRA published an updated final version of Prudential Standard SPS 515 Strategic Planning and Member Outcomes and Prudential Practice Guide SPG 515 Strategic Planning and Member Outcomes. As referred to in our Super Alert of 22 September 2023, APRA released a discussion paper late last year for public consultation about these proposed changes.
According to APRA, the changes specify:
- ‘design principles for a robust expenditure management framework – including board oversight, alignment to strategic objectives, and active monitoring and review’;
- ‘APRA’s view that better practice is for trustees to obtain a yearly attestation from accountable senior executive management that they are taking reasonable steps to meet the requirements in SPS 515 regarding expenditure management’; and
- ‘APRA’s view that such attestation should confirm that controls are in place and operating effectively to prevent expenditure that would be unjustifiable in the context of the duty to act in the best financial interests of beneficiaries’.
These changes will take effect from 1 July 2025.
Click here for details.
Federal Court – Decision in relation to AFCA powers in section 1055 of the Corporations Act
On 3 July 2024, the Federal Court handed down its judgment in Connor v Australian Financial Complaints Authority [2024] FCA 711. The case is an appeal of an AFCA determination where AFCA affirmed the original decision of a trustee in relation to the remediation approach it applied when lump sum superannuation benefits were paid to members at age 55 in error. The Federal Court has now also affirmed AFCA’s determination.
The Court discussed section 1055 of the Corporations Act and made the following findings:
- ‘[p]lacing a complainant in a position where, as nearly as practicable, any unfairness or unreasonableness no longer exists does not carry with it any necessary implication that the concepts of fairness and reasonableness are constrained by equitable and common law principles for the assessment of loss’;
- AFCA’s obligation to ‘not make a decision that “would be contrary to law”…is a negative stipulation, it does not impose a positive obligation to make determinations consistently with any legal and equitable principles’; and
- ‘AFCA is not conferred with the power to adjudicate legal claims as a Court would, nor was it intended that AFCA would perform the functions and role of a Court’.
Click here for details.
APRA and ASIC – Improvements to retirement strategy implementation requested
On 2 July 2024, APRA and ASIC issued a joint media release in relation to ‘significant gaps’ that the regulators had identified in relation to implementation ‘strategies to improve retirement outcomes for members’. The key observations from survey responses of 48 superannuation trustees were as follows:
- ‘[w]hile approximately three quarters of trustees indicated that measuring retirement outcomes was a priority, only incremental progress had been made to measure and track retirement income strategies. Just eight trustees said tracking the effectiveness of retirement-focused assistance to members was a priority’; and
- ‘[m]any trustees were taking steps to better understand the retirement needs of their members and had endeavoured to promote the availability and access to retirement-focused information for members. However, only one in five planned improvements identified by trustees were expected to be completed by mid-2024’.
Click here for details.
AFCA – Updated Rules and Operational Guidelines issued
On 1 July 2024, AFCA issued an updated version of its Rules and Operational Guidelines which ‘will apply to complaints lodged on or after’ 1 July 2024. AFCA has explained that the changes address ‘key themes’ from a 2021 Treasury review of AFCA. See our Super Alert of 26 November 2021 for further information about Treasury’s final report in this review.
AFCA has mentioned the following changes, amongst others:
- ‘AFCA has strengthened its ability to manage unreasonable or inappropriate conduct within the scheme from complainants and Paid Representatives’;
- ‘AFCA has expanded existing Rule A.8.3 to include the discretion to cease consideration of a complaint where the financial firm has made the complainant an appropriate settlement offer but the complainant has not accepted or agreed to it’; and
- ‘AFCA has clarified in Rule A.15.3(b) that where a complainant does not accept a Determination neither the complainant or the financial firm are bound by AFCA’s decision’.
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Legislation – Final APRA levies determined
On 28 June 2024, the Australian Prudential Regulation Authority Supervisory Levies Determination 2024 (Cth) was registered on the Federal Register of Legislation. The determination sets out the levies that will be recovered from APRA-regulated entities (including superannuation trustees) for the 2024/25 financial year.
Click here for details.
APRA – Areas identified for improvement for CPS 190
On 28 June 2024, APRA published a summary of its ‘key early observations arising from a targeted thematic review of the superannuation industry’s preparedness for CPS 190’ (Recovery and Exit Planning). According to APRA, the following are key areas for improvement:
- ‘[e]arly warning indicators and trigger levels in the trigger framework should be more relevant to RSE licensees’ operating environment and risk profiles’;
- ‘[e]nhanced preparatory measures should be considered for recovery and exit options, together with an uplift in capability to reduce execution risk’; and
- ‘[p]roactive communication strategies should be implemented to support the effective execution of recovery and exit plans particularly in periods of stress’.
Click here for details.
ATO – Proposed amendments to ruling about who is an ‘employee’
On 26 June 2024, the ATO issued a draft version of proposed updates to Taxation Ruling 2023/4: Income tax and superannuation guarantee: who is an employee? (TR 2023/4). Superannuation Guarantee Ruling SGR 2005/1 Superannuation guarantee: who is an employee? was withdrawn in December 2022 and it is proposed that it will now be incorporated into TR 2023/4 as Appendix 2. The ruling explains who is an ‘employee’ for the purposes of the ‘obligation on a paying entity [under tax laws] to withhold an amount from salary, wages, commission, bonuses or allowances it pays to an employee, whether or not the paying entity is the employer’.
The consultation period closes on 9 August 2024.
Click here for details.
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