Welcome to the latest issue of the KHQ Super Alert. Parliament has had a busy week passing two superannuation Bills and introducing a further Bill to implement outstanding Royal Commission recommendations (which includes the ban on advice fees from MySuper products). ASIC has also deferred the start date for the portfolio holdings disclosure requirements.
ASIC – New RG 274 on design and distribution obligations
On 11 December 2020, ASIC released its new regulatory guide on product design and distribution obligations (RG 274) following a period of consultation.
According to ASIC’s media release, ‘[t]he design and distribution obligations require firms to design financial products to meet the needs of consumers, and to distribute their products in a more targeted manner. The obligations were passed by Parliament in 2019 following a recommendation of the Financial System Inquiry. RG 274 addresses demand from industry for ASIC guidance as they prepare for the obligations to take effect on 5 October 2021.’
RG 274 set out:
- the financial products to which the design and distribution obligations apply; and
- ASIC’s interpretation and administration of the obligations.
Click here for details.
Parliament – Bills in relation to miscellaneous Treasury laws
On 10 December 2020, the Treasury Laws Amendment (2020 Measures No. 6) Bill 2020 was passed by both Houses, after being introduced into Parliament on 2 December 2020. The Bill proposes to amend several Acts including:
- the Superannuation Guarantee (Administration) Act 1992:
- so ‘that the ordinary time earnings base is only reduced by an amount of excluded salary or wages if that amount has been included as part of the ordinary time earnings base’; and
- ‘to clarify that the only time a period is not to be counted as a period of employment as a result of that section is only when the amounts paid to an employee in that period are excluded salary or wages’;
- the Superannuation Industry (Supervision) Act 1993 to:
- ‘allow the trustee of a fund who offers a MySuper product to charge a greater number of differentiated investments fees to the different subclasses of members who hold the MySuper product’ (this relates to investment fees for lifecycle products under s 29VA(9));
- allow insurance elections to remain in force when undergoing a successor fund transfer; and
- make a small change to the definition of ‘member or beneficiary report’;
- the Superannuation (Unclaimed Money and Lost Members) Act 1999 to ‘provide that an account is not an ‘inactive low balance account’ if the member has elected to maintain insurance on that account’ under the SIS Act; and
- the Income Tax Assessment Act 1997 ‘to ensure that the market value substitution rule does not prevent the intended operation of the non-arm’s length income rules’ (which has an impact on superannuation assets).
On the same day, the Treasury Laws Amendment (2020 Measures No. 5) Bill 2020 was also passed by both Houses. This Bill amends the Income Tax Assessment Act 1997 and Superannuation (Unclaimed Money and Lost Members) Act 1999 ‘to facilitate the payment of unclaimed superannuation held by the [ATO] directly to New Zealand KiwiSaver schemes’. The commencement date of the legislation will be a day fixed by proclamation.
ASIC – Minor updates to RG for conflicted remuneration
On 10 December 2020, ASIC released an updated version of RG 246 ‘Conflicted and other banned remuneration’. The purpose of the update is to reflect:
- ‘the end of the grandfathering of conflicted remuneration for financial product advice from 1 January 2021’; and
- ‘the extension of the ban on conflicted remuneration to stamping fees paid in relation to listed investment companies and listed investment trusts (excluding real estate investment trusts) that took effect on 1 July 2020’.
Click here for details.
Parliament – New Bill in relation to Royal Commission recommendations
On 9 December 2020, the Financial Sector Reform (Hayne Royal Commission Response No. 2) Bill 2020 was introduced into the House of Representatives. The Bill proposes to implement four Royal Commission recommendations. These are:
- recommendation 2.1 – the Bill proposes to amend ‘the Corporations Act to require financial services providers that receive fees (fee recipients) under an ongoing fee arrangement to:
- provide clients with a single document each year which outlines the fees that will be charged and the services which the client will be entitled to in the following 12 months and which seeks annual renewal from clients for all ongoing fee arrangements; and
- obtain written consent before fees under an ongoing fee arrangement can be deducted from a client’s account’ (date of effect: 1 July 2021);
- recommendation 2.2 – the Bill proposes to amend ‘the Corporations Act to require…a financial services licensee or authorised representative [who is not acting independently]…to give a written disclosure of lack of independence where they are authorised to provide personal advice to a retail client’ (date of effect: 1 July 2021); and
- recommendations 3.2 and 3.3 – the Bill proposes to amend ‘the SIS Act to provide greater protection for superannuation members against paying fees for no service…[by increasing] the visibility of advice fees for all superannuation products and prohibit the charging of ongoing advice fees from MySuper products’ (date of effect: 1 July 2021, with a 12-month transitional period commencing 1 July 2021 for arrangements entered into before 1 July 2021).
In a related media release, the Treasurer welcomed the release of this Bill to bring about ‘a well regulated and vibrant financial advice sector’. He also announced that the Government will also implement recommendation 2.10 from the Royal Commission which ‘called for a single, central disciplinary body to be established for financial advisers’. This will be put in place by ‘expanding the operation of the Financial Services and Credit Panel (FSCP)’ within ASIC.
ASIC – Deferral of portfolio holdings disclosure requirements
On 8 December 2020, the ASIC Corporations (Amendment and Repeal) Instrument 2020/921 was registered on the Federal Register of Legislation. The instrument ‘extends the relief in ASIC Class Order [CO 14/443] from portfolio holdings disclosure (PHD) requirements in 1017BB(1) of the Corporations Act’ by extending the first reporting date for superannuation funds to 31 December 2021. This provision requires trustees to ‘make publicly available information identifying each investment item allocated to an investment option and information regarding the value of the investment items’.
In an associated media release, ASIC explained that it had deferred the first reporting date ‘because the regulations supporting the requirements have not yet been made’. Once the regulations are made, ‘ASIC may shorten the period of the relief by a further legislative instrument… [to] take into account the fact that industry will need an appropriate transition time to implement the regime’.
This Instrument also repeals ASIC Class Order 12/416 which has expired. It related to lodging ‘in-use’ notices to ASIC in relation to PDSs for employer-sponsored funds.
ASFA & AIST – Delay to Insurance in Superannuation Voluntary Code
On 3 December 2020, both ASFA and the AIST announced that end of the transition period for full implementation of the Insurance in Superannuation Voluntary Code would be delayed to 1 January 2022. The industry groups announced that, due to disruptions caused by COVID-19 and substantial legislative changes being introduced, parts of the Code were now outdated. Accordingly, the implementation date has been delayed in order to allow the regulatory framework for superannuation funds to settle.
Click here for details.