Welcome to the latest issue of the KHQ Super Alert. This week’s news includes the passage of the retirement income covenant, disallowance of proxy advice regulations, a House of Representatives committee hearing regarding so-called superannuation ‘war chests’ and a Senate committee public hearing in relation to the Financial Accountability Regime Bill 2021.
Parliament – Legislation introducing the retirement income covenant passed
On 10 February 2022, the Corporate Collective Investment Vehicle Framework and Other Measures Bill 2021 (Bill) was passed by both Houses of Parliament (after having gone through a Senate Economics Legislation Committee process which recommended the Bill’s passage).
As referred to in our Super Alert of 21 January 2022, the Bill inserts a retirement income covenant into the SIS Act. Amongst other things, the Bill will also:
- ‘establish the regulatory and tax frameworks of [Corporate Collective Investment Vehicles (CCIVs)]’;
- ‘amend corporate and financial services law to establish a CCIV as a new type of a company limited by shares that is used for funds management’; and
- amend ‘the taxation law to specify the tax treatment for the CCIV…to ensure that the CCIV is taxed on a flow-through basis’.
Most changes are intended to commence on 1 July 2022.
Click here and here for details.
Parliament – Proxy advice regulations disallowed
On 10 February 2022, the Treasury Laws Amendment (Greater Transparency of Proxy Advice) Regulations 2021 were subject to a motion to disallow (the entire instrument) by the Senate. The motion was agreed to.
As referred to in our Super Alert of 21 January 2022, the regulations:
- amended the Corporations Regulations 2001 to (amongst other things) specify ‘circumstances in which voting advice is proxy advice (a kind of financial service)’; and
- amended the SIS Regulations 1994 ‘to expand the range of information that Registrable Superannuation Entity (RSE) licensees must make publicly available on the [RSE’s] website to include a summary of how voting rights attaching to shares in listed companies that the trustee of the [RSE] holds, or in which the trustee holds beneficial interests, have been exercised’.
These obligations will no longer apply.
Click here and here for details.
Parliament – House of Representatives Standing Committee on Economics – trustee remuneration and APRA’s opening statement
On 10 February 2022, the House of Representatives Standing Committee on Economics held a public hearing in relation to ‘the impact of recent amendments made to the Superannuation Industry (Supervision) Act 1993. This public hearing is part of the committee’s ongoing Review of the Four Major Banks and other Financial Institutions, with the committee to hear from Australian Prudential Regulation Authority (APRA), Australian Securities & Investments Commission (ASIC), Treasury, and Professor Scott Donald’.’
The focus was on funding mechanisms for superannuation fund trustees paying fines.
Although the full transcript of the hearing should be published in due course, APRA separately published the opening statement made by its Executive Board Member Margaret Cole to the Committee.
Ms Cole essentially noted support for trustee remuneration, saying that:
- ‘[in] late 2021, several RSE licensees applied to the various state Courts for advice and direction regarding amending their trust deeds to enable the charging of fees, with the view of building a financial contingency reserve on the trustee balance sheet’;
- ‘APRA does not have a ‘zero failure’ tolerance’ and does not believe that it ‘should protect trustees in all circumstances but consistent with [its] mandate, failure must be orderly in order to protect beneficiaries and financial system stability’; and
- ‘without the ability to build and maintain a risk reserve an otherwise well run and well performing trustee could be rendered insolvent by a minor operational administrative error, such as submitting data one day late’.
Click here and here for details.
ATO – SuperMatch compliance reminder
On 7 February 2022, the ATO issued a reminder to trustees that in order to ‘comply with the terms and conditions of use for SuperMatch…[they] must email [their fund’s] annual statement of compliance’ to the ATO by 28 February 2022. The statement must include several matters which are listed in the link below, and needs to be made by the ‘trustee, or an appropriate qualified senior officer of the fund – for example, a Chief Risk Officer’.
Federal Court – Decision in relation to lack of substance complaints
On 4 February 2022, the Full Court of the Federal Court handed down its decision in Riseley v Suncorp Portfolio Services Ltd [2022] FCAFC 8. The appellants were two members of the same superannuation fund. They brought two complaints to the Superannuation Complaints Tribunal (Tribunal) claiming that they were entitled to death and TPD insurance, rather than death only insurance. The Tribunal withdrew both claims, pursuant to section 22(3)(b) of the Superannuation (Resolution of Complaints) Act 1993 (Act), on the basis that they lacked substance. The primary judge affirmed the Tribunal’s decision, finding that no error had been demonstrated in its decision.
The appeal against the primary judge’s decision to the Full Court turned on whether there is a hierarchy of tasks for the Tribunal to undertake under the Act, and on the proper construction of section 22(3)(b) of the Act. Ultimately, the Full Court dismissed the appeal, holding that the level of the Tribunal’s inquiry was consistent with the Act.
Click here for details.
ATO – Draft determination in relation to transaction reporting exemptions
On 4 February 2022, the ATO issued a draft determination known as ‘TPRE 2022/D2: Taxation Administration: Classes of Electronic Payment System Transactions Exempt from Being Reported in Third Party Reports Determination 2022’ (Determination). The Determination will replace the current legislative instrument known as ‘Classes of Electronic Payment System Transactions Exempt from Being Reported in Third Party Reports Determination 2021’, which currently excludes payments made to superannuation funds from certain ATO reporting requirements.
The consultation period closes on 4 March 2022. The ATO intends for the Determination to take retrospective effect from 1 March 2021.
Federal Court – Decision in relation to authority of AFCA
On 27 January 2022, the Federal Court handed down its decision in relation to MetLife Insurance Limited v Australian Financial Complaints Authority [2022] FCA 23. The case concerned two complaints brought by a member relating to two separate insurance policies. One complaint had been brought in 2017 to the Financial Industry Ombudsman Service, while the other was made in 2018 to AFCA once it was established. The case from the Financial Industry Ombudsman Service was transferred to AFCA in 2018. AFCA determined both complaints adversely to the insurer.
The Court was required to consider the application of section 1053(1) of the Corporations Act 2001 in relation to the meaning of complaints relating to superannuation. The insurer’s case was that it was directed to the conduct of an insurer and therefore not a superannuation complaint because it was not a complaint about the conduct of a superannuation trustee. The Court ultimately determined that AFCA had authority to make the determinations in respect of the two complaints.
Click here for details.
Parliament – Senate committee inquiry into the FAR and CSLR bills
On 27 January 2022, the Senate Economics Legislation Committee held a public hearing in relation the Financial Accountability Regime Bill 2021 (Bill) (and other related bills). The transcript of the hearing is available at the link below. Amongst the appearing witnesses were Mr Glen McCrea, Deputy CEO of ASFA, and Dr Lisa Butler Beatty, Chair of the Superannuation Committee of the Law Council of Australia.
Mr McCrea expressed:
- ‘concern that the definition of ‘significant related entities’ may be too broad and may inadvertently capture parent companies, even when they are not AFSL-regulated by APRA or ASIC’; and
- concern ‘about the current misalignment between the requirements of the FAR legislation and APRA’s CPS 511’ and that ASFA considers ‘that this needs to be actively addressed’.
Dr Butler Beatty noted:
- the ‘significant regulatory overlap’ that will exist given there are already extensive obligations on both RSE licensees and directors under legislation; and
- that ‘for a fund that is intending to merge…the added regulatory burden of…complying with the FAR obligations adds probably unnecessary cost’ which ‘is ultimately borne by members’, and Dr Butler Beaty therefore suggested that ‘there be a power to exempt’ these funds.
Click here for details.
