Welcome to this week’s issue of the KHQ Super Alert.The main item this week is the Federal Court’s judgement about the application of the fairness and honesty requirements in the Corporations Act for financial services. ASIC and the ATO have also provided additional COVID-19 updates.
ASIC – COVID-19 FAQ update
On 10 July 2020, ASIC added an additional question and response to its COVID-19 frequently asked questions for superannuation trustees. The additional question is ‘What does ASIC expect of trustees in communicating to their members about the impact of COVID-19 on their insurance inside superannuation?’. ASIC recommends that trustees disclose additional information about:
- ‘whether loss of employment or reduced work hours results in loss of cover, or a different level of cover, or changes to how insurance claims will be assessed’;
- ‘relevant rules around cessation of insurance (for example, in relation to minimum account balance or ongoing contributions requirements), including what options members have regarding reinstatement of cover if members lose their insurance’;
- ‘whether any pandemic clauses might apply and if so, what the effect of that is’; and
- ‘how members can access additional support or information when they’re making a claim’.
Click here for details.
Federal Court case – meaning of conduct ‘in relation to’ financial services
On 13 July 2020, the Federal Court of Australia handed down its judgement in Australian Securities and Investments Commission v Hutchinson  FCA 978. In June 2017, ASIC permanently prohibited Mr Hutchinson from providing financial services. ASIC relied on evidence that Mr Hutchinson double charged clients and received client payments directly to his personal bank account. The basis for ASIC’s ban was that Mr Hutchinson ‘failed to comply with a financial services law in that he engaged in dishonest conduct in relation to a financial product or service’.
Mr Hutchinson appealed ASIC’s determination to the Administrative Appeals Tribunal (Tribunal). The Tribunal decided in favour of Mr Hutchinson and set aside ASIC’s ban. The Tribunal determined that Mr Hutchinson’s conduct was not ‘directly and substantially related to [a] financial product or service’ so it was not open to ASIC to make the banning order. Rather, the Tribunal determined that receiving client payments to a personal bank account, while dishonest, was in ‘the broader context of dishonesty in the carrying on of a financial services business which does not impact the consumer or investor’ (and it considered consumer protection to be the focus of the legislation).
ASIC appealed the Tribunal’s decision to the Federal Court. The Court was required to consider the meaning of the words ‘in relation to’ in the relevant provisions of the Corporations Act 2001 (Cth). It found that ‘an indirect or less than substantial connection [was] sufficient’ to satisfy the requirements and that the Tribunal’s narrow interpretation should not be adopted. The Federal Court decided in favour of ASIC and has remitted the matter to the Tribunal for determination according to the Court’s principles.
Click here for more details.
ATO – COVID-19 early release data files
On 14 July 2020, the ATO issued CRT 034/2020: ‘Coronavirus early release of super – data files’. According to the ATO, it has added enhancements to the early release files to ‘ensure files continue to be available to funds by 11am each business day’.
ATO update – application of remedial powers
On 15 July 2020, the ATO updated its guidance titled ‘When the Commissioner’s remedial power has been considered but not applied’. In relation to superannuation, the following two circumstances are listed:
- ‘excess non-concessional superannuation contributions – consideration of a proposed alternative associated earnings formula’; and
- ‘the provision of transitional capital gains tax (CGT) relief for unsegregated super funds’.
Click here for more details.