Super Alert – 2 December 2022: Financial sector Reform Bill passes; CPS 234 requirements; SDT project; AFCA death benefit determination


Posted By and on 2/12/22 at 1:54 PM

Welcome to the latest issue of the KHQ Super Alert. It was a big week in Parliament this week with four Bills passed and awaiting Royal Assent, and the regulations for Annual Members’ Meeting notices being subject to another two disallowance motions. Among a range of other developments, APRA has reminded entities to ensure they’re meeting the requirements of CPS 234 and has challenged trustee boards to be ‘high performing’.

Parliament – Financial Sector Reform Bill passed

On 2 December 2022, the Financial Sector Reform Bill 2022 passed both Houses of Parliament and now waits for Royal Assent. Several amendments were proposed by the Senate which the House of Representatives agreed to. This Bill was initially packaged with the Financial Accountability Regime Bill 2022 (FAR Bill), Financial Services Compensation Scheme of Last Resort Levy Bill 2022 and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 (collectively the, CSLR Bills) all of which are still before Parliament. The amendments relate to severing the connection between this Bill, the FAR Bill and the CSLR Bills ‘to enable the Government to consult further on the amendments without hindering the progression of other measures in the Bill’. Only the amendments relating to consumer credit reforms remain in this Bill.

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APRA – Speech on building a better regulatory future

On 1 December 2022, APRA released a speech by its Executive Director Policy and Advice Division Renée Roberts which outlined APRA’s approach to modernising the prudential architecture to ‘make the framework clearer, simpler and more adaptable’. Ms Roberts said APRA ‘will be clearer in how [they] develop and present the prudential standards, guidance and advice’, ‘will seek to make the framework that houses them as simple, straightforward and accessible as possible’, and will ensure ‘standards and guidance’ can be ‘adapted to keep pace with industry practice and emerging risks’.

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APRA – Final CPS 190 issued

On 1 December 2022, APRA issued the final version of Prudential Standard CPS 190 Recovery and Exit Planning (CPS 190), and a ‘response letter to the consultation on the draft standard’ (see our 3 December 2021 and 9 September 2022 Super Alerts). CPS 190 comes into effect on 1 January 2025 for RSE licensees.

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APRA – More industry roadmaps for the SDT project

On 1 December 2022, APRA released a response paper to feedback received on its ‘Direction for data collections’ discussion paper (released March 2022 – see our Super Alert of 1 April 2022), which outlines its ‘changing approach to data collection’ and an ‘implementation roadmap for each industry’. This response paper ‘covers a range of issues relating to the impact of intended changes’ and ‘more detailed industry roadmaps’ which for superannuation, include timelines for the superannuation data transformation project and various cross-industry reports.

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APRA – Released climate vulnerability findings

On 30 November 2022, APRA released its ‘aggregated findings of its first Climate Vulnerability Assessment (CVA) of Australia’s five largest banks’. APRA has urged superannuation trustees to ‘examine the CVA findings’ and ‘leverage the insights to enhance their own climate risk analysis and management’. Meanwhile, APRA will ‘consider how the experience gained from the CVA’ can be applied to ‘climate-related challenges’ faced by other industries.

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ASIC – Results of surveillance on marketing by managed funds

 On 30 November 2022, ASIC issued a media release in relation to its ongoing surveillance of marketing by managed funds. ASIC has ‘identified concerns with the marketing of five funds and the oversight of this marketing by four responsible entities during its ongoing surveillance’. This follows the 13 entities identified in ASICs surveillance earlier this year (see our 9 September 2022 Super Alert).

According to ASIC, it ‘was concerned that the representations made were not consistent with long-standing regulatory guidance that:

  • projected fund performance must be reasonable and include prominent and proximate qualification or warnings;
  • promotion of fund benefits requires prominent and proximate balancing risk disclosure;
  • comparisons of funds with other products must be appropriate and reasonable; or
  • recommendations should be attributed and testimonials should be appropriate and reasonable’.

ASIC Deputy Chair Karen Chester said ‘[w]e expect responsible entities to meaningfully supervise their funds management business…to monitor, supervise and ultimately approve the fund’s marketing to investors to ensure that it is accurate and reliable’.

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Federal Court – Appeal in relation to AFCA death benefit determination

On 29 November 2022, the Full Court of the Federal Court of Australia handed down its judgement in Wan v BT Funds Management Limited [2022] FCAFC 189. This judgement arose from an appeal of an earlier decision by the Federal Court as referred to in our Super Alert of 1 April 2022. The case concerned a complainant’s appeal of an AFCA determination and whether the determination was occasioned by any legal error. AFCA had reviewed the trustee’s decision to pay a death benefit to certain beneficiaries and ultimately determined that the trustee’s decision was fair and reasonable. The Full Court of the Federal Court dismissed the appeal and ultimately determined that AFCA made no legal error in finding that the trustee’s decision was within power and fair and reasonable in effect.

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Parliament – Penalty unit increase awaiting Royal Assent

On 28 November 2022, the Crimes Amendment (Penalty Unit) Bill 2022 completed its passage through Parliament and is awaiting Royal Assent. As mentioned in our 11 November 2022 Super Alert, this Bill increases the value of the Commonwealth penalty unit from $222 to $275 from 1 January 2023.

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Parliament – Proposed amendments to performance test for faith-based products removed

On 28 November 2022, the Treasury Laws Amendment (2022 Measures No. 3) Bill 2022 was passed by the Senate and is now awaiting Royal Assent. Relevantly for superannuation, this Bill as originally introduced contained a proposed modification to the Your Future Your Super (YFYS) performance test for faith-based products (see our 16 September 2022, 9 September 2022 and 22 July 2022 Super Alerts). As mentioned in our 25 November 2022 Super Alert, several parties on the Senate Economics Legislation Committee recommended the proposed modifications to the performance test for faith-based products be postponed and form part of the broader YFYS review. Thus, these proposed amendments were removed from the Bill prior to it being passed.  The Supplementary Explanatory Memorandum indicates these changes will form part of the broader YFYS review as announced in our 9 September 2022 Super Alert.

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Parliament – Bill to increase maximum penalties for breaches of privacy laws passed

On 28 November 2022, the Privacy Legislation Amendment (Enforcement and Other Measures) Bill 2022 was passed by the Senate and is now awaiting Royal Assent. As mentioned in our 25 November 2022 and 28 October 2022 Super Alerts, this Bill will increase the maximum penalties for serious or repeated breaches of privacy laws. This Act will commence the day after it receives Royal Assent.

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Parliament – Bill reducing eligibility age for downsizer contributions passed

On 28 November 2022, the Treasury Laws Amendment (2022 Measures No. 2) Bill 2022 was passed by the Senate without amendments. This Bill amends the Income Tax Assessment Act 1997 to reduce the eligibility age for downsizer contributions from 60 years to 55 years. As mentioned in our 7 October 2022 Super Alert, amendments to facilitate this reform were also made to the Retirement Savings Accounts Regulations 1997 and the Superannuation Industry (Supervision) Regulations 1994 by an earlier regulation.

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APRA – Speech on superannuation trustee board governance

On 28 November 2022, APRA published a speech given by APRA Deputy Chair Margaret Cole, the focus of which was on superannuation board governance. In her speech, Ms Cole said ‘[b]oards have to be robust, diverse and high performing’ to navigate the complex operating environment in which super funds exist and deliver best outcomes for members.

Ms Cole spoke about what it means to be a high performing board by improving ‘board renewal strategies’, shortening director tenure, ensuring the board has a diverse composition and ensuring there is a ‘well-considered succession plan’.  The speech emphasised that, ‘a tell-tale characteristic of a highly functioning board is the ability to make your boardroom a safe place for directors to challenge the status quo or voice contrarian views, without fear. This “psychological safety” is critical to robust decision-making’.

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APRA – Reminder to meet CPS 234 requirements

On 28 November 2022, APRA issued a media release in relation to the recent Medibank cyber breach.  APRA has reminded all regulated entities to ‘remain vigilant’ and ensure they are meeting the requirements of Information Security Prudential Standard CPS 234.

APRA Member Suzanne Smith said ‘[r]ecent cyber-attacks reinforce the need for ongoing vigilance and focus by boards on operational resilience. They are a stark reminder for boards to ensure they can answer these fundamental questions: Do you know what data you are holding? Do you know where it is? How do you know it is safe? And do you need to retain it?’.

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Parliament – proposed civil penalty provisions for the FAR Bill

On 24 November 2022, two Senators circulated proposed amendments to the Financial Accountability Regime Bill 2022 (FAR Bill). The FAR Bill, along with the Financial Sector Reform Bill 2022 will, if passed, implement the Financial Accountability Regime for the superannuation industry (see our 9 September 2022 Super Alert). These Bills are currently before the Senate.

The amendments proposed include civil penalties that would apply to accountable persons (at an individual level), a prohibition on accountable entities indemnifying an accountable person against the consequences of breaching an obligation under the FAR Bill and adding an exemption-making power for the relevant Minister.

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Parliament – Regulations amending Annual Members’ Meeting notices in the hotseat again

On 21 November and 23 November 2022, two further disallowance motions were brought by separate Senators, moving that the Superannuation Industry (Supervision) Amendment (Annual Members’ Meetings Notices) Regulations 2022 be disallowed. These motions will likely extend into February 2023.

As reported in our Super Alert of 9 September 2022, these regulations amend the disclosure requirements relating to expenditure in annual members’ meeting notices. They were registered on the Federal Register of Legislation on 2 September 2022, before being subject to a disallowance motion on 6 September 2022 (see our 16 September 2022 Super Alert) which was subsequently negatived in the Senate on 25 October 2022 (see our 28 October 2022 Super Alert).

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This alert was written by Kiara Leslie (Lawyer), Sanela Osmanovic (Senior Associate), and Natalie Cambrell (Director).

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KHQ Lawyers - Sanela Osmanovic

Sanela Osmanovic Senior Associate

Sanela is a Senior Associate in our Superannuation & Financial Services team, and has a broad range of experience working with a range of superannuation fund trustees... Read More

KHQ Lawyers - Natalie Cambrell

Natalie Cambrell Director

Natalie leads our Superannuation & Financial Services team. With more than 25 years’ experience, she has an enviable reputation for her in-depth knowledge in these highly regulated and complex... Read More