Super Alert – 26 November 2021

Welcome to the latest issue of the KHQ Super Alert. This week, APRA released a discussion paper on financial resilience, and its Deputy Chair, Helen Rowell, delivered a speech calling for greater innovation to improve post-retirement outcomes. Treasury published a report reviewing AFCA’s effectiveness and also released draft exposure legislation in relation to modernising business communications.

KHQ Lawyers - Super Alert

Treasury – Report into AFCA review published

On 24 November 2021, Treasury published its final report following its review of AFCA (Report). According to Treasury, the review ‘provided an opportunity to seek feedback on AFCA’s operation in its establishment phase, and to consider whether changes can be made to ensure the scheme is appropriately calibrated and operating effectively within the existing framework’. The Report makes 14 recommendations, with most focusing ‘on enhancements to AFCA’s transparency towards parties to a complaint, and improvements to decision making processes’.

In its response to the Report, the Government supported all 14 recommendations and is pleased that AFCA ‘is performing well and providing an effective dispute resolution service for consumers and small businesses’.

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APRA – Boards requested to improve their cyber resilience

On 23 November 2021, APRA issued a media release in relation to the ongoing need for boards to improve cyber resilience, particularly because ‘COVID-19 has led to a…material increase in cyber risk’. APRA highlights that it ‘recently completed two pilot initiatives…a technology resilience data collection, and an independent assessment of a pilot set of entities’ compliance with CPS 234’ as part of its ‘2020-2024 Cyber Security Strategy, announced in November 2020’.

According to APRA, the ‘insights gained from the two pilots, and from APRA’s supervisory activities, reinforce APRA’s view that boards need to strengthen their ability to oversee cyber resilience’. Importantly for trustees, ‘APRA expects boards to have the same level of confidence in reviewing and challenging information security issues as they do when governing other business issues’.

APRA also indicated its intention to ‘continue to roll out the CPS 234 independent assessment process for the remaining entities across the banking, superannuation and insurance industries’.

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APRA – Superannuation statistics for the September 2021 quarter released

On 23 November 2021, APRA ‘released its Quarterly Superannuation Performance publication and the Quarterly MySuper Statistics report for the September 2021 quarter’. Among other findings, ‘[superannuation] assets totalled $3.4 trillion at the end of the September 2021 [quarter]’ representing ‘a 17.5 per cent increase in the value of total superannuation assets over the past four quarters, maintaining the strong investment performance and positive contributions growth achieved over the year’.

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APRA – Deputy Chair Helen Rowell delivers speech in relation to improving post-retirement outcomes

On 22 November 2021, APRA published a speech recently delivered by APRA Deputy Chair, Helen Rowell. Ms Rowell noted that despite the fact that ‘the superannuation industry has grown into a financial behemoth…the post-retirement phase remains very much a fledgling’ and the ‘development of the Government’s retirement income covenant demonstrates growing recognition that trustees must focus on the retirement income needs of members’.

Ms Rowell also cited the Retirement Income Review, which noted that ‘many people die with the bulk of their life savings intact’, evidencing the fact ‘that retirees often lack the necessary guidance or options to help them effectively manage their nest egg, and so often are more frugal than needed in their retirement spending for fear of running out’.

In light of the failure of our retirement system to reach its full potential, Ms Rowell views the post-retirement income space as ‘ripe for good innovation’, noting that ‘[there] are many potential providers that can help address this gap in the market – but it needs superannuation entities, life insurers, investment managers and other players to work together’.

Ms Rowell also suggested that the retirement income covenant, which seeks to push ‘trustees to think more seriously about this missing piece of the retirement puzzle’ is expected to ‘drive demand for, and development of, new solutions for retiring members. In a highly competitive super landscape, the ability for a fund to offer a higher quality member service – and generate income at the same time – could be an important point of difference for those trustees seeking an edge on their competitors’.

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APRA – Discussion paper on maintaining financial resilience released

On 19 November 2021, APRA ‘released a discussion paper seeking feedback from superannuation trustees and other industry stakeholders on the current and emerging approaches for RSE licensees to maintain the financial resilience needed to protect members’ best financial interests’. APRA is particularly interested in gaining ‘further insights on sources of funding for RSE licensees, the use of the operational risk financial requirement (ORFR), reserving practices, protections afforded to trustees via insurance, provisioning for contingency expenditure items, and how these might need to adapt over time’.

The discussion paper also specifically deals with the difficulties faced by trustees without their own capital in light of the Financial Sector Reform (Royal Commission Response) Act 2020 which commences on 1 January 2022. The reforms extend existing prohibitions in the SIS Act which prevent indemnification from trust assets to pay an increased number of penalties which may be incurred for contravening Commonwealth law. In the paper, APRA states that while it expects industry to improve practices to avoid non-compliance with the RSE licensee’s obligations, ‘it is important to plan for circumstances where RSE licensees are faced with a penalty for which they do not have recourse to assets of their fund.’

Submissions close on 11 March 2022, and APRA has requested RSE licensees provide their submissions ‘as an ad hoc return through APRA Connect’.

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Treasury – Consultation in relation to modernising business communications Bill 

On 19 November 2021, the Government released for public consultation a package of documents supporting the Treasury Laws Amendment (Modernising Business Communications) Bill 2021 (Cth) (Bill).

The Bill proposes amendments that:

  • expand ‘the scope of the global regimes that allow documents to be signed and sent electronically in the Corporations Amendment Bill’;
  • provide ‘relief for companies, registered schemes and disclosing entities sending documents to ‘lost members’ under the Corporations Act 2001’;
  • allow ‘notices published in newspapers to be published in any accessible and reasonably prominent manner across Treasury portfolio laws’; and
  • update ‘payment provisions in Treasury legislation to ensure electronic payments can be made’.

The consultation period ends on 10 December 2021.

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AFCA – New platform to improve dispute resolution released

On 19 November 2021, AFCA issued a media release in relation to its new dispute resolution platform. According to AFCA, ‘[the] new AFCA Member Benchmarking Dashboard is an interactive platform for financial firms that provides near real-time complaints data – updated daily – and gives individual firms a greater understanding of their complaints’. Mr Locke, AFCA CEO and Chief Ombudsman, stated that through the dashboard, ‘AFCA members can investigate the types of complaints they receive, how well they respond to disputes, and how their performance compares to other firms in the industry’.

AFCA notes that ‘[the] dashboard will be released to AFCA members in phases during November and December’.

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