Welcome to the latest issue of the KHQ Super Alert. In this busy week, the regulations which give effect to the Your Future, Your Super reforms were registered. The ATO issued a draft determination in relation to the stapled fund rules and APRA has outlined its expectations for implementation of the Your Future, Your Super reforms.
Legislation – Your Future, Your Super regulations registered
On 5 August 2021, the following set of regulations relating to the Your Future, Your Super reforms, were registered on the Federal Register of Legislation:
- Superannuation Industry (Supervision) Amendment (Your Future, Your Super—Improving Accountability and Member Outcomes) Regulations 2021;
- Treasury Laws Amendment (Your Future, Your Super—Addressing Underperformance in Superannuation) Regulations 2021; and
- Treasury Laws Amendment (Your Future, Your Super—Single Default Account) Regulations 2021.
Click here, here and here and for details.
Parliament – Bill to provide temporary ministerial power in relation to document execution
On 5 August 2021, the Treasury Laws Amendment (COVID-19 Economic Response No. 2) Bill 2021 was considered by the Senate after being introduced into (and passed by) the House of Representatives on 3 August. Amongst other things, the Bill amends the Coronavirus Economic Response Package Omnibus (Measures No. 2) Act 2020 ‘to reinstate a temporary mechanism for ministers to change arrangements relating to meeting information and document requirements under Commonwealth legislation, including requirements to give information and produce, witness and sign documents, in response to the challenges posed by COVID-19’. This temporary power expired on 31 December 2020 but is proposed to now have effect until 31 December 2022.
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ASIC – Quarterly report
On 4 August 2021, ASIC published its second quarterly industry update report, which covers the period from 1 April to 30 June 2021. In the report, ASIC explains that its focus has been on the preparation work which entities should be undertaking for the upcoming internal dispute resolution changes and product design and distribution obligations.
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Federal Court – Decision in relation to the ‘efficiently, honestly, fairly‘ duty
On 2 August 2021, the Federal Court handed down its decision in Australian Securities and Investments Commission v RI Advice Group Pty Ltd (No 2) [2021] FCA 877. These proceedings were commenced by ASIC following a Royal Commission case study into the conduct of a financial adviser, and the supervision of the adviser’s conduct by the relevant AFSL holder. ASIC alleged that the AFSL holder had failed to take reasonable steps to ensure that the adviser complied with their best interests obligations in the Corporations Act.
The Federal Court ultimately agreed with ASIC and made the following limited comments in relation to the section 912A(1)(a) duty:
- the principles stated in Australian Securities and Investments Commission v Westpac Securities Administration Ltd (2019) 272 FCR 170 and Australian Securities and Investments Commission v AGM Markets Pty Ltd (In Liq) (No 3) (2020) 275 FCR 57 apply to any considerations about the breadth of section 912A(1)(a); and
- the provision is not limited to comprehending ‘conduct of the licensee that is morally wrong in the commercial sense’.
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ATO – Draft determinations in relation to stapled fund rules
On 2 August 2021, the ATO released the following two draft determinations in relation to the upcoming stapled fund rules which apply from 1 November 2021:
- SPR 2021/D1: Superannuation Guarantee (Administration) – choice of fund – written guidelines for the reduction of an increase in an employer’s individual superannuation guarantee shortfall determination 2021 – This determination sets out the guidelines the ATO ‘must have regard to for the purpose of subsection 19(2E) of the Superannuation Guarantee (Administration) Act 1992 (SGAA) in deciding the level of reduction to apply to an increase in an employer’s individual superannuation guarantee shortfall under subsection 19(2A)’; and
- SPR 2021/D2: Superannuation Guarantee (Administration) – stapled fund – guidelines for the reduction of an employer’s individual superannuation guarantee shortfall for late contributions due to non-acceptance by notified stapled fund determination 2021 – This determination ‘applies to decisions by the [ATO] about whether or not to reduce an employer’s individual superannuation guarantee shortfall (shortfall) for an employee for a quarter for the purposes of subsection 19(2F) of the [SGAA] where the conditions in subsection 19(2G) of the SGAA apply’.
The ATO is seeking comments on the draft determinations by 16 August 2021.
ASIC – Report in relation to TPD claims review
On 2 August 2021, ASIC released Report 696 titled ‘TPD insurance: Progress made but gaps remain’. The report ‘focuses on how insurers in particular are addressing the issues identified in ASIC’s Report 633 Holes in the safety net: A review of TPD insurance claims’. ASIC has considered the steps taken by all nine major insurers in relation to their TPD cover offering.
According to ASIC, all insurers:
- ‘have started reviewing restrictive TPD definitions (such as the ‘activities of daily living’ disability test)’;
- ‘are working with trustees for insurance in superannuation – some have made changes to policy wording’; and
- ‘have improved some claims handling practices (such as reducing the length of claim forms and tightening controls around requests for information), which should lower hurdles for claimants’.
The report includes a list of steps which superannuation trustees should consider taking as they have ‘a key role to play in making improvements to consumer outcomes in relation to TPD insurance’. For example, ‘trustees need to act efficiently, honestly and fairly, including when handling and settling insurance claims…[and] need to do everything that is reasonable to pursue a member’s insurance claim, if the claim has a reasonable prospect of success’. As a result of these responsibilities ‘trustees should proactively address hurdles that members face when making a claim – trustees are better placed than insurers to see the members’ entire journey from obtaining cover to claim decision’.
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ASIC – Civil proceedings for failure to cooperate with AFCA
On 2 August 2021, ASIC announced that it had commenced civil penalty proceedings against an entity for ‘failing to take reasonable steps to cooperate’ with AFCA. An AFCA determination was made against the entity and it is alleged that the entity ‘repeatedly engaged in disruptive, aggressive and uncooperative behaviour toward AFCA, with the intent of disrupting AFCA’s complaints handling and investigation processes and undermining the effectiveness, efficiency and fundamental principles of the AFCA Scheme’.
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APRA – Your Future, Your Super implementation expectations
On 30 July 2021, APRA published a letter which was sent to all trustees in relation to its expectations for the implementation of the Your Future, Your Super reforms. In relation to the best financial interests duty, APRA expects trustee to have already:
- ‘taken immediate steps to initiate changes to practices where necessary, to meet the new legal obligations’; and
- ‘reviewed internal frameworks, policies and processes to identify and address areas that need to be strengthened in light of the reforms’.
In relation to the performance test, APRA will undertake the first performance test for MySuper products shortly ‘and notify RSE licensees of their results by 31 August 2021’. Some trustees may hear from APRA shortly where APRA intends ‘to combine the performance of two or more of their products and assess them as one product in the performance test’.
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Parliament – Senate Committee report in relation to single disciplinary body for financial advisers
On 30 July 2021, the Senate Economics Legislation Committee finalised its report in relation to the Financial Sector Reform (Hayne Royal Commission Response—Better Advice) Bill 2021. As referred to in our Super Alert of 25 June 2021, the Bill proposes to, amongst other things, introduce ‘a single registration and disciplinary system under the Corporations Act for financial advisers who provide tax (financial) advice services’.
The Committee advised that across the 16 submissions received, there was ‘generally support for the bill and the wind-up of the Financial Adviser Standards and Ethics Authority (FASEA)’. The Committee recommended that the government conduct a review of the new disciplinary body ‘two years after the legislation comes into effect’ and that the Bill be passed.
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