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The Australian Prudential Regulation Authority has responded to industry feedback on its member outcome requirements, notably around fund performance criteria and the timeline for its guidance on business performance reviews.
Revised member outcome requirements – released yesterday - align Prudential Standard SPS 515 Strategic Planning and Member Outcomes with the legislated ‘outcomes assessment’.
SPS 515 continues to require funds to both assess past performance and be forward-looking in identifying improvements to enhance sound prudential management and drive the sustainable quality outcomes for members.
On the issue of fund performance criteria, APRA has clarified that an RSE licensee is not required to specify numerical weightings to each element of the outcomes assessment. The intent is for an RSE licensee to describe how it has balanced results from its comparison to other products with the requirement to assess whether it is promoting the financial interest of members.
AIST welcomes this change, having highlighted in our submission that APRA’s original terminology ‘relative weight’ unnecessarily diminished the role of promoting the financial interests of beneficiaries.
APRA says its work on performance benchmarking and data collection will be a priority, aligned with other initiatives that require legislation (such as Choice product dashboards).
However, the regulator is not yet setting specific product benchmarks for the legislated outcomes assessment under SPS 515, as it believes improvements in fund data reporting have to be made.
AIST has long called for the development of industry benchmarks, better data collection and for truly comparable data, and is pleased APRA is taking concrete steps to fulfil recommendations from the regulator’s recent Capability review. We remain concerned that its data collection initiatives are already four years behind schedule, and only likely to be implemented by the end of next year.
Similarly, while APRA is releasing a publication detailing an assessment of superannuation industry performance later this year, it will have an initial focus on MySuper products. APRA has provided no indication of the timetable for Choice products.
APRA has also substantially revised prudential practice guide SPG 516 Business Performance Review (SPG 516), which was released yesterday for consultation until 10 October. This guidance is due to be finalised by December.
APRA has maintained a 1 January 2020 commencement date for SPS 515 but has also amended SPS 515 to provide that funds do not need to consider the results of the legislated outcomes assessment in undertaking their first business performance review (BPR).
APRA supervisors will continue to engage with RSE licensees over the second half of 2019 on their preparations for commencement of SPS 515 on 1 January 2020.
New figures out this week show the dominance of profit-to-member super funds in the wake of the Royal Commission as the exodus from retail funds continues.
Statistics released by the Australian Prudential Regulation Authority (APRA), show a surge in the assets managed by both industry and public-sector funds, while there has been virtually no growth in the retail fund sector.
The difference in contribution inflows are stark between the sectors, with retail funds net contributions in the year to June 30, declining by more than $27 billion compared to the previously year.
Meanwhile, inflows to public sector funds rose by nearly $18 billion, and inflows to industry funds were up by $8 billion.
In the year to June 30, assets managed by industry funds grew by $87.3 billion, or 13.8 per cent, while public-sector funds grew by 10 per cent to $48.5 billion.
By contrast, assets managed by the retail fund sector grew by less than 0.51 per cent of just $3.2 billion. The contrast was most significant in the last quarter to June 30, this year.
The Australian Securities and Investments Commission (ASIC) has released its corporate plan for the next four years, with an emphasis on improving governance and culture across the financial industry in the wake of the Financial Services Royal Commission.
The Corporate Plan 2019-2023 outlines key approaches to industry regulation, supervision and enforcement, with a focus on:
Regarding superannuation, ASIC noted the industry is undergoing heightened scrutiny from regulators on underperforming funds.
ASIC has prioritised taking decisive regulatory and enforcement action to deter misconduct and supporting relevant legislative reforms. This includes supervision and surveillance of superannuation trustees to ensure they act in the best interest of consumers.
ASIC has also flagged they will be enhancing communication to superannuation trustees.
Additional relevant projects include the newly established Office of Enforcement; improving transparency across the industry; ending grandfathered commissions; improving quality of financial advice and revising training of financial product advisers.
The role of super fund boards in determining fund staff remuneration is a key focus of the Australian Prudential Regulations Authority’s (APRA) consultation paper on remuneration.
The APRA paper - released for consultation late last month - concerns the creation of a new prudential standard (Prudential Standard CPS 511 Remuneration) in response to the FSRC and APRA’s own reviews.
The Standard is aimed at strengthening remuneration requirements across all APRA-regulated entities in the superannuation, banking and insurance industries.
The stepped-up focus on remuneration follows commentary and recommendations from the Hayne Royal Commission about the role that remuneration structures had in driving misconduct, as well as findings from APRA’s own capability review. These found that many remuneration frameworks and practices did not consistently encourage behaviour supporting effective risk management including of non-financial risks or the reduction of the risk of misconduct.
Below is an outline of key timeframes for consultation
23 October 2019
APRA intends to publish response to submissions
APRA intends to issue final prudential standard
Late 2019 or early 2020
In advance of the commencement date, APRA expects regulated entities will review their existing remuneration frameworks so that they are consistent with the spirit and intent of the new standard once the final version is released.
Prior to effective date of CPS 511
APRA expects new CPS 511 to come into effect
1 July 2021
APRA intends to propose additional requirements for reporting and public disclosure of executive remuneration
Consultation will follow draft CPS 511 consultation
Applying BEAR to superannuation funds
Recommendation of the Royal Commission.
In March 2019, APRA wrote to all RSEs advising them to get ready for BEAR. APRA has indicated that consultations regarding BEAR will commence very soon and is likely to be implemented quickly. Therefore, APRA is encouraging trustees commence being ready prior to legislation being in place.
For member input into AIST’s submission, please contact AIST’s senior policy analyst, Karen Volpato at firstname.lastname@example.org
More than ten superannuation funds joined forces last week with AIST CEO Eva Scheerlinck, as well as key representatives from the regulators and the Department of Human Services to help remote Indigenous members reconnect and better engage with their superannuation.
Over a period of four days, the cross-industry group of 18 representatives visited the remote communities of Gapuwiyak, Galiwinku, Milingimbi and Ramingining in East Arnhem land and provided hands on support to nearly 400 people.
The visits were part of the Big Super Day Out initiative, organised by the First Nations Foundation (FNF). This Indigenous community event helps Aboriginal and Torres Strait Islander people find their lost super and also provides information and education about superannuation benefits.
The event brought to the fore a number of the barriers Indigenous members face, which were discussed at the recent Indigenous Super Summit held in Brisbane. Barriers such as language, low levels of financial literacy, challenges in identification and lack of access to suitable technology were all encountered by volunteers as they sought to provide help with finding lost super, nominating beneficiaries and claiming superannuation when a condition of release had been met.
Despite much progress being made on lifting standards of superannuation service and inclusion for Indigenous members, the event highlighted that there is still work to do in ensuring the superannuation system better addresses the unique needs of these remote communities.
A report from the Indigenous Super Summit – which highlights “next steps” for funds - will be out soon.
The Australian Tax Office (ATO) has signalled that it will be using the more detailed and accurate information it is now receiving as a result of Single Touch Payroll to increase enforcement of employer Super Guarantee (SG) obligations.
With near real-time reporting by employers under STP and by super funds under MATS/MAAS, the ATO now has an unprecedented level of visibility of super information at the account and transaction level.
In a recent speech, ATO Deputy Commissioner James O’Halloran noted the ongoing shift in the ATO’s enforcement activity, with this new data allowing regulators to be more proactive about ensuring compliance with the law. The ATO’s next steps will be to include data analytics tools into its engagement and treatment strategies to address SG non-payment.
The Australian Financial Complaints Authority (AFCA) will begin naming financial entities in their published determinations in order to be more transparent with their complaints data.
Complainants in any AFCA determinations will remain anonymous.
“AFCA plays an important public role and we recognise that transparency in our data and decisions is essential to rebuilding trust in the financial sector,” AFCA Chief Ombudsman David Locke said.
“This is an important change, and the public will now be able to access increased information about the actions of financial firms.”
Importantly, the naming of financial firms will provide better insight into the breakdown of complaints by sector in the superannuation industry.
In its Six month report, AFCA reported that superannuation complaints made up 9 per cent of all complaints, but provided no further detail as to how many complaints are made about retail, profit-to-member or SMSFs.
AIST made a submission during the consultation stage supporting the move but also pushing for AFCA to include outsourced providers to be identified in any determinations where they have been at fault.
AFCA has not yet determined the start date for when it will begin naming financial institutions in determinations.
29 August 2019