Financial Services in Focus – Issue 79

By Vince Battaglia, Philip Hopley and Georgia Francis

In this edition, we outline APRA’s updated timeline for the implementation of CPS 230, AUSTRAC’s updated guidance on AML/CTF risk awareness and much more.

Click on each heading below to read more about each of these areas: superannuation, financial product advice, insurance, financial markets, anti-money laundering, banking and other financial services regulation.

Superannuation

ASIC releases findings of review of performance test communications by trustees

On 12 April, ASIC released its findings on its review of performance test communications by trustees that failed the annual performance test for MySuper products in 2022.

ASIC reviewed member communications by the four superannuation trustees that failed the test for a second consecutive year in 2022. ASIC’s review looked at whether the performance test communications of these trustees reflected expectations set out in ASIC’s Report 729 Review of trustee communications about the MySuper performance test.

ASIC found that though improvements were made, some trustees need to prioritise their members more in their approach to communication. Some trustees’ communications also lacked clarity and consistency because they adopted a ‘reactive’ approach to performance test communications.

Other areas of concern were:

• providing consistent messaging about performance across the fund’s website;
• ensuring that communications about short-term performance, products and mergers are balanced and don’t undermine the fact that the product failed the test; and
• providing clear call-centre transcripts for staff to discuss the performance failure or product closure and related options with members.

Treasury consults on superannuation financial reporting and audit

On 11 April, Treasury released for consultation the Treasury Laws Amendment (Measures for Consultation) Regulations 2023: Financial reporting and auditing of registrable superannuation entities (Exposure Draft Regulations) and explanatory statement.

According to Treasury, the Exposure Draft Regulations propose to:

• support revisions in Schedule 6 to the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, which was introduced to Parliament on 23 November 2022;
• amend the financial reporting and auditing requirements in Chapter 2M of the Corporations Act to include registrable superannuation entities (RSEs) such that their financial reporting and auditing obligations are in line with the requirements that apply to public companies and registered schemes; and
• impose requirements for the preparation, lodgement, disclosure and publication of information and documents by RSEs to ensure the superannuation sector remains transparent and compliant.

The Exposure Draft Regulations and explanatory statement are available on Treasury’s website.

Consultation closes on 5 May.

FSC releases retirement policy reform research report

On 10 April, the Financial Services Council released its research report: A roadmap for Australian Retirement Income Policy, prepared by NMG Consulting (Report).

According to the Report, policy reform focused on improving how Australian’s spend their superannuation savings could increase retirement incomes by 10% each year, or by $397 billion by 2050.

According to the media release, the Report sets out a road map for a more efficient superannuation drawdown phase that would raise standards of living in retirement for consumers, reduce bequests, and take long-term pressure off the federal budget.  In addition, the Report identifies a package of reforms centred around action in the following key areas:

• to help people see and use superannuation as primarily for spending during retirement, including making safe financial advice more affordable and changing consumer disclosure rules to have a more drawdown focus;
• to remove regulatory barriers to innovative, new retirement income products, including facilitating a simple process for moving consumers out of closed legacy products, reviewing the flexibility of prudential capital requirements and introducing a disclosure regime to allow consumers to easily compare retirement product features and fees; and
• To help people take control of their superannuation by simplifying how it interacts with other parts of the retirement system like the aged pension, aged care and health care.

View the research report on the FSC wesbite. 

APRA publishes updates to FAQs on the Superannuation Data Transformation reporting standards

On 6 April, APRA published 11 additional frequently asked questions (FAQs) on the Superannuation Data Transformation reporting standards.

APRA released the additional FAQs to provide further guidance to RSE licensees on the amendments to reporting standards finalised in APRA’s 3 March 2023 response to consultation on minor amendments.

Treasury consults on draft legislation regarding Superannuation Performance Test Regulations 2023

On 4 April, Treasury released for consultation the Superannuation Industry (Supervision) Amendment (Your Future, Your Super- Addressing Underperformance in Superannuation) Regulations 2023 (Exposure Draft Regulations) and explanatory statement.

The purpose of the Exposure Draft Regulations is to update the annual superannuation performance test to address issues raised in Treasury’s review of the Your Future, Your Super laws.

According to Treasury, the Exposure Draft Regulations:

• amend the testing period, benchmarks and notification letter that trustees of failed products send to members; and
• provide minor technical changes to improve accuracy, reduce administrative burden for APRA and ensure the test is fit for purpose when it is extended to trustee‑directed products.

The Exposure Draft Regulations and explanatory statement are available on Treasury’s website.

Consultation closes on 2 May.

Treasury consults on targeted superannuation concessions

On 31 March, Treasury released for consultation its Better targeted superannuation concessions Consultation paper (Consultation Paper).

The Consultation Paper outlines the Federal Government’s implementation of reduced superannuation tax concessions available to individuals whose total superannuation balances are over $3 million.

According to Treasury, the reduced superannuation tax concessions are intended to bring the headline tax rate to 30 per cent, up from 15 per cent, for earnings corresponding to the proportion of an individual’s superannuation balance that is greater than $3 million. Earnings relating to assets below the $3 million threshold will continue to be taxed at 15% or 0% if held in a retirement pension account.

Consultation closes on 17 April.

Financial product advice

Treasury consults on education standards for experienced financial advisers and technical fixes for new entrants

On 18 April, Treasury released for consultation Treasury Laws Amendment (Measures for Future Bills) Bill 2023: Recognising experience in the financial advice industry (Exposure Draft Legislation) and explanatory materials.

According to Treasury, the Exposure Draft Legislation would consider an adviser to have fulfilled the education obligations if they:

• have 10 years (cumulative) experience providing advice between 1 January 2007 and 31 December 2021; and
• have not recorded any disciplinary action on the Financial Advisers Register before 31 December 2021.

Nonetheless, Treasury notes that advisers would still need to pass the exam.

The Exposure Draft Legislation and explanatory materials are available on Treasury’s website.

Consultation closes 3 May.

Insurance

Treasury consults on sunsetting insurance regulations

On 11 April, Treasury released for consultation a suite of exposure draft legislation, regulations and determinations to remake the following insurance instruments that are due to sunset on 1 October:

• Insurance Acquisitions and Takeovers (Notices) Regulations 1992;
• Insurance Acquisitions and Takeovers Act 1991 – Decision‑Making Principles IDM 1/1992;
• Life Insurance Regulations 1995; and
• Insurance Regulations 2002.

According to Treasury, the suite of draft legislation also makes other amendments to other instruments and their related primary legislation to ensure that they remain fit for purpose.

Consultation closes on 26 April.

APRA releases amendments to the insurance capital framework

On 30 March, APRA issued a letter to insurers which contained a response to the consultation on accounting equity and the capital base and other amendments to the capital framework for insurers.

The amendments follow the finalisation of broader APRA reforms to the capital and reporting framework in 2022.

In its letter APRA stated that it will continue to monitor implementation of the revised requirements to ensure they remain fit for purpose and do not impose undue regulatory burden.

APRA’s letter, prudential standards and non-confidential submission are available on APRA’s website.

APRA and ASIC publish latest data on life insurance claims and disputes – December 2022

On 18 April, APRA released its Life Insurance Claims and Disputes Statistics publication (Publication) that reports the key industry and entity-level claims and disputes results for 17 Australian life insurers writing direct business from 1 January 2022 to 31 December 2022.

ASIC also updated its MoneySmart Life insurance claims comparison tool with the latest information from the Publication.

Financial markets

ASIC commences investigation into ASX regarding CHESS replacement project

On 29 March, ASX announced that ASIC has commenced an investigation into suspected contraventions of the ASIC Act and the Corporations Act by ASX in relation to the CHESS replacement project.

ASIC will be investigating whether ASX Limited, ASX Clear Pty Limited, ASX Settlement Pty Limited and/or their directors and officers have breached obligations in relation to oversight of the CHESS program, and statements and disclosures made on behalf of or by ASX in relation to the status of the program during the period 28 October 2020 to 28 March 2022. This includes potential breaches of directors’ duties of due care and diligence, potential breaches of continuous disclosure rules, potential misleading and deceptive conduct and potential false or misleading representations and documents.

Treasury consults on competition in the provision of clearing and settlement services

On 23 March, Treasury released for consultation the Financial Sector Reform (Competition in Clearing and Settlement) Bill 2023:  Exposure Draft (Exposure Draft Legislation) and explanatory material, which proposes to amend the Corporations Act, the Competition and Consumer Act and the ASIC Act to enable competitive results in the provision of clearing and settlement services for Australia’s financial markets.

According to Treasury, the Exposure Draft Legislation affords ASIC with powers to implement and impose clearing and settlement services that have a monopoly to operate in a way that fosters a competitive environment for other current and emerging clearing and settlement services. Further, it provides the ACCC with the power to conduct binding arbitration to resolve disputes regarding access to clearing and settlement services.

The Exposure Draft Legislation and explanatory material are available on Treasury’s website.

Consultation closes 20 April.

Anti-money laundering

AUSTRAC provides updated guidance on AML/CTF risk awareness training and employee due diligence programs

On 24 March, AUSTRAC released updated guidance on:

• screening employees for money laundering or terrorism financing risks to protect a business (employee due diligence); and
• the provision of anti-money laundering and counter-terrorism financing (AML/CTF) risk awareness training to staff.

The updated guidance includes additional information and best practices to help:

• mitigate and manage the risks when meeting employee due diligence and AML/CTF risk awareness training obligations; 
• identify roles that may pose a risk to business;
• screen and rescreen employees;
• identify who needs training, how often and the types of training; and
• considerations for businesses that outsource these obligations and examples of good and bad practices and self-assessment questions.

View AUSTRAC’s AML/CTF risk-awareness guidance.

View AUSTRAC’s guidance on employee due diligence programs.

Banking

APRA launches public consultation on bank point of presence data

On 4 April, APRA released for consultation its Discussion paper – ADI Points of Presence Review, which sets out its review of ‘points of presence data’ – that is, the data that APRA collects and publishes on physical banking service channels in Australia.

According to the media release, the consultation is seeking public feedback on how the collection and publication of data can be made more helpful to users, with a focus on issues such as categories of data published, and banking services covered.

Consultation closes on 23 June.

APRA releases Monthly Authorised Deposit-taking Institution statistics for February 2023

On 31 March, APRA released its Monthly Authorised Deposit-taking Institution Statistics publication for February 2023.

The publication provides information on the banking business in relation to individual banks within the Australian market.

ACCC Chair addresses the AFR Banking Summit on the ACCC’s priorities in the financial services sector

On 28 March, ACCC Chair, Gina Cass-Gottlieb, addressed the AFR Banking Summit 2023 and outlined the ACCC’s priorities in the financial services sector.

Ms Cass-Gottlieb noted that:

• the top priorities for the ACCC were to promote effective competition and investigate any allegations of anti-competitive conduct in the financial services sector, by combining strong enforcement action with a proactive approach to working to raise compliance and best practice; and
• the ACCC will soon release a public issues paper, which will seek stakeholder input on a range of issues, including how banks and authorised deposit-taking institutions set their rates on retail deposit products.

A transcript of Ms Cass-Gottlieb’s speech is available on the ACCC’s website.

APRA Chair addresses AFR Banking Summit

On 28 March, APRA Chair John Lonsdale addressed the AFR Banking Summit and discussed the importance of maintaining bank stability given how interconnected the international financial system has become.

Mr Lonsdale noted that:

• APRA is in the process of updating its prudential standard in relation to the application of capital for interest rate risk in the banking book;
• APRA may need to consider more closely concentration risk in deposits and adjust requirements where an authorised deposit-taking institution has particularly high exposure to a particular industry or demographic; and
• cyber preparedness and resilience remains one of APRA’s top priorities.

A transcript of Mr Lonsdale’s speech is available on APRA’s website.

Other financial services regulation

APRA releases updated timeline for implementation of CPS 230

On 13 April, APRA released an updated timeline for the implementation of new cross-industry Prudential Standard CPS 230 Operational Risk Management (CPS 230).

APRA received a range of feedback from regulated entities and other stakeholders during consultation, including a request for more time for preparation before the requirements come into effect.

According to APRA, it intends to:

• move the implementation date for the new standard from 1 January 2024 to 1 July 2025; and
• provide transitional arrangements for pre-existing contractual arrangements with service providers, with the requirements in the standard applying from the earlier of the next contract renewal date or 1 July 2026.

APRA plans to release a final version of the standard, together with draft supporting guidance, in mid-2023.

Digital Assets (Market Regulation) Bill 2023 referred to the Economic Legislation Committee for inquiry

On 30 March, the Senate referred the Digital Assets (Market Regulation) Bill 2023 to the Senate Economics Legislation Committee for inquiry and to provide a report by 2 August.

The Bill provides for digital asset exchange, custody and stablecoin issuance authorisation and requirements, and disclosure requirements for facilitators of central bank digital currencies in Australia.

Read more about this Bill in our earlier article.

ASIC consults on remaking sunsetting class orders on IDPS and IDPS-like schemes

On 28 March, ASIC released for consultation its, Consultation Paper 369 Remaking ASIC class orders on platforms: [CO 13/762] and [CO 13/763] (CP 369), which sets out ASIC’s proposals on remaking the following class orders which are due to expire on 1 October:

• Class Order [CO 13/762] Investor directed portfolio services provided through a registered managed investment scheme; and
• Class Order [CO 13/763] Investor directed portfolio services.

According to its media release, ASIC considers the class orders are operating effectively and efficiently and continue to form a necessary and useful part of the legislative framework. The fundamental policy principles that underpin the class orders have not changed.

Consultation closes 28 April.

This article was written with the assistance of Laurice Aziz and Sogand Shamsaria, Law Graduates.