Superannuation trustee service: a new financial service for RSE licensees

By Anne MacNamara, Adrian Verdnik and Ashlee Johnson

A raft of changes are set to be made to financial services laws by the Financial Sector Reform (Hayne Royal Commission Response) Bill 2020 (Bill) which was introduced to Parliament on 12 November 2020. A number of the changes relate to insurance, including making claims handling and settling a financial service.

In order to carve superannuation trustees out from providing such a claims-handling and settling service when managing death and Total and Permanent Disability (TPD) claims, a separate financial service has been created, which is to be known as a ‘superannuation trustee service’.

As a result, a registrable superannuation entity (RSE) licensee that is authorised to provide a ‘superannuation trustee service’ is not required to add a separate claims handling authorisation to their Australian Financial Services (AFS) License. The rationale for this exemption is that claims handling and settling is part of the function of a superannuation trustee, and so an authorisation to provide superannuation trustee services includes managing insurance claims.

In this article, we explore the new ‘superannuation trustee service’ authorisation.

What is a ‘superannuation trustee service’?

The newly introduced section 766H of the Corporations Act 2001 (Cth) (Corporations Act) states:

‘A person provides a superannuation trustee service if the person operates a registrable superannuation entity as trustee of the entity.’

The definition is deliberately broad to capture all activities involved in operating a superannuation fund. The Explanatory Memorandum provides a non-exhaustive list of such activities, including ‘fee charging practices, investment selection, product changes, oversight of service providers, insurance claims handling, and transfer, payment and rollover practices’^[1].

However, just as the authorisation to ‘operate a registered scheme’ does not authorise the responsible entity to give advice on, or deal in, the scheme interests, RSE licensees will still need to be separately authorised to provide those financial services in relation to the superannuation fund.

Who can provide a superannuation trustee service?

As the name suggests, only an RSE licensee can provide a superannuation trustee service. Unlike many other financial services authorisations, an RSE licensee cannot appoint a service provider (such as an administrator or custodian) as its authorised representative to provide a superannuation trustee service on its behalf. ^[2]

If an RSE licensee outsources a function that would be a superannuation trustee service if performed by the RSE licensee itself, a service provider may only provide the service if it falls within a separate authorisation which the service provider is authorised to provide. In other words,  the trustee can outsource dealing in the fund’s assets to a third party only if it is authorised to deal in the relevant assets.

As with any other outsourcing arrangement, the RSE licensee remains responsible for the actions of its service providers even if the service provider is providing the superannuation trustee service under a different authorisation.

How does the new authorisation interact with the existing authorisations?

The new authorisation to provide a superannuation trustee service does not replace the existing authorisations an RSE licensee must hold to operate a superannuation fund, such as dealing in, and advising on, superannuation interests. ASIC acknowledges that, practically, financial services are not mutually exclusive and some of the functions performed by an RSE licensee in operating a superannuation fund may overlap multiple financial services categories.^[3]

However, all RSE licensees will need to continue to hold an authorisation to deal in a financial product if they intend to continue issuing, varying or disposing of an interest in a superannuation fund. ASIC expects that every RSE licensee with an AFS licence will hold both an authorisation to deal in a superannuation interest and provide a superannuation trustee service.

Likewise, if an RSE licensee provides financial product advice about its fund, it will need to hold that authorisation. However, providing advice about claims handling as a component of a superannuation trustee service is excluded from being financial product advice. Specifically, an RSE licensee is not considered to be providing financial product advice if it makes a recommendation or statement of opinion, or a report of either of those things, if it is a necessary part of claims handling, because the recommendation or statement will be regulated as a superannuation trustee service.

The draft claims handling and settling Information Sheet 000 provides the following examples of when a person will not be providing financial product advice in relation to claims handling:

(a)  how to submit a claim most effectively;
(b)  how information to support a claim can be obtained most effectively;
(c)  whether it would be appropriate to replace or repair an insured asset;
(d)  how to mitigate the extent of loss or damage associated with a claim; or
(e)  how to protect against the same or a similar loss in the future.

If the relevant advice is not a reasonably necessary part of claims handling, the RSE licensee will need to hold the new authorisation to provide the financial product advice about claims handling and settling from 1 January 2022. For example, a person will be providing financial product advice if they recommend how an insurance claim settlement amount should be structured.

Applying for a superannuation trustee service authorisation

The commencement date for the new authorisation is 1 January 2021.

However, the deeming nature of the provisions will mean that, from 1 January 2021, all RSE licensees with an existing AFSL authorisation to deal in superannuation products will be deemed to be authorised to provide a superannuation trustee service, and all new AFS licence applications to deal in a superannuation product, if approved, will automatically be deemed to be authorised to provide a superannuation trustee service.

ASIC envisages that RSE licensees will fall into one of three categories when seeking an authorisation to provide a superannuation trustee service, specifically, if an RSE licensee:

• already holds an AFS licence authorising them to deal in a superannuation interest prior to 1 January 2021, it will automatically be deemed to be authorised to provide a superannuation trustee service as of 1 January 2021^[4];
• lodges an AFS licence application to deal in a superannuation product prior to 1 January 2021 and ASIC approves the application after 1 January 2021, it will be deemed to be authorised to provide a superannuation trustee service as of the date the licence application is approved^[5];
• lodges a request to vary its AFS licensee conditions to allow it to deal in a superannuation product before 1 January 2021 and ASIC approves the variation after 1 January 2021, it will be deemed to be authorised to provide a superannuation trustee service as of the date the licence application was approved.^[6]

Does this authorisation impose any additional obligations on an RSE?

The legislation exempts an RSE licensee from certain disclosure obligations in relation to superannuation trustee services (for example, an RSE licensee will not be required to provide a Financial Services Guide for this new service).

However, as a result of RSE licensees being deemed to be provide this new financial service, the day-to-day activities of operating a fund will now be subject to the section 912A obligations, including to provide the service efficiently, honestly and fairly. In addition, the Explanatory Memorandum states that each function which forms part of ‘superannuation trustee services’ will be subject to (among other things):

• the obligation in section 912D to report breaches of Australian financial services licence obligations and other financial services laws;
• Division 6 of Part 7.8, relating to financial records, statements and audit;
• the prohibition on unconscionable conduct in relation to the provision of a financial service under section 991A; and
• the prohibitions on dishonest conduct (which attracts a criminal sanction) and misleading or deceptive conduct in Part 7.10.

The definition of a superannuation trustee service will also be adopted into the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) meaning that the consumer protections within that Act will apply to an RSE licensees’ conduct in operating a superannuation fund.

The Explanatory Memorandum states that these protections include:

• the prohibition on conduct in relation to financial services that is or is likely to be misleading or deceptive;
• the prohibition on false or misleading representations in connection with the supply or possible supply of financial services;
• rules about offering rebates, gifts, prizes or other free items in trade or commerce, in the supply or possible supply or promotion of financial services;
• the prohibition on conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any financial services; and
• the prohibition on accepting payment without intending or being able to supply the financial services paid for.

It is of some concern that the Explanatory Memorandum states these protections are ‘intended to apply to protect past and present members’. It is unclear how the legislation could retrospectively apply consumer protections to past trustee conduct, especially as breaches of these protections may create civil liabilities.

Conclusion

The Federal Government’s aim by introducing the new superannuation trustee service authorisation is to expand the coverage of the AFS licensing regime, and ultimately achieve better member outcomes and protections by deterring trustee misconduct. Imposing section 912A and consumer protections obligations on all facets of operating a superannuation fund provides ASIC with expanded reach for its enforcement activities.

As the intention of the new authorisation is for all aspects of fund operations (particularly member-facing services) to be regulated as a financial service, RSE licensees should turn their minds to where they may have vulnerabilities in their processes and procedures that will be covered by the new superannuation trustee service authorisation.

As the RSE licensee will be required to report a significant breach of this new financial service under section 912D of the Corporations Act, trustees should review what services they undertake that will be covered by the authorisation.

Hall & Wilcox will continue to monitor the progress of the Bill through Parliament and will provide updates as and when they arise.

[1] Explanatory Memorandum, Schedule 9 para 9.15.
[2] Explanatory Memorandum, Schedule 9 para 9.130.
[3] Section 766A of the Corporations Act.
[4] Section 1676A of the Corporations Act, Explanatory Memorandum Schedule 9 para 9.210.
[5] Section 1676B of the Corporations Act.
[6] Section 1676C of the Corporations Act.