The Government has announced changes to strengthen consumer protections in the Australian superannuation, advice and investment system.
The changes will affect APRA-Regulated Superannuation funds as well as self-managed super funds, Managed Investment Schemes and financial advisers.
They will also include:
* Empowering the ATO to prevent rollovers to new SMSFs in situations where the ATO is investigating concerns of fraud, financial abuse, misconduct or potential harm.
* Introducing mandatory trustee education prior to SMSF registration, and requiring SMSFs to have a written investment strategy upfront.
* Banning unlicensed real-time communication with consumers about superannuation (lead generation), with targeted exemptions to protect advocacy, educational and employment communications.
* Giving the Auditing and Assurance Standards Board (soon to become External Reporting Australia) the power to make mandatory audit and assurance standards for auditors of Managed Investment Schemes compliance plans.
* Simplifying the Best Interests Duty reform of financial advice, by maintaining the existing obligation and safe harbour steps, and removing only the broadest safe-harbour step that is a barrier to scaled advice.
* Limiting Compensation Scheme of Last Resort payments to actual losses for applications made to AFCA after 30 June 2027, without any change to AFCA entitlements.
* All SMSFs will be included as CSLR Tier 3 levy payers in the waterfall model in future years when a special levy is required.
For APRA-Regulated Superannuation Funds, the changes include:
1 Legislation will impose an obligation on trustees to set and ensure compliance with caps on advice fee deductions from member accounts.
2. The Superannuation Industry (Supervision) Act will be amended to increase maximum civil penalties to 50,000 (up from 2,400 units) penalty units for core breaches of trustee obligations. A penalty unit is currently equivalent to $364.
3. Providing APRA with the power to set risk-based capital requirements for superannuation trustees offering higher-risk investment options to their members.
4. Providing ASIC with the power to direct superannuation trustees to commence a remediation process when an investment option fails and there is reason to suspect a failure of trustee obligations.
5. Introducing the New Class of Adviser regime to APRA-regulated superannuation and life insurance entities, supported by safeguards against vertical integration through prohibitions on commissions, bonuses and volume-based payments that are features of sales-driven advice models. This measure will be subject to a review three years after commencement to evaluate the scope and operation of the reform.
APRA’s powers
APRA has announced it would set capital requirements for trustees offering higher risk investment options. These requirements would seek to ensure trustees have the financial capacity to meet their obligations under the proposed compensation scheme.
APRA will consult on a package of reforms to lift investment governance standards and reduce the likelihood of member harm.
The proposals would strengthen requirements across eight areas covering the full investment management lifecycle.
The main proposals include:
• Ensuring that a trustee’s investment management capability is commensurate to the complexity of their investment menu;
• Addressing weaknesses in onboarding, monitoring and offboarding practices;
• Addressing material conflicts;
• Improving member-level diversification; and
• Strengthening trustee oversight and accountability.
The investment governance reforms would apply to all trustees.
If you found this article helpful, then subscribe to our news emails to keep up to date and look at our video courses for in-depth training. Use the search box at the top right of this page or the categories list on the right hand side of this page to check for other articles on the same or related matters.
Author: David Jacobson
Principal, Bright Corporate Law
Email:
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
